Jailed for doing business: Over 26K Indian law compliances with imprisonment clauses

PTI, Feb 11, 2022, 10:01 AM IST

Acts of sedition can attract a sentence of one to three years – a similar sentence can be given for not whitewashing latrines and urinals once every four months, according to a study detailing the imprisonment clauses plaguing the country’s business compliance regulation framework.

Almost two out of five compliances that businesses in India have to acquiesce can send an entrepreneur to jail, the monograph by the Observer Research Foundation (ORF) said.

Among the 69,233 unique compliances that regulate doing business in India, 26,134 clauses have imprisonment clauses as a penalty of non-compliance. “In other words, almost two out of five compliances can send an entrepreneur to jail,” ORF said.

India’s five most industrialised states – Gujarat, Punjab, Maharashtra, Karnataka and Tamil Nadu – have more than 1,000 imprisonment clauses in their business laws while an average Indian MSME in the manufacturing sector with more than 150 employees deals with 500-900 compliances a year that cost Rs 12-18 lakhs in a single year.

The monograph offers key policy recommendations that would help reshape India’s business climate and benefit both economy and the entrepreneur ecosystem.

“Doing business in India is challenging due to the presence of imprisonment clauses in its business laws enacted since Independence,” ORF said.

‘Jailed for Doing Business: the 26,134 imprisonment clauses in India’s business laws’ is a monograph by ORF that analyses newly isolated compliance data that entrepreneurs and corporations face.

The monograph is a first-of-its-kind consolidation of business compliance data that had, to date, only existed in silos across ministries and departments.

Collated over the past seven years, the monograph has classified the data into seven broad domains – labour, finance and taxation, environment, health and safety, secretarial, commercial, industry-specific, and general.

Five states have more than 1,000 imprisonment clauses in their business laws: Gujarat (1,469), Punjab (1,273), Maharashtra (1,210), Karnataka (1,175), and Tamil Nadu (1,043).

“This regulatory overreach impacts not just entrepreneurs running for-profits, but not-for-profit institutions as well,” it said, giving an example of the penalty for not cleaning toilets being equal to that of being sedition charge.

Excessive criminalization of employer compliance universe breeds corruption, blunts formal employment and poisons justice, says Manish Sabharwal, Vice Chairman of TeamLease – which had collated the report with ORF.

“This report is a wonderful contribution to ideas for actionable reforms; the government has made a good start in purging compliances but truly reducing regulatory cholesterol requires extending that project to purging the 26,134 jail provisions for employers at the centre and state.”

The report offers ten recommendations on rationalising the excesses of business laws, rules and regulations. Using criminal penalties with restraint and constituting a regulatory impact assessment committee could lay the foundation of policy reformation. It also recommends rationalising imprisonment clauses.

For instance, removing criminality from procedural lapses and inadvertent omissions while retaining imprisonment for wilful transgressions including but not limited to loss of life, destruction of environment and evasion of taxes.

In addition, defining standards for legal drafting, introducing sunset clauses, and ushering all reforms under single overarching legislation could be key to infusing dignity to the entrepreneurs, businesspersons and wealth-creators.

Despite the numerous difficulties in implementing large-scale policy reforms in India, there is a need for change. The monograph suggests that rather than waiting for the reforms to come, the larger policy fraternity, including politicians, bureaucrats, business executives, scholars and citizens rethink their own actions through this report, and reshape new narratives that will usher in a compliance climate that befits a 21st century India.