'Regulatory Cholesterol' - 1,536 laws govern doing business in India

Some numbers to start with.

There are as many as 1,536 laws that directly or indirectly govern doing business in India. Cumulatively, these laws – some enacted at the Centre and some at the state level - add up to 69,233 compliances at an aggregate level that businesses have to comply with.

More importantly, half of the laws carry imprisonment clauses while two out of every five compliances carry a jail term for violations. In all, there are 26,134 imprisonment clauses that businesses have to face while operating in India.

While presenting this statistics, Gautam Chikermane, Vice-President, Observer Research Foundation, highlighted the fact that while there are 63 million enterprises in India, just one million are in the formal sector.

"The system is such that it pays to be below the regulatory radar. The economies of scale that are available in many overseas economies are not available in India. The moment a factory of say 150 employees gets formalised, immediately over night the company has to face between 400 to 900 compliances for which it has to spend Rs 12 to Rs 18 lakh a year," said Chikermane.

He, along with four other experts were part of a panel discussion with the theme - The 'Regulatory Cholesterol' That is Getting in the Way of Doing Business – at the Business Today India@100 Economy Summit in New Delhi.

Mukesh Butani, Founder and Managing Partner, BMR Legal, who was also part of the panel discussion said that while one cannot generalise 'cholesterol', India is over regulated and the biggest issue is reforming bureaucracy.

"As a nation, we are overregulated. Certainly, there is a need to avoid regulation, but more important is the point how we are going to reform bureaucracy. That is the elephant in the room," said Mukesh Butani, Founder and Managing Partner, BMR Legal.

In a similar context, Manish Sabharwal, Vice Chairman, Teamlease Services highlighted the fact that India and China had the same per capital income (PCI) in 1991 and currently India's PCI is one-fifth that of China.

"For the big companies, it is a thorn in the flesh not a dagger in the heart. For smaller companies, it is a dagger in the heart," said Manish Sabharwal, Vice Chairman, Teamlease Services, while referring to the quantum of regulation and compliance requirements.

"The costs of this level of regulatory cholesterol are long-term. India does not have a jobs problem; we have a wages problem. India's unemployment since 1947 has been between 2-8 per cent but we have poverty of 40 per cent," added Sabharwal.

He further added that the only solution to the wage problem is formalisation, financialisation, urbanisation, industrialisation of human capital.  

Meanwhile, Sanjeev Krishan, Chairman, PwC, presented an interesting contrarian view while highlighting that while everyone gets enamoured by the western economies, it takes up to 10 years in the US as well to get complete approvals for a power plant.

"So let us not beat ourselves too much. I know we can do much better. No question about it," said Krishan.

"Yes, there has been an incentivisation for being small. But now there is an MSME Code that is being proposed. If it comes through then it will in some ways solve a part of the problem, not the entire problem," said Krishan adding that one of the biggest issues that every foreign investor continues to be bothered about is contracts and how much time it takes to get a commercial dispute sorted.