The Indian government is considering a piece of legislation to make the country more business-friendly by decriminalizing some violations of its business laws.
Ordinarily in the context of economic policy, we talk of deregulation, but some of India’s laws are so restrictive that decriminalization is needed — violations are punished by imprisonment. Overall, the legal burden on business is so great that most Indians are employed informally by enterprises without legal recognition.
The decriminalization bill, which the parliament is expected to consider in its November/December session, would amend provisions from 35 different laws, some of which date back to before Indian independence in 1947. The legislation is being pushed by the Department for the Promotion of Industry and Internal Trade, and commerce minister Piyush Goyal said, “Decriminalising sections of various laws will end the harassment faced by businesses and reduce compliance burden.”
That burden remains significant, even after major reforms. After independence, the Indian government created what is known as the License Raj, a very restrictive set of laws and regulations that put a lid on economic growth for decades. In 1991, Prime Minister P. V. Narasimha Rao instituted significant reforms to dismantle the License Raj, and economic growth in India took off. (For an in-depth conversation on Rao and his reforms, listen to or read this podcast interview with Vinay Sitapati, who wrote a book on Rao.)
But there are still countless anti-growth rules on the books as relics of India’s socialist past. A report from the Observer Research Foundation, an Indian think tank, calls these rules “regulatory cholesterol.” The report says:
At an aggregate, there are 1,536 laws that govern businesses, 678 Union laws enacted by Parliament, and 858 state laws enacted by Legislative Assemblies. Under these laws lies a web of 69,233 compliances, 25,537 at the Union level and 43,696 in the states. These compliances need to be communicated to the governments through 6,618 annual filings, 2,282 at the Union level and 4,336 at the level of states.
Thickening the cholesterol and complicating the issue further is the accompanying uncertainty, with new additions hitting businesses at the rate of 3,000 a year. In the past 12 months, for instance, from 1 November 2020 to 31 October 2021, there have been 3,656 regulatory changes; the quarter, 895 changes; and the month of October alone, 309 compliance changes.
As the report’s authors, Gautam Chikermane and Rishi Agrawal, argue in the Print, the decriminalization bill should help make India more internationally competitive. “When viewed through the lens of the government’s intention to make India an investment destination for global and domestic capital, it would be a reform that should end the endemic of harassment, corruption, and rent-seeking by officials of the Union [i.e., national] government,” they write.
Western businesses are looking to India as a possible alternative to China. India is a democracy (albeit one that faces significant challenges), and it is projected to be the fastest-growing economy in the world, according to the IMF. Its biggest enemy, in many cases, is its own anti-business laws and regulations. The Modi government isn’t full of free-marketeers, but it is at least seeing the detrimental effects of a complex and shifting regulatory regime. The decriminalization bill would be a step in the right direction.