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Oct 01, 2021
4 min read

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Rationalisation, Simplification and Digitisation - the three vector framework for EoDB 3.0


Looking back on India’s reform trajectory, the journey started way back in the 1980s, when the first steps were taken towards liberalisation. The measures included industrial delicensing in 1985, tax rationalisation through introduction of Modvat, removal of price controls on products like cement and aluminium, easing import of machinery etc. While small steps were taken in the eighties, we find a sharp turning point in 1991- the defining event of liberalisation, when there was a discernible shift in philosophy within the government and more coordination across ministries. Under this phase, Ease of Doing Business 1.0, key changes included the New Industrial Policy, the Open Skies Policy, removal of import licensing on intermediate and capital goods, opening up banking to private players, stock market reforms with the setting up of the National Stock Exchange, making the rupee convertible on the current account etc.

Even as reforms continued almost continuously through the 90s and 2000s, there was no reduction in the paperwork and labour regulation that bogged firms down. Some sectors boomed like IT, telecom, banking, financial services, retail etc. and opened new opportunities for jobs, with higher productivity and higher incomes. These sectors were those with comparatively less binding regulation, less compliance burden.

The second sharp turning point in India’s reform journey came through in July 2017, when the GST or Goods and Service Tax came into force. This marked the next phase, a new mindset under Ease of Doing Business 2.0. The GST represents a process of Rationalisation (one tax subsumes 17 Central and State Taxes, doing away with numerous Acts), Digitisation (online submissions do away with manual filing along with an API architecture that allows straight-through-processing of filings from external systems) and Simplification (reduction in the number of touchpoints with the government).

A firm’s interaction at 17 points with the government has now been reduced to one and this single point interaction is digital. Removing human interface makes for reduced corruption and smooth processes. The removal of physical checkpoints at state borders has significantly reduced the cost of logistics, allowed for faster movement of goods, basically easing the flow of goods.

It is now time to extend the GST template across the board to all government departments with the three vector framework under Ease of Doing Business 3.0

  1. Rationalisation calls for the reduction in the number and complexity of compliances, currently a staggering 69,233 with 3,000+ changes every year. A critical move from the government that will encourage formalisation of employment and greater productivity is instituting a Single Labour Code. In line with the recommendations of the Second National Commission on Labour, the government is currently introducing four labour codes to cover wages, industrial relations, social security and welfare and occupational safety, health and working conditions by amalgamating and rationalising the relevant provisions of the existing 44 Central labour laws. This rationalisation needs to be taken further to a single code, and be standardised across states.

  2. Simplification calls for easing the interaction between the enterprise and the government, and the target should be reduction in the 6,618 filings annually. In addition, there are a number of measures already taken by the government, which need to become more pervasive across all departments. A simple move initiating a Universal Enterprise Number can make a dramatic difference to the pain of starting a business; currently an enterprise has to register for more than two dozen numbers –with different government departments, each asking for its own set of documentation.

  3. Digitisation calls for a paper-less, presence-less, cashless interface between the enterprise and government to ease the process of compliance. The GST template has shown the way to a new definition of compliance digitisation – instead of uploading documents to a government website with passwords, the process uses an API architecture that allows straight-through-processing of filings from external systems. This architecture should be extended to other departments especially Labour.

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