Anuj Chaudhary

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Jan 24, 2022
4 min read

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The government of India has implemented several regulatory reforms in recent years to improve the Ease of Doing Business Environment in India. The Ministry of Commerce-led State Business Reform Action Plan (BRAP) is perhaps one of the largest sub-national level reform exercises undertaken globally. While these interventions have led to some improvements, there is still a long way to go before the country achieves its vision of becoming one of the top 50 nations for Ease of Doing Business. A key characteristic of India’s reform initiative has been that all the effort has been to look at the “stock” of regulations. What government regulatory agencies often ignore is the quality in the “flow” of new regulations. Private sector in India has witnessed an increased and unanticipated increase in flow in the recent years thereby increasing the regulatory unpredictability in the country.

These sudden change in laws and regulations, and poor access to information often have adverse effect on business performance in a country. Stable, transparent, and predictable regulations reduce the uncertainty cost for businesses. These costs are often magnified for the foreign firms due to the economic distortions and uncertainty they can create.

During January 2018 till November 2021, more than 11,000 amendments and notifications were issued by both central and state government agencies in India. This means more than 8 per day new notifications or amendments are issued by government agencies across India. Tracking these amendments and notifications itself poses the greatest regulatory burden on private sector. Companies are often required to hire an employee just to keep track of these regular amendments. During 2018-21 Central government agencies accounted for 62% of these regulatory changes while the remaining 38% was shared by the states. 

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Source: Team Lease Regtech website; till 30Nov 2021

 

Regular notifications by Industry Specific regulators or government agencies (27%) and finance & taxation agencies (25%) lead to the highest regulatory uncertainty for the private sector. 82% of these new industry specific notifications were issued by the central government agencies. Similarly, 65% of the new notifications and amendments on taxation in India were issued by the Central government agencies while the remaining 35% were issued by the State government agencies.

In 2021, the notifications issued by central government agencies accounted for 73% of all the notifications issued in the country.

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Source: Team Lease Regtech website; * till 30Nov 2021; EHS = Environment, Health and Safety

 

What’s more worrying is that these notifications and amendments have increased significantly over the past few years highlighting the increase in regulatory unpredictability in India. During January till December 2018 only 900 government orders & notifications were issued. These increased to 4,450 in 2020 – approximately 12 new government orders or notifications per day and 3,222 in 2021 (until November 2021) – approximately 10 per day.

graph

Source: Team Lease Regtech website

 

Perception of unpredictable government notifications and regulations can deter firms from investment and confine them towards informality. The impact of such unpredictability is felt the most on SMEs as they seem to bear most of the brunt.

A streamlined approach is required by the government to overcome such uncertainty. The first step being, adopting a regulatory oversight body that ensures that the regulatory framework in India is suitable for a fast-changing world that encourages innovation. Streamlining of individual rules and regulatory processes may not be sufficient. Establishing a technical regulatory oversight body in the center of the government to oversee and report on regulatory reforms is a must if India is to achieve Ease of Doing Business for its private sector. For 2022, to expedite the economic recovery and stimulate private investments government must prioritize regulatory predictability. Only then true Ease of Doing Business or Ease of Living will be achieved in its true sense.

<About the Author: Anuj Chaudhary is Private Sector Development Specialist with multilateral organizations such as World Bank Group and Asian Development Bank. Views are the authors’ own.>

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