Laws governing business must lose criminalising provisions

By Rishi Agrawal

It has taken 75 years for 1.3 billion Indians to outperform the economy of 68 million French. Ambitiously enough, India has now set its eyes on achieving a $10 trillion output by decade end, in the hopes of cementing itself as the world’s third-largest economy. Its prospects do look optimistic. International Monetary Fund (IMF) forecasts India’s gross domestic product (GDP) growth at 8.2% for FY23, by far the best across all major world economies. Its post-pandemic recovery is strong and sustained, facing negligible influence from global tensions.

But India cannot afford to rest on its laurels. It still has a long way to go in its quest to become a global economic powerhouse. As per World Bank, its per capita GDP lags at 142nd rank, despite featuring among the top 5 world economies. While it recently witnessed the birth of its 100th unicorn, USA and China are racing far ahead with 460 and 301 unicorns, respectively. Startups are driving economic growth in the 21st century and if India is to compete with the likes of USA and China, it must strengthen its entrepreneurial ecosystem. However, this must be preceded by a serious rethinking of the inherent hostility in its business laws.

A recent study highlights that the use of imprisonment as a tool of control over entrepreneurs has deepened since Independence. Even after three decades of economic reforms, entrepreneurs are still viewed through the lens of criminality. The macro-level data points out that there are 26,134 imprisonment clauses embedded in India’s business laws. Of the 1,536 laws governing business in the country, more than half carry jail terms. Overall, two out of every five compliances in the business regulatory universe prescribe imprisonment for contraventions.

On a sub-national level, the situation is equally concerning. Five states—Gujarat, Punjab, Maharashtra, Karnataka and Tamil Nadu—have more than 1,000 imprisonment clauses each in their business laws. The jail provisions of these states taken together are more than those contained in the bottom 21 states combined. Oddly enough, except Punjab, all these states are among India’s largest by gross state domestic product (GSDP), nearing $500 billion each. By reducing coerciveness in their business laws, these states can potentially become trillion-dollar economies in their own right.

The study also highlights the mindless prescription of criminal penalties in business laws. For instance, under the Factories Act, 1948, violation of microscopic provisions pertaining to spittoons, restrooms, and washing areas amounts to a criminal offence with punishment at par with that for death due to negligence under the Indian Penal Code, 1860. Ultimately, this deep-rooted distrust towards entrepreneurs has impeded the organic growth of innovation, jobs and wealth in the economy.

Unlocking India’s true economic potential requires an enabling framework for those doing business in the country. To this end, decriminalisation of its business laws must assume top priority. Criminal liability must be done away with for all procedural and technical lapses. Imprisonment should be imposed only for serious offences with criminal intent. As far as possible, financial penalties should form the basis of deterrence among entrepreneurs. Other wide-ranging reforms such as formulating standards for legal drafting, constituting a regulatory impact assessment committee and introducing sunset clauses can also help scale down the hostility in the business laws.

As global supply chains reconfigure and the China-Plus-One strategy gains momentum, India has a golden opportunity to position itself as the factory of the world. But its transition from an agri-centric economy to a global manufacturing hub will require large swathes of investments. There is a clear case for third-generation reforms that enable a favourable environment for entrepreneurs and investors. Ease of doing business must become more than just a buzzword in the government’s reforms agenda. A thorough decriminalisation of India’s business laws can be a defining step in this direction.

(The author is Founder & CEO, TeamLease RegTech. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).