Burden on businesses: Regulatory fragmentation increases cost of compliance

A parliamentary standing committee on commerce recently flagged the persistent compliance burden faced by businesses despite substantial deregulation efforts. In its report presented to Parliament, the committee noted that more than 47,000 compliances had been reduced, simplified, digitised or decriminalised under the government’s “Reducing Compliance Burden initiative”.  Nevertheless, the scale of the remaining burden is striking. Stakeholders told the committee that a typical firm navigated 1,536 Acts, 69,233 separate compliance requirements, and 6,618 statutory filings across the three tiers of government. Clearly, the next phase of reforms in ease of doing business should not be judged by the number of provisions removed. While the number of provisions removed is a useful measure of government effort, it does not necessarily indicate the continuing burden faced by firms. What matters is whether a business can obtain an approval without approaching multiple departments, submit information only once, and receive a decision within a predictable timeframe. On these measures, the reform agenda remains incomplete. 

Businesses often have to deal with overlapping licences and inspections conducted by different departments under separate laws. The committee has recommended merging redundant licences and consolidating inspectorates into a unified, risk-based inspection framework. Low-risk activities should increasingly rely on self-certification or third-party certification, allowing regulators to focus their limited resources on areas where safety, environmental or other risks are genuinely high. The larger challenge, however, is implementation across levels of government. The committee has noted that while central-level compliance reduction has progressed, local-level compliances remain inadequately addressed in many states. This is critical because businesses frequently interact with municipal and district authorities rather than the Centre. 

While fragmentation is a particular problem, the four Labour Codes illustrate why consolidation on paper may not automatically mean simplification in practice. The Codes subsumed 29 central labour laws, but stakeholders told the committee that businesses still had to contend with 44 separate central statutes and more than 100 state-specific labour laws. Since labour is a concurrent subject, the ultimate reduction in compliance will depend heavily on coordination with states and uniformity in implementation. 

The reforms should also change the incentives facing the administration. Time-bound approvals, automatic deemed approvals, public-performance dashboards and penalties, or compensation for delays would make government agencies accountable for service delivery rather than leaving firms to bear the cost of bureaucratic delays. The committee’s recommendations on decriminalisation are similarly important. Minor administrative errors should attract proportionate civil penalties rather than criminal sanctions, while an “Ease of Doing Business Impact Assessment” could prevent new rules from quietly recreating criminal liabilities. For smaller firms, which have fewer resources to absorb compliance costs, operations become the casualty. Thus, as the report highlights, while India has made progress on deregulation, the harder task of integrating the regulatory system and making the administration accountable for delivery remains.