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Report claims that over 26,000 clauses can be used to put entrepreneurs in prison in India

A report titled “Jailed For Doing Business,” jointly conducted by TeamLease RegTech and the Observer Research Foundation (ORF), revealed that despite the Indian government’s efforts to improve the ease of doing business, there are still over 26,000 imprisonment clauses as penalties for non-compliance with business laws.

In simpler terms, entrepreneurs in India can be sent to jail for failing to comply with two out of every five provisions related to doing business.

The report, compiled by TeamLease RegTech and the ORF, found that out of the 69,233 unique compliances that regulate doing business in India, 26,134 clauses include imprisonment as a penalty for non-compliance.

The burden of these excessive compliances falls heavily on Micro, Small, and Medium Enterprises (MSMEs), as per the report. A typical MSME, which usually has over 150 employees, reportedly faces 500-900 compliances, costing them at least 12-18 lakhs ($14,637-$21,955) per year.

The report also highlighted that five Indian states, namely Gujarat, Punjab, Maharashtra, Karnataka, and Tamil Nadu, have more than 1,000 imprisonment clauses in their business laws.

Furthermore, the report emphasized that this regulatory overreach affects not only entrepreneurs running for-profit businesses but also not-for-profit institutions. It stated that there is a growing gap between the goods and services needed by the country and how the State perceives the entrepreneurs who create them.

TeamLease RegTech described this report as a “first-of-its-kind” consolidation of business compliance data that was previously scattered across various ministries and departments. The report, compiled over seven years by TeamLease RegTech, a regulatory technology solutions firm, classifies the data into seven domains: labor, finance and taxation, environment, health and safety, secretarial, commercial, industry-specific, and general.

Manish Sabharwal, the Vice Chairman of TeamLease, expressed that the excessive criminalization of employer compliance in India leads to corruption, stifles formal employment, and undermines justice. He viewed the report as a valuable contribution to actionable reforms, urging the government to reduce regulatory burdens by eliminating the 26,134 imprisonment provisions for employers at both the central and state levels.

The report presents ten recommendations for rationalizing business laws, rules, and regulations, including the restrained use of criminal penalties and the establishment of a regulatory impact assessment committee to facilitate policy reform. It also suggests rationalizing imprisonment clauses.

Samir Saran, the President of the ORF, believes that the report’s recommendations and thorough analysis should prompt a change in how businesses are assessed and how those who run them are treated. He sees the report as a catalyst for further research and efforts aimed at eliminating rules, laws, and codes that hinder India’s entrepreneurial energy and its emergence as a global economic powerhouse.

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