Just imagine how difficult the task gets for an entrepreneur to survive and thrive when they are vulnerable to imprisonment. Even though the central and state governments are striving to ease out over-regulations around doing business, there are still over 26,000 clauses that can lead to imprisonment of an entrepreneur, as per a report ‘Jailed for Doing Business’, prepared by Teamlease RegTech and Observer Research Foundation (ORF). In Punjab, for instance, there are 31 Acts, 1,427 compliances and 1,273 imprisonment clauses to regulate an entrepreneur.
Coercive clauses are being used as a tool to regulate and control entrepreneurs. If we compare the quantum of punishment prescribed for minor inadequacies in facilities with the provisions prescribed within the Indian Penal Code, 1860, a lot of them are on par with heinous crimes like murder and deaths due to negligence. An entrepreneur can be slapped with a sentence similar to one in case of sedition, attracting a sentence of one to three years, for not cleaning and whitewashing toilets in the factory premises once every four months.
The Factories Act, 1948 and Punjab Factories Rules, 1952 account for 485 of the 1,273 felony clauses of imprisonment for non-compliance. Sections 92 and 93 of The Factories Act, 1948 prescribe imprisonment for maximum two years or fine of Rs 1 lakh or both, while under Section 94 imprisonment is extendable to three years or with fine which may extend to Rs 2 lakh or both for not cleaning toilets. The punishment is on par with the one prescribed for sedition. Failure to whitewash and segregate washrooms for male and female employees can invite warnings but certainly not a jail term!
Similarly, not furnishing monthly details of inward supplies in GSTR-2 forms under the Goods and Services Tax Act, 2017 can lead to imprisonment of one year and may extend to five years as is in the case of an assault on a woman under Section 354 of the Indian Penal Code (IPC).
Unfortunately, even the four new codes – Wage Code, Social Security Code, Occupational Safety, Health and Working Conditions Code and Industrial Relations Code – do not guarantee freedom from imprisonment to entrepreneurs. For example, Section 54 (I) (b) of the Code on Wages says that “any employer who having been convicted of an offence under clause (a) is again found guilty of a similar offence under this clause, within five years from the date of the commission of the first or subsequent offence, he shall, on the second and subsequent commission of the offence under this clause, be punishable with imprisonment for a term which may extend to three months or with fine which may extend to one lakh rupees, or with both.”
The new Code on Wages, 2019, which seeks to regulate wage and bonus payments in all employments and replaces four laws – (I) The Payment of Wages Act, 1936, (II) The Minimum Wages Act, 1948, (III) The Payment of Bonus Act, 1965, and (IV) The Equal Remuneration Act, 1976 – does not give relief to employers from imprisonment on non-compliances. The Code on Wages specifies penalties for offences committed by an employer, such as (I) paying less than the due wages, or (II) contravening any provision of the Code. Penalties vary depending upon the nature of the offence, with the maximum penalty being imprisonment for three months along with a fine of up to Rs one lakh. Earlier the imprisonment was up to six months with a fine of up to Rs 10,000.
Under the Maternity Benefit Act, 1961, a violation shall be punishable with imprisonment which shall not be less than three months but may extend to one year and with a fine. Under the Employees State Insurance Act, 1948, offences and non-compliances are punishable by imprisonment under Section 85. Section 85-A prescribes five years of imprisonment and not less than two years under Section 406 of the IPC in cases where an employer deducts contributions from the wages of his employees but does not pay the same to the corporation which amounts to criminal breach of trust. Industrial Disputes Act, 1947 under Sections 25-U, 26, 27, 28, 29, 30 and 31-A prescribes imprisonment up to six months or a fine up to Rs 5,000.
None of us is against bringing much-needed labour welfare reforms in the country but not at the cost of a conducive and thriving business ambience to entrepreneurs, workers and the government. Freedom from the ‘Inspector Raj’ is good for the country’s economy, which is a multi-stakeholder proposition. Today, the total number of workers, comprising organised and unorganised sectors, is more than 50 crore. The multiplicity of labour laws has been codified in four codes. Forty four central labour laws with over 1,200 sections have been assimilated into four new codes but not without the sword of Damocles hanging over entrepreneurs.
What is abominable is the way an institutional scope has been created for the misuse of laws for corruption, sustaining terror of ‘Inspector Raj’ at a large scale, and killing the spirit of ease of doing business. The imprisonment clauses for non-compliance universally breed corruption and coercion. Even after 31 years of economic reforms, how deeply rooted the Inspector Raj is can easily be gauged from the fact that recently the Punjab government scrapped 1,498 mandatory compliances implemented by 44 departments. There is need for further reduction in compliances for trade and industry, to promote ease of doing business. Labour laws constitute around 500 imprisonment clauses, the prime cause for the failure of the manufacturing sector.
The first industrial policy was formulated in 1978 by the Punjab government; since then nine policies had been placed, the last one in 2017. However, in all these policies, the actionable reforms to minimise the imprisonment clauses for non-compliance with business laws remain elusive. Punjab Bureau of Investment Promotion claims the thrust of the state government is promotion of industry by reducing its controls and improving the ease of doing business, but the ground realities suggest otherwise. Punjab anyway suffers from some fundamental constraints and disadvantages being a border state.
Therefore, it has become necessary to have a fresh look at various measures and see whether the ease of doing business can significantly be improved to make India an attractive destination for business and industry. It is high time policymaking is re-imagined in the state. Business ecosystem needs the ease of doing business much more than anything else to ensure dignity and freedom from ‘Inspector Raj’ for entrepreneurs to attract investments, and create wealth and jobs for youth.
Discouraging MSME Growth
India is blessed to have approximately 6.4 crore Micro, Small, Medium Enterprises (MSMEs), employing a workforce of more than 11 crore. It has been often stated that entrepreneurs do not prefer to be under the MSME category, mainly due to hundreds of compliances that have to be met. The total interlinked compliances, for central and the state governments, for small, medium, and large-sized entrepreneurs are 669, 3,109 and 5,796 respectively. More than 98 per cent of entrepreneurs stay small by choice because the moment they aspire for growth and become a part of the formal economy, they will have to comply with more than 400 compliances a year.
The most important challenge for any small entrepreneur is to come to terms with overly restrictive regulations and a slew of regulators. It is important to have a structure in place to facilitate the ease of doing business. However, the biggest roadblock is how to ensure that a small entrepreneur keeps track of so many compliances. Needless to say, the entrepreneur needs new supportive policies with minimum compliances where a procedural lapse is treated as a ‘civil wrong’ and not crime.
The Way Forward
It has been argued that a regulatory impact assessment committee could be set up within the Law Commission of India to end the criminalisation of all compliance procedures. The federal think tank, NITI Aayog, is working with the states to further improve ease of doing business and ease of living for an entrepreneur. Meanwhile, these four points may be part of the blueprint:
1. Non-compliances should be treated as procedural lapses, leading to monetary penalties or temporary suspension of operations.
2. Imprisonment should be applicable only in cases of wilful destruction of the environment, negligence in workforce safety, loan defaults and evasion of taxes.
3. Mandatory self-declaration by entrepreneurs about compliances by the end of the financial year, which can be physically verified by authorities concerned.
4. Bring all reforms under single overarching legislation, infusing dignity to an entrepreneur and job creator.
The Writer is Vice Chairman, Punjab State Planning Board; Chairman, ASSOCHAM Northern Region Development Council. The views expressed in this article are those of the author and do not represent the stand of this publication.
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