India’s Business Sector: Corruption and Compliance Challenges

Context: A recent “India Business Corruption Survey 2024” highlighted 66% of business entities admitting to paying bribes, with 54% stating they were coerced to expedite government processes, obtain permits, ensure compliance, or acquire duplicate licenses.

India’s Business Sector: Compliance Reforms Initiated by the Government

• Jan Vishwas (Amendment of Provisions) Act, 2023: Decriminalized 180 provisions related to imprisonment clauses that were burdensome for businesses and entrepreneurs.
  • Aimed at improving the ease of doing business by reducing legal complexities.
• Jan Vishwas 2.0 (Announced in Budget 2025): Proposes to decriminalise around 100 additional provisions.
  • Seeks to streamline business compliance and reduce regulatory friction.
• Labour Code Reforms: Consolidated 29 colonial-era labour laws into 4 labour codes (the Code on Wages, the Industrial Relations Code, the Occupational Safety, Health and Working Conditions Code, and the Social Security Code – yet to be implemented).
  • Intended to simplify and modernise labour regulations.
• Digitalisation Efforts: Introduction of Digi Locker for verified document storage to simplify regulatory approvals.
  • Proposed ‘One Nation, One Business’ Identity System to reduce the need for multiple identifiers and improve compliance efficiency.

Issues and Challenges in in India’s Business Sector

• Persistent Red-Tapism and Bribery: Regulatory officials exploit compliance provisions to extract bribes.
• Complex and Frequent Regulatory Changes: Over 9,420 compliance updates in the past year (~36 daily).
  • Creates confusion, increases compliance costs, and fosters corruption opportunities.
• Implementation Gap in Labour Reforms: Despite consolidating 29 labour laws into 4 labour codes, they remain unimplemented.
  • Delays in state-level adoption undermine the effectiveness of reforms.
• Lack of Accountability Among Inspectors: Inspectors have excessive discretionary powers to threaten businesses with penalties or shutdowns.
  • No clear grievance redressal mechanism for businesses facing unjust action.
• Fragmented Business Identity System: Businesses must maintain 23+ identifiers (e.g., PAN, GSTIN, CIN) from different authorities.
  • Periodic renewals and varying requirements create inefficiencies and increase operational costs.

Implications

• Deterrent to Foreign Investment: 80% of respondents in the EY-FICCI survey believe corruption hinders FDI inflows.
  • Loss of competitiveness in the global investment landscape.
• Increased Cost of Doing Business: Bribery and unofficial payments increase business costs.
  • Slows down business growth and profitability.
• Loss of Entrepreneurial Confidence: Entrepreneurs face hurdles in setting up and expanding businesses.
  • Regulatory uncertainty discourages innovation and expansion.
• Global Competitive Disadvantage: Countries like the US are streamlining business operations through governance reforms.
  • India risks losing investment and talent to more business-friendly economies.

What Needs to Be Done

• Strengthen Jan Vishwas Reforms: Expand decriminalisation beyond 100 provisions under Jan Vishwas 2.0.
  • Establish clear timelines for implementing reforms.
• Limit Compliance Changes: Follow FSSAI’s model of announcing regulatory updates only once a year.
  • Create a predictable compliance environment.
• Digital-First Approach: Introduce a ‘One Nation, One Business’ Identity System to unify business identifiers.
  • Simplify approvals and reduce administrative burdens through digital platforms.
• Accountability for Regulatory Officials: Establish oversight mechanisms to curb the discretionary powers of inspectors.
  • Introduce penalties for officials engaging in corrupt practices.
• Implement Labour Codes: Fast-track implementation of the labour codes across all states.
  • Ensure consistency and clarity in labour regulations.
• Transparent and Fair Regulatory Environment: Simplify the licensing process with a single-window clearance system.
  • Enhance grievance redressal mechanisms to protect businesses from undue harassment.

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