Reducing Employer Compliance Burden - A Roadmap for State Governments

Context:

• State governments impose a significant compliance burden on employers, accounting for 80% of criminal provisions, 65% of filings, and 63% of total compliances.
• Chief Ministers (CMs) can improve the business environment through three key reforms: Decriminalisation, Digitisation, and Rationalisation.
• These reforms can help boost high-wage employment and foster economic growth.

Decriminalisation of Employer Compliance:

• The current scenario:
  • India has 26,134 employer-related jail provisions, of which 80% can be removed by state governments.
  • The Jan Vishwas Bill eliminated only 110 out of 5,239 central employer jail provisions due to bureaucratic inertia and vested interests.
• Recommended approach:
  • CMs should adopt a “reversing the gaze” approach, removing criminal provisions except in cases involving:
    • Physical harm to individuals.
    • Intentional fraud against stakeholders.
    • Major societal externalities affecting public order, national integrity, or property rights.
    • Vague general clauses that do not specify crimes clearly.
    • Procedural infractions like delays or inaccuracies in filings, incorrect formats, and calculation errors.
  • The upcoming Jan Vishwas 2.0 could eliminate another 40% of employer-related criminal provisions.
  • States like Madhya Pradesh and Tamil Nadu have made small reforms, while Gujarat, Karnataka, and Odisha are considering changes.

Digitisation for Simplified Compliance:

• The need for digital transformation:
  • 65% of India’s 69,233 employer compliances can be made paperless, presence-less, and cashless.
  • India’s Digital Public Infrastructure (DPI) has already transformed areas like vaccine certification, toll payments, de-duplicated welfare records, and payments.
  • For example,
    • RBI’s initial UPI target of a billion monthly transactions has now been revised to a billion daily transactions.
    • Recent announcements on PAN 2.0 and the Entity Locker (a single source of truth, tamper-proof, and authenticated document repository for all government-issued licenses, registrations, and permissions).
• Proposed solutions:
  • State Employer Compliance Grids (SECGs) should be implemented, replicating DPI’s open-architecture technology for:
    • Filing periodic returns.
    • Issuing licences, registrations, and NOCs.
    • Ensuring a single-source, tamper-proof repository for compliance documents.
  • SECGs can be operational in 180 days and should integrate with national initiatives.
  • Gujarat, Maharashtra, and Andhra Pradesh are in the early stages of adopting SECGs.

Rationalisation of Governance and Compliance Frameworks:

• Challenges in bureaucratic structures:
  • India’s state civil service has become rigid and inefficient, often prioritizing prohibition over permission and guilt over innocence.
  • Excessive bureaucracy: Number of government departments in some states:
    • UP (72), Uttarakhand (63), Assam (54), Punjab (51), MP (47), Maharashtra (35), Andhra Pradesh (31), Gujarat (27).
  • Comparatively, developed nations operate with fewer ministries: Japan (15), UK (22), US (25).
• Way forward:
  • Simplifying governance structures: By consolidating departments can enhance efficiency.
  • Decentralisation of policy-making: PM Modi’s idea that 29 CMs matter more than one PM aligns with philosopher Karl Polanyi’s view that markets are shaped by social, political, and economic factors.

Conclusion:

• India’s economic challenge lies in “employed poverty”, with too many people in low-productivity jobs.
• CMs can accelerate reforms by removing unnecessary compliance hurdles, enabling businesses to flourish and generate higher wages.
• As Daniel Kahneman (Nobel Prize-winning economist) suggests, sometimes the best way to accelerate progress is not by stepping on the accelerator but by removing the brakes - a principle CMs should embrace for economic transformation.

Q1. What are the key reforms suggested for reducing employer compliance burden in India?

Ans. The key reforms are Decriminalisation (simplifying regulatory frameworks), Digitisation (reducing employer penalties), and Rationalisation (improving governance efficiency).

Q2. How can decriminalisation of employer compliance provisions benefit businesses in India?

Ans. Decriminalisation can remove unnecessary jail provisions, reduce bureaucratic harassment, enhance ease of doing business, etc.

Q3. How can State Employer Compliance Grids (SECGs) ensure digitisation of employer compliance in India?

Ans. SECGs can integrate digital infrastructure for filing returns, issuing licenses, and maintaining tamper-proof records.

Q4. Why is rationalisation of governance structures necessary for improving employer compliance in India?

Ans. Rationalisation is needed to reduce bureaucratic inefficiencies, as India has far more government departments than countries like Japan (15), the UK (22), and the US (25), making governance overly complex.

Q5. How does India’s problem of "employed poverty" relate to employer compliance reforms?

Ans. Excessive compliance burdens discourage formal employment and high-productivity jobs, contributing to "employed poverty" 

Source:IE