Entrepreneurs face over 26,000 imprisonment clauses in Indian biz laws: Study

Amid government's ambitious moves to improve ease of doing business in the country, a recent study highlighted 26,134 imprisonment clauses in India’s business laws that entrepreneurs and corporations face.

"Using newly isolated data on 26,134 imprisonment clauses embedded in laws enacted by the Union and state governments, it provides the risks faced by entrepreneurs and corporations in doing business in the country," the study by Observer Research Foundation and Teamlease RegTech stated.

The largest number of imprisonment clauses are found in labour laws, with more than 50 such clauses per law, the report said.

Five states have more than 1,000 imprisonment clauses in their business laws: Gujarat (1,469 imprisonment clauses); Punjab (1,273); Maharashtra (1,210); Karnataka (1,175); and Tamil Nadu (1,043), it further added.

Of the 1,536 laws that govern doing business in India, more than half carry imprisonment clauses. Of the 69,233 compliances that businesses have to follow, 37.8 per cent (or almost two out of every five) carry imprisonment clauses.

More than half the clauses requiring imprisonment carry a sentence of at least one year. Several of these clauses criminalise process violations, while some of them punish inadvertent or minor lapses rather than wilful actions to cause harm, defraud, or evade. For some laws, delayed or incorrect filing of a compliance report is an offence whose punishment stands on par with sedition under the Indian Penal Code, 1860.

"This report argues that the criminalisation of business laws violates Indian business traditions: from the Mahabharata to the Arthashastra, criminality was never a part of punitive action against businesses in ancient India — only financial penalties were. Reforming these clauses is necessary to restore dignity to entrepreneurship in India," it said.

Further, the report also stated that India suffers from ‘regulatory cholesterol’ that is getting in the way of doing business.

“This regulatory cholesterol has ensured that while India’s impressive aggregate gross domestic product (GDP), at $2.6 trillion, makes it the world’s fifth-largest economy, its GDP per capita, at $1,900, stands below Bangladesh, Syria, and Nigeria,” it elaborated.

“Excessive regulation has made compliance a full-time department of firms, and placed an unnecessary burden on micro, small and medium enterprises (MSMEs). A typical MSME with more than 150 employees faces 500 to 900 compliances that cost Rs 12 lakh to Rs 18 lakh a year," the report claimed.