The Cost of Compliance: A Roadblock to Job Creation and Growth?

Author(s): Kartik Narayan, CEO – Staffing, TeamLease Services Ltd. & Rishi Agrawal, CEO, TeamLease Regtech.

India is uniquely positioned among large countries, with over 20 years of high growth ahead, driven by transformative policy reforms like GST, the Bankruptcy Code, Labour Law Codification, Agricultural Market Liberalisation, the New Education Policy, and Banking Competition. However, one critical area still lacking reform is compliance standards. The sheer complexity of regulatory obligations creates “regulatory cholesterol” within the ecosystem. In FY23-24 alone, over 8,300 changes were published across 2,000+ government websites, involving updates to deadlines, procedures, penalties, and responsibilities.

Jailed for doing business

India’s regulatory framework presents a significant barrier to innovation and entrepreneurship. Of the 843 economic laws governing businesses, 26,134 provisions impose imprisonment for violations, with two out of every five compliance standards carrying such clauses. Many of these criminalise minor lapses, even when no harm is intended. Labour laws alone contain 17,819 imprisonment provisions spread across 352 laws. The ongoing codification process is expected to alleviate some of this liability.

Deliberate dwarfism

In April 2023, India became the world’s most populous country, surpassing China. Concurrently, its economy grew at over 7%, exceeding the $3.3 trillion GDP mark. To reach the next goalpost of $10 trillion, India needs a mass manufacturing push, leveraging its demographic dividend to create millions of jobs within the next five years. However, overregulation has stymied this progress, giving rise to “Deliberate Dwarfism,” where businesses intentionally stay small to avoid regulatory scrutiny. This phenomenon reflects a choice by small firms to evade the costly risks of accidental non-compliance. Addressing these barriers is critical to driving job creation in India and economic dynamism.

For example, an MSME pharmaceutical manufacturer must comply with 998 standards across 80 regulations, nearly half of which carry imprisonment clauses. This regulatory overload discourages growth and contributes to economic stagnation. For multi-state businesses, the complexity is even greater, with around 40% of obligations carrying up to 10 years of imprisonment. Many provisions are outdated, granting disproportionate power to bureaucrats, perpetuating rent-seeking behaviour, and sustaining the Inspector Raj. In a 21st-century economy, is such oversight necessary for spittoons, gender-segregated washrooms, and clothing storage?

Key reforms for simplifying business compliance

The 1991 economic liberalisation dismantled the License Raj, reduced tariffs, and opened industries to foreign investment, easing business compliance standards and driving growth. The Make in India initiative aimed to further simplify regulations through online systems, single-window interfaces, and codified labour laws. While progress has been made, more efforts are needed to position India as a global manufacturing hub.

To address these challenges, we propose the following recommendations:

• Expanding the Jan Vishwas Act to decriminalise more provisions.
• Creating a Unique Enterprise Number (UEN) to streamline business identities.
• Introducing an Enterprise DigiLocker to securely centralise business documentation.
• Integrating compliance into India’s Digital Public Infrastructure (DPI) through open APIs to streamline business-government interactions, making compliance standards more efficient and fostering job creation.

These reforms will directly contribute to unlocking India’s full economic potential and simplifying business operations across industries, including staffing.

Simplifying compliance for job creation

While India has surpassed the UK to become the world’s fifth-largest economy, much remains to be done to improve per capita income. The current web of complex regulations leads to significant inefficiencies in how laws are written, interpreted, applied, and enforced. A focused, time-bound effort at both the central and state levels is urgently required to simplify, rationalise, decriminalise, and digitise the country’s convoluted compliance framework.

Simplifying compliance is crucial for economic growth and job creation. For the staffing industry, adhering to country-specific laws and regulations is critical to success. Simplified compliance not only ensures seamless operations but also facilitates efficient hiring and workforce expansion.

Let us help you streamline compliance and drive growth. Contact us to learn more.

Disclaimer: This article was first published in Times Ascent.