Context

• Despite persistent efforts to combat corruption, red-tapism and bribery remain significant barriers to business growth in India.
• The India Business Corruption Survey 2024 highlights a troubling reality: 66% of businesses admit to paying bribes, and 54% state that they were coerced into doing so to expedite government procedures, acquire permits, or ensure compliance.
• This problem is particularly severe in sectors governed by excessive bureaucracy, such as labour, taxation, pollution control, property registration, health, and pharmaceuticals.
• Therefore, it is important to examine the economic impact of corruption, the challenges posed by excessive compliance regulations, the need for digital transformation, and India’s global competitiveness.

The Economic Impact of Corruption

• Increased Cost of Doing Business
  • One of the most direct effects of corruption is the increased cost of doing business.
  • These costs often do not end with one-time payments.
  • Businesses, particularly small and medium enterprises (SMEs), are forced to continuously engage in corrupt practices to keep operations running smoothly.
• Hindrance to Foreign Direct Investment (FDI)
  • The impact of corruption on FDI is perhaps one of the most critical aspects of its economic toll.
  • The EY-FICCI survey indicates that 80% of respondents believe corruption is a major deterrent to FDI.
  • Global investors seek environments that offer predictability, transparency, and fairness in business dealings, and corruption undermines these elements.
  • When potential investors perceive that they will have to pay bribes or engage in illegal practices to navigate the regulatory environment, they are less likely to invest in India.
• Erosion of Entrepreneurial Spirit
  • Corruption also dampens the entrepreneurial spirit in India.
  • The high cost of compliance and the need to navigate a maze of bureaucratic red tape often discourage new entrepreneurs from starting businesses.
  • For many small businesses and startups, the fear of bribe demands or the potential for regulatory abuse deters them from entering the market or pursuing their growth ambitions.
• Negative Impact on Job Creation
  • One of the core drivers of economic growth is the creation of jobs, and here again, corruption takes a toll.
  • When businesses are forced to spend substantial resources on bribes and navigating the bureaucracy, they have fewer resources to invest in expanding operations or hiring new workers.
  • The money that could be spent on training, development, or workforce expansion is instead siphoned off to meet compliance demands or to pay for regulatory favours.
• Creation of Systemic Inefficiency
  • The constant demands for bribes and the regular alteration of compliance rules create a climate of inefficiency.
  • Businesses are often forced to spend valuable time and resources dealing with a complicated regulatory framework rather than focusing on innovation or customer service.
  • This results in delays, missed opportunities, and an overall lack of productivity across various sectors of the economy.
• Impact on India's Global Reputation
  • Corruption also has a lasting effect on India's global reputation.
  • As a major emerging market, India’s credibility on the world stage is increasingly scrutinized.
  • Countries that want to attract investment and skilled talent focus on creating transparent, efficient regulatory systems.
  • If India’s bureaucratic inefficiencies and corruption persist, it risks falling behind other emerging economies that are taking proactive steps to streamline their regulatory environments and combat corruption.

The Constant Flux of Compliance Regulations and the Reason Behind It

• The Constant Flux of Compliance Regulations
  • A major hurdle for businesses is the ever-changing compliance framework.
  • Regulatory officials frequently use compliance provisions as tools for bribery, demanding unofficial payments for approvals, even when businesses have met all requirements.
  • The scale of compliance updates further exacerbates the issue. In the past year alone, India recorded 9,420 compliance updates, averaging 36 changes per day.
  • This erratic approach either signals regulatory incompetence or a deliberate effort to create corruption pipelines.
  • Some regulatory bodies have begun to address this.
  • The Food Safety and Standards Authority of India (FSSAI), for instance, has introduced a rule that food label regulations will only be updated once a year, creating a predictable regulatory environment.
  • Similar measures should be adopted across all sectors to reduce uncertainty and minimise opportunities for corruption.
• Lack of Labour Law Reforms: A Missed Opportunity
  • A significant portion of compliance-related imprisonment clauses stems from outdated labour laws, which fall under the Concurrent List of India’s Constitution.
  • Although India replaced 29 colonial-era labour laws with four modern labour codes, they have yet to be implemented.
  • These long-promised reforms, touted as India’s biggest labour reforms in history, remain stuck in bureaucratic limbo.
  • Until state governments operationalise these reforms, businesses will continue to suffer from outdated and excessively punitive regulations.

The Need for a Digital-First Compliance System

• India’s current business registration process is highly inefficient.
• Establishing a factory requires entrepreneurs to submit hundreds of notarised documents across 40 different government departments.
• This archaic system breeds inefficiency and corruption.
• A digital-first approach can revolutionize business compliance. A single business identifier, linked to a secure digital repository (Digi Locker), could allow regulators to access verified documents instantly.
• This system, similar to India’s Digi Yatra, would drastically reduce approval times from months to days.
• Currently, Indian businesses must navigate at least 23 different identity numbers, including PAN, GSTIN, CIN, professional tax numbers, and factory licenses, each with its own renewal process.
• A ‘One Nation, One Business’ identity system could consolidate these into a single identifier, simplifying regulatory compliance and reducing opportunities for bribery.
• A small budget allocation for this initiative could dramatically enhance India’s appeal to investors.

Consequence of Corruption and Complex Regulations: India’s Global Competitiveness at Risk

• The global competition for investment is intensifying.
• The United States is actively enhancing its business environment through governance reforms, including its Department of Government Efficiency (DOGE), designed to simplify regulatory procedures.
• If the world’s largest economy ($27 trillion GDP) is becoming even more business-friendly, investors have little incentive to choose India’s $4 trillion economy, where bureaucratic inefficiencies persist.
• Without urgent reforms, India risks losing both investment and entrepreneurial talent, key drivers of its knowledge economy.
• The country stands at a critical juncture—either it modernizes its compliance framework or loses ground in the global economic race.

Conclusion

• India must move beyond piecemeal reforms and embrace a holistic approach to simplify compliance, eradicate corruption, and create a predictable regulatory framework. Jan Vishwas 2.0 is a start.
• Significant structural changes are required to eliminate outdated imprisonment clauses, reduce regulatory subjectivity, and digitize compliance processes.
• To attract global companies and encourage domestic entrepreneurship, India must act decisively.
• The time for complacency is over—India must embrace a business-friendly future that prioritises efficiency, transparency, and growth.