The next wave of reform needs to be around inspections, Factories Act, definitions, and so on, and the tricky issue of hire and fire should be deferred for now or left to the states. We need to complete the consolidation of 44 central laws into four labour codes and give employers the choice of complying under the Factories Act or Shops and Establishments Act. But the broader theme needs to be decentralisation; the use of Section 254 (2) of the Constitution that allows states to amend central laws because 29 Chief Ministers matter more than one Prime Minister for entrepreneurship.
The legislative geography of work
An important priority for the new government is improving the ease of doing business and we have five suggestions. First, we should implement the decision taken early this year of using PAN as the Unique Enterprise Number. Every company currently has multiple numbers that include Corporate Identity Number (21-digit), Tax Payer Identification Number for commercial taxes (11-digit), Service Tax Number (15-digit), PAN number (10-digit), Central Excise (PAN Number + 2 characters), Provident Fund number (11-digit), Profession Tax Registration Certificate (9-digit), Profession Tax Enrolment Certificate (9-digit), Tax Deduction and Calculation Number (10-digit), ESIC number (17-digit), Labour Department Registration Number (13-digit, but varies from state to state), Importer Exporter Code (10-digit), Shops and Establishments Act Registration (20+ digits), CLRA Registration (15+ digits), Labour Welfare Board (5-digit), and so on. Second, all government departments should have all registrations, permissions, and licenses online with open APIs within two years. States must be given incentives and ranked based on electronic single-window compliance within a deadline. All new laws should be mandatorily born digitally native. Third, the Companies Act must be revisited because it has stopped distinguishing between closely held private companies, widely held public companies, and publicly listed companies. The current lack of nuance not only hinders entrepreneurship (most enterprises in early stages are not financed by formal venture capital but loans and equity investments from friends, family and self) but is creating a trail of compliance or structuring that needs expensive lawyers and accountants. The regulation of listed companies should be left to stock exchanges and SEBI. Revisit the more-than-15 filings required, and remove the ones for the ordinary course of business (management appointments, etc.). Revisit the liabilities of key management personnel or raise the threshold to Rs. 50 crore. Fourth, we must review our tax compliance framework to make it transparent, consistent, and digitization driven. Tax compliance should be raised by massive doses of technology, analytics, and big data. This will require a radical review of the organisation structure, culture, and incentives of the Central Board of Direct Taxes.
Most people overestimate what policy change can do in the short run, but they underestimate what it can do in the long run. India’s new recipe around job creation has many anchors: macroeconomic stability, decentralisation to states, lower costs of formalisation, focus on manufacturing, whether for India or exports, and better human capital.
Our past policy narratives were about running away from something, rather than towards something, and mostly involved blaming external variables of opening balances rather than taking responsibility. But as Ghalib said “Umar bhar Ghalib yahi bhool karta raha, dhool chehre pe thi aur aina saaf karta raha (All his life, Ghalib kept making a mistake; it was his face that was soiled, but he kept cleaning the mirror)”. There is a new narrative that recognises that the role of the government in Putting India to Work is not setting things on fire but creating the conditions for spontaneous combustion.
To paraphrase historian Samuel Huntington, “the gap between India’s ambition and its reality is not a lie but a disappointment. And it is only a disappointment because its ambitions were very high.” India made an unrealistic democratic gamble at Independence that has paid off. Now, we are finally taking sustainable steps on poverty with a focus on the 3E’s. India’s poverty is finally heading to the museum where it belongs.
Manish Sabharwal & Sonal Arora, Chairman & Vice President, Teamlease writes this piece for FICCI publication “Economy of Jobs”.