Corporate centric. Measuring cost of regulations: Centre knocks ICAI doors for insights

The Department for Promotion of Industry and Internal Trade (DPIIT) has approached CA Institute for getting insights on ‘Cost of Regulation’ for Corporates. 

The Institute of Chartered Accountants of India (ICAI) has in turn exposed among its members a questionnaire aimed at measuring the Administrative Burden on businesses arising due to regulatory requirements. 

The questionnaire — developed for each government service availed in each state—has now been circulated among CA Institute members, sources said. 

The questionnaire framed for seeking inputs covers details around time cost, substantive cost, intermediary cost, delay cost and statutory cost, they added.

DPIIT is the nodal department for the ease of doing business initiative of Central government. 

Cost of Regulation (CoR) is a critical component in the overall cost for the businesses and an important parameter in mapping ease of doing business.

Already DPIIT had developed a draft framework after considering the ground challenges mentioned during a series of consultations with States/UTs and industry.

Stakeholder consultation is now proposed with industry representatives to discuss CoR framework and receive their input and suggestions on the same.

Regulations play a crucial role in maintaining a fair, safe, and sustainable business environment. However, it is essential to recognize and address the costs associated with regulatory compliance, particularly for corporates. 

The economic burdens, compliance challenges, and potential consequences of excessive regulations can hinder business growth, innovation, and competitiveness. Striking the right balance between regulatory objectives and minimizing the burdens on businesses is key to ensuring that regulations are effective, efficient, and supportive of economic development, said experts.

By adopting a collaborative and adaptive approach, policymakers can create a regulatory landscape that promotes responsible corporate behavior while fostering a conducive environment for sustainable economic growth.

Commenting on the DPIIT move and CA Institute’s decision around questionnaire, Amarjit Chopra, former President of CA Institute, said “it’s a welcome step. Different companies will have different costs depending on the service availed and from which firm. It’s a difficult task, but needs to be done. It will determine what kind of cost corporate has to bear these days”.

What Regulations accomplish

In an effort to maintain social, economic, and environmental stability, governments around the world implement regulations across various industries. 

Regulations serve as a vital tool to ensure accountability, protect consumers, and prevent unfair practices. However, while regulations play a crucial role in safeguarding public interests, they also come at a cost, particularly for corporations.

Economic Burden

One of the primary concerns surrounding regulations is the economic burden they impose on corporations. Compliance with regulatory standards often requires significant financial investments. Corporations must allocate resources towards understanding complex regulatory frameworks, hiring specialized personnel, implementing necessary changes to infrastructure, and conducting audits and inspections. These costs can be particularly challenging for small and medium-sized enterprises (SMEs) with limited budgets and fewer resources, potentially stifling their growth and competitiveness. 

Moreover, regulatory compliance costs may be passed on to consumers in the form of higher prices, reducing their purchasing power and limiting market demand.

Compliance Challenges

Complying with a plethora of regulations can pose significant challenges for corporations, especially in industries with rapidly evolving regulatory landscapes. Regulations may vary across jurisdictions, requiring businesses to navigate a complex web of compliance requirements. The need to keep pace with changing regulations necessitates constant monitoring, training, and updating of internal processes, which can be time-consuming and resource-intensive. 

As a result, compliance efforts divert valuable time and attention away from core business activities, hindering innovation and productivity. The bureaucratic red tape associated with compliance can also create inefficiencies, slowing down decision-making processes and inhibiting the agility and adaptability of corporations.

Potential consequences

The impact of regulations on corporates extends beyond economic burdens and compliance challenges. Excessive or poorly designed regulations can inadvertently lead to unintended consequences that may hinder business growth and negatively impact the economy, say experts.

Stricter regulations can discourage investment and entrepreneurial activities, particularly in emerging or high-risk industries. 

Excessive compliance costs may drive businesses to relocate to countries with less stringent regulatory environments, resulting in a loss of jobs and economic opportunities. Additionally, regulations that favor larger corporations with greater resources and lobbying power may create barriers to entry for smaller players, reducing market competition and innovation, they said.

Mitigating the Impact

To address the adverse impact of regulations on corporates, experts contend that policymakers should adopt a balanced approach that ensures public interest protection while minimizing the burden on businesses. 

Measures such as conducting regulatory impact assessments, consulting with stakeholders, and streamlining regulations can help identify and mitigate potential unintended consequences, they noted.

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