Reducing the compliance burden

Ajay Srivastava | Updated on February 15, 2021

A master document of all requirements and setting up single-window systems can be the starting point

A reduction in regulatory compliance burden on businesses and citizens has the potential to become the new driver of economic growth. Reduced compliance burden will especially help small firms that account for over 95 per cent of Indian businesses.

All government agencies are working to reduce the “pain points” in the next few months. It is a new high priority project monitored by the Prime Minister. Let us understand the nature of compliances and what can be done to minimise the burden.

Important regulatory compliances relate to four key areas: taxation (GST and corporate tax), factory (quality, safety, and pollution norms), employee welfare (labour laws), and firm structure (audit and reporting requirements). The compliances increase as a firm enters new areas like foreign trade. Firms have to maintain records, file returns, get registrations, licences and be ready for inspections. Any lapse may lead to the payment of interest, fine, or litigation.

Here’s a seven-point framework for reducing the compliance burden on businesses and citizens.

First, create a master document listing all compliance requirements for each product and service. Today, if an entrepreneur wants to open a restaurant, school, or garment factory, no listing of all the regulatory requirements is available at one place. Each agency lists its requirements separately. The entrepreneur is at the mercy of intermediaries.

A master document with details like rules, agency to approach, service fee, expected time of service delivery, and a general sense of industry will make the business transparent.

Second, set up a single window system, where a citizen has to approach many government departments for completion of a task. For example, for setting up a warehouse, a person needs 12-16 approvals from eight government agencies. While a few approvals can be obtained simultaneously, others are sequential. Getting all permissions takes about six months and much running around and can dampen the spirit of anyone.

Let us understand how a single window will improve the situation. Let us assume a single window system exists for warehousing business. A business person desiring to set up a warehouse will file all information online at this dedicated portal. Let us call it the National Warehouse Network. The NWN would be the technology platform powering the operation, administration, and oversight of the entire approval process.

The in-built system intelligence will route information to appropriate government agencies. A service agreement with these agencies will bind them to respond to these requests within 2-5 days. This will also ensure that an applicant will receive all permissions online within this time.

Tbe NWN will cut the time to complete the task from six months to five days. The quick and transparent process will inspire more persons to invest in the warehouse business.

Consider another example. Buying or selling of home and commercial property is complex. An urban property portal can integrate buyers, sellers, builders, and departments granting clearances. It will cut costs and enhance transparency.

Another portal for exports can integrate all shipping, customs, licensing, banking, insurance agencies. The export portal will enable MSMEs to export direct and not through large export houses.

Third, introduce an ease of implementation score (EIS) for rating all government scheme/programme/information source. The EIS will state the health of implementation genes of a service/scheme.

A high EIS means that the service can be software programmed to ensure automated decision-making. Initiatives like paying personal income tax or booking rail tickets are examples of high EIS schemes. In contrast, a low EIS would state that policy/service conditions are vague and open to differing interpretations.

For calculating the EIS for schemes, the government may appoint auditors who would rate each scheme and allocate EIS. High EIS would be a sign of pride, and hence publishing the EIS for all government programmes will start an improvement race that would need no oversight.

It will push all agencies to provide online services and do it in the most user-friendly way.

Fourth, simplify the language of all legal texts. This will reduce discretionary powers, reduce litigation and allow for online implementation of schemes. Many countries have adopted innovative approaches for doing this big task. In the US, a consulting firm, using text mining techniques, scanned the US Code of Federal Regulations and identified nearly 18,000 sections with text similar to text in other sections. We can use such techniques to identify and discard overlapping rules.

Fifth, use technology to improve regulatory outcomes. Countries use Artificial Intelligence and Industry 4.0 technologies for enhancing service delivery. There banks, land registrars use block-chain technology to ensure the integrity of each transaction.

New Zealand is inserting sensors in buildings to record strain during an earthquake. Such data can also help provide clearance to a new building or predict old buildings’ remaining life.

Sixth, sign mutual recognition agreements (MRAs) with important trading partners. This will help in promoting foreign trade in goods and services. For example, an MRA between India and the European Union (EU) in medicines will encourage two-way business. It will allow EU drug inspectors accept inspection reports prepared in India vide Indian procedures. India will extend similar treatment to drugs from EU countries. MRAs, thus, make domestic laws acceptable to countries with different laws.

Seventh, outsource rule-making in a few areas. For example, privatise services like issuance of motor vehicle licences. Adopt international regulations like ISO 14000 standards on environmental management systems.

Citizens and businesses alike detest spending time and money on filling and filing forms to pay taxes or get services. Adoption of the above practices would increase productivity, spur growth and make India a better place to do business in.

The writer is from the Indian Trade Service. Views are personal

Published on February 15, 2021

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