Useless laws weaken the necessary laws’. The maxim conceptualised by French historian and philosopher Baron de Montesquieu illuminates the legal landscape in India’s political economy. The distinction between what is necessary and what is useless is trapped in a fog of perceived intent and perpetuation of fear. The result is: criminalisation of entrepreneurship and of business entities.
Three decades after the dismantling of Licence Raj, the fear of Inspector Raj persists. To appreciate, consider this factoid from the Factories Act of 1948. The law requires factories to be kept clean — ergo there are specifications detailing the minutae of how and when. Spittoons must be provided for, dirt shall be removed every day, floor of the workroom cleaned once a week, walls-partitions-ceilings-passages shall be painted or varnished every 14 months. Failure to do so can result in imprisonment.
The threat is live in the clauses of central and state laws across domains. For instance, the Factories Act of 1948 has 485 clauses which threaten imprisonment — or 485 opportunities to bring an enterprise to halt and criminalise the entrepreneur. The chasm between stated objective and reality is wide. And it is daunted by the sheer challenge of scale. At last count, as per data released by the government, India has over 63.3 million medium, small and micro enterprises of which around 20 million are factories. A law which cannot be cannot be implemented presents the opportunity for pelf.
The Factories Act is just one law and represents a larger malaise. A new study authored by Rishi Agrawal and Gautam Chikermane has drilled deep into the legal landscape governing businesses. Published by the Observer Research Foundation, the study reveals the shocking state of archaic laws governing livelihoods — the ecosystem of economic growth and well-being. The study shows that there are 843 laws (599 of them State laws) with clauses criminalising violation — with 26,134 compliances which host the threat of imprisonment. The width of the threat is stark — 11,042 clauses could lead to imprisonment of between one and three years, 1,481 specify jail term of three to five years, 1,821 list a prison sentence of five to 10 years and 207 carry a sentence of over 10 years.
Arguably, the need for deterrence and enforcement of outcomes forms the basis for the laws. So how effective have the laws been? The gap between intent and deterrence is represented by the rot afflicting the finances of Discoms across India. The production, transmission and distribution of electricity is governed by the Electricity Act of 2003. The Act, scaffolded by 35 rules, has 558 clauses specifying imprisonment for violations by users, generators and distributors. Yet, state Discoms are unable to recover revenues for a fifth of the electricity generated despite clear clauses for prevention of theft — the accumulated losses of Discoms currently is Rs 5.6 lakh crore.
The question is what is an effective deterrence to achieve the laid out objectives — and whether the extent of the criminalisation and the prison terms for violations are justified. The study lists the existence and continuance of clauses across laws on labour, industry, environment, health, finance, taxation and secretarial domains to present a picture which raises issues of proportionality. Consider the stark comparison. The failure to audit accounts of the factory canteen or use of regional language for indication on weights and measures carries the same sentence of one to three years as those found guilty of unlawful assembly or rioting with deadly weapon under IPC. The punishment for “not displaying working hours prominently at place of business including place of storage on conspicuous place,” is a prison term of five to ten years — the same as that for threat of extortion or for mutiny or kidnapping.
It is not that the perpetuation of archaic laws criminalising business is unknown. It is also true that there have been discussions about the need to rectify and reform the landscape. The fact is that after much has been said and done, much remains to be done. Take labour laws. India’s 352 labour laws (central and state) host 17,819 clauses embedded with the threat of imprisonment for violations. The union government compressed the labour laws into four codes, but the rules are yet to be finalised. Less than a dozen states have shown any inclination to adopt the new code.
India is poised at an intersection of challenge and opportunity — it must modernise to sustain growth and create jobs. The government has deployed mechanisms such as the productivity linked incentive scheme, to invite global players such as Samsung, Foxconn to make in India for the world and wooing others including Tesla and semiconductor giants. India aspires for carving a place in the supply chain of a world transiting to the fourth industrial revolution and capturing a major share in the global market for services.
The moot question is whether the laws governing commercial enterprises are in sync with the expectations and needs of the 21st century. The recognition of wealth creators is good and necessary but not sufficient. Enabling employment through wealth creation at the grassroots requires review and reform of law. India needs to recast its legislative landscape for enabling the political economy.