Fixing the Economic Destiny

In Depth

Fixing the Economic Destiny

Lex Witness Bureau | November 2013

Witness Bureau explores the Damodaran Committee Report on ‘Reforming the Regulatory Environment for Doing Business in India’…

UNKNOWN OBSTACLES IN DOING BUSINESS

A telling analogy, as to what may spook your effort to do a successful in India, that “doing business in India is like taking part in an obstacle race, with one material difference. In an obstacle race, the number of obstacles, the nature of obstacles and the location of the obstacles are known in advance…”, is with what the introductory chapter of “Damodaran Committee Report for Reforming the Regulatory Environment For Doing Business In India” (the ‘Report’) starts with. It captures the uncomfortable realisation that the committee reached after studying the challenges of ‘doing business in India’. Referring to the substantive and procedural challenges that are faced by the businesses, the report sums it all up as “multiplicity of authorities, the plethora of regulations, the lack of clarity and the absence of continuity. The problem is further compounded by competing and often conflicting postures adopted by those tasked with the ensuring of orderly and non-discriminative conduct in the matter of enforcement. A judicial system that has not crowned itself with glory in the matter of speed of disposals, and an alternate dispute resolution mechanism which does not seem to have delivered, have only added to the complexity of the problem”.

MANDATE, METHOD AND CONSTRAINTS

The Committee, as is obvious from the title of the Report was assigned the task to study as to what is it in our entire regulatory and adjudicatory ecosystem that makes it not so easy to do business in India. And the Committee has attempted to arrive at sector-neutral workable solutions in a participative manner by taking views of all the stakeholders.

The biggest constraint that the Committee faced was from the fact that though many of the committee members were drawn from private as well public sector but such a learned gathering was of little real help as the committee itself maintains in its report that “the near-total absence of responses from the Committee Members has given rise to the inconvenient conclusion that the regulatory environment either does not cause the kind of problems that it is believed to cause or, the more uncomfortable conclusion, that the prescriptive arrangements in the regulatory environment, while being adversely commented on, are being got round by the corporates concerned.”

RECOMMENDATIONS

The committee aiming at coming up with recommendations which were ‘informed by pragmatism and grounded in contextual reality have the best chance of finding acceptance and being implemented’ principally identified following areas (substantive and procedural) for infusing a life into the seemingly moribund and unpredictable regulatory regime

MODERNISE AND UPDATE COMMERCIAL LAWS

Examine and bring changes to laws as per modern day requirements of trade and commerce;
Promote arbitration as preferred mode of resolving arbitration by having:

Sensitive judiciary for quick resolution of disputes
Mechanism to dis-incentivise use of civil courts for resolving contractual disputes
Create large pool of persons trained in the process of arbitration.

STRENGTHEN REGULATORY ARCHITECTURE

Assess need and then create Regulators;
Give genuine functional autonomy (including financial) to Regulators so that they are not dependent on government departments for financial support by way of handouts;
Concerned ministry/ department
- must learn to disengage itself from the jurisdiction of the;
- must man the regulatory offices with able people and it must provide for a system of appointments which is transparent;
It must also provide for six monthly progress reports to be prepared and submitted to a parliamentary panel by head regulator
Self-evaluation: Triennial self-evaluation :

put conclusions in public domain for informed discussion and debate.

BOOST EFFICACY OF REGULATORY PROCESS

Have simple, clear regulations

Two-staged process for writing regulations – it involves having an effective consultation process to curb misinterpretation of regulations so that there is a revised draft put up for consultation after the first round of stakeholder consultation is completed. This would ensure that the avoidable situations of misinterpretation of the regulations do not exist.
Internal review of proposed regulations

To ensure that unnecessary regulations are not given effect to, the internal Regulation Review Authority can also be given the task of reviewing draft regulations that are in the pipeline.
Every regulatory authority, ministry or department of the Central or state Government involved in the writing of regulations should have within it a Regulation Review Authority also tasked with the preview of intended regulations.
Also enable internal Regulation Review Authority to be able to carry regulatory impact assessment, which should be a condition precedent to the writing of regulations.

Conduct Regulatory Impact Assessment (RIA) before creating regulations: A regulatory impact assessment of every proposed regulation should precede the public consultation process.

Optimally utilize of enforcement bandwidth: so that issues of systemic importance on are addressed on a priority basis.
Create Consent Mechanism: for matters of low significance.
Establish Advance authority for rulings: so that conflicting rules and regulations from different authorities are addressed.
Set up regulatory review authority: to take stock of existing body of regulations in terms of contemporary relevance, clarity and continuity

ENABLE MSMES

Establish overarching co-ordinating body- for policy formulation and statutory enforcements among various state Govts. and Central Govt.
Have Single window- for compliances, tax payments
Create Facilitation centres- for filling forms etc.
Time-bound decision-making: The granting of permissions/approvals or the decision not to grant permissions should be taken within a prescribed time period failing which there should be a provision for deemed permission/approval.

ADDRESSING STATE LEVEL ISSUES

Create nodal point for Information facilitation: a single point contact, for persons, intending to obtain information on the procedural and substantive conditions to be fulfilled for setting up a business should be provided in each state;
Incentivise pro-regulatory reform states: to accelerate the process of simplification of regulations and consequently expediting the necessary approvals, the state governments that make significant progress in this matter should be appropriately incentivised.
Building in Appellate Process by Design: There should be built into the system an appellate process where a person aggrieved by an order of rejection may, as a matter of right, approach a superior authority for reconsideration of the matter on merits.

CONCLUSION

There could not have been a more opportune time for recommendations of this nature then the present one when all the stakeholders at their level are looking for ways outs to energise a flagging economy. But like always, there is a big ‘if’ whether these recommendations would find their logical conclusion in their getting implemented at the central and state levels. It is hoped that there is a ‘aye’ rather than ‘nay’ to these recommendations.

About Lex Witness

Lex Witness Bureau

The LW Bureau is a seasoned mix of legal correspondents, authors and analysts who bring together a very well researched set of articles for your mighty readership. These articles are not necessarily the views of the Bureau itself but prove to be thought provoking and lead to discussions amongst all of us. Have an interesting read through.