India’s potential for economic growth is limited by significant challenges. A very significant factor is the absence of high-wage jobs which leads people to engage in the informal sector leading to the ills of underemployment, employed poverty, and exploitative self-employment. In this regard, Chief Ministers (CMs) can play a crucial role in reshaping the economic landscape of their states. With a focused approach to reforming areas such as business laws, compliance procedures, and civil service structures, the heads of State, can create a more business-friendly environment that fosters innovation, attracts high-wage employers, and supports entrepreneurship.
The Burden of Compliance on Employers in India
One of the primary obstacles to business and economic growth in India is its complex regulatory framework. The state governments are responsible for a large portion of this complexity, with state-level regulations encompassing 80% of criminal provisions, 65% of compliance filings, and 63% of the regulations that employers must adhere to. This overwhelming burden of compliance often discourages businesses from expanding, particularly high-wage employers who could contribute significantly to economic growth. For example, the intricate paperwork and legal hurdles required to start and run a business can deter companies from investing in new ventures, let alone expanding existing ones.
This heavy regulatory load must be addressed to make the Indian business environment more attractive. Chief Ministers can play a vital role by driving targeted reforms aimed at simplifying and streamlining the regulatory system. Such reforms would not only help businesses develop but also contribute to the overall economic growth of their respective states and the country as a whole.
Decriminalisation: Simplifying Business Laws
India’s business laws are riddled with criminal provisions, many of which impose penalties for minor infractions. These provisions often create unnecessary risks for businesses, especially small and medium enterprises, which may inadvertently fall foul of regulations. An estimated 80% of the 26,134 employer-related jail provisions could be removed through decriminalisation, making the legal framework less burdensome and more conducive to business growth.
For example, the Jan Vishwas Bill, which was introduced to reduce regulatory burdens, was only partially successful due to bureaucratic resistance and entrenched interests. However, this does not mean that progress cannot be made. Chief Ministers can take the lead by ensuring that criminal penalties apply only to serious violations, fraud, or actions that harm society. Minor errors—such as delayed filings or procedural mistakes—should incur a penalty instead of criminal charges. States such as Madhya Pradesh and Tamil Nadu have already initiated decriminalisation reforms, while others like Gujarat, Karnataka, and Odisha are exploring similar measures.
By retaining criminal provisions only for serious offences and replacing procedural or implementation errors and delays with penalties, heads of State can foster an environment where businesses can innovate without the constant fear of punitive consequences.
Digitisation: Streamlining Compliance Processes
Another major hurdle for businesses in India is the outdated, paper-based compliance system. Many compliance tasks are still carried out manually, leading to inefficiencies and errors. India’s Digital Public Infrastructure (DPI), which has been successful in areas such as welfare disbursements and vaccine certificates, can be leveraged to streamline business compliance processes.
A significant reform would be the establishment of State Employer Compliance Grids (SECGs), which would allow businesses to submit returns, apply for licenses, and receive approvals digitally. By reducing the reliance on paper-based systems, CMs can create a more efficient and transparent process. States such as Gujarat, Maharashtra, and Andhra Pradesh are already exploring the potential of SECGs, with full integration expected in the near future.
The digitisation of compliance systems would reduce the time and resources businesses spend on paperwork, allowing them to focus more on growth and innovation. It would also create a more transparent system that minimizes corruption and bureaucratic inefficiencies.
Rationalisation: Streamlining Civil Services for Efficiency
India’s civil service system is often seen as a source of inefficiency, with over 20 million civil servants working across various departments at the state level. Many government departments have overlapping functions, leading to delays and fragmented decision-making processes. To improve the business climate, Chief Ministers should focus on rationalising the civil service, reducing the number of departments, and eliminating unnecessary redundancies.
This reform would create a more agile and responsive government that can make decisions faster and adapt more quickly to the needs of businesses. Drawing inspiration from global models in countries such as Japan, the UK, and the US, India can streamline its administrative framework to improve governance. By reducing bureaucracy and making the decision-making process more efficient, state governments can better support businesses, accelerate policy implementation, and create a more dynamic business environment.
Conclusion: Laying the Groundwork for a High-Wage Economy
The future of India’s economy depends on creating an environment that supports high-wage employment, fosters innovation, and encourages business growth. Chief Ministers have a pivotal role to play in this process. By focusing on reforms in decriminalisation, digitisation, and rationalisation, they can help build an ecosystem that allows businesses to thrive.
These reforms would not only remove bureaucratic barriers but also foster competition, innovation, and economic growth. A simplified and efficient regulatory environment would attract high-wage employers, while a streamlined civil service would support faster decision-making and implementation of policies.
Through bold and decisive action, Chief Ministers can pave the way for a high-wage economy in India, benefitting businesses, workers, and citizens alike. By taking these steps, India can unlock its vast economic growth potential and position itself as a global leader in business innovation and high-wage job creation.
