Ease of Doing Business: The Need to Recognize ‘Enterprises’

 

Animay Singh
Simpliance COE

Biography

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Ease of Doing Business

Background

The Ease of Doing Business (EoDB) index is a ranking system established by leading economists at the World Bank Group. It ranks economies in increasing order of their ‘ease of doing business’, a formula that is based on the study of legal regulations in a nation. There are ten further subindices that affect the study of business regulations which are weighted to develop an overall ranking. It is important to note that not all regulatory requirements are covered as a part of this study. For example, regulations pertaining to the environment or intellectual property are not considered.

Amongst the 190 countries chosen for this index, India ranked 63rd according to a report released by the World Bank in 2020. The rationalization and codification of twenty-nine Central Labour Laws into four Codes as per the recommendations of the Second National Commission on Labour is another step towards improving India’s ranking in the ease of doing business index.

The above is seen in the streamlining of procedural requirements such as filing of returns and maintenance of registers. Another positive step taken is the digitization of the process of filings and registrations under the Code, a process that had been implemented partially with the existing laws.

Due to the above, corporate India is eagerly awaiting the implementation of these reforms as they seek to simplify a complex regulatory environment. There is a great deal of optimism surrounding the reforms and the clarity that they will bring to India’s regulatory environment pertaining to labour. However, there are still certain niggling concerns amongst large enterprises, which if addressed, would only further simplify compliance thereby improving our ease of doing business ranking.

One such concern is surrounding the lack of recognition for pan-India establishments under the Code. Large employers across India may still face a multitude of compliance requirements as each establishment, irrespective of its size, is required to submit returns, registers as well as register under the Code. This article shall examine recognition of today’s enterprises that are simply the aggregate of establishments. Establishments are the base units of compliance under the new labour Codes. This article examines how allowing compliance at enterprise level can enhance India’s ease of doing business with additional benefits to the Government as well.

The Definition of Enterprise and Its Benefits

The solution to the above conundrum is the introduction of a definition of enterprise that reads as follows:-

Enterprise means an organization or employer with establishments in more than one State or with one or more establishments in a State.

The above definition will ensure that large establishments are adequately covered by it. It will also ensure large employers in a single State are represented and regulated under the same. This definition may be supported by a provision that reads as follows:-

The employer of an enterprise shall choose a Head Office/Principal place of business for the purpose of Centralized registration under the Codes.

The above will ensure that large employers are able to file a single return and maintain a consolidated set of registers for all their establishments as well as maintain a single registration under the Code. The Central Rules supporting the Codes shall ensure that the single registration/return/register as the case may be contains the relevant particulars of each establishment under an enterprise.

The benefits of implementing the above not only relate to ease of doing business but are also in consonance with business practices. Most organizations have embraced IT and are consequently carrying out all their payroll and compliance activities from a central/head office. Thus, the above change would merely be recognizing a prevailing business practice.

Another major benefit is that the Government will be able to gather and track data more accurately as they will receive a single set of returns for a single enterprise. There will be no need to collate data from different establishments that, for all practical purposes, belong to a single entity. This will aid job creation efforts by making identification of vacancies easier and shall also operate as a check on the business practices of large employers.

Implementation of the Definition

While the preceding section offers a general overview of how the definition of enterprise would operate, this part of the article aims to dive deep into the manner in which the same may be implemented. Every topic under all the four Codes is governed by a particular appropriate Government. For certain topics, it is the Central Government whereas for others it is the State Government.

It is with this in mind that the author proposes that every enterprise must designate one office at the State level in every State, as its head office. These State head offices would be responsible for fulfilling compliance requirements where the State Government is the appropriate Government. Similarly, every enterprise would have a Central office that is responsible for fulfilling compliance requirements for all its establishments in the country. This would be with regards to compliance requirements where the Central Government is the appropriate Government.

The above shall provide enterprises with an internal structure when it comes to responsibility for compliance requirements. This will make identifying procedural lapses and non-compliances easier. Thereby making it easier for both an Inspector-cum-Facilitator under the Code or a representative of an enterprise to ensure that the same is rectified.

Conclusion

Thus, from the above it is clear that providing legal recognition to enterprises is beneficial not only for the enterprises themselves but also for the Government. The benefits may be summarized as follows:-

  • Increase in ease of doing business thereby improving India’s ranking on the index;

  • Centralized collection of data at the State and Union level respectively;

  • Reduced compliance burden for pan-India/large employers;

  • Easier identification of procedural lapses and non-compliance leading to faster rectification of the same;

  • Recognition of business practice that is already prevailing i.e., most companies already carry out payroll processes and compliance from a single centralized location;

  • Ease in collection of data for the appropriate Government as there will be no need to collate data of multiple establishments that effectively belong to a single entity;

  • Another step towards digitization and therefore transparency when it comes to ensuring labour compliance;

The reader might be prompted to think that an amendment would be necessary to implement the above. It is the author’s opinion that no such amendment is required and that a change in the draft Central Rules and relevant forms attached thereto would be sufficient to implement the above. This is because these are largely procedural matters and do not create any major change to the substantive portion of law under the Codes.

Another area the appropriate Government needs to address is digitizing the submission of relevant compliances. The portal must be enabled in a manner such that enterprises are able to upload large amounts of data pertaining to the establishments that they comprise of. This shall ensure that the recommended scheme is fruitful and achieves its objective of improving ease of doing business.

Do you think there is a need for the above to be implemented? Will the definition of enterprise impact your business/undertaking?

Drop your thoughts in the comments below.

Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney.
Simpliance makes no representations or warranties in relation to the information on this article.

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