New Delhi: The government has been trying to enhance the ease of doing business in India, but a new report has found that companies operating in the retail sector have to ensure that they comply with more than 3,000 regulations, with 37.5 per cent of these inviting jail-time in case of non-compliance.
The report by TeamLease Regtech, shared with ThePrint, found that a retail chain with multiple stores in multiple cities across more than one state has to comply with a total of 3,182 regulations that form a part of central and state-level laws. Of these compliances, 51.7 per cent are state-level while 48.3 per cent are central.
TeamLease Regtech provides compliance management software to companies.
The report noted that 37.5 per cent of the regulations (1,193) contained an imprisonment clause for non-compliance, and of these, more than half (56.8 per cent) were at the central level.
To be fair, the government is aware of the criminalisation of India’s business regulations and has been trying to address the issue. For instance, the Companies Act was decriminalised in September 2020, and proceedings have been started to decriminalise provisions of the Insolvency and Bankruptcy Code (IBC), among other efforts.
“As evidenced by the data, the implications of non-compliance can be severe,” the report said. “Hence, retail companies must focus on establishing strong control over their compliance obligations. Staying on top of the regulatory changes, filings, permissions, and approvals, among others, must assume priority in the company.”
It adds that the current business environment “reflects a sense of distrust and hostility” towards companies and “raises barriers to the seamless flow of innovation, wealth, and jobs in the economy”.
The compliance requirements encompass various areas such as labour, secretarial (corporate governance and risk management), finance and taxation, environment, health, and safety (EHS), and commercial (laws relating to the production of the good or service).
There are also compliance requirements for conducting timely audits, providing details of accounts, obtaining necessary certificates and licenses, meeting display requirements, ensuring employees’ health and safety, conducting adequate testing, maintaining regular records, filing timely returns, and making all statutory payments.
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No ease of compliance
A major problem highlighted by the report is that although so many regulations carry the provision of imprisonment for non-compliance, actually tracking the regulations and the changes constantly being made to them is a difficult, time-consuming task.
“A small retail company operating in a single state in India deals with at least 648 compliances in a year,” the report said. “As the company expands its geographical footprint, the number of applicable compliances multiplies significantly.”
“Most retail organisations in India find it challenging to track compliance,” it added. “The lack of a comprehensive and accurate list of applicable compliances adds to the difficulty in keeping up with the compliance requirements.”
Compounding this problem is the fact that India’s regulatory environment is highly fluid. That is, it changes almost on a daily basis.
Data with TeamLease Regtech showed that in the financial year 2022-23, there were about 6,000 regulatory updates that were published on 2,233 websites of the Union, state and local governments in the form of notifications, gazettes, circulars, ordinances, master circulars, and press releases.
“These updates typically lead to changes in forms, dates, timelines, frequencies, fines, interest rate calculations, applicability threshold values, and letters of the law, among others,” the report said. “Since these changes are often applicable almost immediately, they require a time-sensitive interpretation and implementation.”
The report pointed out that there is “no centralised repository of regulatory updates that provides national, real-time, comprehensive and personalised information on all changes that affect the compliance burden”.
“As a result, the compliance officers are often expected to periodically visit literally hundreds of websites to ensure that they are not missing any critical updates,” it added.
Not just govt to blame
While the blame for these compliance issues can possibly be laid at the feet of the government, some problems arise due to the actions of the retail companies themselves.
“Based on a recent survey conducted by TeamLease Regtech, it was discovered that the key managerial personnel (KMP) in Indian retail companies have a poor understanding of compliance obligations in over 75 per cent of the instances,” the report pointed out.
As a result, it said, these KMPs are often “unpleasantly surprised” when they receive show-cause notices, financial fines, and penalties, have their licences cancelled or permissions revoked.
“Most executives were found to have a very poor handle on the status of key compliances, dates, documentation and residual risk of non-compliance,” the report added.
Another major problem with the way the companies were handling their compliances was that they were doing it manually, rather than using software that was specialised and designed for the purpose.
“A typical mid-sized retail company deals with a few thousand compliances in a year,” the report said. “There are at least 50-100 people in different departments (human resources, finance and taxation, company secretarial, administration, environment, health and safety, warehouse, research and development, etc.) directly involved in day-to-day compliance functions.”
In addition to this, TeamLease Regtech said that most compliance officers in India’s retail companies often use spreadsheets to track the status of compliances manually.
“As a result, there are several instances where there are inadvertent misses, delays, lapses, defaults, expired licenses and missed legal updates,” the report said. “Therefore, it is not uncommon to see them (compliance officers) firefighting and highly stressed during regulatory audits.”
(Edited by Nida Fatima Siddiqui)
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