Answer

Introduction

In India, ease of doing business is often reduced to cutting red tape, but the deeper challenge lies in excessive criminalisation of minor violations. This overreach affects economic potential in multiple ways while also raising questions about the role of regulations.

Body

Impact of redundant and over-criminalized administrative rules on Economy

• Judicial Burden: Over-criminalisation clogs courts with minor cases, delaying justice in serious economic matters.
  Eg: ~5 crore pending cases relate to minor offences under the Jan Vishwas context.
• Business Uncertainty: Fear of criminal action for small lapses discourages risk-taking and investment.
  Eg: Penal provisions earlier caused “uncertainty and harassment” as noted by Shri Piyush Goyal.
• Rent-Seeking Scope: Discretionary enforcement powers create opportunities for corruption and harassment.
  Eg: MSMEs face coercive inspections for minor compliance gaps.
• Compliance Costs: Firms divert time and capital towards legal compliance instead of productivity and innovation.
• Informalisation Push: Excess penalisation discourages formalisation, shrinking the tax base.
  Eg: Street vendors avoiding licenses due to fear of punitive municipal actions.

Significance of Rules

• Consumer Protection: Regulations ensure product safety and environmental standards for public welfare.
• Market Discipline: Legal provisions deter unfair practices and ensure economic order.
  Eg: Under Income Tax Act, 1961, CBDT cracked down on shell companies cancelling registrations to curb tax evasion.
• Public Safety: Certain violations require strict deterrence to avoid societal harm.
  Eg: Under Environment Protection Act, 1986, CPCB ordered closure of polluting industries in NCR during severe air pollution episodes.
• Level Playing Field: Uniform rules ensure fair competition across firms and sectors.
  Eg: Goods and Services Tax Council created one tax regime (GST, 2017), eliminating interstate tax arbitrage.
• Accountability Check: Laws constrain arbitrary administrative actions and ensure rule of law.
  Eg: Motor Vehicles Act, 1988 introduced higher penalties, improving compliance and reducing traffic violations. 

Way Forward

• Decriminalisation Drive: Replace imprisonment for minor offences with monetary penalties.
  Eg: Jan Vishwas Bill removes imprisonment in 57 provisions.
• Case Withdrawal: Systematically review and withdraw non-serious pending prosecutions.
  Eg: DPIIT advisory urging departments to drop trivial cases.
• Trust Governance: Shift from inspector raj to trust-based, self-certification systems.
  Eg: Online compliance under Ease of Doing Business reforms.
• Graded Penalties: Differentiate between first-time and repeat violations to ensure proportionality.
  Eg: Warning for first noise pollution offence, stricter action thereafter.
• State Reforms: Encourage states to replicate decriminalisation for wider impact.
  Eg: Around 12 states have adopted Jan Vishwas-type reforms.

Conclusion

India’s economic potential depends on dismantling coercive regulatory excesses while preserving essential safeguards. Moving from fear-driven compliance to trust-based governance can unlock entrepreneurship, reduce litigation, and create a more resilient, innovation-driven economy.

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