damodaran committee report
TRANSCRIPT
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Report of theCommittee for
Reforming the
RegulatoryEnvironment for
Doing Business in
India
September,
2013
Ministry of Corporate Affairs
Government of India
As submitted to the Ministry on 2nd
September 2013
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Index
S.No. Chapter Page No.
Preface 3
Executive Summary andRecommendations
6
1. Introduction 172 Legal Reforms 233 Regulatory rc!itecture 2"# $oosting Efficacy of Regulatory Process
#.1 Regulatory Processes#.2 Regulatory Revie% ut!ority#.3 Regulatory Im&act ssessment
'RI(
3)
) Ena*ling +S+Es 6,6 ddressing State Level Issues 6#7 ction on t!e -orld $an Re&ort 7,
nnexures
nnexure I/ 0otification 'eneralircular 0o. 262,12 dated
23.,4.2,12( of t!e constitution of t!eommittee
nnexure II / 0otification 'ircular0o. 272,12 dated 2".,4.2,12( of t!econstitution of t!e ommittee
nnexure II $/ 0otification 'eneralircular 0o. 322,12 dated
1).1,.2,12( of t!e constitution of t!eommittee
nnexure III/ Executive Summary oft!e Inde&endent Panel Revie% of t!e5oing $usiness re&ort
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Preface
If all you !ave is a !ammer everyt!ing loos lie a
nail Suc! are t!e concerns relating to raising economicgro%t! t!at everyt!ing in t!e *usiness environmentseems to *e a candidate for reforms. Reforming t!e*usiness environment !as &roved to *e a Sisy&!eanconstruct t!at governments across t!e glo*e includingIndia are rolling u& t!e !ill.
In t!e Indian context t!e landsca&e of regulatoryenvironment is &rimarily an outcome of t!e division of
su*8ects %!ere t!e 9nion and t!e State governmentscould frame la%s as &rovided in t!e Sevent! Sc!eduleof t!e onstitution of India. :!is ma;e is furt!ert!icened *y t!e &let!ora of la%s and regulationt!erein %!ic! !ave sim&ly failed to ee& &ace %it!time. :!erefore t!e ommittee too a serious note oft!e &ro*lem of uired. :!e ommittee alsoo*served t!at a large &art of &ro*lem emanates fromt!e %ay t!e a&&ointments in t!e regulatory agenciesand also t!e organi;ational structure are made and!eld. ?n t!is count infusing &rofessionali;ation t!roug!rig!t selection and ca&acity *uilding are t!e ey issuest!e ommittee c!ose to focus on.
:!e ommittee also felt t!at t!e use of information
tec!nology 'I:( can *e one &ossi*le solution %!ereverinformation asymmetry adversely im&acts t!eregulatory environment. +ore effective use of I: canaddress multi&le &ro*lems suc! as access to correctinformation exc!ange of *est &ractices and so on.
-!ile enter&rises a*ove a t!res!old may !ave t!e%!ere%it!al to deal %it! t!e com&lex *usinessenvironment t!e ommittee looed into t!e issues of
small and medium enter&rises and felt t!at greater
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coordination amongst ministries and t!e &olicy maersis t!e need of t!e !our.
:!e ommittee %as set u& in res&onse to t!e
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Cinally I %is! to &lace on record my sincerea&&reciation to all t!e mem*ers of t!e ommittee fors!aring t!eir comments on an earlier draft of t!isre&ort. It is a matter of regret t!at some suggestions
arising out of t!e draft re&ort came in after t!e re&ort%as finalised. I also %is! to t!an t!e Indian Instituteof or&orate ffairs 'II( for &roviding t!e ommitteet!e re>uired su&&ort in conducting t!e *usiness of t!eommittee. :!is &reface %ould *e incom&lete if I donot acno%ledge t!e significant contri*ution of Prof.0avneet S!arma of II.
0e% 5el!i +. 5amodaranSe&tem*er 2 2,13 !air&erson
ommittee for Reformingt!e Regulatory Environmentfor 5oing $usiness in India
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Executive Summary and Recommendations
Executive Summary
In ugust 2,12 t!e +inistry of or&orate ffairs set u&
t!e ommittee for Reforming t!e Regulatory
Environment for 5oing $usiness in India. :!e &roximate
cause of t!e esta*lis!ment of t!e ommittee %as t!e
-ord $an=s 5oing $usiness Re&ort %!ic! raned India
amongst t!e countries raned at t!e *ottom of various
su*@indices. :!e ommittee %as su*se>uently
ex&anded to *ring in re&resentation from State
overnments Pu*lic Sector Enter&rises and Regulatory
$odies. :!e ommittee %as tased to loo into various
&arameters %!ic! affect t!e regulatory environment for
doing *usiness in India and mae a&&ro&riate
recommendations.
:!e ommittee !eld t%o meetings and soug!t in&uts
from t!e mem*ers. :!e deli*erations of t!e ommittee
!ave *een crystalli;ed in six t!ematic c!a&ters covering
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t!e dis&ute resolution arc!itecture of t!e regulatory
s&ace measures to *oost efficacy of regulatory
&rocess im&roving *usiness environment for micro
small and medium enter&rises addressing issues at t!e
state level and revisiting t!e re&ort of t!e -orld $an
Revie% Panel on 5oing $usiness Re&ort.
Recommendations
:!e Section &resents t!e recommendations made *y
t!e ommittee. :!e Recommendations are classified in
various !eadings namely 'a( legal reforms '*(
regulatory arc!itecture 'c( *oosting efficacy of
regulatory &rocess 'd( ena*ling +S+Es and 'e(
addressing state level issues.
Legal Reforms
1(Review of laws and regulations/ It isrecommended t!at t!e overnment of India as
also t!e State overnments examine t!e content
of all la%s and rules %!ic! im&act on t!e ease of
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doing *usiness and cause a&&ro&riate c!anges
t!erein to reflect t!e re>uirements of modern day
trade and commerce.
2(Encouraging arbitration to resolvecontractual disputes/ It is im&ortant t!at t!e
8udicial aut!orities are a&&reciative of t!e need for
>uic resolution of dis&utes t!at are *roug!t u&
*efore t!em. :!erefore it is recommended t!at
t!ere s!ould *e a mec!anism to dis@incentivise
use of civil courts for resolving contractual
dis&utes so as to encourage ar*itration as a
&referred manner of resolution. Curt!er it is also
recommended t!at a&&ro&riate measure may *e
taen u& to create a large &ool of &ersons trained
in t!e &rocess of ar*itration %!o could *e
a&&roac!ed *y contending &arties to tae u& t!eir
matter.
Regulatory Architecture
3(Carving out clear mandate for a newregulatory authority/ $efore setting u& a ne%
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regulatory organisation ade>uate t!oug!t s!ould
go into t!e need for suc! an organisation t!e
a*ility to man t!at organisation a&&ro&riately and
to invest it %it! functional autonomy. Setting u& a
ne% regulatory organisation s!ould not *e a nee@
8er res&onse to a s&ecific situation or context *ut
a %ell t!oug!t@out disengagement &lan of t!e
+inistry or 5e&artment concerned to move a%ay
from %riting out and im&lementing regulations.
#(Appointments in and supervision ofregulatory authorities/ :!e a&&ointment of
&ersons to !ead regulatory organisations s!ould
*e attem&ted in a far more trans&arent manner. It
is recommended t!at t!ere s!ould *e a
trans&arent system in %!ic! t!e Dead of t!e
regulatory organisation and !is $oard level
colleagues a&&ear *efore an a&&ro&riate
Parliamentary ommittee once in six mont!s to
re&ort on t!e develo&ments of t!e &revious six
mont!s and t!e *road &lan of action for t!e next
six mont!s.
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)(Autonomy of regulatory authorities/ enuinefunctional autonomy %ould also !ave to *e
reinforced %it! financial autonomy *y &utting in
&lace a system %!ere regulatory organisations are
not de&endent on government de&artments for
financial su&&ort *y %ay of !andouts.
6(Self evaluation by regulatory organizations::!e ommittee recommends t!at eac! regulatory
organi;ation s!ould undertae a self@evaluation of
itself once in t!ree years and &ut@out t!e
conclusions in t!e &u*lic domain for informed
discussion and de*ate.
oosting Efficacy of Regulatory Process
7(Ensuring effective consultation through a
two-stage process/ It is recommended t!at eac!
government organisation de&artment %!ic! !as
t!e res&onsi*ility of %riting regulations s!ould
undertae a t%o@stage &rocess of consultation
%!erein a revised draft is &ut u& for consultation
after t!e first round of stae!older consultation.
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:!is %ould ensure t!at t!e avoida*le situations of
misinter&retation of t!e regulations do not exist.
4(Allocating priority to systemic issues/ :o*oost t!e effectiveness of regulatory a&&aratus it
is recommended t!at enforcement *and%idt! of a
regulatory *ody need to *e o&timally used to deal
%it! cases of systemic im&ortance on a &riority
*asis.
"(Putting in place consent mechanism formatters of low significance8 It is recommended
t!at regulatory aut!ority may &ut in &lace a
settlement or consent mec!anism %it! ade>uate
safeguards %!ere cases %!ic! !ave no systemic
im&act are dealt in a summary manner. :!is %ould
!el& in dealing %it! large volume of matters of
systemically unim&ortant matters.
1,( rafting regulation/ It is necessary toensure t!at sim&licity and clarity s!ould inform t!e
content of regulation leaving no &art of it o&en to
different inter&retations *y different &ersons.
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11( System of advance ruling/ It !as *eennoticed t!at in a num*er of cases different
aut!orities !ave %ritten different often conflicting
rules and Regulations governing identical
activities t!us creating avoida*le confusion in t!e
regulated s&ace. :!erefore it is recommended
t!at every organisation tased %it! t!e %riting of
regulations s!ould !ave a &rovision for an advance
aut!ority for rulings.
12( Setting up regulatory review authority/It is necessary to address t!e existing *ody of
regulations 't!e stoc( in terms of contem&orary
relevance clarity and continuity. :!is tas is *est
accom&lis!ed *y creating a Regulation Revie%
ut!ority in eac! organisation t!at is em&o%ered
to %rite rules and regulations. Every organisation
%!ic! %rites regulations or ot!er forms of
su&&orting legislation s!ould !ave a Regulation
Revie% ut!ority to continuously examine t!e
stoc of existing regulations and to %eed out t!ose
t!at do not !ave any continuing use. :!e
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Regulation Revie% ut!ority s!ould *e %it!in t!e
organisation t!at %rites regulations in order to
!ave a *etter sense of understanding t!e context.
13( Reviewing the proposed regulations/ :!einternal Regulation Revie% ut!ority can also *e
given t!e tas of revie%ing draft regulations t!at
are in t!e &i&eline in order to ensure t!at
unnecessary regulations are not given effect to.
Every regulatory aut!ority ministry or de&artment
of t!e entral or State overnment involved in t!e
%riting of regulations s!ould !ave %it!in it a
Regulation Revie% ut!ority also tased %it! t!e
&revie% of intended regulations. Suc! a *ody is
*est e>ui&&ed to undertae t!e regulatory im&act
assessment %!ic! s!ould *e a condition
&recedent to t!e %riting of regulations.
1#( Regulatory !mpact Assessment "R!A#/ regulatory im&act assessment of every &ro&osed
regulation s!ould &recede t!e &u*lic consultation
&rocess.
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Ena!ling "S"Es
1)( Setting up a overarching body to enablepolicy and process coordination for $S$Es/
:o address t!e &ro*lem of lac of coordination in
terms of &olicy formulation and statutory
enforcements among various entral and State
overnments an overarc!ing *ody can *e set u&
at t!e !ig!est level to identify and address ey
issues im&eding *usiness facilitation and to
interface %it! relevant +inistries and 5e&artments
in order to address identified ey im&ediments in a
time@*ound manner.
16( Single window mechanism/ It is necessaryto !ave single %indo% c!annels of com&liance to
!el& small *usiness entities and also a !assle free
tax &ayment regime. s regards t!e ne% entrants
to t!e *usiness environment t!ere s!ould *e
facilitation centres to !el& deal %it! t!e
com&lexities of filling cum*ersome forms and
dealing %it! ot!er &rocedural issues.
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17( %ime bound decision ma&ing/ :!egranting of &ermissions or t!e decision not to
grant &ermissions s!ould *e taen %it!in a
&rescri*ed time &eriod failing %!ic! t!ere s!ould
*e a &rovision for deemed &ermission. It is
necessary t!at for every a&&roval to *e accorded
t!ere s!ould *e an outside time limit %it!
sti&ulation t!at if an a&&roval is not accorded or a
final decision of re8ection is not communicated
during t!at time &eriod t!ere %ill *e a
&resum&tion of a&&roval.
Addressing State Level Issues
14( !nformation facilitation through nodalpoint/ It is recommended t!at eac! State
overnment a&&oints a nodal &erson and a nodal
office %!ic! can *e t!e single &oint contact for
&ersons intending to o*tain information on t!e
&rocedural and su*stantive conditions to *e
fulfilled for setting u& a *usiness.
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1"( !ncentivising regulatory reformsamongst states/ -it! an urgent need *eing felt
to accelerate t!e &rocess of sim&lification of
regulations and conse>uently ex&editing t!e
necessary a&&rovals t!e ommittee recommends
t!at State overnments t!at mae significant
&rogress in t!is matter s!ould *e a&&ro&riately
incentivised.
2,( 'uilding in appellate process by design/:!ere s!ould *e *uilt into t!e system an a&&ellate
&rocess %!ere a &erson aggrieved *y an order of
re8ection may as a matter of rig!t a&&roac! a
su&erior aut!ority for reconsideration of t!e
matter on merits.
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Chapter #ne
Introduction
$. Introduction
1.1 It !as often *een said not %it!out reason t!atdoing *usiness in India is lie taing &art in an o*stacle
race %it! one material difference. In an o*stacle race
t!e num*er of o*stacles t!e nature of o*stacles and
t!e location of t!e o*stacles are no%n in advance.
1.2 :!is uncomforta*le realisation !as not led to aconcerted effort to identify t!e difficulties t!at are
encountered *y &ersons attem&ting to do *usiness in
India. :!e fact t!at setting u& a *usiness enter&rise in
India necessitates successfully overcoming several
su*stantive and &rocedural !urdles is not a secret. In
t!e recent &ast t!ere !ave *een attem&ts too fe% and
far *et%een to mae a %ort!%!ile im&act on im&roving
t!e ease of doing *usiness in India. t t!e same time
several ot!er countries faced %it! similar &ro*lems
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and een to attract *ot! domestic and foreign
investments !ave dismantled cum*ersome regulatory
structures and eliminated from t!e Statute $oos t!e
cts Rules and Regulations %!ic! !ave outlived t!eir
utility. :!e result is t!at India=s raning for t!e ease of
doing *usiness is at a dismally lo% level %!ic! does not
reflect t!e enormous &otential t!at India !as as an
investment destination. :!e annual raning of nations
%it! regard to t!e ease of doing *usiness is an exercise
t!at t!e -orld $an !as *een attem&ting for some
time. India=s very lo% raning in t!e recent re&orts !as
*een t!e &roximate cause for setting u& t!is ommittee
to revie% t!e regulatory environment to im&rove t!e
*usiness climate in India. co&y of t!e 0otification
constituting t!e ommittee is at nnexe@I to t!is
re&ort.
1.3 :!e &resent ommittee %as initially constituted%it! a &re&onderance of re&resentatives from t!e
&rivate sector. Recogni;ing t!at a com&re!ensive vie%
of t!e issues arising from t!e terms of reference could
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*e !ad only %it! t!e State overnments and t!e Pu*lic
Sector 9ndertaing *eing re&resented in t!e
ommittee t!e +inistry of or&orate ffairs %as
re>uested to enlarge t!e com&osition of t!e ommittee.
:!e mem*ers su*se>uently added to t!e ommittee
are listed in nnexure@II of t!is re&ort.
1.# Su*stantive and &rocedural matters %!ic!adversely im&act t!e gro%ing of *usiness in India can
*e attri*uted to a num*er of factors. !ief among t!em
are t!e multi&licity of aut!orities t!e &let!ora of
regulations t!e lac of clarity and t!e a*sence of
continuity. :!e &ro*lem is furt!er com&ounded *y
com&eting and often conflicting &ostures ado&ted *y
t!ose tased %it! t!e ensuring of orderly and non@
discriminative conduct in t!e matter of enforcement.
udicial system t!at !as not cro%ned itself %it! glory in
t!e matter of s&eed of dis&osals and an alternate
dis&ute resolution mec!anism %!ic! does not seem to
!ave delivered !ave only added to t!e com&lexity of
t!e &ro*lem. :!is ommittee !as *een tased to
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unravel t!e regulatory ma;e and to address issues t!at
are sector@neutral *ut !ave a significant *earing on t!e
ease of doing *usiness.
1.) -!en t!e ommittee set out on its tas it %as feltt!at if t!e vie%s of all stae!olders %ere to *e o*tained
in a &artici&ative environment it %ould *e necessary to
!old a num*er of meetings in different locations and
%it! re&resentative associations of different categories
of &ersons.
1.6 iven t!e time constraint of t!e mem*ers of t!eommittee t!is a&&roac! and t!e alternative of
constituting su*@grou&s of t!e committee to address
s&ecific as&ects of t!e :erms of Reference could not *e
&ursued. :!e ommittee !eld t%o meetings su*se>uent
to %!ic! t!e +em*ers of t!e ommittee %ere
re>uested to send t!eir considered vie%s in %riting to
t!e ommittee. :!is %as felt to *e a *etter alternative
to !aving a large num*er of meetings %!ic! given t!e
si;e and t!e com&osition of t!e ommittee %as leading
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to su*o&timal attendance. It %as felt t!at t!e %ritten
vie%s of t!e +em*ers could ca&ture t!e essential
concerns relata*le to t!e doing of *usiness in India and
a&&ro&riate solutions t!ereto. :!e near@total a*sence of
res&onses from t!e ommittee +em*ers !as given rise
to t!e inconvenient conclusion t!at t!e regulatory
environment eit!er does not cause t!e ind of &ro*lems
t!at it is *elieved to cause or t!e more uncomforta*le
conclusion t!at t!e &rescri&tive arrangements in t!e
regulatory environment %!ile *eing adversely
commented on are *eing got round *y t!e cor&orates
concerned.
1.7 It is recogni;ed t!at t!ere !ave *een someattem&ts in t!e &ast to loo at sector s&ecific issues
t!at im&act on t!e doing of *usiness. -!ile
recommendations arising from suc! efforts mig!t !ave
*een acce&ted in %!ole or in &art t!e rolling out of t!e
recommendations !as not *een to t!e desired extent
and at t!e desired &ace. In t!is re&ort %e !ave taen
note of some of t!e %or already done %!ile revisiting
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t!ose recommendations in t!e context of t!eir current
relevance. :!is re&ort is founded on t!e *elief t!at
recommendations informed *y &ragmatism and
grounded in contextual reality !ave t!e *est c!ance of
finding acce&tance and *eing im&lemented.
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Chapter %&o
Legal Reforms
2.1 ?ne of t!e areas of concern identified *y t!e-orld $an Re&ort on doing $usiness in India is t!e
undue delay in t!e enforcement of contracts. -!ile t!e
Re&ort focuses on t!e delayed enforcement of contracts
as a s&ecific area of concern it is considered
a&&ro&riate to vie% t!is as one sym&tom of a larger
&ro*lem. It is %idely acno%ledged t!at t!e reform
&rocess %!ic! got under%ay in t!e early 1"",s did not
em*race legal reforms. It does no credit to a country of
India=s si;e and standing t!at s!e is raned 143 out of
14# countries in t!e area of contract enforcement. It is
no secret t!at ourts in India suffer from a !uge
*aclog and a seemingly limitless inflo% of ne% cases.
:!at com*ined %it! some%!at dated &rocesses
involving multi&le levels of a&&eal results in an
extraordinary long time *eing taen for resolution of
sim&le commercial dis&utes. ma8or &art of t!e
&ro*lem is t!e fact t!at legal enactments %!ic! are
several decades old do not address t!e re>uirements of
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modern day trade and commerce. :!e setting u& of
s&ecial courts or exclusive courts is a necessary *ut not
a sufficient condition for im&rovement. It %ill *e
necessary for t!e overnment of India as also t!e State
overnments to examine t!e content of all la%s and
rules %!ic! im&act on t!e ease of doing *usiness and
cause a&&ro&riate c!anges t!erein
to reflect t!e re>uirements of
modern day trade and commerce.
2.2 E>ually im&ortant is t!e needfor udicial aut!orities to *e
a&&reciative of t!e need for >uic
resolution of dis&utes t!at are
*roug!t u& *efore t!em. case in
&oint is t!e large num*er of &ending cases under
Section 134 of t!e 0egotia*le Instruments ct. :!e
s!eer volume of suc! &endency ensures t!at cases tae
years to *e decided %!en t!e fact in issue is relatively
sim&le. large num*er of t!ese cases arise from t!e
dis!onouring of &ost@dated c!e>ues as and %!en t!ey
!t will be necessary for
the (overnment of !ndia
as also the State
(overnments to e)amine
the content of all laws
and rules which impact
on the ease of doing
business* and cause
appropriate changes
therein to reflect the
re+uirements of modern
day trade and commerce,
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are &resented for &ayment. &ost@dated c!e>ue is an
im&ortant instrument in *usiness and t!e seemingly
casual manner in %!ic! suc! c!e>ues are not !onoured
after t!ey *ecome due tends to reduce t!e legitimacy
of t!e instrument. s it is an offence under t!e
0egotia*le Instruments ct is com&lete only %!en t!e
dra%er of t!e c!e>ue after *eing &ut on notice
regarding t!e dis!onouring of t!e c!e>ue refuses to
mae good t!e amount during a &eriod of 1) days. In
most ot!er countries t!e offence is com&lete if a
c!e>ue is issued %it!out ade>uate funds to ena*le its
*eing !onoured. It is easy to a&&reciate t!at dis&utes
even after a notice &eriod of a fortnig!t %ill seriously
o*struct t!e smoot! flo% of trade and commerce. It is
very !eartening to note t!at t!e &resent !ief ustice
of India in !is first %ee in office !as identified t!e
&endency of suc! cases as a ma8or contri*utor to t!e
overall *aclog of cases in t!e Indian 8udicial system
and !as resolved to address it ex&editiously.
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2.3 It is im&erative t!at &ersons involved incommercial dis&utes s!ould *e encouraged to loo at
alternate dis&ute resolution as t!e &referred instrument
for settlement of suc! dis&utes. 0ot%it!standing t!e
relatively sim&ler &rocesses of ar*itration and
conciliation &arties to commercial dis&utes are even
no% &rone to a&&roac! civil courts for dis&ute
resolution. Since a contract *et%een &arties is an
agreed commercial relations!i& it
mig!t not *e a&&ro&riate to
mandate t!at all dis&utes s!ould
*e settled *y %ay of alternate
dis&ute resolution. Do%ever
t!ere s!ould *e a mec!anism to
dis@incentivise suc! &ersons from
a&&roac!ing courts so t!at t!ey are &ersuaded over
time to include ar*itration as an element of t!eir
contract.
2.# It is relevant to note t!at %!ile in t!eoryar*itration is ex&ected to result in >uicer resolution
%here should !e a
mechanism to dis'
incentivise use of
civil courts forresolving contractual
disputes( so as to
encourage ar!itration
as a preferred
manner of resolution.
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t!e reality is often different. r*itrators once
a&&ointed seem to *elieve t!at ar*itration is a timeless
never ending &rocess and as a result it !as *een
noticed in some cases t!at ar*itration &roceedings
tae longer t!an t!e determination of identical issues
*y a ivil ourt. :!ere oug!t to *e a large &ool of
&ersons trained in t!e &rocess
of ar*itration %!o could *e
a&&roac!ed *y contending
&arties to tae u& t!eir
matter. :!e &resent cro& of
ar*itrators com&rising largely
of retired udges and
su&erannuated E?s is !ardly an ade>uate instrument
for s&eedier ar*itration.
2.) not!er %elcome develo&ment in recent times ist!e effort *eing made *y t!e !ig!er udiciary and t!e
a&ex udicial training academy to &romote t!e
understanding of recent commercial enactments *y t!e
Presiding ?fficers of t!e lo%er courts. :!ere is
%here ought to !e a
large pool of persons
trained in the process
of ar!itration &ho
could !e approached
!y contending parties
to ta)e up their
matter.
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increasing evidence t!at t!e lo%er courts are *etter
e>ui&&ed today to deal %it! contentious commercial
dis&utes t!an t!ey %ere in t!e &ast. It is im&ortant to
*uild on t!is as&ect.
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Chapter %hree
Regulatory Architecture
3.1 0o discussion on t!e im&rovement of t!eregulatory climate in India can afford to ignore t!e
content and structure of regulatory organisations.
9nfortunately muc! of t!e de*ate and discussion on
regulatory organisations !as tended to focus on t!e
*acground and &ersonality of t!e !ead of t!e
regulatory organisation. Suc! a sterile de*ate does not
ena*le t!e understanding of t!e organisation=s
regulatory &!iloso&!y %!ic! significantly influences t!e
content and sco&e of regulations. India=s regulatory
arc!itecture is getting increasingly com&lex %it! t!e
setting u& of ne% regulatory *odies %!ic! are
inade>uately em&o%ered and insufficiently manned in
terms of *ot! num*ers and sills. -!ile it is *eyond t!e
&rovince of t!is re&ort to address t!e s&ecifics of
manning regulatory organi;ations t!e committee is
strongly of t!e vie% t!at *efore setting u& a ne%
regulatory organisation ade>uate t!oug!t s!ould go
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into t!e need for suc! an organisation t!e a*ility to
man t!at organisation a&&ro&riately and to invest it
%it! functional autonomy. :!e ex&erience of some
regulatory aut!orities !as *een t!at in t!e guise of
administrative accounta*ility functional autonomy
tends to get im&eded and conse>uently regulatory
organisations sometimes *egan to resem*le
su*ordinate offices of t!e overnment +inistries and
5e&artments.
3.2 Setting u& a ne% regulatory organisation s!ouldnot *e a nee@8er res&onse to a s&ecific situation or
context *ut a %ell t!oug!t@out disengagement &lan of
t!e +inistry or 5e&artment concerned to move a%ay
from %riting out and im&lementing regulations.
3.3 In order to reinforce t!e confidence of t!eregulated universe and ot!er stae!olders regulatory
organisations s!ould undertae a self@evaluation of
t!emselves once in t!ree years and &ut out t!e
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conclusions in t!e &u*lic domain for informed
discussion and de*ate.
3.# enuine functional autonomy %ould also !ave to*e reinforced %it! financial autonomy *y &utting in
&lace a system %!ere regulatory organisations are not
de&endent on government de&artments for financial
su&&ort *y %ay of !andouts.
strong and sustaina*le regulatory
organisation s!ould generate its
o%n funds in t!e form of fees and
&enalties su*8ect to suc!
safeguards as may *e &rescri*ed to
ensure t!at t!ere is no un8ust
enric!ment of t!e regulatory
organisation.
3.) Cunctional autonomy %it!outcorres&onding accounta*ility is a
sure reci&e for c!aos. Suc!
accounta*ility s!ould not *e on a continuing *asis to
%here should !e a
transparent system
in &hich the *ead of
the regulatory
organisation and his
oard level
colleagues appear
!efore an appropriate
Parliamentary
Committee once in
six months to report
on the developments
of the previous sixmonths and the
!road plan of action
for the next six
months.
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t!e administrative +inistry *ecause of t!e &erce&tion
often matc!ed *y reality t!at t!e regulatory
organisation is articulating t!e vie%&oint of t!e
concerned +inistry or 5e&artment. Instead t!ere
s!ould *e a trans&arent system in %!ic! t!e Dead of
t!e regulatory organisation and !is $oard level
colleagues a&&ear *efore an a&&ro&riate Parliamentary
ommittee once in six mont!s to re&ort on t!e
develo&ments of t!e &revious six
mont!s and t!e *road &lan of
action for t!e next six mont!s.
Suc! evidence as %ould *e given
*y t!e senior functionaries of t!e
regulatory organisation s!ould *e
in t!e &u*lic domain unless s&ecial circumstances
re>uire any &art of suc! evidence to *e e&t outside
t!e &u*lic domain.
3.6 Cunctional autonomy ensures t!e availa*ility of alevel &laying field for all entities irres&ective of
o%ners!i&. :!is %ill ensure t!at Pu*lic Sector
%he appointment of
persons to head
regulatory
organisations should!e attempted in a far
more transparent
manner.
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?rganisations %!ic! com&ete for *usiness %it! &rivate
sector organisations do not !ave t!e advantage of a
more li*eral &rescri&tive regime.
3.7 :!e a&&ointment of &ersons to !ead regulatoryorganisations s!ould *e attem&ted in a far more
trans&arent manner t!an is t!e case at &resent. :!e
&ractice of inviting a&&lications from interested
candidates and su*8ecting t!em to a &rocess of
intervie%s *y a &anel com&rising &ersons %it! no
familiarity %it! t!e regulatory organisation is t!e
surest %ay to cause loss of &u*lic confidence not only in
t!e &rocess *ut also in t!e organisation. :!e
res&onsi*ility attac!ed to suc! &ositions %ould seem to
necessitate t!at &ersons considered suita*le *y an
a&&ro&riately em&o%ered !ig! level committee s!ould
*e invited to !ead t!e organisations. :!e entire &rocess
s!ould *e trans&arent and s!ould over time re&licate
t!e &rocess follo%ed in some develo&ed countries
%!ere t!e suita*ility of t!e candidate concerned is t!e
su*8ect matter of informed &u*lic discussions *efore t!e
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a&&ointment is finalised. :o a&&oint an a&&licant or a
su&&licant to !ead a regulatory organisation is to
ensure t!e su*o&timal &erformance of t!e organisation
and its resultant loss of credi*ility.
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Chapter +our
oosting Efficacy of Regulatory Process
#.1 Cor a long time t!e *elief !ad &revailed t!atregulators alone s!ould decide t!e sco&e and content of
regulation. ?ver t!e years ex&erience !ad s!o%n t!at
a non@consultative &rocess ado&ted *y regulatory
*odies led to regulations %!ic! %ere eit!er
im&ractica*le of im&lementation or !ad no relevance to
t!e ra&idly c!anging environment of t!e regulated
universe. s inade>uacies on t!is account *egan to
surface it %as felt t!at t!e %riting of regulations s!ould
*e &receded *y a &rocess of effective consultation %it!
all stae!olders. s a conse>uence *arring a fe%
exce&tions t!e &ractice of &rior consultation t!roug!
a&&roac! &a&ers or t!e &utting out of draft regulations
!as *ecome t!e universal &ractice. 0ot%it!standing t!e
&rocess of consultation as &resently &ractised it !as
*een found t!at regulations often fall s!ort of t!e
desired o*8ective or are misdirected and give rise to
unintended conse>uences %it! negative im&lications.
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:!e &resent &ractice invaria*ly is to &ut out a
consultation &a&er setting out in considera*le detail
t!e ne% regulatory ground &ro&osed to *e covered or
t!e c!anges &ro&osed to *e made in t!e existing *ody
of regulations. 5uring t!e time availa*le for t!e
consultative &rocess t!e stae!olders are ex&ected to
res&ond %it! t!eir o*servations on any inade>uacies
t!at t!ey mig!t &erceive or any overreac! t!at t!ey
mig!t a&&re!end. fter t!e comments and o*8ections
are received and considered t!e regulatory *ody
&roceeds to finali;e t!e ne% set of regulations and to
*ring t!em into effect.
#.2 :!e consultation &rocess as descri*ed in t!e&receding &aragra&! often falls s!ort of t!e intended
o*8ective of ascertaining t!e vie%s of t!e stae!olders
and a&&ro&riately incor&orating in t!e regulations suc!
vie%s as are consistent %it! t!e stated o*8ective of t!e
&ro&osed regulation. +ore often t!an not it is noticed
t!at different sets of stae!olders %it! different
interests in mind res&ond in diametrically o&&osite
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fas!ion to t!e &ro&osed regulations. In suc! an event
it is not &ossi*le for t!e regulatory *ody to incor&orate
all t!e suggestions received and in t!e &rocess it may
*e a&&ro&riate to attem&t some !armonious
construction of seemingly conflicting vie% &oints
%it!out losing sig!t of t!e o*8ective of t!e regulation
concerned.
#.3 In order to mae consultation more meaningful itis necessary t!at after t!e first
round of consultations taes
&lace t!e regulatory *ody s!ould
attem&t a revised a&&roac! &a&er
accom&anied %!erever &ossi*le
*y a revised draft of t!e &ro&osed
regulations and t!en &ut out t!e revised &ro&osal for
&u*lic comment. -!ile suc! a t%o@stage &ro&osal mig!t
tae time and mig!t *e counter@&roductive in an
emergent situation it allo%s t!ose t!at !ave
commented on t!e first &ro&osal to tae note of !o%
many if any of t!eir suggestions are liely to find
A t&o'stage process
of consultation &ould
ensure that theavoida!le situations
of misinterpretation
of the regulations do
not exist.
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&lace in t!e revised regulations. In t!e a*sence of a
t%o@stage &rocess t!e stae!olders t!at send in t!eir
suggestions are often not a%are %!et!er t!eir
suggestions !ave *een taen into consideration t!oug!
not necessarily acce&ted. t%o@stage &rocess of
consultation %ould ensure t!at t!e avoida*le situations
of misinter&retation of t!e regulations do not exist. In
emergent cases not!ing %ould &revent t!e regulatory
*ody from giving effect to regulations to address t!e
&ro*lem on !and and simultaneously seeing
comments *y %ay of a &ost@decisional consultation
&rocess. Ceed*ac o*tained from regulators %ould
seem to indicate t!at t!ere is at *est lue%arm
res&onse to t!e draft &ro&osals &ut out in t!e &u*lic
domain for consultation. It %ould *e incum*ent on t!e
stae!olders to res&ond to t!e draft regulations %!ile
t!e &rocess of consultation is on rat!er t!an to
com&lain a*out t!e inade>uacies or t!e overreac! of
t!e regulations once t!ey are given effect to.
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#.# :!e effectiveness of a regulatory &rocess de&endsto a large extent on t!e enforcement of regulations.
-it! t!e economy gro%ing at a reasona*le rate and
%it! ne%er and ne%er activities and instruments !aving
to *e dealt %it! *y regulatory organisations it is
entirely liely t!at t!e num*er of enforcement actions
%ould *e far too many for any organisation to !andle
ex&editiously. It is also %ell@no%n t!at t!e
disincentivisation of ina&&ro&riate conduct *y
regulatory entities s!ould involve *ot! timely and
effective action. It is *eyond t!e ca&a*ility of most
organisations to dis&ense >uic and effective 8ustice
!aving regard to t!e large num*er of cases t!at t!ey
are o*liged to deal %it!. :!is is com&ounded *y t!e fact
t!at in an atmos&!ere of distrust and lac of
confidence regulatory organisations often tae u&
matters in a c!ronological order %it! t!e result t!at
smaller transgressions often get &recedence over
instances of larger misconduct. :!is is furt!er
com&ounded *y t!e fact t!at %!enever an investigation
is commenced regulatory aut!orities are some%!at
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!esitant to dro& t!e investigation for fear t!at some
external agency often %it! t!e *enefit of !indsig!t
%ould decide t!at t!e *ona fide error of 8udgment is a
mala fide decision. :!is can *e &artially addressed *y
t!e existence of a settlement or consent mec!anism
%it! ade>uate safeguards %!ere cases %!ic! !ave no
systemic im&act are dealt %it! in a summary manner.
:!e ex&erience already availa*le
in regard to t!e consent sc!eme
%it! one of t!e sectoral
regulations in t!e area of finance
s!ould *e studied so t!at similar
sc!emes %it! ade>uate
safeguards can *e introduced to
deal %it! t!e large volume of systemically unim&ortant
matters. :!is in turn %ould lead to t!e &ossi*ility of
>uic and !o&efully deterrent &unis!ment in &roven
cases t!at are of systemic im&ortance %it! t!e
signalling effect t!at is needed for t!e regulated
universe.
It is necessary to
ensure that
enforcement
!and&idth of a
regulatory !ody is
optimally used to
deal &ith cases of
systemic importance
on a priority !asis
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#.) Ex&erience !as s!o%n t!at on a num*er ofoccasions and across sectors t!ere !as *een
disconnect *et%een t!e intent of a &ro&osed legislation
and t!e manner in %!ic! it is understood *y t!e
regulated entity. :!is often !a&&ens *ecause of t!e
inelegant manner in %!ic! regulations are drafted.
9nless t!is is addressed t!ere %ould *e a &let!ora of
un&roductive litigation leading
to loss to *ot! t!e &rotagonists
in t!e dis&ute. &lain reading
of some of t!e regulations
drafted in recent times %ould
reinforce t!e vie% t!at
Flanguage %as given to man to
conceal !is t!oug!t and not to
ex&ress it.F 0ot%it!standing every attem&t to *ring
a*out sim&licity and clarity in t!e content of regulation
it is still necessary to &rovide for a mec!anism t!roug!
%!ic! &otential dis&utes in inter&retations can *e
addressed. :!ere are ministries and de&artments %!ic!
!ave set u& aut!orities for advance rulings %!ic! can
It is necessary to
ensure that simplicity
and clarity should
inform the content of
regulation( leaving nopart of it open to
different
interpretations !y
different persons.
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*e a&&roac!ed *y &ersons %!o are not clear a*out t!e
a&&lica*ility of a &articular regulation or a set of
regulations to an activity %!ic! t!ey intend to
undertae. In order to infuse confidence in t!e
regulated universe it is necessary
t!at every organisation tased
%it! t!e %riting of regulations
s!ould !ave a &rovision for an
advance aut!ority for rulings so
t!at &otential transgressions can
*e avoided and *usiness ventures can *e undertaen
%it!out a lingering dou*t a*out t!e legality of any
as&ect of t!e &ro&osed venture. :!e system of
informed guidance *eing not of a *inding nature is a
&oor su*stitute and s!ould *e done a%ay %it!. :!e
setting u& of an dvance ut!ority for Rulings is *y
itself not a com&lete solution. It s!ould *e incum*ent
on t!e ut!ority to give an o&inion on t!e issue raised
*efore it %it!in a &rescri*ed time. It s!ould also *e
incum*ent on t!e aut!ority to give a clear indication of
its vie% on t!e issue in >uestion %it!out &revarication
It is necessary that
every organisation
tas)ed &ith the
&riting of regulations
should have a
provision for an
advance authority for
rulings
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or fence@sitting. Suc! rulings given *y t!e ut!ority
could *e on a Gno nameG *asis so t!at %!en it is &ut out
in t!e &u*lic domain for t!e information of all
concerned no confidential *usiness information relating
to t!e entity t!at soug!t a ruling %ill *e made &u*lic.
Regulatory Review Authority
#.6 In an ideal %orld %it! unlimited resources and%it! all individuals and institutions *e!aving in a
manner consistent %it! &u*lic interest cts Rules and
Regulations %ould *e avoida*le irritants. Do%ever
since t!e real %orld is as different from t!e ideal %orld
as c!al is from c!eese it is necessary to !ave a *ody
of statutory enactments and su&&orting legislation to
regulate !uman and institutional conduct. In t!e
a*sence of suc! determination of conduct t!ere %ill *e
a tendency to tae avoida*le s!ortcuts t!at serve
&rivate good at t!e ex&ense of &u*lic interest and
national goals and o*8ectives. :!e num*er and
com&lexity of regulations and t!e fre>uency %it! %!ic!
ne%er and ne%er regulations are *eing s&rung on an
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unsus&ecting &u*lic often leads to suc! a frame%or
%!ic! is a &art of t!e &ro*lem and not a &art of t!e
solution. :!e Indian ex&erience clearly !as *een t!at
t!ere are more la%s rules and regulations t!an t!e
country needs and t!e &ro*lem often lies in inade>uate
im&lementation com&ounded *y inter&retational
confusion. :!e ex&erience of t!e last fe% decades !as
*een t!at %!en confronted %it! a &ro*lem t!e
res&onse of t!e overnment or t!e regulator !as *een
to eit!er create a ne% institution or to %rite ne%
regulations. ?ften t!ese are nee 8er res&onses to
some isolated occurrence t!at could !ave *een solved
%it!in t!e existing frame%or of la%s and regulations.
#.7 :!e facts of t!e Satyam om&uters case illustratet!e &oint. -!en t!e founder !airman of t!e om&any
disclosed to t!e regulators and to t!e exc!anges t!at
t!e num*ers t!at %ere &ut out in t!e &u*lic domain
>uarter after >uarter did not reflect t!e correct state of
affairs of t!e om&any t!e res&onse of ot!er%ise
normally %ell@informed &ersons %as t!at ne%
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regulations s!ould *e %ritten to address t!e issue t!at
!ad surfaced. :!e demand for ne% regulations arose
even from sections of cor&orate India normally averse
to any additional regulations. :!e fact t!at t!e case in
>uestion manifested dis!onesty and t!at t!ere %as no
regulatory ga& %as lost sig!t of as %as t!e trut! of t!e
statement t!at no system can legislate for !onesty.
#.4 t t!e ot!er end of t!e s&ectrum is t!e interestingcase of a large 9S om&any %!ic! >uestioned t!e need
for a ne% accounting treatment t!at t!e Securities and
Exc!ange ommission 'SE( !ad soug!t to introduce
t!roug! a consultative &rocess. :!e om&any
contended t!at given its several strengt!s suc! as good
la%yers accountants systems &rocesses and t!e lie
it did not need a ne% regulation to determine its
conduct. fe% mont!s later t!e om&any ex&loded
%it! &oor governance identified as t!e single *iggest
contri*utor to its demise. :!is more t!an most ot!er
cases demonstrates t!e need for some regulations to
guide !uman and institutional conduct.
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#." Daving regard to IndiaGs federal setu& t!ere are anum*er of &o%ers and functions vested %it! t!e State
overnment a&art from t!ose t!at reside %it! t!e
9nion overnment. :!e exercise of t!ese &o%ers and
functions necessitates t!e %riting of Rules and
Regulations as %ell as t!e
enactment of la%s. In addition
t!ere are regulatory and
administrative *odies em&o%ered
to %rite regulations t!e rig!t for
%!ic! is derived from t!e
legislature. It !as *een noticed
t!at in a num*er of cases different
aut!orities !ave %ritten different
often conflicting Rules and
Regulations governing identical activities t!us creating
avoida*le confusion in t!e regulated s&ace. iven t!is
confusion and uncertainty it *ecomes extremely
difficult for individuals or institutions to tae investment
decisions. :!e fact t!at t!ese regulations are revisited
It has !een noticed
that in a num!er of
cases different
authorities have
&ritten different(
often conflicting(
rules and Regulationsgoverning identical
activities( thus
creating avoida!le
confusion in the
regulated space.
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and revised fre>uently creates a climate of uncertainty
in %!ic! t!e investors and even advisors do not no%
%!at la%s are in vogue. dded to t!is is t!e &ro*lem of
clumsy drafting t!at creates dou*ts and difficulties
leading to t!e esta*lis!ment of an inter&retation
industry.
#.1,:!e &ro*lem of regulation isa &ro*lem of *ot! stoc and flo%.
It is necessary to address t!e
existing *ody of regulations 't!e
stoc( in terms of contem&orary
relevance clarity and continuity.
:!is tas is *est accom&lis!ed *y
creating a Regulation Revie%
ut!ority in eac! organisation t!at is em&o%ered to
%rite rules and regulations. It %ould *e t!e &rimary
res&onsi*ility of suc! an ut!ority to examine in
consultation %it! all stae!olders %!et!er an existing
rule or regulation !as outlived its utility. In t!e &rocess
regulations re@%ritten at different &oints of time on
It is necessary to
address the existing!ody of regulations
,the stoc)- in terms
of contemporary
relevance( clarity and
continuity. %his tas)
is !est accomplished
!y creating a
Regulation Revie&
Authority in each
organisation that is
empo&ered to &rite
rules and regulations.
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different as&ects of t!e same su*8ect can *e collated
%it! all &revious regulations on t!e su*8ect. :!is
exercise %ould address t!e issue of multi&licity of
regulations as %ell as contem&orary irrelevance of
some regulations.
#.11It !as *een *roug!t out earlier in t!is re&ort t!att!e ex&losive gro%t! in t!e num*er of regulations is
one of t!e ma8or constraints to doing *usiness in India.
Rarely if ever do institutions
and regulatory *odies tased
%it! t!e res&onsi*ility and
endo%ed %it! t!e &o%er to %rite
regulations revisit any
regulations of t!e &ast to assess
t!eir continuing relevance. :!e
ex&eriment %it! t!e setting u& of
a Regulation Revie% ut!ority *y
t!e Reserve $an of India in
India and aut!orities else%!ere
!ave yielded considera*le *enefits *ot! in terms of
%he Committee is of
the firm opinion thatevery organisation
&hich &rites
regulations or other
forms of supporting
legislation should
have a Regulation
Revie& Authority to
continuously examine
the stoc) of existing
regulations and to
&eed out those that
do not have any
continuing use.
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%eeding out regulations t!at are &ast t!eir s!elf@life
and in refining regulations t!at continue to *e relevant.
:!e ommittee is of t!e firm o&inion t!at every
organisation %!ic! %rites regulations or ot!er forms of
su&&orting legislation s!ould !ave a Regulation Revie%
ut!ority to continuously examine t!e stoc of existing
regulations and to %eed out t!ose t!at do not !ave any
continuing use. :!ere !ave often
*een o&inions ex&ressed t!at
suc! an ut!ority s!ould *e
esta*lis!ed outside of t!e
institution t!at %rites
regulations in order to ensure
o*8ectivity. :!e ommittee is
!o%ever &ersuaded t!at t!e Regulation Revie%
ut!ority s!ould *e %it!in eac! organisation t!at %rites
regulations in order to !ave a *etter sense of
understanding t!e context in %!ic! t!e regulations
%ere %ritten and to contextually assess t!eir continuing
relevance. Locating suc! a *ody outside regulatory
organisations could result in a cavalier a&&roac! arising
%he Regulation
Revie& Authority
should !e &ithin the
organisation that
&rites regulations in
order to have a !ettersense of
understanding the
context.
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from a lac of o%ners!i& in regard to t!e regulations.
n internal Regulation Revie% ut!ority can also *e
given t!e tas of revie%ing draft regulations t!at are in
t!e &i&eline in order to ensure t!at unnecessary
regulations are not given effect
to. +aing t!e Regulations
Revie% ut!ority also &erform
t!e function of revie%ing
&ros&ective Regulations could
ensure t!at unnecessary
regulations do not come into
*eing in order to cro%d t!e
already cro%ded regulatory landsca&e.
#.12:!e fre>uency %it! %!ic! regulations areamended and ne% regulations *roug!t into effect !as
an unsettling effect on t!e conduct of *usiness. It is
legitimate to &resume t!at &ersons %!o invest in
*usiness ventures %ould lie to !ave a clear idea of t!e
regulatory environment in %!ic! t!eir *usinesses exist
and function. s in t!e case of legislation it is
An internal
Regulation Revie&
Authority can also !e
given the tas) ofrevie&ing draft
regulations that are
in the pipeline in
order to ensure that
unnecessary
regulations are not
given effect to.
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im&ortant to ensure t!at t!ere is continuity and clarity
in t!e content of regulation. It !as *een noticed t!at
very often regulations are *roug!t into effect in order
to address a single instance of transgression or
misdemeanour or even non@com&liance intentionally
or ot!er%ise %it! t!e content or form of existing
regulations. In some cases it is entirely &ossi*le t!at a
constructive inter&retation of existing regulations could
address t!e &ro*lem on !and. Het regulatory
aut!orities %orld%ide !ave *een no%n to %rite ne%
regulations as a nee8er reaction to some solitary
instance of non@conformist *e!aviour.
Sunset Provisions in Regulation
#.13
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#.1#Sunset &rovisions !ave *een used in varyingcontexts and t!erefore differ greatly in t!eir details
!o%ever t!ey s!are t!e common *elief t!at it is useful
to com&el t!e legislature or t!e regulator to &eriodically
re@examine its delegations of aut!ority and to assess
t!e utility of t!ose delegations in t!e lig!t of
ex&erience. :!ere are t%o ty&es of
sunset &rovisions %!ic! !ave *een
o*served in &ractice in different
8urisdictions. In some instances t!e
statute creating a &articular
dministrative Regulatory gency
contains a sunset &rovision
a&&lica*le only to t!at agency. In ot!er instances a
state may enact a general sunset la% t!at may
eliminate any agency t!at is una*le to demonstrate its
effectiveness. In t!is lig!t t!e ommittee is of t!e vie%
t!at t!e entral and State governments and Regulatory
$odies s!ould consider a sunset &rovision %!ile
enacting a ne% la% or creating a ne% agency or
&rescri*ing a ne% regulation.
%he Central and State
governments and
Regulatory odies
should consider a
sunset provision
&hile enacting a ne&
la& or creating a ne&agency or prescri!ing
a ne& regulation.
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#.1):!e *asic &!iloso&!y in t!e regulatoryenvironment oug!t to *e not more regulations *ut
*etter regulation. In ot!er %ords instead of %riting out
ne% regulations at every conceiva*le o&&ortunity and
creating confusion t!ere oug!t to *e *etter
enforcement of existing regulations.
#.16In order to ensure t!at ade>uate t!oug!t goesinto ne% regulations it is reiterated t!at every ministry
of t!e entral overnment every de&artment of t!e
State overnment and every regulatory aut!ority !as
%it!in it a Regulation Revie% ut!ority. :!e tas of t!e
Regulation Revie% ut!ority %ould also extend to t!e
scrutini;ing of &ros&ective regulations *efore t!ey are
given effect to. In doing so t!e Regulation Revie%
ut!ority %ould also function as a regulation &revie%
aut!ority. It %ould *e for t!e aut!ority to examine
%!et!er any existing regulation eit!er in its &resent
form or %it! some modification can address t!e
o*8ective soug!t to *e attained t!roug! t!e &ro&osed
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ne% regulation. It is only %!en t!e aut!ority is satisfied
t!at t!e &ro&osed o*8ective cannot *e met *y any
existing regulation t!at it s!ould accord clearance to
t!e *ringing into effect of any ne% regulation. Suc! an
arrangement %ill ensure t!at ne% regulations do not
*ecome a fre>uent feature of t!e regulatory
environment.
RE(.A%/R0 !$PAC% ASSESS$E1%
#.17:!e seemingly mindless ex&losion of regulationsim&acting seriously on management time and cost !as
created a negative &erce&tion of t!e regulatory
environment in %!ic! *usiness is conducted. +ost
develo&ed countries !ave &ut in &lace a formal system
of regulatory im&act assessment 'RI( in order to
determine %!et!er t!e effort involved and t!e costs
re>uired to *e incurred are commensurate %it! t!e
results soug!t to *e ac!ieved. :!e regulated universe is
continuously c!anging in regard to &artici&ants
&roducts instruments and &rocesses %it! t!e
attendant attri*utes of si;e and t!e com&lexity t!at
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t!ey engender. :!is c!allenge is *eing addressed more
often t!an not *y increased fre>uency of regulations
often resulting in regulatory overreac!. m*itious in
sco&e and ex&ansionist in effect many regulations are
a clear case of *iting of more t!an one can c!e%. In
suc! a situation it *ecomes im&erative to &ut in &lace a
formal system of regulatory im&act assessment.
#.14Else%!ere in t!is re&ort t!e ommittee !asrecommended t!at every regulatory aut!ority ministry
or de&artment of t!e entral or State overnment
involved in t!e %riting of regulations s!ould !ave %it!in
it a Regulation Revie% ut!ority also tased %it! t!e
&revie% of intended regulations. Suc! a *ody is *est
e>ui&&ed to undertae t!e regulatory im&act
assessment %!ic! s!ould *e a condition &recedent to
t!e %riting of regulations. Suc! an assessment %ill
include inter alia a clearly articulated statement of t!e
need for t!e action *eing &ro&osed and t!e
s!ortcomings in t!e system in t!e a*sence of suc!
action. It %ill *e re>uired to address alternatives rat!er
t!an to ado&t a *inary a&&roac! to a s&ecific regulatory
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&ro&osal. ?ne of t!e alternatives could also *e t!at no
action is re>uired *y %ay of fres! regulations.
#.1"It is useful to remem*er t!at regulations aresoug!t to *e 8ustified in t!e
name of t!e &rotection of t!e
consumer %!et!er s!e is an
investor &olicy !older
de&ositor or reci&ient of any
service or &roduct.
om&liance %it! regulations is
never cost@free. It %ould *e
futile to ex&ect t!e &roviders
of &roducts or services to
a*sor* t!e costs of regulation.
Resultantly suc! costs are
met *y t!e reci&ients of t!e
&roduct or service in %!ose
name regulations are soug!t
to *e %ritten. :!e fact t!at t!e &erson %!ose interest is
soug!t to *e &rotected is t!e one %!o in t!e ultimate
Every regulatory
authority( ministry or
department of theCentral or State
overnment involved
in the &riting of
regulations should
have &ithin it a
Regulation Revie&
Authority also tas)ed
&ith the previe& ofintended regulations.
Such a !ody is !est
e/uipped to
underta)e the
regulatory impact
assessment ,RIA-(
&hich should !e a
condition precedent
to the &riting of
regulations.
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analysis meets t!e cost is a sufficiently &ersuasive
reason for undertaing a rigorous regulatory im&act
assessment.
#.2,It is sometimes argued t!at all *enefits are notnecessarily >uantifia*le and t!erefore regulatory
im&act assessment is an incom&lete exercise. -!ile
recogni;ing t!at every *enefit cannot *e >uantified it is
necessary to tae t!e vie% t!at a &ro&er a&&reciation of
t!e non@>uantitative *enefit soug!t to *e conferred on
t!e &rotected class s!ould lead
to a sufficiently satisfactory
regulatory im&act assessment.
#.21It must also *e recogni;edt!at t!e %riting of regulations
im&oses an additional
res&onsi*ility and a
conse>uent *urden on regulatory organisations.
-riting out regulations is t!e easier &art. Pro&erly
enforcing an increasing num*er of com&lex regulations
It must !e recogni0ed
that self'regulation in
the hands of an
industry !ody or a
professional
mem!ership !ody
often results in no
regulation !eing
enforced.
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%ould necessitate ca&acity@*uilding of a !ig! order
%it!in regulatory organisations suc! ca&acity@*uilding
*eing *ot! in terms of more &ersons and *etter and
more relevant sill@sets. :!e &let!ora of regulations
t!at regulated entities !ave to contend %it! often
&rom&ts t!e res&onse t!at it is *etter to *e free of all
external regulations. :!e &ro&onents of self@regulation
often argue t!at it %ould *e *ased on a *etter
understanding of ground realities and %ould *e *etter
targeted to meet t!e needs of t!e concerned sector. It
must *e recogni;ed t!at self@
regulation in t!e !ands of an
industry *ody or a &rofessional
mem*ers!i& *ody often results
in no regulation *eing enforced.
:!e &remise t!at regulations
exist to &rotect t!e %eaer &arty in a contractual
relations!i& s!ould not *e lost sig!t of %!ile maing a
case for self@regulation %it! attendant conflicts t!at are
difficult to manage.
A regulatory impact
assessment of every
proposed regulation
should precede the
pu!lic consultation
process
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#.22 regulatory im&act assessment of every &ro&osedregulation s!ould &recede t!e &u*lic consultation
&rocess %!ic! !as *een dealt %it! else%!ere in t!is
re&ort. :!is %ould lead to fe%er regulations %it! more
of t!em *eing more &roductive and &ur&oseful t!an at
&resent.
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,
Chapter +ive
Ena!ling "S"Es
).1 +S+Es &lay a very significant role in t!e Indianeconomy. 9nless t!eir concerns are addressed many of
t!em %ould *ecome uneconomic units and t!ere %ould
*e very fe% &ersons %illing to venture into t!is area of
*usiness.
).2 :!e first &ro*lem t!at +S+Es face is a lac ofcoordination in terms of &olicy formulation and
statutory enforcements among various entral
+inistries and State overnments. :!is could *e
addressed *y setting u& an overarc!ing *ody at t!e
!ig!est level to identify and address ey issues
im&eding *usiness facilitation and to interface %it!
relevant +inistries and 5e&artments in order to address
identified ey im&ediments in a time@*ound manner.
:!e State overnments and concerned entral
+inistries as %ell as re&resentatives of +S+Es could *e
t!e mem*ers of t!is over@arc!ing *ody.
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).3 Cor a relatively small *usiness unit t!e multi&lec!annels of com&liance im&ose not only a !uge
financial cost *ut also strain t!e management
*and%idt! availa*le to suc! entities. It is necessary to
!ave single %indo% c!annels of com&liance to !el&
suc! small entities and also a !assle free tax &ayment
regime.
).# Insolvency is yet anot!er matter %!ic! needs to*e addressed ex&editiously. "7 of +S+Es are
&ro&rietors!i& firms or &artners!i&s and do not !ave an
ade>uate recourse for %inding u& t!e *usiness under
t!e om&anies ct. Similarly t!ere are no *anru&tcy
la%s ain to t!ose &revailing in develo&ed countries to
facilitate t!e %inding u& of uneconomic units in an
orderly fas!ion.
).) s far as a ne% entrant to t!e *usinessenvironment is concerned !e or s!e %ould *e *est
served if t!e %e*sites of t!e a&&ro&riate nodal
de&artments of t!e various overnments contain
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detailed information regarding t!e num*er of
clearancesa&&rovals re>uired t!e aut!ority %!ic!
accords suc! clearances t!e documentation and ot!er
&rocedural re>uirements necessary for o*taining t!e
a&&rovals t!e time liely to *e taen for o*taining suc!
a&&rovals and t!e aut!orities %!o may *e a&&roac!ed
in t!e event of any grievance. :!ere s!ould also *e
facilitation entres to !el& suc!
a&&licants to deal %it! t!e
com&lexities of filling
cum*ersome forms and dealing
%it! ot!er &rocedural issues. It
%ould also *e extremely !el&ful
if every aut!ority vested %it!
t!e &o%ers of granting a&&roval &uts on its %e*site a
com&re!ensive list of t!e reasons for %!ic! a&&rovals
are liely to *e %it!!eld. :!is %ould ensure t!at an
a&&licant for setting u& a *usiness can address all
identified &rocedural and su*stantive s!ortcomings in
!is or !er &ro&osal *efore su*mitting t!e a&&lication for
a&&roval. :!e granting of &ermissions or t!e decision
%here should also !e
facilitation Centres to
help such applicants
to deal &ith the
complexities of filling
cum!ersome forms
and dealing &ith
other procedural
issues.
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not to grant &ermissions s!ould *e taen %it!in a
&rescri*ed time &eriod failing %!ic! t!ere s!ould *e a
&rovision for deemed &ermission. In some states
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Chapter Six
Addressing State Level Issues
6.1 In attem&ting to im&rove t!e regulatoryenvironment in India it is necessary to focus on t!e
im&ortant role of t!e State overnments. large
num*er of regulations t!at im&act t!e doing of *usiness
in India &ertain to su*8ects or functional areas %!ic!
are %it!in t!e &rovince of t!e State overnments as
&er t!e se&aration of &o%ers &rovided for in t!e
onstitution of India. vaila*le information &oints to
t!e fact t!at %!ile some State overnments !ave
devoted ade>uate attention to reducing t!e com&lexity
of regulation and are moving in t!e direction of single
%indo% clearance mec!anism some ot!ers continue to
!ave multi&le aut!orities %it! overla&&ing functions
leading to a large num*er of a&&rovals *eing re>uired
for setting u& a *usiness. s is clearly t!e case in suc!
a situation t!e a&&ro&riate administrative aut!ority
t!at taes t!e longest time to accord a&&roval or
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clearance determines t!e ease or t!e lac t!ereof of
doing *usiness %it! t!at
State.
6.2 Curt!er t!ere is nosingle source of information
from %!ic! a &erson
intending to set u& *usiness
can ascertain t!e num*er and
nature of a&&rovals re>uired. :!e limited sources of
information t!at are availa*le often do not reflect t!e
current &osition. ?utdated information causes as muc!
difficulty as t!e a*sence of t!e information. -e*sites
are often not u&dated and as a conse>uence
sometimes tend to mislead rat!er t!an inform. -!ile
t!e ommittee is strongly of t!e vie% t!at a tendency
to set u& ne% organisations and institutions s!ould *e
avoided it is necessary for eac! State overnment to
!ave a nodal &erson and a nodal office %!ic! can *e
t!e single &oint contact for &ersons intending to o*tain
%he appropriate
administrative
authority that ta)es
the longest time to
accord approval or
clearance determines
the ease( or the lac)
thereof( of doing
!usiness &ith thatState.
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information on t!e &rocedural and su*stantive
conditions to *e fulfilled for
setting u& a *usiness.
6.3 5uring t!e ommitteeGsdeli*erations t!e >uestion arose
%!et!er State overnments
s!ould *e incentivised for
sim&lifying t!e regulatory
structure reducing t!e num*er of
regulations and re%riting t!em in
sim&ler language t!an at &resent. ?ne vie% %!ic! is
not %it!out merit is t!at t!e additional *usiness t!at a
State overnment %ould attract *y revam&ing t!e
regulatory environment s!ould itself incentivise t!e
State overnment to move in t!at direction. Do%ever
%it! an urgent need *eing felt to accelerate t!e &rocess
of sim&lification of regulations and conse>uently
ex&editing t!e necessary a&&rovals t!e ommittee is
of t!e vie% t!at State overnments t!at mae
significant &rogress in t!is matter s!ould *e
It is necessary foreach State
overnment to have
a nodal person and a
nodal office &hich
can !e the single
point contact for
persons intending to
o!tain information on
the procedural and
su!stantive
conditions to !e
fulfilled for setting up
a !usiness.
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a&&ro&riately incentivised. :!e ommittee %ould leave
it to t!e 9nion overnment to determine t!e manner
and t!e instrumentality of
suc! incentivisation.
6.# It is also necessary fort!e 9nion overnment to
designate an a&&ro&riate
entral +inistry or
5e&artment as a clearing
!ouse for information on t!e
&ractices *eing ado&ted *y
different State overnments.
:!is %ould ena*le all State
overnments to ascertain t!e *est &ractices *eing
follo%ed in overnments in res&ect of t!e regulations
relating to eac! sector %it!in t!e s&!ere of
res&onsi*ility of t!e State overnments and to ado&t
or %!ere necessary ada&t t!e *est &ractices t!at are
in vogue else%!ere. It is not necessary to reinvent t!e
1ith an urgent need
!eing felt to
accelerate the
process of
simplifications of
regulations and
conse/uentlyexpediting the
necessary approvals(
the Committee is of
the vie& that State
overnments that
ma)e significant
progress in this
matter should !eappropriately
incentivised.
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%!eel in regard to &ractices and &rocedures t!at
already exist in some ot!er States.
6.) ?ne area %!ic! needs to *e addressed is t!e delaycaused *y a&&roving aut!orities *y resorting to a time
tested met!od of se>uential >uerying. :!is involves t!e
&!enomenon of raising one >uery at a time so as to
delay t!e &rocess of granting
a&&roval and in t!e &rocess
increase t!e c!ances of s&eed
money c!anging !ands. In order
to address t!is &ernicious
&ractice it is necessary t!at for
every a&&roval to *e accorded
t!ere s!ould *e an outside time
limit %it! sti&ulation t!at if an
a&&roval is not accorded or a final
decision of re8ection is not communicated during t!at
time &eriod t!ere %ill *e a &resum&tion of a&&roval.
:!e exam&le of *uilding &lans can *e cited to illustrate
t!e &oint. If a local aut!ority does not accord a&&roval
It is necessary that
for every approval to
!e accorded there
should !e an outside
time limit( &ith
stipulation that if anapproval is not
accorded or a final
decision of re2ection
is not communicated
during that time
period( there &ill !e a
presumption of
approval.
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for a *uilding &lan %it!in a reasona*le &eriod as may
*e &rescri*ed *y t!e State overnment concerned it
%ould *e &resumed on t!e ex&iry of t!at &eriod t!at
a&&roval !as *een accorded. t t!e same time it
s!ould *e incum*ent on all aut!orities vested %it! t!e
&o%ers of granting a&&rovals to record in %riting as to
%!y t!e &ro&osal is not
acce&ted and cannot *e
a&&roved. :!ere s!ould *e
*uilt into t!e system an
a&&ellate &rocess %!ere a
&erson aggrieved *y an order
of re8ection may as a matter
of rig!t a&&roac! a su&erior
aut!ority for reconsideration of
t!e matter on merits. Suc! a system %ould strie at
t!e root of enormous &o%ers vested in individuals and
%ould create a climate of confidence and t!e &ersons
seeing to do *usiness %ould *e encouraged to do so.
%here should !e !uilt
into the system an
appellate process
&here a person
aggrieved !y an
order of re2ection
may( as a matter of
right( approach a
superior authority for
reconsideration of
the matter on merits.
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5,
Chapter Seven
Action on the 1orld an) Report
7.1 :!e entral t!eme of t!is ommittee=s re&ort !as*een to tae a sector@neutral vie% of t!e a&&roac! to
regulation in order to attem&t a long overdue
sim&lification of t!e regulatory regime. Do%ever it
%ould *e useful not to lose sig!t of t!e s&ecifics of t!e
-orld $an Re&ort %!ic! over t!e last ten years !as
*ecome a reference &oint for &ersons seeing to do
*usiness.
7.2 $efore addressing t!e s&ecific &arameters on t!e*asis of %!ic! t!e -orld $an re&ort attem&ts t!e
raning of various countries it is significant to tae note
of t!e fact t!at t!e -orld $an !ad a&&ointed an
inde&endent revie% &anel in ?cto*er 2,12 to revie% a
*road range of issues surrounding t!e Adoing *usiness
re&ortB. fter a &rocess of extensive consultations %it!
all stae!olders t!e inde&endent revie% &anel made a
series of recommendations t!e c!ief of %!ic! is t!at
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%!ile t!e doing *usiness re&ort s!ould *e retained t!e
aggregate ranings s!ould *e removed. num*er of
ot!er correctives %ere suggested in order to mae t!e
re&ort more useful to t!ose interested in t!e su*8ect.
7.3 :aing advantage of t!e s!ortcomings !ig!lig!tedand t!e concerns ex&ressed *y t!e &anel it is &er!a&s
tem&ting to ignore t!e re&ort in its entirety and to
continue doing A*usiness as usualB. :!is %ould *e a
retrograde ste&. It is &ossi*le to address t!e issues
raised in t!e re&ort %!ile factoring in t!e limitations of
t!e re&ort and to im&rove t!e content and &rocess of
t!e regulatory environment in India. :!erefore %!ile
as already stated t!e focus of t!is re&ort is on t!e
general issues t!at need to *e addressed across
sectors some attention needs to *e given to t!e some
of t!e ten indicators on t!e *asis of %!ic! t!e countries
!ave *een raned *y t!e -orld $an.
7.# :!e first indicator is a measure of t!e &rocedurestime cost and minimum ca&ital re>uired to start a ne%
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*usiness. :!is is a &arameter in res&ect of %!ic! India
!as received a very &oor raning. :!e large num*er of
a&&rovals t!e difficulty in getting land t!e time taen
in getting electricity and %ater connections and a
num*er of ot!er factors mae it a daunting tas for any
&erson contem&lating to set u& a *usiness in India. :!e
fact t!at some of t!ese a&&roval &rocesses run
se>uentially and not &arallely also adds to t!e total
time taen for a &erson to set u& a ne% enter&rise.
-!ile single %indo% mec!anisms !ave often *een
taled a*out t!e im&lementation of t!is instrumentality
!as not e&t &ace. Curt!er %!erever single %indo%
aut!orities !ave *een set u& inade>uate em&o%erment
of suc! aut!orities !as turned out to *e a ma8or
stum*ling *loc in granting ex&editious a&&rovals.
7.) :!e second &arameter is t!e delay in o*tainingconstruction &ermits. Dere again time taing
&rocedures and multi&licity of a&&rovals not to mention
t!e difficulties in regard to land add u& to a
discouragingly long &eriod of delay. -!ile t!ere are
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state %ise variations in t!e time taen for construction
&ermits it is necessary to &ut in &lace as a first ste& a
com&ilation of t!e *est &ractices in different states so
t!at some of t!e delay can *e eliminated.
Simultaneously t!e necessity for and t!e relevance of
some of t!e &ermissions needs to *e revisited %it! a
vie% to removing t!em from t!e com&lex &rocedural
frame%or.
7.6 &eculiar &oint to !ig!lig!t t!e limited usefulnessof t!e
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%it!in t!e a&&lica*le collateral and *anru&tcy la%s.
:!e second set measure t!e coverage sco&e and
accessi*ility of credit information availa*le t!roug!
&u*lic credit registries and &rivate credit *ureaus. :!is
clearly fails to ca&ture t!e actual difficulty on t!e
ground %!ic! is ex&erienced *y Indian S+Es des&ite
sc!emes suc! as &riority landing. :!ere are numerous
met!odological infirmities %!ic! eit!er limit or &resent
an unintended &icture of t!e country vis@J@vis t!e 5$R
&arameters.
7.7 ccessing credit is &articularly significant in t!ecase of small and medium enter&rises. 0ot%it!standing
t!e nationalisation of *ans and t!e resultant s!ift
ex&ected from t!e credit%ort!iness of t!e &erson to t!e
credit%ort!iness of t!e &ur&ose t!e Indian *aning
system still fig!ts s!y of extending credit to &ersons
%!o are una*le to &rovide ade>uate collateral. Het
anot!er credit@related &ro*lem %!ic! *usiness is faced
is t!at credit is sometimes not availa*le to t!e desired
extent and at t!e rig!t time. Inade>uate and delayed
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credit often leads to credit for &roductive &ur&oses
*eing a&&lied to consum&tion &ur&oses resulting in
deteriorating asset >uality. :!e a*sence of a Lender=s
Lia*ility ct furt!er com&ounds t!e &ro*lem of existing
and &otential *orro%ers.
7.4 Het anot!er im&ortant &arameter is t!e ease %it!%!ic! and t!e timing %!ic! tax returns can *e
&re&ared and taxes &aid. Indian aut!orities !ave often
claimed t!at &ayment of taxes is far sim&ler t!an
*efore es&ecially %it! t!e introduction of t!e electronic
filing system. -!ile t!ere is no dou*t t!at t!e filing of
returns and t!e &ayment of taxes !as *een significantly
sim&lified t!e same cannot *e said a*out t!e &ost filing
issues t!at t!e average tax &ayer often !as to contend
%it!. 5es&ite &rotestations of an im&rovement in
mindset t!e needless adversary relations!i& *et%een
assessing aut!orities and t!e tax&ayers continues to *e
a fact of life. :!is is furt!er com&ounded *y a &erverse
incentivisation system in %!ic! gross tax collections are
treated as a ma8or indicator of good &erformance. It
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!as also *een noticed t!at t!ere are a num*er of
&roceedings &ending in res&ect of matters t!e
&rinci&les of %!ic! !ave already *een decided *y a
!ig!er forum suc! as t!e Income :ax &&ellate
:ri*unal. In an attem&t to increase t!e annual
collection of taxes assessing aut!orities do not tae
cogni;ance of rulings *y !ig!er aut!orities in matters
%!ere t!e facts in issue and t!e &rinci&les of la% are
identical. :!is !as t!e furt!er dra%*ac of cro%ding t!e
system %it! matters %!ic! s!ould !ave *een decided at
t!e level of t!e assessing aut!ority. -!ile it is
a&&reciated t!at t!e 8udgement of t!e assessing
aut!ority cannot *e su*stituted *y t!e directions of
!ig!er aut!orities t!ere %ould *e no !arm in t!e
issuance of a general circular to t!e effect t!at
assessing aut!orities %ould *e o*liged to tae note of
rulings of !ig!er aut!orities in identical matters.
7." -!ile t!e -orld $an re&ort does not s&ecificallyaddress t!e &ro*lem of retros&ective taxation it is
considered necessary to touc! on t!e su*8ect. It !as
often *een said t!at deat! and taxes are e>ually
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undesira*le as&ects of !uman life. Het it can *e said in
favour of deat! t!at it is never retros&ective.
Retros&ective taxation !as t!e undesira*le effect of
creating ma8or uncertainties in t!e *usiness
environment and constituting a significant disincentive
for &ersons %is!ing to do *usiness in India. -!ile t!e
legal &o%ers of a overnment extend to giving
retros&ective effect to taxation &ro&osals it mig!t not
&ass t!e test of certainty and continuity. :!is is a ma8or
area %!ere im&rovements s!ould *e attem&ted sooner
rat!er t!an later since *usiness cannot tae corrective
action retros&ectively.
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General Circular no. 26/2012
No.11/08/2012-CL.V
Government of India
Ministry of Corporate Affairs
Shastri Bhavan, New Delhi
Dated: 23rd
August, 2012
OFFICE MEMORANDUM
Subject:-Constitution of a Committee for Reforming the Regulatory
Environment for doing Business in India.
The undersigned is directed to state as under:-
1. The report of The World Bank and the International Finance Corporation,entitled Doing Business 2012: Doing business in a very TransparentWorld, India has been ranked at a low of 132 amongst a sample of 183
countries. Although, there is a seven point improvement over 2010
ranking of 139. However, India continues to lag behind even the BRIC
and SAARC countries on most of the parameters.
2. Easing of business environment mandates extensive examination ofregulations in different areas of root functioning such as financial
reforms, governance reforms, liberalized policy framework, process
reforms, etc.,. Thus there is a need to conduct an in-depth study into the
entire gamut of regulatory frame