Outdated, inefficient and humiliating—India deserves freedom from these laws

Tuesday, 7 October 2014
Quartz India

Narendra Modi’s government has restarted the process of statutory legal reform that had been stalled for a while. The last serious effort at reviewing and systematically eliminating ineffective, outmoded and counter productive legislation was spearheaded by Arun Shourie in 2001 under the Vajpayee government. The prime minister said during his speech at Madison Square Garden in New York that as opposed to other politicians’ lust for new legislation, he will be happier if he can repeal one law every day!

Three Delhi-based organizations recently collaborated for the The 100 Laws Repeals Project. The Centre for Civil Society, Macro/Finance Group at the National Institute of Public Finance and Policy and Vidhi Centre for Legal Policy worked together to identify 101 such laws that qualify for simple repeal. Alongside obsolete colonial laws (that are low impact), the project has identified some medium to high-impact post-independence laws that need to be done away with. These laws are unsuited, and indeed detrimental, to running a modern economy.

The prime minister must insist on taking the idea further, making a genuine effort to remove laws that stand in the way of enabling a robust business environment, good effective governance and personal freedoms. Here are some choice examples.

Constraining economic regulations

India ranked 134 out of 189 economies in the World Bank’s Ease of Doing Business Index, 2014. It not only slipped 4 points in its ranking (down from 131 in 2013), but was also the least open among the BRICS countries, and below average among South Asian economies. While most of the urgent business environment reform needs will not qualify for simple repeal, getting rid of minor irritants will serve both as a signalling exercise to the market and lay the groundwork for more complex amendments.

The Indian Boilers’ Act should go simply because government cannot possibly effectively monitor all industrial boilers. All the Act has done is prevent self-regulation, and create a cadre of inspectors that have wide discretionary powers. Gujarat has got the right idea—set up a mechanism for self-certification, and conduct sample checks under the aegis of a simple local government rule.

There has been much talk recently about reviving the Delhi Rent Control machinery. Research from around the world shows that rent control constricts the market, particularly for low-income groups. We should learn from the experiences of East Asian economies—Japan, Singapore and Hong Kong saw a rise in low-income housing supply upon removing rent controls. The task force on rental housing under the ministry of housing and urban poverty alleviation, in its report on policy and interventions to spur growth of rental housing in India, in March 2013, has recommended simple contract-based lease/rent agreements that tenants and the landlords mutually decide.

The Sugar Act empowers the government to fix the quantity of sugar that may be produced in any factory in a year. If the quantity of sugar produced exceeds the quota fixed, the excess amount attracts an additional excise duty under the Act. This Act creates what the Competition Commission calls ‘a regulatory stranglehold’ and is out of sync with the move towards deregulation of the industry underway since 1991.

Ineffective labour welfare

The concept of Labour Welfare Funds was evolved to extend a measure of social assistance to workers in the unorganized sector. There are separate laws mandating the collection of industry-wise cesses (six at last count) and creating and supporting corresponding funds for workers in mica, iron and other mines, beedi, limestone, cine workers, etc.

These laws provide a separate but identical mechanism for raising funds to promote the welfare of workers in these industries. This has resulted in a low-level equilibrium, with administrative inefficiency, very high collection and transaction costs, and finally, insignificant amount ultimately made available for worker welfare. The Second National Labour Commission (2002) recommended an umbrella legislation for all workers in the unorganized sector. As a whole, less than Rs250 crores are collected as cess for labour welfare in these industries, a chunk of which goes into paying back collection costs. Like the salt cess, this is not smart public finance management. Labour welfare can be undertaken through general revenues, and the burden of running multiple inefficient mechanism can be done away with.

Restrictions on Civil & Personal Freedoms

The Young Persons (Harmful Publications) Act prohibits the dissemination and advertisement of certain publications considered harmful to ‘young persons’. The Kerala government is using this Act to allegedly reduce marijuana consumption by the youth. They discovered that those who do marijuana typically wear Bob Marley t-shirts; the government is closing down shops that sell these t-shirts. Words such as repulsive and horrible contained in the definition of harmful publication are vague and subject to arbitrary interpretation. India already has a variety of laws that penalise violent, or inappropriate speech in various forms.

Inefficient cesses and taxes

Most cesses are ineffective, expensive, rarely serve the purpose they were levied for, and, generate insignificant amounts in revenue. The salt cess is one such example, generating Rs3.3 crore in the last financial year. The cost of collection was Rs1.5 crore. The story of other cesses is similar. India is now a two trillion dollar economy; these cesses are immaterial to the budget, and the purposes for which they were levied can easily be funded through general revenues.

The Wealth Tax Act imposes a tax in respect of the net wealth of every individual, Hindu undivided family (HUF) and company, at the rate of 1% of the amount by which the net wealth exceeds Rs30 lakhs. In 2012, wealth tax collections were a mere Rs787 crores, as against the gross direct tax collection at Rs5,90,077 crores. Our estimates suggest that for every rupee spent on collecting Wealth Tax, the government only earns Rs1.97. In comparison, every rupee spent on collecting Income Tax yields Rs60. The very similar Estate Tax was abolished in 1985.

Undermining Good Governance

The PM recently committed to improving foreigners’ access to India through e-visas and visas on arrival. This will be a great move, sure to boost tourism and improve knowledge exchange and technology transfer between the world and India. However, the government also needs to improve the conditions foreigners face in the country once they manage to get here. The Registration of Foreigners Act, dating back to World War II, requires every foreigner staying in India for longer than a certain period of time to report his/her entry, movement from one place to another and departure, to the Government of India. It was enacted by the British to regulate the entry and movement of foreigners in India, particularly of Indian revolutionaries from abroad. If we are to be honest, there is no foolproof way of tracking whether all foreigners entering India are reporting themselves at all the required points. Typically only law-abiding travellers who intend no harm follow all procedures—terrorists and anti-social elements are hardly likely to take the trouble of presenting themselves at the nearest police station. The Act has become a tool for harassing foreigners, and is damaging India’s reputation as a welcoming destination, whether for travel or for business. Anecdotal evidence and newspaper reports cite long waiting lines, unclear instructions and frustrating bureaucracy and demands for bribes on account of this Act.

Repealing these 101 laws should not become an one-off exercise. The Australian Government has set aside Autumn Repeal Day every year and they promise to cut enough red tape to benefit the economy by $1 billion every year. The laws, regulations and executive orders they cut are also listed for transparency and accountability. In honour of the Constitution of India, perhaps 26 January could be India’s Annual Repeal Day.