India Inc needs to go digital to counter the regulatory hurdles in employer compliance framework: TeamLease RegTech report

With the unprecedented growth trajectory expected to be seen in the Indian formal sector, there are many structural and procedural challenges around compliance faced by employers, according to a report released by RegTech solution company TeamLease RegTech on Monday, March 4. The report highlighted the existing challenges in the present regulatory framework and also provided insights into the reasons behind accidental non-compliance among employers.

The report stated that in FY23, 4,880 regulatory updates were sent out by different national and state governments, regulators, and ministries. Because of this, compliance teams and officers of a particular business need to know about any new information that might affect their company's compliance duties.

The report also provided insight into the permanent fluidity of the compliance ecosystem, where regulatory updates are published on over 2,000 government websites daily. These updates, which are in the form of notifications, gazettes, circulars, ordinances, master circulars, press releases, etc., lead to changes in formats, dates, timeframes, frequency, penalties, interest rate computations, application threshold values, and the wording of the legislation.

Due to their time-sensitive nature, these amendments require prompt interpretation and application. Whether it is the lack of awareness of all applicable compliances or poor control and visibility over compliance obligations, businesses struggle to keep track of key compliance functions, such as licence renewals.

It further highlights the changing demands of shareholders, board of directors, regulators, and employees around compliance. The report suggested that the answer lies in technology-based services, where businesses can now digitise their legal tasks through RegTech companies.

Government and sector authorities are working hard to fully digitise compliance processes through API-based submissions. With the Goods and Services Tax Network (GSTN), private businesses can serve as intermediaries, such as e-invoice registration portals (IRPs), allowing the registration of additional e-invoices. Similar to this, the Income Tax Department has used e-return intermediaries (ERIs) to facilitate the easier completion and submission of forms by taxpayers.

Rishi Agrawal, CEO and Co-Founder, TeamLease RegTech, says, “While the government is doing well by rationalising, digitising, and decriminalising the business regulatory ecosystem, India Inc. must move towards digital solutions for managing its compliance program. Managing compliance is complex. Deeply entrenched hostility with imprisonment clauses only add to the regulatory cholesterol employers deal with. Paper-based, people-dependent, manual, and ad hoc compliance programs do not provide assurance to shareholders and board required in the rapidly growing Indian economy. DPI is rapidly transforming India, and the inclusion of regulatory technology will change the orbit of Indian enterprises. The report's data-driven dissection of India’s regulatory cholesterol delves into inherent causes of informality in the Indian economy and analyses the symptoms that ail the employer compliance universe. It presents ideas for the future of compliance in India by reimagining the compliance universe."

RegTech Numbers

At the moment, 6,618 filings, 69,233 compliances, and 1,536 statutes and regulations regulate India's business environment. Out of the 1,536 acts and regulations, 26,134 compliances with imprisonment conditions are accounted for by 843 pieces of legislation. Depending on the nature of their industry, typical MSMEs manage 500–1000 distinct compliance requirements, of which labour law accounts for 40 per cent of these requirements.

The report also stated that the target of a $35 trillion economy by 2047 cannot be achieved without resolving the structural impediments that plague employment generation. The inherent complexity, ambiguity, and uncertainty need to be resolved to elevate the compliance ecosystem in the country, with demands on governance and compliance evolving to match the pace of rapid progress.