New Delhi: India’s entrepreneurial dream is facing a powerful barrier — its own regulatory machinery. A landmark report by Gautam Chikermane (Observer Research Foundation) and Rishi Agrawal, released in 2022, paints a striking picture of how excessive criminalization, outdated laws are stifling the country’s economic potential.

A Legal Maze That Can Put You Behind Bars

India’s business ecosystem is governed by 1,536 Acts at the union, state, and local levels, embedding 26,134 clauses that carry the possibility of imprisonment. These aren’t limited to serious fraud or environmental damage; even procedural lapses can send a businessperson to jail.

54 percent of all Acts—over 843 laws—contain criminal penalties. Of these, 29 percent are made at the Union level, while the remaining 71 percent come from the states.

The absurdity is often in the details. Some violations—like failing to whitewash walls, display a mandatory notice, or maintain a register—can result in up to three years in prison, a punishment on par with violent crimes.

Report Link: Jailed for Doing Business: The 26,134 Imprisonment Clauses in India’s Business Laws

Labour Laws: The Biggest Barricade

Labour-related regulations alone account for roughly half of all compliance obligations and contribute to 65 percent of imprisonment clauses. The Factories Act, 1948 is particularly stringent, making up 31 percent of these criminal provisions.

Transparency International Report

India ranks 96th out of 180 countries on Transparency International’s 2024 Corruption Perceptions Index, scoring just 38/100. KPMG estimates corruption costs India Rs 921 billion annually—over 1 percent of GDP.

Compliance Delay

Multiple studies have shown administrative lackluster in making approvals and compliance unnecessarily time-consuming.

Rent-Seeking Culture:

Complex procedures give officials discretionary powers. Instead of enabling business, extracting “fees” from entrepreneurs becomes the focal point.

The Economic Consequences

Such regulatory stranglehold has a direct impact on India’s growth trajectory:

Inhibits Business Formation – Fear of jail even for paperwork errors keeps many entrepreneurs from registering formally.

Discourages Investment – A hostile compliance climate pushes startups and investors toward friendlier jurisdictions.

Raises the Cost of Doing Business – Frequent inspections, legal risks, and “unofficial costs” eat into margins.

Limits Job Creation – Small businesses, the backbone of employment, suffer most—exacerbating India’s jobless growth challenge.

Modi Govt’s Reforms Implemented Since the Report

The 2022 Chikermane-Agrawal report has spurred notable changes:

Jan Vishwas (Amendment of Provisions) Act, 2023 – Decriminalized over 180 provisions across 42 central laws, replacing many jail terms with fines or compounding.

Jan Vishwas Bill 2.0 (Budget 2025) – Proposes decriminalizing 100+ additional minor provisions; aims to further reduce court burden and improve ease of doing business.

Companies Amendment Acts (2019 & 2020) – Decriminalized dozens of corporate offences and replaced imprisonment with administrative adjudication for minor violations.

Labour Law Overhaul – Four labour codes have replaced over 1,200 sections with only 22 carrying imprisonment, most for serious breaches.

State-Level Initiatives –

Telangana: Reforming 17 departments to replace minor offences with monetary penalties.

Uttar Pradesh: “Nivesh Mitra 3.0” aims to remove 98 percent of imprisonment clauses in state and concurrent laws by end-2025.

Kerala: Drafting legislation to decriminalize minor state-level offences.

What Needs to Change: Key Policy Priorities

If India is to truly unlock its economic potential, the country must move from a punishment-first regulatory mindset to one that fosters trust, efficiency, and enterprise. That requires targeted reforms in four critical areas.

First, India must end the criminalization of routine business compliance. Sending entrepreneurs to jail for failing to display a notice or update a register is not only disproportionate—it’s counterproductive. Imprisonment should be reserved for serious offences involving fraud, environmental damage, or willful harm. All other minor infractions should be addressed through monetary penalties, warnings, or compounding mechanisms.

Second, the state must tackle administrative inefficiency head-on. Endless paperwork, overlapping approvals, and outdated manual systems slow down business formation and expansion. Streamlining laws, introducing single-window clearance systems (which the government has incessantly focusing upon for the last 1.5 decades), and expanding end-to-end digital approvals can significantly reduce the time and cost of compliance.

Third, corruption and rent-seeking behaviours must be dismantled. Discretionary powers in the hands of inspectors and officials often create opportunities for bribes and harassment. Strong oversight, transparent processes, and reduced human intervention in approvals are essential to restoring fairness and trust in the system.

Finally, India must remove the fear factor from entrepreneurship. A regulatory environment built on intimidation discourages risk-taking, drives businesses into the informal sector, and deters investment. Instead, the state should position itself as a guide and facilitator—offering clear guidance, compliance support, and a business-friendly tone that encourages rather than punishes.

By addressing these four priorities, India can move decisively toward a more enabling, transparent, and growth-oriented business environment—one where entrepreneurship thrives and economic potential is fully realised.

The Chikermane report is a wake-up call. If India wants to become a global economic powerhouse, it must decriminalize routine business compliance, simplify its regulatory architecture, and restore trust between the state and its entrepreneurs.

Govt Reforms In Last Few Years Instilled Confidence Among Entreprenuers 

Reforms like the Jan Vishwas Acts and labour code simplification are steps in the right direction—but they must be implemented swiftly and uniformly across states. Without urgent reform, India risks smothering its own growth potential, driving innovation underground, and denying millions the opportunities they deserve.

(Opinion Expressed In The Article Are That Of The Author. Zee News Does Not Endorse)