Getting rid of the Raj

It sound like something from the days before independence in 1947, but India’s Inspector Raj system is widely considered to be a significant drag on the nation’s ability to do business in the 21^st century.

In addition, its critics charge it is a fertile breeding ground for corruption and a major example of the mind-boggling bureaucracy that has plagued the nation ever since its founders embraced a Soviet-style planned economy in the 1950s.

In those days, anyone who wanted to set up a manufacturing plant had to gain a licence from the Government. Once the licence was granted the business was subject to periodic checks by Labour Ministry inspectors to ensure it was fulfilling its terms.

The inspections were meant to cover areas such as workers’ conditions and whether factory owners were profiteering by selling their goods at a higher rate than stipulated, but over the years the system became mired in corruption.

Inspectors, who had total discretion over which premises to visit and how often, would accept bribes to overlook deficiencies in one company, or to harass a rival organisation; compliance paperwork involved filling in 16 different forms at regular intervals — an onerous task in a nation of small business owners where some 84 per cent of manufacturing workers are employed in workplaces of 50 or less.   

Under the new regime, inspectors will lose their right to choose which factories to visit. Instead a computer will select organisations — and the inspector who will visit — at random. Reports must be submitted within 72 hours and any significant changes recommended will be subject to review.

The form filling will be reduced from 16 to one online submission.

Successive Indian administrations have backed away from the task of addressing the nation’s rigid labour laws for fear of a trade union backlash, but the Bharatiya Janata Party Government of Prime Minister Narendra Modi, elected in May on a platform of industrial reform, is sweetening the pill with a number of pro-worker measures.

These include easier access to provident fund accounts and insurance schemes and a faster system for addressing employee grievances.

The reforms are a key component of Modi’s Make in India program, which aims to attract massive overseas investment and create 100 million jobs over the next decade.