... and How the Modi Government is Trying to Rebuild

India’s economic journey has been long, complex, and at times self-defeating. While the country has always celebrated its entrepreneurial spirit, the political and legislative framework — especially during the decades of Congress rule — made it increasingly difficult for businesses to grow, thrive, and compete globally. Overregulation, excessive compliances, rigid labour laws, and bureaucratic red tape choked India’s industrial and business potential for years.

This article explores how Congress-era laws created a hostile business environment and how the Modi government attempted to rectify this through bold reforms like Make in India, labour code consolidation, GST, and Atmanirbhar Bharat.

1. The Legacy of License Raj: A Socialist Noose

Post-independence, India chose a mixed economy with a tilt toward socialism. This led to the infamous License Raj, a system where businesses needed licenses, permits, and government approvals for even routine operations. Every decision — from starting a business to expanding capacity — required bureaucratic nods. This:

• Created massive delays.
• Bred corruption.
• Discouraged private initiative.
• Made entrepreneurship a painful journey.

Instead of freeing Indian industry to innovate and compete, the Congress regime institutionalized control, suspicion, and excessive supervision over business activities.

2. The Labour Law Jungle:
    Built to Protect Workers, But Ended Up Hurting Employers

India's labour laws were framed in a different era — one of colonial hangover and post-colonial insecurity. While their intent was to protect workers, the execution created a hostile environment for employers, especially small and medium enterprises.

A Snapshot of Labour Law Overload:

Here are some of the key laws that created a mountain of compliance obligations:

1. The Payment of Wages Act, 1936
Regulated how and when wages must be paid, with strict penalties for delays.

2. Minimum Wages Act, 1948
Mandated state-specific wage structures, often too rigid for local businesses to afford.

3. Employees’ State Insurance Act, 1948
Made it mandatory to provide health and maternity benefits via government-controlled schemes, even if businesses were financially weak.

4. The Employees' Provident Funds and Miscellaneous Provisions Act, 1952
Forced employer contributions, filings, and audits — making salary structures complex.

5. The Workmen’s Compensation Act, 1923
Made employers liable for workplace injuries and deaths, regardless of fault.

6. The Factories Act, 1948
Introduced heavy regulations for workplace safety, working hours, and facilities — difficult for smaller units to fully comply with.

7. The Payment of Bonus Act, 1965
Required employers to pay bonuses even in low-profit years.

8. The Payment of Gratuity Act, 1972
Mandated a lump-sum payment after 5 years of service, placing a financial burden on employers.

9. The Maternity Benefit Act
While progressive, its entire cost burden fell on the employer, leading many to hesitate in hiring women.

10. The Equal Remuneration Act
Enforced equal pay without considering market dynamics or productivity variations.

11. The Contract Labour (Regulation and Abolition) Act, 1970
Regulated outsourcing and subcontracting with stiff restrictions.

12. The Trade Unions Act, 1926
Empowered unions to bargain and protest, sometimes paralyzing production.

13. The Industrial Employment (Standing Orders) Act, 1946
Required extensive documentation of employment terms, reducing flexibility.

14. The Bonded Labour System (Abolition) Act, 1976
Rightly targeted exploitation, but sometimes criminalized informal family-based rural employment.

15. The Child and Adolescent Labour (Prohibition and Regulation) Act, 1986
Criminalized employment of children even in family trades, causing fear and confusion in small-scale sectors.

16. The Industrial Disputes Act, 1947
Required prior government permission before layoffs, retrenchment, or factory closure for establishments with 100+ workers.

The Result?

• Over 60 returns and registers to be maintained.
• Random inspections and harassment.
• Legal uncertainty, where one law contradicted another.
• Discouragement of formal employment, leading to 90% of India’s workforce staying in the informal sector.

The focus was protectionist, not developmental. Employers were treated with suspicion rather than as growth partners.

3. Import Dependence and Industrial Paralysis

Despite slogans like self-reliance and Swadeshi, the Congress-era model led to:

• Low manufacturing productivity.
• Outdated technologies due to lack of foreign competition and import restrictions.
• High import dependency, especially in electronics, chemicals, and heavy machinery.
• Trade deficits that worsened over time.

Instead of boosting domestic production, policy inefficiencies pushed Indian businesses to rely more on imports and global supply chains.

4. GST: One Nation, One Tax — Replacing a Complicated Tax Jungle

Before GST, India had a complex, multilayered indirect tax system that varied not just by sector but also by state. Businesses had to comply with a web of taxes that included:

1. Central Excise Duty
Levied by the Centre on the manufacture of goods.

2. Service Tax
Levied on service providers by the Centre.

3. Value Added Tax (VAT)
Levied by state governments on sale of goods, with rates varying from state to state.

4. Octroi / Entry Tax
Levied by local municipal bodies on goods entering a city or state.

5. Luxury Tax, Entertainment Tax, Purchase Tax, Cesses and Surcharges
All varying by state and sector, creating a taxation nightmare for businesses.

Problems with the Pre-GST Tax Regime:

• Tax on tax (cascading effect) increased costs.
• Businesses had to file separate returns for each tax.
• Multiple registrations were needed for each state.
• Lack of transparency in pricing and tax burdens.
• Frequent tax disputes and harassment by multiple authorities.

GST: A Game-Changer Introduced by the Modi Government (2017)

Though GST was a long-pending reform discussed during earlier governments, it was the Modi government that finally implemented it in July 2017, despite political resistance and logistical challenges.

Key Features of GST:

• One unified tax replacing multiple indirect taxes.
• Same tax structure across all states — fostering ease of doing business.
• Input Tax Credit (ITC) mechanism to eliminate cascading tax.
• Online filing and refund system to improve compliance and transparency.
• Composition Scheme for small businesses to ease their tax burden.
• E-way bill system to track goods movement and reduce tax evasion.

Impact of GST on Businesses:

• Simplified tax compliance — One return instead of many.
• Reduction in logistics costs — Goods can now move freely across state borders.
• Level playing field — Tax uniformity helps MSMEs compete with large corporates.
• Increased tax base — Boosted government revenues by formalizing the economy.
• Boost to exports — Tax refunds for exporters improved competitiveness.

Challenges Remain, But Progress Is Visible

Yes, the GST rollout faced initial hiccups: frequent rate changes, tech glitches on the GSTN portal, and confusion about compliance. But over time, these were ironed out, and GST is now a globally appreciated tax reform, with India being studied as a model for other federal countries. India have become 4 largest economy.

5. The Turning Point: Modi Government's Business Reforms

The Modi government, since 2014, launched a series of initiatives to free businesses from the shackles of the past and to attract domestic and foreign investment.

a) Make in India

Launched in 2014 to:

• Encourage manufacturing.
• Reduce import dependence.
• Create jobs and boost exports.
• Improve infrastructure and skill training.

b) Consolidation of Labour Laws into Four Labour Codes

Instead of 40+ overlapping laws, the government introduced:

• Code on Wages
• Industrial Relations Code
• Social Security Code
• Occupational Safety, Health and Working Conditions Code

Benefits:

• Simplified compliance.
• Uniform definitions of wages and workers.
• Digitization of filings and returns.
• Relaxed norms for MSMEs.
• Employer-friendly retrenchment and layoff policies.

c) Ease of Doing Business

• India’s Ease of Doing Business rank improved from 142 to 63 (World Bank, 2014–2020).
• Key reforms included:
  • Online registration and approvals.
  • Insolvency and Bankruptcy Code (IBC) for fast debt resolution.
  • Single window clearances.
  • GST introduction to unify taxation.

d) Atmanirbhar Bharat Abhiyan

Aimed at self-reliance through:

• Investment in key sectors like defense, pharma, electronics.
• PLI schemes to incentivize local manufacturing.
• Support for MSMEs and startup ecosystems.

From Control to Confidence

The Congress regime, guided by outdated socialist ideals, built a legal ecosystem where entrepreneurs were over-regulated, over-burdened, and under-supported. The business community was trapped in compliance and constantly under the fear of punitive action.

The Modi government has attempted to reverse this trend with structural reforms, labour simplification, investment promotion, and tax reform. While challenges remain, India is now seen globally as a more business-friendly environment — a far cry from the bureaucratic web of the past.

True economic freedom doesn’t just mean freedom to trade — it means freedom from fear, freedom from red tape, and freedom to dream.

Is It Better to Have Multiple Laws or Simple Laws That Drive Development?

As we reflect on the past and present, it’s clear that excessive regulations, especially the labyrinth of tax and labour laws from the Congress era, hindered India’s business growth. But now, with reforms like GST, consolidated labour codes, and initiatives like Make in India, the government is pushing for simpler, more business-friendly policies.

But the question remains: Is it better to have a complex web of multiple laws that protect everyone, or is a simpler, more streamlined approach the key to creating a thriving economy where businesses are empowered to grow and innovate?

Is development about strict protection, or about creating an environment where businesses can flourish and contribute to job creation, innovation, and national growth?

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