first published on Financial Express (India)

Ethical business practices are often perceived to be an add-on to adhering to compliance. Refraining from conforming with compliance translates into not obeying the law of the land and can lead to penalties and in some cases stringent ones. But, ethics go beyond law. It shows the intent of the business to do right, in addition to following the law of the land in spirit. The benefits of incorporating a value-based ethical culture in business far outweigh its costs.

Businesses incur a high cost when regulations are stricter. Additional time and effort are required to manage compliances and regulations, translating to a shift in focus from the product to compliance management. Hence, when the government highlights “Ease of Doing Business” as its long-run agenda, it wants to get rid of redundant onerous and sometimes archaic compliances. Rationalization of legal provisions was a result, however, there is more to it than the government taking a step back in regulations. Sound corporate governance and ethical culture, form an integral part of enabling Ease of Doing Business.

India ranked 63rd in the World Bank’s Doing Business Report (DBR), 2020 improving from 142nd in 2014. The reform exercise of the Business Reforms Action Plan (BRAP) headed by DPIIT (Department for Promotion of Industry and Internal Trade), assessed the States and UTs in the country based on reforms implemented by them on designated parameters. Emphasis on removing redundant regulations, streamlining the compliance process, digitisation for ease in implementation and decriminalization of minor, technical or procedural defaults, resulted in India’s jump of 79 ranks in a span of 5 years. Still, often we ask the question in policy discourse, “Are we over-regulating?”.

There have been numerous circulars, guidelines, notifications and orders issued by the regulators in the recent past. RBI has mandated entities in the BFSI segment to implement tech-based compliance management systems in a bid to ensure transparency. SEBI has issued strict directions and guidelines for finfluencers who under the garb of education had engaged in insider trading, manipulation of stock pricing or misguiding people on the revenue from the stock market. Also, to ensure ESG compliance introduction of Business Responsibility and Sustainability Reporting (BRSR) is a significant step.

FSSAI has been in action due to growing malpractices in promoting food products. Steps to curb pesticide use, detect microplastics in packaged foods, mandating Food Business Operators (FBO) to accurately label and market their products (like fruit juices) are some examples. TRAI has proposed stringent rules to tackle spam calls and messages.

The addition in compliance is not limited to sector-specific regulators. The Ministry of Electronics and Information Technology introduced a separate legislation in the form of the Digital Personal Data Protection Act. ISO/IEC 27001, an international standard for information security management systems (ISMS) helps organizations protect the confidentiality, integrity, and availability of their information. This standard is recognized by the Information and Technology Act, 2000. However, it does not give the government confidence in data protection even when companies have this standard and hence more stringent legislation focusing on personal data deemed necessary.

Similarly, the Ministry of Consumer Affairs came up with the guidelines on Dark Patterns in 2023 to keep a check on the manipulative practices that are not in consumer interest. When the Ministry of Information and Broadcasting, on directives of the Supreme Court, released the draft advisory on self-declaration for advertisements, it sent the industry into chaos as there were already multiples regulations in different sectors to tackle misinformation in advertisements.

The cost to comply with many regulations is high for businesses. However, it is not costly to have an ethical business culture. The government deems it necessary to have many checkpoints when poor corporate governance practices overshadow the whole industry. Ethical business practices set a benchmark for the industry and also help in gaining consumer trust, which is invaluable for a business.

The world is bullish on India’s growth story. The Deputy Managing Director of the International Monetary Fund (IMF), Dr Gita Gopinath, said that she is hopeful of India becoming the third-largest economy by 2027. IMF upgraded India’s gross domestic product (GDP) in the FY2024-25 by 20 basis points to 7 per cent from the previous estimate of 6.8 per cent. With the rising contribution of the services sector to the country’s GDP, it is pertinent that businesses don’t consider ethical practices an add-on, but rather keep it integral to its core.

This underrated quality is a catalyst for our growth. Business ethics are fundamental to businesses and builds trust between a business and its customers. The Government too should encourage and reward businesses that work ethically.

Disclaimer:  This is an effort by Lexcomply.com, to contribute towards improving compliance management regime. User is advised not to construe this service as legal opinion and is advisable to take a view of subject experts.