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BW Businessworld

The Second Law Of Bureaucracy

The policy purpose for every regulation and compliance should be clear, its cost benefit assessed and benchmarked against requirements in other countries. The process for completing returns should then be streamlined and made easy online

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There is, no doubt, a sound rationale in the eyes of officials at the Ministry of Corporate Affairs for the KYC DIR 3.  The MCA issued an amendment to the Companies Rules 2014 on 10th July 2018 requiring, under Rule 12A, all directors holding a DIN Number to submit a KYC return by 31st August.  As well as returning a form, certified by a Company Secretary or Chartered Accountant, every director is required to upload certified copies of a list of supporting documents.  Those of us resident overseas must have our documents notarised.  Failure to do so will result in the DIN being suspended.

The benefit for the MCA from this massive convulsion of returns is unclear, especially compared to the time and cost of compliance for thousands of busy people.  Given the existing DIN numbers, PAN numbers, Aardhar cards, Ration cards, OCI cards and visas, it might seem that the Government knew something about all of us already.  At least the bureaucracy has a sense of humour in terming this exercise Know Your Customer (KYC).

None of the other jurisdictions in which I am a director require such a complex annual return.  In one jurisdiction I was asked by the company to provide a copy of my passport and a utility bill as address proof, self-certified.  In the UK and Hong Kong there is, to my knowledge, no similar requirement.  It is always a warning sign of excessive bureaucracy where India requires information or processes beyond that in other well-regulated countries.  

Then there is the IT puzzle.  India is the world hub for elegant and efficient IT systems for every type of business or public purpose across the world.  With such resident expertise, why does every online interaction with the Government of India prove so frustrating?  Who designs the interface and process on the government websites in India?  Do they set out to make them impenetrable and fiddly?  I delegate doing my tax and GST returns to a professional, as I think online compliance would be beyond me, but I do still bear the scars of trying to satisfy the file type and size requirements for attachments on the website of the Ministry of External Affairs.  

In itself, the KYC DIR 3 is relatively harmless, if irritating.  But it does raise questions about the mindset of some civil servants.  I call it the second law of bureaucracy: that regulations increase over time and can never be reversed.  Bureaucrats have no incentive to scrap regulations once in place, will tend to find good reasons to increase them and have no reason to make compliance simple.

The government is committed to improving the ease of doing business in India.  What is required is a systematic drive to review, simplify or eradicate every regulation that impacts business.  Clearly, some regulation is essential, but compliance should be easy and quick. The policy purpose for every regulation and compliance should be clear, its cost benefit assessed and benchmarked against requirements in other countries.  The process for completing returns should then be streamlined and made easy online.

My suspicion is that KYC DIR 3 would be one of the thousands of candidates for complete elimination in this bonfire of compliances.  Perhaps its demise would disappoint the Company Secretaries, Chartered Accountants and Notaries Public who appear to be those with most to gain from this new and peculiar requirement.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Alan Rosling

The author is an entrepreneur and strategic adviser. He co-founded Kiran Energy and was earlier an Executive Director of Tata Sons. He was a Special Advisor to the British Prime Minister during 1991-93. He now lives in Hong Kong but is frequently in India. He is the author of Boom Country? the New Wave of Indian Enterprise.

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