# **Introduction**

The regulatory burden on enterprise is a central topic in policy and popular discourse. Even the use of the word “burden” clearly conveys the tenor the discussion. It is often argued that enterprises are “overburdened” with regulation, and that these regulations impose costs which hinder enterprise productivity and growth. The policy prescription of this line of argument seems clear—to deregulate heavily. And yet the regulations were presumably introduced for a purpose. Economic theory suggests a number of contexts in which regulation can be beneficial to the economy and society as a whole. This line of argument, then, would be cautious about deregulation.

India is no exception to the global debate on regulation. It is commonplace to find the argument that enterprise registration, labor laws and a multitude of other regulations are stifling enterprise and holding back the efficiency and growth of firms and with it the progress of the economy. A central piece of legislation is India’s Factories Act of 1948, which requires manufacturing enterprises of a certain size to register and thence comply with other regulations. This also defines the “organized” sector in India. The Factories Act is often suggested as one of the reasons for India’s “missing middle” in terms of enterprise size, since the requirement to register starts at ten workers (20 workers if not using electricity). It is thought to hold back expansion of promising enterprises, inducing them to stay “beneath the radar screen” of the regulation. Yet for supporters of this Act it is an important component of providing protection of workers’ health and safety in the workplace, as well as the bulwark for protection of other worker rights.

It is striking is how little account is taken of noncompliance in these two major strands of argument. Those in favor of regulation argue on the basis of assumed compliance. Those against must also be arguing on the basis of compliance, because presumably noncompliance makes the regulatory burden less. At the extreme, if there is no enforcement and no compliance at all, then it is as though the regulation did not exist. However, if there is partial enforcement then there may be costs of evading the regulation and its enforcement. What should be clear is that without an account of noncompliance, the discourse on regulation is severely incomplete. How much noncompliance is there? Who complies and who does not? How has the extent and pattern of noncompliance changed over time? Without answers to these questions the regulation debate takes place in an unreal theoretical setting which may not match reality on the ground.

The evidence for noncompliance at the enterprise level, in India and globally, is mainly anecdotal. Stories based on individual experience abound. There is limited systematic evidence of the extent, nature and causes of noncompliance. One reason is that it is obviously difficult to ascertain noncompliance, in other words illegality, through a direct survey instrument, which is also needed to get information on possible correlates of noncompliance. However, there are some instances where noncompliance can be identified through indirect means. For example, in the case of minimum wage regulation, labor force surveys or household surveys routinely collect information on wages of the interviewed workers, as well as information on the nature of their employment. By matching the location/sector/occupation of each worker with official gazetted minimum wages, it can be ascertained whether or not a minimum wage violation is taking place, without ever approaching the 2