Concept Paper for Digital Enterprise and Service Hubs (DESH)
Proposal for a zero-friction regulatory environment for digital businesses
The Indian business and regulatory environment is criticized for not being investor-friendly and failing to facilitate ease of doing business. Indian laws provide high degrees of discretion to administrative bodies, impose onerous compliance obligations, require frequent paper-based submissions and mandate interaction with a multiplicity of regulatory authorities.
These characteristics have led to an exodus of businesses, particularly digital businesses, from India. Indian start-ups are increasingly choosing to shift their headquarters to jurisdictions like Singapore or the United States. The globalized nature of digital business and the ease of coordinating across markets means that multinational companies are seeking friendly jurisdictions to incorporate in.
This concept paper outlines the concept for a born-digital regulatory environment for businesses – the DESH framework – which is designed to achieve two objectives: simplifying doing business in India; and making India an attractive jurisdiction for global digital businesses to incorporate in.
DESH: Concept and key elements
The DESH framework is a collection of systems, procedures, administrative mechanisms, and legal rules which together create a frictionless regulatory environment for digital businesses. It may be thought of as a ‘digital Delaware’, comprising systems, procedures and technologies for the incorporation and governance of companies. This paper aims to develop solutions to streamline procedural requirements using the principle of reducing the regulatory burden and achieving zero-friction regulation.
Given the globalized nature of digital business and the extant adoption of digital solutions by such businesses, DESH is proposed to be implemented as a pilot specifically for digital business.
The schematic illustratively sets out the design of the Hub. The grey-bounded area within the dotted red lines represents the legal boundaries of the DESH framework, with: (1) All interactions between the DESH Company and the DESH Administrator intermediated by the DESH Compliance System; (2) All interactions between DESH Companies and regulatory bodies are intermediated through the DESH Administrator.
- DESH may be conceptualized as a ‘legal home’ for a firm. A firm may be incorporated under the DESH framework, or an already incorporated firm may transfer into DESH. The notional location of DESH will be treated as the Registered Office/Headquarters of the firm for legal purposes.
- A DESH Company will be a specialized form of legal entity, modelled on the private limited company framework under the Companies Act, 2013, and will have to comply with streamlined rules related to corporate governance and investment regulations.
- DESH will provide the digital infrastructure necessary for frictionless and paperless regulation. The paper proposes the development of the DESH Compliance System, including tools like a compliance calendar, digital lockers, unified online portals, and the use of automated data flows to simplify, streamline and digitize regulatory processes around operating a business. There will be ensuing disclosure obligations on firms to enable the operation of this framework.
- DESH will be administered by a specialized body with dedicated capacity and functional autonomy (‘DESH Administrator’), who shall be required to act under a co-regulatory approach – including conducting annual efficiency reviews and enabling companies to file requests for improvement of existing rules, systems, or procedures. A DESH Company will interact with any government agency through this body, which will also act as the principal coordinating agency for interactions with other government agencies and departments.
- The ultimate objective of DESH is to make it possible to run a business in India and demonstrate compliance with Indian laws entirely through digital means, with no reversions to paper-based processes or traditional regulation.
- The way forward requires sustained engagement across government ministries and departments in the development of the DESH framework. The first step towards this is the formulation of a technology blueprint for the DESH Compliance System.
- The DESH framework will require a notional location, which will serve, for legal purposes, as the registered office of DESH Companies. The IFSC framework, which was developed to create a globally competitive financial services regulatory framework, aligns with the goals of the DESH framework. The DESH framework can dovetail with the IFSC framework to create a business and financial services hub which can propel India to a position of global leadership in the race for attracting modern digital businesses.
- DESH is a radical break from the traditional model of regulation of businesses in India. The ultimate vision behind the DESH framework is that India should become the home for digital businesses worldwide. The development of this framework has the potential to help India attain a position of global leadership in the digital economy and propel India’s domestic technology industry to greater heights.