India's salt tax is pointless. 

India's Most Laughable Laws

Dhiraj Nayyar is a journalist in New Delhi. Trained as an economist, he has worked at the Financial Express, India Today and Firstpost.com. He is editor of "Surviving the Storm: India and the Global Financial Crisis."
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As part of his campaign to revive India, Prime Minister Narendra Modi has vowed to clear away some of the cobwebs choking the country's legal and business sectors. In August the government moved to repeal 36 obsolete laws or amendments to laws, and appointed a committee to identify others worthy of the ax.

According to reports earlier this week, the government has now picked out 287 such measures, most of which are ludicrously outdated. One says that property in a certain part of Kolkata, one of India's largest cities, can only be sold to the British East India Company. Another bans flying kites or balloons without police permission, because these constitute aircraft according to a 1934 law.

Such colonial-era rules may make for good comedy. But, of course, most of them are never enforced. The real problem involves a raft of laws that lend themselves to exploitation, impeding business and government efficiency even today.

Three prominent Indian think tanks -- the Centre for Civil Society, National Institute of Public Finance and Policy and the Vidhi Legal Centre -- recently released a report called the Repeal 100 Laws Project that identifies several such regulations. The Indian Boilers Act of 1923, for instance, requires that government inspectors certify the fitness of steam boilers in Indian factories. Originally meant as a health-and-safety measure, the law has essentially become an instrument of extortion by bribe-taking inspectors.

Other laws throw up unnecessary roadblocks to business. The Research and Development Cess Act, 1986 mandates a 5 percent duty on any imported technology. The law doesn't collect much revenue: It raised an average of just $30 million a year between 1997 and 2010 because of tardy implementation. But its presence on the statute books deters the import of technology that India badly needs.

Some of most damaging laws relate to the nationalization of Indian industries. The Railway Companies (Emergency Provisions) Act, 1951 provided the instrument for nationalizing the railways shortly after independence. Repealing it won't privatize the hugely inefficient sector. But it would lend muscle to recent pronouncements that the government is now open to foreign investment to modernize the sector.

Similarly, the Coking Coal Mines (Emergency Provisions) Act, 1971 enabled the Government to take over the management of private coal mining companies pending nationalization. Repealing it wouldn't dismantle state-owned Coal India, which is at the heart of many of the country's power problems. But it would send a strong signal that the grossly inefficient monopoly is no longer sacrosanct.

Other laws bleed money unnecessarily from a cash-strapped government. The Salt Cess, 1953 imposes a charge of 14 paise (1/7th of a rupee) on every 40 kilograms of salt produced in India. The tax generated $690,000 in 2012-13 -- and cost $4.5 million to administer. A similar tax on sugar earns a healthier $36 million annually, most of which goes into a Sugar Development Fund. Still, in 2008-09 the government admitted that the revenue didn't cover the cost of running the fund.

No one's arguing that abolishing 100 old laws or even 300 old laws will solve India's myriad problems. In many cases, repeal may have only a small impact in economic terms. However, if Modi's government can't make a start somewhere, there's little hope of tackling more radical reforms to land and labor laws, which face much stiffer resistance. By targeting the right regulations now, the government can both signal its seriousness and at least start to ease the always difficult task of doing business in India.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Dhiraj Nayyar at dhiraj.nayyar@gmail.com

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net