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Wish List for Budget: Unleash the Entrepreneurial Spirit

Startups

The maiden budget of Narendra Modi Govt. is about to be presented in coming days, and as usual, there is loud chatter and demand around raising tax limits, allowing greater tax exemptions, as well as various other tax sops demanded by industry bodies. It is not that these demands are made for the first time; but being Shri Modi’s first budget, the expectations are much higher than ever before. While the aim of a national budget is to present checks & balances of annual revenue along with expenditure and provide an overview of the overall economic health of the country, the annual budget for all practical purposes should go a little beyond that. Since it shapes up the long-term behavior of the public at large by way of taxation, policies, etc., solely focusing on increasing tax limits, etc., is akin to demand allocation of medical leave while what one needs is a lifestyle change to get on their feet!

Hence, rather than doing short-term adjustments related to taxation, etc., Modi govt has a great opportunity to use the budget for changing the fundamental way the Indian Inc. behaves and operates. Following are the fundamental changes needed to transform India from being an emerging market to a super economy on steroids. These key three basic ingredients are:

Focus on Building and Creating Trust

India is a trust deficit society where not a single paper can move without getting notarized by some nondescript shop in some corner of some court.

This basic approach of “trust no one” has resulted in a regime which has loads of laws designed to plug any hole and has ended up doing more harm than good. For example, the new Companies Law 2013 has just added to the woes where it has now become impossible to start a company without spending a fortune on accountants and company secretaries.

Somehow in India, the lawmakers and bureaucrats work with the fundamental belief that every private enterprise has been started with the core aim of committing fraud, launder capital, evade taxes, and commit financial crimes until and unless proven otherwise, and it may come as a great shock and surprise to our giant army of babus that private companies/business – big or small – do add to the wealth of the nation and contribute in their own way in building the nation. The aim and objective of any government are to keep its citizens happy and to help them achieve this goal rather than doubting every motive and treating every enterprise as a den of crime. Hence, the government needs to behave in a more mature way and adopt a more adult approach when it comes to the treatment of companies, instead of having a parental attitude towards everyone.

Foster Entrepreneurship / Encourage Failure

A society/nation is carried forward by the tribe of risk-takers and not by the army of clerks and babus. In not so distant a past, England, being a tiny island, ruled over the world on account of its tribe of risk-takers, and today, USA dominates the world on account of new companies/technologies.

Unfortunately, in India, we reward mediocrity and continuity, and punish risk-takers, as the cost of failure is very high. Try to close a company after a failed business!!! One will end up spending more money and time closing a company than in starting a company. Compliance and taxation liabilities further sink down a struggling company. Moreover, there is hardly any incentive for starting companies. The budget should reward entrepreneurship and allow failures to happen. Taxation rules for enterprises doing up to 5 Cr top-line should be simple, as they are not in a position to manage compliance cost, unlike bigger companies. Opening & Closing of companies should be simplified and made cost-effective. There shall be less tax-filing hassles for companies which have paid up capital of INR 5 Cr or less and are of less than 5 years of operational life.

Bring Accountability / Transparency

India is the land of regulators. For everything to work right, there is a regulator, and every year there is demand for more regulators, and just like it happens for every person in power, regulators’ demand for power just increases year after year, and Yes, all power without any accountability / answering to the public.

Hence, while increased regulation has increased the burden on companies/individuals multi-fold in terms of costs / increased paperwork, there is hardly any empirical evidence of regulators being effective or not being misused by vested interests, since there is zero accountability.

Its high time the new govt makes regulators accountable for actions taken and shall be responsible for all power being demanded by them, as lack of accountability breeds corruption and creates an unbalanced power structure. Until and unless accountability is brought into the picture, frauds like NSEL / Satyam, etc., keep on happening and regulators, rather than being conscience-keepers of the nation, would keep on behaving more in the line of SS/Gestapo and focus on harassing entrepreneurs/companies.

Till these steps are taken, budget in India will remain just an annual accounting exercise without unleashing the untamed spirit of the country.

This article was reproduced and was published in Economic Times.