Another Budget by NDA govt is in the offing and air is again thick with expectations. Like all years, every industry group is busy preparing wish list which generally boils down to a single point agenda of reducing tax rates and talk of level playing field and how this single reform i.e. tax rate cut will catapult their industry to leading position in the world, generate so many jobs, add so many basis points to the GDP etc etc. At the same time, mandarins at North and south block, silently whisper in the ear of finance ministry about worsening position of fiscal deficit, poor tax GDP ratio and need to collect more taxes in order to provide for poor and why Govt needs to be now ready for 8th Pay commission as it has come out that Indian bureaucrats are very lowly paid in comparison to bureaucrats at Singapore and USA in dollar terms. Indeed a very tough scenario for the finance minister to keep both sides happy.
However for a change, Startups / Investment sector rather than joining the usual annual chorus would like to strut solo guitar and like to chant “We need no tax breaks, we need no exemptions, hey FM, please leave us alone.
India seems to be on the cusp of startup revolution or rather was on the cusp of revolution. The present state of startup euphoria started in 2006 and saw the building of iconic companies like Flipkart, Paytm, Redbus, Citrus Pay and 1000s more with billions of USD getting pumped in this startups till the Govt took notice. Last year, we saw the launch of big “Startup India conclave” and single-minded focus of Govt in improving ease of business and create a conducive environment for startups. What is the end result? No of startups/funding in a startup is down by some 67% in last year alone. The number of tax notices issued to startups/funds issued in the last ½ years exceeds all the notices issued in the last 10 odd years. Earlier there was a tax only if a company used to post a profit, now startups are even taxed on investment raised (the only country in the world to do that). So much so for the benevolent attention of the Govt.
Overall it seems that Startups have got in the same league as farmers have been or to put in management jargon are the new “farmers” for the great Indian super Govt. In India, for the last 60 odd years, every Govt and its budget have one singular focus that is to work for farmers and improve their conditions. Billions have been spending on doing that with schemes, loans, policies and what not. What is the end result? Everyone connected with farmers be it experts, professors at agriculture universities, ministers, agencies, bankers have flourished except farmers! Farmers have continued to suffer and battle perpetual poverty and commit suicide while Govt focuses on farmers in terms of money and time just keep on increasing. Likewise, Govt focus on startups has brought a windfall on all stakeholders be it consultants, bureaucrats, bankers, event managers and all tertiary people except startups/funds. The consultants have been impaneled, lobby groups have been formed, nodal agencies have been constituted, huge budget allocations have been done with crores being spent in ad campaigns, while startup founders and fund managers are busy justifying valuation to tax authorities and being made to feel as hawala operators!
The reason for such state of affair is simple that Govt is looking at startups and doing that quite efficiently. The result is that there are now rules, then representations, then modifications and addendum and then more notifications with every organ of Govt at central and state level trying their best to add value and contribute their set of rules to already muddled water of startups. Probably only thing pending from Govt is a levy of startup cess on all investors and startups.
All this high involvement has only created a high level of uncertainty and confusion with rules changing every quarter and more and more coming every year. In decision theory, there is an interesting term “The Ellsberg Paradox “ which demonstrates that its the uncertainty, not the risk which makes people activity-averse and any investor or entrepreneur can provide for risk but not for uncertainty. Unfortunately, last many years of hyperactivity by govt in terms of ever-changing regulations / new and innovative form of taxes has created immense uncertainty in mind of entrepreneurs/investors alike and one is getting scared rather than encouraged to be investor/entrepreneur.
PM Modi in his address to NASSCOM in 2015 famously remarked that success of IT sector in India is not because of Govt but in spite of Govt as the government had no clue of IT sector and by the time it figured out the sector, it has grown in size multifold and became too big to be disturbed. Likewise, Startups were on a growth path till Govt took notice of it.
Hence it is high time that powers in finance ministry take notice of sentiments expressed by PM and rather than preparing to levy startup cess, listen to Pink Floyd and leave us – entrepreneurs/investors alone!
The article was published in The Economic Times.