Uncertainity in the air

Uncertainity in the air

K.M. Chandrasekhar

K.M. Chandrasekhar

The sudden demise of the founder of one of India’s seemingly most successful start ups raises serious questions which the nation needs to address. The fact that it was a case of suicide and that his dying declaration in the form of a letter to his family and to his employees states in no uncertain terms his desperation with the situation in which he found himself should make us introspect. Are we on the right path? Do we need course correction before more calamities assail us?

I never knew Siddhartha personally. I knew his father in law, SM Krishna, a man of great dignity, noble bearing, soft spoken, humble. He was a Cabinet Minister then and we interacted frequently in the Cabinet and in Cabinet Committees. I recall a visit to Bengaluru many years ago, my first visit to the city as Cabinet Secretary. He was on the same flight as me and on the same vehicle from the tarmac to the terminal. When the Cabinet Secretary visits, and that too for the first time, generally many State Secretaries along with the Chief Secretary turn up at the airport to receive him. Krishna smiled quizzically at me and said, “You have a big reception committee.” In deference to his seniority, I made way for him to leave the vehicle first. He said, “No, they are there to receive you. You get down first.” In this hour of tragedy, I hope he finds the fortitude to support his daughter and his family.

Siddhartha’s place as Chairman of Coffee Day has been taken by SV Ranganath, an independent director of the company, a former Chief Secretary of Karnataka. Ranganath and I have known each other for many years. Rarely have I seen a man of greater courage and simplicity, who believed in adhering to his own cultural values even in the face of personal hardship. Ranganath was on deputation to the ISRO before he went back to the State Government and I recall his taking me around the various units of that great organisation in and around Bengaluru.

The growth of Coffee Day and its rapid expansion across the country and abroad has been truly amazing. From a single experimental unit in Bengaluru, it grew to almost a couple of thousand outlets across the length and breadth of India. It seemed to symbolise the aspirations and the upward mobility of the burgeoning Indian middle class. If India Coffee House was the favoured place for social and intellectual conversation in the sixties and seventies, Coffee Day seemed to portray the image of a confident and resurgent India in the last couple of decades, sure of itself and its capacity to be globally competitive.

In giving up his life, Siddhartha has left several messages which India must heed. He has talked about his company being weighed down with debts from many different sources and his belief that he would not be able to service them. This raises two issues. The first is probably that some of our young and growing companies need to be particularly wary of over leveraging in the quest for expansion. Sometimes, growth has its own momentum, which can mesmerise the aspiring entrepreneur and lead him to take more risks than a more established and conservative business house would have taken. This is a lesson also for those in government in charge of implementation of projects to proceed more cautiously while advocating animal spirits.

Another message that the tragic event has left is that the crusade against non productive assets in banks has to be tempered by the needs of the economy. Inability to repay a debt in time arises not just on account of a deliberate and malicious intent to defraud the bank and society. In many cases, incapacity to repay in time arises out of the company running into bad times or being caught up in a slowing economy. A certain amount of flexibility has to remain with the banker to distinguish between a miscreant and a man genuinely facing temporary difficulties who will meet his debt obligations if given a little leeway. It is necessary for the banker to be able to work with the well intentioned entrepreneur and try and see him out of the woods. Any good and honest banker can make this distinction but not if he fears that investigative and enforcement agencies are going to breathe down his neck. Like most of us, the banker would then become a rigid adherent to the rule book divorced from the realities of the economic situation.

The third message that Siddhartha left was regarding pressure on him from the tax authorities. I have myself at one point of time headed the taxation and tax enforcement structure of the country as Revenue Secretary. I recall the pressure there was on me to deliver higher revenues and the pressure that I, in turn, put on my officers. Hence I can understand why the officers acted as they did, particularly in the light of the clarifications they have given. There is, however, a general issue which the government has to bear in mind in raising revenues. The need to collect more money as taxes must never become an unbridled license to allow tax officials to torment tax payers.

I recall an incident when I was Revenue Secretary. The price of an important commodity had risen disproportionately and there was concern in government that this was going to hit a range of developmental activities downstream. A meeting of manufacturers was, therefore, called by the then Finance Minister, Chidambaram. To my surprise, the manufacturers concerned told him off in no uncertain terms. I thought they were exceptionally rude and that there were ways in which tax departments could deal with them. I told the Finance Minister accordingly. He thought for a moment and then said, “No, we don’t deal with such things using our powers and our officials.” On reflection and introspection, I feel he was absolutely right. We could have used our machinery to put a few captains of industry in their place, but we would never have been able to prevent the same machinery from overreaching themselves and creating mayhem in the economy. Reining in tax officials and ensuring that tax payers are dealt with fairly and with dignity is as important as sniffing out the miscreants.

This is something that is not new to the taxation wings in government. Over the years, the effort has been to root out discretion and build in systems. Today, the vast majority of income taxpayers have no direct interface with assessing officers. Our returns are fed into machines, which quickly assess what is due from us on the basis of our returns and information collected from many other sources and tell us how much more we have to pay or how much has to be paid back to us.A risk analysis system and an electronic data interchange simplify customs assessment while the introduction of GST has meant that indirect tax collection, earlier an impossible medley of Central and State indirect taxes and the playground of officials ,becomes increasingly a self driven ,self policing mechanism. It is important that the movement towards management of taxes through systems rather than individuals continues with vigour and that this process never lapses back to arbitrariness and harassment.

The statements of leading figures in India Inc seems to point to excessive tax intrusiveness. TV Mohandas Pai labelled it ““tax terrorism”. Kiran Mazumdar Shaw talked of industrialists being called by enforcement agencies and made to wait for hours. “ To day every business person is made out to be as if there is something very crooked about them,” she said. Pratibha Jain, a lawyer, said,” Tax authorities are keeping focus only on corporations and individuals to meet their revenue base, rather than looking at it in a fair manner which requires widening the tax base to get tax evaders to pay up.”( Business Standard, 1st August,2019). These are not voices that the government can afford to ignore.

Finally, there is a deep, underlying issue that needs to be quickly addressed, namely, the state of the economy. Coffee Day is not an isolated case. Earlier, we had Jet Airways going belly up. IL&FS, the poster boy of private sector infrastructure development, has folded up. Non banking financial institutions are in distress, thus affecting consumer demand. The economy is at a low, unemployment is at a high. It would be disastrous to turn a blind eye to the growing economic tsunami or to dismiss it as something that was invented by trouble makers.