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I admire two things about Prime Minister Modi. He is an audacious and energetic propagator of his pet ideas. And he coins really smart acronyms to catch the popular imagination.
That was apparent when he celebrated India’s leap of 23 spots, from rank 100 to 77, in the EODB (Ease of Doing Business) Index compiled by the World Bank. Modi beamed. He was now tantalizingly close to his target of “getting India into the Top 50”, so you could not grudge him the joy. “Now our effort is to take India to the five-trillion-dollar club as soon as possible”.
Several other things were left unsaid too. Most of us assume, quite innocently, that the World Bank’s EODB Index is the gold standard of economic performance. In reality, it’s an extremely narrow, even misleading, summation of a few economic rules which matter to a tiny, very tiny, sliver of India’s vast population. Here are a few eye-opening (popping?) facts:
I’ll say it once more. That’s it! Just these meagre tweaks to a few rules in Mumbai and Delhi are supposed to have transformed India’s economy. Never mind the fact that on three significant parameters – paying taxes, resolving insolvency and enforcing contracts – we actually slipped. But why bother with such trivia in a post-truth world.
Even more critical is to check what the EODB Index does not take into account (you will be now astonished to see how lethally narrow its underpinning is):
Prime Minister Modi’s older echo chamber, the Gujarat Chamber of Commerce and Industry (GCCI), had given a dire warning just two days ahead (on 16 November 2018) of his euphoric EODB outing. Although Modi, in another virtuoso act, remained silent on their prophecies of doom (which I am quoting verbatim):
But the Gujarat warning was drowned in the EODB din, as Modi conjured up yet another big sounding theme. He announced a “Grand Challenge” for India’s techies to come up with smart ideas in “artificial intelligence, the internet of things, big data analytics and block-chain technologies to streamline and speed up processes”, that would catapult India into the Top 50. He used all the fancy tech terms in vogue to talk up his newest “brain wave”.
Two years ago, the income tax department had issued similar notices, slapped taxes, and begun prosecution under the dreaded “angle tax” provisions. It’s an outrageous levy, which places the power to “value” start-ups in the hands of clueless inspectors. Imagine, even the most successful professionals, from private equity and venture capital outfits, get valuations right less than once in ten times. Because valuations, like beauty, lie in the eyes of the beholder!
For example, if five investors had valued Flipkart at USD 1 bn, USD 2 bn, USD 3 bn, USD10 bn or USD 15 bn in 2012, who would have been right, and who wrong? Clearly, each person’s valuation would depend on her:
Each person would have given different weights to these individual factors, and arrived at any number of different valuations. And each would have been right, because Flipkart was eventually sold for USD 20 bn in 2018.
So now, if the taxman had whimsically determined Flipkart’s valuation at USD 0.5 bn, he would levy taxes of USD 200 mn, USD 600 mn, USD 1 bn, USD 3.8 bn and USD 5.8 bn, respectively, on each hapless investor, even before a penny of cash gains had been realised!
Do you seriously think any of our hypothetical investors would have put money under such a tax regime, where they were being coerced to pay cash taxes on unrealised/uncertain “profits”?
Clearly, this tax is a travesty, and tragedy, inflicted on Indian start-ups by Prime Minister Modi. It’s an astonishing repudiation of Stand-up India, Start-up India, Digital India, Make In India and God knows how many more schemes.
So, even as Prime Minister Modi got “India Shining” bouquets from his Mumbai/Delhi echo chamber on EODB (Ease of Doing Business), his Gujarati kinsmen and India’s first generation founders, if he had cared to speak to them, would have given a very different “India Taxing” brickbat:
Egregious Officers Destroying Business, ie, EODB!
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)
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