Bureaucratic Mindsets

Bureaucratic minds tend to be more regulatory than promotional. They are no good to encourage entrepreneurship. Take the example of e-commerce. It is the brainchild of highly creative minds of the 21st century knowledge society, where innovation spurs change in every sphere of life. E-commerce has changed the whole concept of selling, marketing, buying, shopping and retailing. It has foxed the governments, especially their tax administration. Revenue administrators consider themselves a cut above the rest of the bureaucracy: the finance minister compared to the agriculture minister! However, the online selling guys left them so befuddled that the Sales Tax Administration didn’t know how to cast their net over them for almost 5 years now. It proves a fact that they or the government didn’t really contribute to promote e-commerce in India. But now that it has created a few giant e-sellers and shaken the traditional sales infrastructure, the Delhi sales tax department has decided to “act” (to be adopted by others). News reports say that the Delhi government’s value added tax (VAT) department is scanning transaction records of big players “as a part of a drive to check bogus dealers”.  One may ask “were they sleeping all these years”? They won’t answer because they love “inspection” to determine if there were any “undervaluation” so that they take “strict action “, and impose “heavy penalties”. Because online shopping is a success they think it necessary to “regulate” the trade. And how do they do it? By scrutinizing all transactions in the last 3 years to start with. There lies the catch. Scrutiny means power to harass every online seller. They issue notices under the relevant sections of the sales tax law seeking information that is enough to create a scare. The seller needs to engage lawyers or chartered accountants to comply with the requirements of the law. After preliminary scrutiny, final scrutiny will be held to decide what action, if any, can be taken for any “serious violation of the law” that might have occurred. No small scare to those facing the total affection of all categories of tax authorities.

The question is: should it be allowed? This is the mindset of the bureaucracy of the “inspector raj zamana” or the days of controls through licence/permit/quota. This is the mindset when India used to pride in calling itself “socialist”, In fact, an amendment to the Constitution of India added the word “socialist” to it. It brought into existence regulatory authorities in almost every sphere of governance including sales tax. Sales tax authorities in India are known to be thoroughly corrupt, because of the law which has favoured regulation over growth. It was never growth oriented. It became an instrument of harassment in the hands of the incompetent, dishonest or outright corrupt officers in the entire hierarchy from the peon to the minister. It is high time the government decides to change the law to change the mindset to change the administration to become an agent of growth rather than obstructionist regulator of the last century.

E-commerce has come to stay here till such time its competitor uproots it. Till then, the government needs to look at it with a constructive mind and positive outlook. It should come forward to help new entrepreneurs to participate in this trade revolution. If the economic superpowers and their giant enterprises are investing heavily to capture the Indian retail market, why should the government of India and the states not do so? The approach of the Delhi value added tax department needs to be changed completely to achieve such a goal. Instead of scaring away the e-commerce entrepreneurs by threatening severe action for alleged/suspected/framed serious violations etc, the government ought to play the same role it has been playing to promote small scale industries. It has to extend all the assistance in the form of training, hand-holding, soft loans etc. to the e-commerce entrepreneur. First of all, they should be treated as “entrepreneurs” and their online selling ventures as “enterprise”. There goes a lot of input before an entrepreneur becomes an online seller, and there is too much risk before she becomes successful. Education, information, plan, resourcing, networking, platform, capital, work station, employees, management, finance & accounting, tax matters etc. are only some of the several areas that make the essential inputs of such an enterprise. Isn’t a young MBA or any other professional deserving of the government’s support in the interests of growth of the economy? It hardly needs reiteration that the online seller needs all the government’s support. I recall the uneasiness in bureaucracy some 30 years ago when a proposal came up for decision to include “hotel” in the definition of “industry” so as to qualify for soft loan from banks. Ultimately it was decided to accept the demand and hotel became industry. Taking into consideration the quality employment potential of the e-commerce, more so the self-employment prospects, these enterprises need government support and encouragement.

The government can take the following steps immediately: (1) It should free all e-commerce ventures from all laws, rules and regulations by providing a single window registration for them; (2) It should ensure loans from banks at soft rates as applicable under a score of Finance & Development Corporations i.e. under 3 to 5% rate of interest; (3) These ventures need less investment in fixed assets but more in working capital, because of the varying demand and supply of goods. Hence they should have the support of the banks in the form of availability of required funds just-in-time (JIT) without any delay at all; (4) Like the Bill Discounting facility extended to the SSI sector, e-commerce ventures should also be extended the bill discounting facility on sales executed by them on daily basis; (5) Banks demand collateral, which discourages development of entrepreneurship in the country. The e-commerce entrepreneur should be granted loans by the banks even if she is unable to furnish any collateral because she has already invested heavily for her education and start up. It is not only her self-interest alone that gets served by her self-employment venture but also a solid contribution to economic growth of the country and generation of employment besides reduction in dependence on the government for her own employment. If help comes to genuine entrepreneurs, the risk of default in loan servicing would not be even 1% of what big enterprises swallow (exceeding several lakh crore of rupees annually). It is time to treat the educated professional young people in the country as competent, capable and trustworthy productive force. We need to respectfully acknowledge their creativity, innovation and enterprise. (6) Set up an E-commerce Development & Finance Corporation, if need be.

Can Prime Minister Narendra Modi spare a thought for this proposal to bring to fruition his goal of creating million jobs?

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