Government policies and technology are ensuring that business transactions and business operations are becoming more visible and trackable. It is becoming increasingly difficult and expensive to evade taxes and to hoard or transact in cash. It is also getting increasingly easier to go cashless and to be banked. Businesses of all sizes, need to change their style of doing business immediately.
It has been a normal day for me today. Normal because, a friend of mine sent me a message out of the blue that as a result of "Demonetization", a policy of the current Indian government, many small traders, small businesses..etc closed down. It was indeed a very normal day because, during the course of another business meeting, a business friend of mine tells me that GST, a huge tax policy of the government caused the closing down of small businesses, small traders....etc in the textile snd other engineering sectors. Finally, almost towards the end of the day, during a political discussion in the family, an immediate family member tells me that all this emphasis on linking services like telecom, Social welfare schemes, identities..etc to a unified identity card called Adhaar resulted in the slowdown in the real estate business and put a lot of small real estate businesses and brokers out of business. All these discussions on the same day are not unusual, it's pretty normal. Over the past two years since the "Demonetization" in India, hardly has there been a day without a discussion or debate on all or at least one of these policies of the government, on TV and on social media.
These are not points made by political opposition or news journalists alone.
These are points made by small, medium and big business owners and also by people who are not directly involved in any business or trade. The most amusing thing about people who make these points is that they feel a sense of moral and social correctness about this point that they make. Now, If I were to rephrase these points and conclusion made by these people, it would be like this:
The Demonetization, GST and Adhaar linking policies of the government has forced businesses of all sizes to pay taxes which they anyways should have been paying for ages and has disincentivized and made it difficult for them to transact or hoard cash out of the system when they should have actually transacted through bank primarily or should have at least brought into books all cash transactions for ages and has ensured that their business operations and transactions are more visible and trackable for the government which was how it was supposed to be for ages, all this has ensured that many small businesses closed down. How unfair of the government to have done this to the poor small businesses, how unfair of them to not let poor small businesses to evade taxes, and to not let poor small business to transact or hoard cash and to keep their business transactions and operations completely out of the government view.
There is a general sense of entitlement among many businesses especially among small and medium family-run businesses in India, that the government has no right to demand and worse to force them to pay taxes. this feeling of entitlement exists also in all those who wail for such businesses. Anyone who has done business in India has seen businesses issuing duplicate bills for transporting goods and then destroying these bills after collecting huge amounts of cash, and has seen businesses do almost all transactions on cash and hoarding cash and has seen people and businesses parking cash in real estate by undervaluing real estate purchase leading to mindless inflation of real estate prices. This entitlement stems out of a utopian dream that the government should ensure world-class infrastructure, health care, education, banking..etc without collecting taxes and a government demanding taxes through a system and technology is viewed as imperialist.
I've run a small business myself in India for more than 10 years and I continue to closely work with many Small & Medium businesses in India and even mentor a few of them currently. On deeper analysis, one can understand that, in the past, small and medium businesses in India, didn't even consider commercial taxes in their costing. These businesses were very comfortable transacting in cash. When policy decisions and technologies made it difficult and expensive for these businesses to evade taxes and to transact & hoard cash, the very survival of such businesses got severely challenged. This implies that any business in India, small, medium or large needs to have a clear realization that, going forward, it is going to be increasingly difficult and expensive to hide business operations, transactions and tax liabilities from the government. This is not going to be specific to the current government. Evolution of Technology, systems and long-term policy decisions over the past few years have ensured that all business operations and transactions are going to transparent forever and hence changing the style of doing business in this new India, is the only option. The other option if it can be considered so, is to perish. Unorganized businesses which are mostly small and medium sized, will have to necessarily become organized, banked and technology enabled. Businesses and their owners should completely assimilate the fact that that it is easier and lesser risky to have open business operations and transaction now in this new India. Eventually, these small and medium businesses will also realize that they become more cost competitive also by becoming organized and technologically enabled.
On it's part, the government of the day has set the ball rolling for a more organized economy, but these policy decisions must be backed up with many more actions, that will make it more attractive and less painful for the small and medium businesses to become organized and adopt the new style of doing business. Many tiny and cottage businesses and their owners are challenged both on funds and on the understanding of technology. The government should ensure that the e-service centers that it has rolled out can function as tax consultants and help the small, tiny and cottage businesses in rural areas in accounting and filing taxes. This will encourage such businesses to become organized and will also make them more price competitive and viable. Banks should waive off minimum balance restrictions on current accounts of small businesses and also on savings accounts of owners of such small businesses. Banks should also ensure automatic overdraft facility of at least 25% of the bank turnover of these businesses in their current account and this overdraft facility should be increased upwards based on the increase in bank turnover of these businesses. This will encourage small business to necessarily transact through banks and avoid cash transactions.
This new India, where the organized style of doing business is safer, easier and more competitive is here to stay and the faster that businesses in India understand this, the better for them. This new India has ushered in a new style of doing business and that is the only option for survival for businesses in India.
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