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Business News/ Opinion / Columns/  Opinion | The core of our manufacturing economy is staring at an abyss
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Opinion | The core of our manufacturing economy is staring at an abyss

Cheap Chinese imports plus a confusing and harsh tax regime are killing India’s small businesses

Photo: BloombergPremium
Photo: Bloomberg

This article is about my Uncle M, a man whom I love and respect very deeply. He is an entrepreneur, making a precision cutting tool for the leather industry for nearly four decades now, and has always held a large share of this small niche market. His company’s annual turnover is a few crore rupees, and it employs about 50 people, almost all blue-collar.

I have never heard of any labour unrest in his factory. What I have seen is a community that he takes care of. Long-time employees have got loans and built homes and given their children fine education. He has always been there for them in medical emergencies. Families of workers who died young have been given every form of help needed.

Throughout his business life, he has had to fight a corrupt inspector raj and tax terrorism. He has faced every problem that a hostile and greedy bureaucracy can pose to an entrepreneur who does not have political connections. Today, close to 80, his knees are giving way, but he can’t keep himself away from his beloved factory even for a day, though his son now runs the operations.

A week ago, he called me. For the first time in my life, I saw his spirit weakened. Faced with complex and ever-changing tax regulations, and the onslaught of cheap Chinese products, he seemed to be close to the end of his tether. His voice sounded different.

No, this article is not really about my Uncle M. It is about the hundreds of thousands of entrepreneurs like him who built honest businesses from scratch against all odds, who provide far more jobs than big companies (and possibly take far better care of their employees), and who form the very core of the Indian economy. They are never profiled in the media like our e-startup millennials, and possibly don’t even know what “venture capital" means. Many of them, like my uncle, also export to the developed world, even though they can hardly speak two grammatically correct sentences in English. But these are the people who move our gross domestic product (GDP), who shift our social indicators by skilling millions of people and raising them up the economic ladder.

Taken as a whole, these businessmen from unfashionable manufacturing industries contribute more to society than the biggies with their mandated corporate social responsibility budgets and slick public awareness campaigns. And right now, they are hurting more than at any time they can recall.

After that call from Uncle M, I spoke to some chartered accountants, people who know such entrepreneurs closely. Rarely have I seen such consensus of opinion. This is what I learnt.

The goods and services tax (GST) system in India is a complete mess. Its forms are very difficult to fill, especially for small businessmen, who have to hire people just to do this, thus adding to the costs. Plus, the forms keep changing, as do regulations, sowing confusion all around. Total digitization has created massive problems, from connectivity and tech-familiarity issues on the businessman side, and server crashes and software malfunctions on the government side. And, at any point in time, substantial working capital is stuck in the form of unpaid GST claims.

Meanwhile, the overall tax regime has turned increasingly nasty. Every taxman in the country is chasing unrealistically steep targets, so queries on returns filed are soaring. And, even after you get a message from the tax department that it is satisfied with your clarification, you may get another one saying, no, it has been “suo motorejected". The brunt of all this, of course, is borne by the small businessman.

Add to this, China. From the lathe machine to the agarbatti (incensestick), Chinese goods are killing Indian enterprises, especially at the small and micro level. Not signing the Regional Comprehensive Economic Partnership treaty was the right move, but that is just a small step. Vastly more needs to be done to help our entrepreneurs survive. We must fight this warhard with China.

The dominant talk in India is about job creation, but we should first be talking about saving existing jobs in the country. We should be talking about the 50 families dependent on my uncle, and the 50 families dependent on each of the hundreds of thousands of other businessmen like him—because businesses and factories are shutting down. And many businessmen are persisting only because, either they still haven’t entirely given up, or they cannot abandon the people who have trusted them for their livelihoods for so long.

By making these businessmen waste enormous time, energy and money on GST and other tax issues, and not moving fast to save them from drowning in the rising Chinese tide, the government is doing more than just damaging the economy; it is breaking the spirit of people who actually have their skin in the game called India.

These entrepreneurs form the bedrock of our economy, and give it a literal solidity. Their children may study business administration abroad, but they come back home and take charge of their factories. Now, many of them are being discouraged by their parents to return.

We have an extreme crisis on hand and time is running out fast.

Sandipan Deb is former editor of ‘Financial Express’ and founder-editor of ‘Open’ and ‘Swarajya’ magazines

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Published: 24 Nov 2019, 05:58 PM IST
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