Are Indians crushed between demonetization and a new tax regime?
In a four-part series, we talk about India’s underperformance as an emerging market over the past decade. Although it has been touted as the world’s market to global investors, there are no buyers for global commodities in India because people’s income levels have not increased in the past 10 years, and they were forced to dip into savings to survive rising inflation. in the economy. Will India’s history be different over the next 10 years?
Anil joined the wealth management wing of a private bank in Mumbai, in an office position in 2006. In 2009, his colleagues advised him to take time off and pursue an MBA, after all he needed push his career if he were to marry his officer girlfriend. . He had saved some money and decided to quit his job, prepare for MBA schools, continue his education and return to the workforce in two years.
Life rarely goes as planned. Anil completed his MBA but found no takers in 2011.
The second decade of the 21st century has started on a positive note. India appeared to have disassociated itself from the global financial crisis of 2008, with just one year of GDP growth below 5 percent. Consumption was high and kept the roar of the India engine going. But there was a deadly undercurrent: Household spending was fueled by debt.
For Anil, now he was overqualified for his previous job. “I had an MBA but couldn’t find a job. It was frustrating. I had taken out a loan for the MBA, and I had to pay with my savings, ”he laments.
In 2012, Anil was ready to seize any opportunity that presented itself. He remembered a school friend who moved to China, married a local, and ran an industrial adhesives manufacturing unit in Guangzhou. He had clients in India and promised Anil a commission if he managed to win more business. Anil jumped at the chance, took a few trips to China, and bagged more customers around Delhi and the Punjab. Soon, Anil had rented a small office in the Sakinaka district of Mumbai, and distributed the adhesive his friend made in China.
Suddenly, in 2014, the tax authorities knocked on Anil’s doors. They alleged price arbitration and raised a tax claim of Rs 40 lakh against him for importing adhesives from China at a lower price and selling them at a higher price in India without any added value. While Anil was distracted by his lawsuit, the 2016 demonetization dealt a debilitating blow to his clientele.
The biggest victim of this movement were the small businesses of India. According to the National Sample Survey Office, the informal sector accounts for around 40 percent of India’s GDP and employs three quarters of India’s workforce. As SMEs have lost business to companies, which have not created new capacity over the past decade, this has undermined the long-term goal of increasing the size of the middle class that would consume resources. products.
Aside from anecdotal evidence and some studies from business organizations, the true harm to demonetizing India’s informal sector is still unknown, as an impact survey on MSMEs during this period has yet to be conducted. .
The new tax regime launched just eight months after the demonetization made matters worse for Anil. Seven years after the tax notice, Anil is still fighting for his cause, as his business has evaporated.