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Siddhartha’s Death Note Foretells The Fate Of Entrepreneurs

BP World Bureau | Jul 31 2019 08:32:23 PM
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The exact reason for VG Siddhartha taking his own life is yet to know. But tax harassment and pressures from private equity investors are evident from his departing note. It is clearly indicates that being an entrepreneur in these days in India is very difficult.

Ease of doing business in India is still a dream. Even for a well-connected businessman like Siddhartha, with political backing has a hard time doing business. He was the son-in-law of former Karnataka chief minister S.M. Krishna and his family owns coffee estates for 130 years but found it hard to sail through choppy waters. Tax policies are unfriendly to businessmen like him.

Former Chief Minister Siddaramaiah blamed the union government of "selectively" favouring corporates. He said, “tax terrorism killing budding entrepreneurs.”

A sharp spike in short-term loans to continue funding his business expansion over the past 12 months may have cost VG Siddhartha significantly, as the overall liquidity crunch in the financial system after the IL&FS crisis made it tough to get additional loans. Besides, the failure of pushing through the sale of real estate holdings, which could have brought much-needed additional liquidity, could have also helped ease his financial situation, said sources.

Till the day before he disappeared on July 29, Siddhartha was trying to get a loan of about Rs 1,600 crore from one of the country's top lenders to avert the crisis. This would have eased his financial situation significantly, primarily as the company had just sold off 20% stake in Mindtree to conglomerate L&T for Rs 3,200 crore to reduce the pressure. After taxes and expenses, this deal brought in net proceeds of Rs 2,100 crore to bring down the debt.

After the Mindtree deal, the deal, the sale of Global Tech Village, a 4-million sqft development spread over 120 acres in Bengaluru, was in the works in an Rs 2,800-crore deal. Private equity major Blackstone along with local developer Salarpuria Sattva was in the race to acquire it.

At the same time, the company started talks with US-based soft drinks giant Coca-Cola for the sale of a substantial stake in the flagship Cafe Coffee Day business. Coffee Day Enterprises saw a significant spike in short-term debt as well over the past year by nearly times to Rs 3,890 crore. These loans had to be repaid within the next 12 months, causing him to push for the sale of multiple assets in the business.

Siddhartha had consolidated all his businesses like retail, financial services, logistics, real estate except the coffee plantations under Coffee Day Enterprises after raising $200 million in private equity funding in 2010 in what was one of the most high-profile deals at the time. Siddhartha had just purchased Sical Logistics and also expanded in the furniture business by taking 1.85 million hectares of forest land in the Amazon forest in South America on a 30-year lease in 2011. In an interview to Forbes in 2011, he had said that he expected in the "next seven years, at least three or four of these businesses will be doing revenues of $1 billion each".

But that did not materialise, as his biggest business Cafe Coffee Day reported revenues of Rs 2,043 crore in the financial year ending March 31, 2019.

Reforms in the tax system are a long term demand of Entrepreneurs in India. Take the case of the Angel Tax  - the income tax department wanted to tax the investments coming into a start-up by treating them as income if they exceeded “fair value.” This led to undue harassment of start-ups.

Goods and Services Tax (GST) implementation is a complex system of taxation and tax filers have had to face problems because of the GSTN.

Ultimately, Siddhartha’s suicide also puts a face to the extreme business pessimism in India right now. According to IHS Markit, only a net 15 percent of private sector companies surveyed in June see output growth in the year ahead, lower than in the time of UPA-II’s policy paralysis years. Companies are worried about a slowing economy, public policies, weak sales, rupee depreciation, lack of skilled labour and even water shortages.