Too many government bodies complicate company operations, increase costs, say entrepreneurs

(This article was written when the news of Café Coffee Day founder V.G. Siddhartha's disappearance was reported. The body of Siddhartha was found on the banks of Nethravati river in Mangaluru on July 31, 2019.)

The case of V.G. Siddhartha might not be an isolated one, say entrepreneurs who believe that the presence of multiple stakeholders puts a lot of pressure on the businesses and the founders.

Entrepreneurs, who have dealt with multiple government agencies, also feel that there are too many government bodies that play an active role in the journey of a company and, more often than not, it only complicates the operations of the company while increasing the compliance costs manifold.

“It is not so difficult to relate to [Mr.] Siddhartha. An entrepreneur has to handle various kinds of pressures from multiple stakeholders,” said Manish Kumar, co-founder, GREX, a fund-raising platform for start-ups.

“Any company can quickly spiral out of smooth operations if there is no quick convergence of plans and resolutions between various stakeholders and things may never return to normal once they go out of hand. Apart from investors, customers, employees and partners, the government is one big, multi-party stakeholder as well. There are various departments or wings of the government and they do not talk to each other and this complicates matters,” added Mr. Kumar.

In the letter purportedly written by Mr. Siddhartha, he has alleged that he was under pressure from a private equity entity and also from the income tax department.

No animosity

However, some private equity players who had dealt with Mr. Siddhartha were quick to clarify that there was no animosity between them and the founder of the coffee chain, who had gone missing.

“We have seen the statement that Coffee Day Enterprises has made to the stock exchanges... We believe in V.G. Siddhartha and had invested in the company about 9 years ago.

“ We sold approximately 4.25% (of our total holding of approximately 10.3% in the company) in February, 2018 on the stock exchange and have not sold any shares before or after,” said a KKR spokesperson.

In a similar context, Standard Chartered Private Equity said, “We backed V.G. Siddhartha in early 2010 and have had a great relationship with him throughout.

“We sold approximately 1% equity on the exchange in April 2018. Since then, we haven’t sold anything and currently own approximately 5.7% in CDEL.”

Experts, who deal with both businesses and the government, say that it is indeed a cumbersome process to deal with the various compliance requirements laid down by the government.

“The problems are many and they all boil down to increasing unpredictability in the ecosystem for doing business,” said Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME).

“Too many compliances mean too many opportunities for harassment and extracting money from SMEs by authorities as they cannot hire a team of lawyers and consultants.

“The government must make the Companies Act simple for small businesses so that it is affordable to comply. There is a need to make distinctions between a ‘limited but not listed’ company and a ‘limited as well as listed’ company.

“The regulatory compliance for the former has to be eased substantially,” added Mr. Bhardwaj.

If this can happen to Mr. Siddhartha, who was from a well-connected family set-up, think of common entrepreneurs like us, said Mr. Kumar.

Standard loans

Meanwhile, RBL Bank has clarified that it has exposures to certain operating entities of the Coffee Day group.

“The credit facilities, that are largely working capital in nature, are secured by primary securities, as well as some collaterals of land and marketable securities.

“All the loan accounts are standard and performing,” said a statement from the bank.