Topic– Indian economy : issues
4) In view of some of the recent steps taken by the government, critically examine whether the government is micromanaging startups and e-commerce players?(250 words)
Why this question
The article delves deep into some of the recent steps taken by the government and its agencies with respect to start ups and e-commerce players. The key question here is whether these steps amount to micromanagement on the part of the government and will negatively affect startups and e-commerce players. The question expects you to form an opinion on these issues.
Key demand of the question
The question expects us to first explain the step taken by the government with respect to startups and e-commerce players and thereafter, examine the pros and cons of it. We need to discuss whether these steps are required in order to prevent money laundering and protecting domestic e-Commerce investors or whether these steps amount to micromanagement which would negatively impact these sectors. We need to provide a fair and balanced conclusion and discuss the way forward.
Critically examine – When you are asked to examine, you have to probe deeper into the topic, get into details, and find out the causes or implications if any.When ‘critically’ is suffixed or prefixed to a directive, all you need to do is look at the good and bad of something and give a fair judgement.
Structure of the answer
Introduction – Explain that the government and its agencies have taken certain steps which has had sizeable impact on start ups and e-commerce players.
- Explain the recent steps taken by the government
- start-ups started receiving tax notices under Section 56 (2) (vii, b) of the Income Tax Act, which quickly became known as the ‘angel tax’. Simply put, tax authorities argued that any company that raises capital that is above its fair-market value is actually earning income from that investment. They demanded tax at the maximum marginal rate on the difference between the fair market value (as determined by the taxman and not the investors who actually put in the money) and the price at which the shares were issued.
- in a press note titled ‘Review of foreign direct investment in e-commerce’, the government imposed a fresh set of curbs on e-commerce players. Any entity where an e-commerce firm has an equity stake is now barred from selling on that platform. Any e-commerce entity vendor’s inventory will be deemed to be controlled by the e-commerce player if more than 25% of its purchases are from the latter or related firms. In that case, the e-commerce firm becomes inventory-based, where FDI isn’t allowed.
- Discuss the impact of these steps taken by the government. You need to debate from both sides highlight the pros and cons
- Overvaluation of startups can indeed be used for money laundering. However, to treat all legitimate venture funding as money laundering and to attempt to tax it will negatively affect the ability of these startups to raise capital especially in their formative years etc
Conclusion – give a fair and balanced opinion based on all the arguments made in your answer and discuss way forward.