When the systemic becomes the personal

When the systemic becomes the personal

V G Siddhartha’s tragic demise is a wake-up call.

It is sad that Café Coffee Day (CCD) founder V G Siddhartha has, to all appearances, taken his own life. What pushed his work-life balance to this fatal extreme? A letter written by him, whose authenticity is yet to be established, blames pressure from private equity (PE) providers of capital to buy their shares back, leading to large borrowings, and harassment by tax officials. At one remove, blame for his untimely demise lies on the dysfunctional corporate debt market and the poor legal infrastructure that makes determining and transferring the ownership of loan collateral a torturous process.

Café Coffee Day has been a grand success in brand building. The term CCD has entered the lexicon of India’s pop culture and youth, who, at least in India’s towns other than the metros, aspire to hang out at CCD. Siddhartha, who built up this brand, would have had no difficulty in raising money, had he been in an economy with a functional debt market, such as the US. But, in India, he had to borrow money from ‘a friend’ and PE. For PE, the act of carrying out due diligence is an expensive process in India, thanks to the uncertain legal sanctity of a whole lot of corporate assets that are offered up as collateral. This cost is incurred on proposals that do not fructify as well. PE has to generate a return from the deals that do go through that recovers the significant outlays on carrying out due diligence, apart from meeting the high expectations to which PE carries an inherent bias. The result is a financing cost for PE funds that would be considered extortionate in most circumstances. There is little point in blaming individual PE players. The country needs to develop a vibrant debt market, in which junk bonds can be issued, along with triple A-rated paper. That calls for not only the entire range of derivative instruments to hedge against credit, interest and currency risk, but also an efficient, expeditious legal infrastructure.

Some brushes with the taxman are self-inflicted. But there is lots of room for improvement in the taxman-taxpayer interface. The government should wake up to this.