September 2021


Homeyar Jal Tavaria
Chartered Accountant

India’s leadership wishes that India be recognised as an economic superpower.

But there is one catch in fulfilling this intent. Can we become an economy that comes in the first five in GDP rankings (although due to our large population, per capita we may still be very low) if we do not really ‘own’ our businesses in financial structures and do not supposedly pay our due share of taxes?

How can there be an entrepreneurial push to an economy when so much of quality time is spent not on expanding business and exploiting opportunities, but on creating ‘suitable business, financial and tax structures’?

Why are Indians considered a model minority culturally overseas when within the country we see examples of businesses defaulting on loans and interest payments with the term ‘wilful defaulter’ being specially coined for them and being accused of ‘tax evasion’?

[Please refer link (as example) -]

‘Wilful defaulter’ is someone who has the ability to pay but is organising his business with the intent not to pay.

There are two macro-economic and financial problems that India is facing today:
(I) High debt capital gearing, and
(II) Intent of tax evasion (direct and indirect).

(I) High debt capital gearing

A classic case of high capital gearing and borrowings to fund business outcome comes from a major
telecom service provider (source – ‘’, standalone financials).

Between the years 2016-17 and 2020-21, this telecom company had these important events:
i)    Increase in equity capital – Rs. 25,130.07 crores;
ii)    Increase in tangible & intangible assets – Rs. 86,637.52 crores;
iii)    Increase in long-term borrowings – Rs. 105,777.67 crores;
iv)    Increase in short-term borrowings – Rs. 39.35 crores;
v)    Losses incurred in this period – Rs. 86,561.43 crores.

One can see that the increase in share capital to fund losses and increase in tangible and intangible assets is much lower than the increase in borrowings. The company has also used operating creditors to fund its business.

In the case of a large Indian entity whose major business is in oil and gas, between the years 2016-17 and 2020-21, the increase in reserves and surplus due to undistributed profits is Rs. 182,980 crores, while the increase in long-term and short-term borrowings is Rs. 92,447 crores. Clearly, there is a good match between increased borrowings and increased profits after tax for the period under review.

‘High Capital Gearing’ in Indian corporates is resulting in a skewed debt to equity ratio. This high debt when not serviced by payments on due dates of interest and principal instalment due, results in the corpo


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