Why do you think Jaigaon is booming?

The Bhutanese border town of Phuentsholing, our main commercial hub, and adjacent Indian town, Jaigaon, are separated by the main gate, few pedestrian entry/exit points, and the fenced partition. In 1980s when I looked down from Kharbandi hill-top, Phuntsholing was a vibrant town and Jaigaon just a strip at the tip of connecting Hasimara-Phuntsholing road. Since then Phuntsholing has now turned into Phuentsholing, and Jaigaon is a booming town, more like no. 3 city in West Bengal after Kolkata and Siliguri. Except for an additional ‘e’ and some Jaigaon-influenced growth, Phuentsholing has failed to serve effectively the rest of the nation. Jaigaon supports us with most goods and services, at heavy costs obviously. Why? Everyone’s perception is because it is so near to us that’s why. Wrong. Nearness is a factor but a lame reasoning why Jaigaon has become so important to us.

There are other important aspects along with proximity that puts Jaigaon at higher business echelon for its commercial boom. Proximity is a phenomenon, not an event or process, that happens due to strategic and other advantages (and our weaknesses?), not otherwise. The bad news is we may never be able to catch-up with Jaigaon (who says compete?). India is on its way to carry out structural reforms including introduction of new tax regimes such as goods & services tax (GST), bad bank loans clean-up and lure credible investors including FDIs, and also train its young population (65% of population is in less than 35 years age group) with an aim to supply to the world the productive Indian workforce, whereas we have nothing of the sort in plan, and not even looking forward to be on an economic dance floor. The contemporary examples below will give you some idea why sluggish Bhutanese private sector is dormant, and therefore Bhutanese entrepreneurs (will) find so very hard to catch-up with Jaigaon.

The reality is we have to import goods and services from India. Have we focused on framing smart policies, regulations and procedures centered around this reality to help make Bhutanese private sector vibrant for developing our economy? I believe, no, not at all. Without policy reforms focused on strengthening our own workforce and systems for economic development, parroting private sector as engine of growth is going to get us nowhere. And, we should not be big fan of miracles.

Broadly Jaigaon does business with Bhutanese in four ways, as: (i) an end-use seller, (ii) business to business (B2B) supplier, (iii) government proxy supplier through Bhutanese business to government (B2G) linkages, and (iii) service provider. They buy from other parts of India and sell direct to end-users and/or Bhutanese business enterprises in B2B set-up or through B2G links, and also provide services to both Bhutanese individuals and businesses.

Jaigaon is attractive to end-users as well as to businesses. The Bhutanese consumers find it beneficial for purchase from Jaigaon. The fact is consumer nondurable goods, motor parts, construction materials, electrical and electronic items and others are easily available and much cheaper in Jaigaon than in Phuentsholing. The Bhutanese are very price sensitive (not quality conscious as much) consumers. Therefore why shouldn’t one go there and buy? Let us take a look why it is advantageous through the angle of  the so called “ease of doing business” there and here.

Jaigaon has strong traditional-type supply chain: local, regional, national and even international (if rumours are to be believed). I have heard neither Bhutanese business houses nor the Government ever making solid efforts towards improving/strengthening Indian supply chain to benefit Bhutanese consumers. Naturally the Bhutanese business supply chains revolve around Jaigaon and its networks. They need Jaigaon help rather than being able to contend with it. So even B2B operations cannot bypass Jaigaon, except for some direct dealership of manufacturers.

For any import of goods from India, we need 7 invoices, yes seven. First, we need Proforma Invoice, based on which money is sent to supplier through Real Time Gross Settlement (RTGS) or bank draft. Upon receipt of the amount, goods are supplied that require 6 invoices: 1 for Indian customs, 1 Bhutan customs, 1 buyer, 1 for bank through which RTGS was sent, 1 more for Bhutan customs to process exemption certificate, and 1 copy goes back to supplier with buyer’s acknowledgment of goods. How many invoices will Jaigaon buyers require when they buy goods from other parts of India? Just two, one each for seller and buyer.

The payment to supplier through Real Time Gross Settlement or RTGS involves filling 2 forms, submitting an undertaking with a copy of citizenship ID and issuing a cheque. The “real time” transfer of fund from any Bhutanese bank to seller account in India takes 2 to 6 days depending on interest and efficiency of bank staff here and there. Sometimes it takes weeks. The Jaigaon trader can walk to the bank and deposit cash in supplier’s account real time.

The cost is the other important factor where two issues come into play: taxation and quality. Indian suppliers sell to Bhutanese on maximum retail price (MRP), with/without discounts (seller’s discretion). MRP includes Indian taxes, including value added taxes (VATs). Bhutanese import goods at MRP (minus small discount if any) and pay Bhutan sales tax (BST). Upon payment of BST, Bhutanese buyers apply for Indian tax Exemption Certificates that enable return to the Bhutanese buyers normally an amount of 14.5% of invoice value. Most of the Jaigaon suppliers do not accept Exemption Certificates issued by Department of Revenue & Customs (see below for the reason). Therefore Bhutanese consumers bear both Indian VAT (to the tune of 14.5%) plus BST.

The Bhutanese government bureaucracy is rusted and relaxed. It cannot make effort to see beyond imposing numerous (some outdated) rules and regulations. The Indian entrepreneurs are becoming innovative and globalized. They get goods manufactured all over the world and sell in India, after payment of applicable Indian import duty, as an Indian item with Indian rupee MRP but with label “ Made in (country of manufacture)”, e.g. “Made in Korea” for Hyundai spare parts. The Bhutanese have to pay import duty because of the label, even if it is imported from India. The fact that Bhutanese consumers have to pay double, Indian and Bhutanese, import duties and/or bear double taxation (Indian VAT+BST) are of no concern to our bureaucracy, because these are “as per the rules”. And, Bhutanese consumers do not come in the picture as far as government to government excise refund is concerned.

On quality, Jaigaon finds itself in a heavenly abode to supply spurious goods to Bhutanese. Jindal is an ISO 2001-2008 certified Indian company. Jindal corrugated galvanized iron (CGI) sheets (with its trade mark and ISI stamp) bought from Jaigaon corrodes in less than two years. Jaigaon suppliers know that Bhutanese cannot go back to take them to task for poor quality supply. They sell Jindal imitation at Jindal genuine MRP with discount (Jaigaon is expert in discount psychology), and do not accept Exemption Certificates because goods traded under shadow economy are not reflected in their books of account. Jindal is an example but you name it and they may have it. The GST (fingers crossed) may make such parallel economy disappear (hopefully).

The only area that has slight edge over Jaigaon is direct dealership of goods, the manufacturers/suppliers of which accept Indian tax Exemption Certificates issued by Bhutanese customs authorities, because of small tax advantage (14.5% in India against 5-10% in Bhutan), but not in any other terms. If the dealership is of product associated with after-sales-service, the advantage gets neutralized because of hi-fi sales with poor after-sales-services here.

How can any Bhutanese private sector possibly be price and quality competitive, play positive role and pass benefits onto Bhutanese consumers? And on top of all banks charge 14% interest (may be offsetting bad loans) on business loans compared with about 13% (which may come down significantly after bad loans clean-up) in India on working capital & term loans of Rs 25 lacs or less. Then...

There is no system of BST for services. Anyone can go to Jaigaon, and avail the services. I do not know anyone can or just doing it. The fact is Jaigaon fully encashes on poor quality of Bhutanese workforce and their low productivity, and our regressive imported labour policy. I believe there is no difference of opinion on workforce. The imported labour policy requires that all border towns employ non-nationals as day workers only, meaning they stay across the border and commute everyday to Bhutan for work. Let the institutional commitment, work ownership, organizational discipline, team work, labour control and management of Bhutanese enterprises be thrown out of the window. The workers commute everyday from Jaigaon for few years and then open their own businesses there that obviously has helped expand Jaigaon market. Jaigaon started with such people and Dadgiri (opposite Gelephu) is fast moving towards the capitalization (while we play around with our notion of one-half km land strip as national security buffer) which, for all you know, may accelerate after 19 May 2016. People go for services where good worker is, not where there is just a service. 

The rules do not apply when low calibre non-national skill-workers come into Bhutan under  work-permits and work as “thikedars” (proxy contractors). Jaigaon and its associates supply those “thikedars”. They need neither licences nor to pay taxes because they do not sign contracts. The immigration rule restricting the person to work in specific project for which the person has been recruited is mostly bypassed for the reasons known to regulators. The “thikedars” carryout multiple electrical, plumbing, painting, aluminium window or marble work contracts dictating their costs and terms to Bhutanese. They undertake such contract works under everyone’s nose. Can we not regularise award of such contracts to non-nationals making them follow country's rules and regulations and pay taxes if Bhutanese are not available or capable? I do not need to tell you which rule regulators apply -- "We have hundreds of electricians, plumbers and other skilled workers passed out from TTIs, and should get the works carried out by Bhutanese. Also award of contract to non-nationals are not permitted as per the rule.” The same illusionary lines that are repeated for years while the construction sector is exploited by unscrupulous elements. Everyone knows what the ground reality is! Why would anyone make an effort to regularize/systematize such award of electrical/plumbing contracts to non-nationals when people benefit from not doing it? As easy and simple as this!

The system is too loose and leakages far too many. The conservative imported labour policy refuses to trust Bhutanese entrepreneurs/investors on any account as far as non-national workforce is concerned. I still do not understand why the employers cannot be allowed to recruit non-national workforce as required and be made fully accountable with regard to their management, service utilization, and safe and secure habitation following the rules and regulations. The fact that it is the optimized blend of national and non-national workforce that stimulate economic activities and generate jobs, and also upgrades local skills is beyond comprehension of pseudo-regulators, and therefore not permitted "as per the policies/rules". What good is a policy/regulation/rule that revolves around comfort and convenience of regulators but is regressive to our own development, and therefore fails to serve Tsa-Wa-Sum (King, Country & People).

As long as standard of living is better on our side, the Jaigaon growth is imperceptible (is it also camuflaged?) or even if noticed it is not so much of an issue for most on this side. I wonder what would be the situation when the balance tilts on that side (may happen sooner than later). We may perhaps look back and say we knew North Korea, Laos, Cambodia, Myanmar, and New Guinea were east Asia's failed states, but not anymore because they now trade and interact with the world. It may, by then, be too late to ratify the Bangladesh, Bhutan, India and Nepal (BBIN) Motor Vehicle Agreement (MVA) and participate in BBIN economic zone, or to do anything of substance except watch Jaigaon pass by the window. The entrepreneurial spirit need solid support and encouragement. As of now I do not see any policy support forthcoming may be because as Upton Sinclair rightly said, ”it is difficult to get a man to understand something when his job depends on not understanding it.”