The buzz is around Mexico, Indonesia, Nigeria and Turkey – not BRICS. RICHARD REKHY, CEO, KPMG INDIA
The corporate sector has blamed the economic gloom — evident in the recent run of factory output numbers — on the slow pace of economic reforms. In an interview with Business Line, global consultancy firm, KPMG’s Indian operations’ chief executive officer, Richard Rekhy shares his views on how a course correction can be effected to put the economy back on rails.
Excerpts from the interview:
How does a global consultancy firm like yours view the Indian economy?
The Indian economy truly opened up, post-2001, and has been growing at a rapid pace since then. Our processes could not keep pace with the growth. So, today, the scams being unearthed are a manifestation of regulations not keeping pace with growth. The need of the hour is enforcement of these regulations to iron out any discrepancies.
Global slowdown and high inflation are responsible for this decelerated growth, which has also impacted exports significantly.
Secondly, the Government did not come out with regulatory reforms which could have pepped up the economy. The inefficiency of the law enforcing machinery acts as an obstacle to India’s growth story. Post the 2008 financial crisis, there has been an aberration in economic growth.
The third point is the inconsistency in tax regulations, retrospective amendments and non-uniformity of the tax structure. Fourthly, the entire sentiment is down — inflation and the current account deficit have limited the monetary policy tools available.
A 5 per cent growth is not good enough for an emerging economy like India. To be sustainable, we need to have at least 7-8 per cent growth. India is losing its sheen as an investment destination, though there seems to be some light at the end of the tunnel with FDI reforms coming in. For instance, Etihad Airways investment in Jet Airways and Qatar Foundation Endowment into Bharti Airtel were good news, which brought confidence back in the Indian economy.
So, what do you think has gone wrong with the Indian economy and what are the steps the Government should take to bring it back on rails?
The fundamentals are intact. Consumerism is growing rapidly, aided by high population increasing household incomes over the last two decades. What has gone wrong is the investment story.
Investments are being held back and discretionary spends are coming down — these are the negatives in the economy.
There is as much as $3 trillion sitting on the various balance-sheets around the world, but this may not come to India.
At the World Economic Forum (WEF), a new term MINT: Mexico, Indonesia, Nigeria and Turkey was coined, as the next big thing. Questions are being asked on whether BRICS has failed? Even among BRICS nations, India seems to be the worst performing country. The other important factors contributing to the Indian economy slowing down are the regulations around land acquisition, environmental clearances and the reactions to the scam around mining. It may be appropriate to see how we could get the mining industry up and running again. There are 20,000 MW of power plants ready to fire, but with no fuel as there are no internal linkages. There needs to be some accountability.
The Government should use public sector units (PSUs) to make global acquisitions, especially for buying natural resources, and so on. Surplus land of PSUs could be used to invite joint ventures either from Indian or international corporates. This by itself will help unlock value, in dealing with the fiscal deficit.
There are no positive signs from the economy, though the Finance Minister held roadshows to attract investments to India. The intent is good, but this should be supplemented with ground-level implementation. Where India generally falters is in execution and implementation. The regulatory environment needs to be made less complex. We have the potential to grow faster than China, why are we not achieving it?
In 2008, the Government came out with a stimulus package. Excise duty collections went up . This clearly proves if you prune down the rates, the collections go up. Goods and Services Tax (GST) will boost the current GDP and also help in reviving the sentiments of the economy. This coupled with tax reforms, through the DTC, will prove to be a vitamin for the economy.
Chief Economic Advisor Raghuram Rajan recently talked about ‘factory Asia’ -- regional production networks connecting Asian economies. Do you think we can be part of that league?
India can become the manufacturing hub of the world. We’ve got talent and intellect. We have a good R&D ecosystem to become one of the strongest across the globe. But I think the biggest issue is corruption.
There needs to be a clear war against corruption. Take countries like South Korea; they went through the same problem in the 1950s and see where their economy is today. How are we going to change the intent?
The leadership should show the intent. India still is one of the most difficult places to set up businesses.
We have moved into the pre-1991 stage in terms of approvals and bureaucracy. All the regulated industries are suffering today because bureaucrats have started exercising their powers. There needs to be intent to move to a freer economy. Logistics needs to be improved — connectivity via roads and rail needs to be better for goods to be transported efficiently.
Of late, the practices of a few accounting firms have been under a cloud. What has gone wrong?
This issue should be looked at in its overall context. We should compare the number of audits achieved by the large accounting firms to their failure rate.
I feel things should be put in context. Human beings can make errors; having said that, I also believe there is no room for error in this industry, with so many stakeholders relying on the firms. The firms are now moving in towards consulting and the Big 4 will continue to be a one-stop shop for advisory services.
How does KPMG plan to strengthen its Indian operations?
India as a market is very critical to global growth. To achieve growth in India, we are looking at making investments in terms of people by hiring some 30 new partners over the next 12-18 months.
We have recently made some good hires on senior partners from renowned firms; they come with excellent experience and will help to reposition the firm.
We will continue to grow both our advisory and tax practices in a big way. While advisory is our largest practice with more than 50 per cent of our revenues, there are huge opportunities in tax owing to the increasing amount of litigation in these areas.
On the advisory front, ERP (enterprise resource planning), data analytics and managed services are proving to be big opportunities.
We may look at acquisitions in India. While one of them is in the taxation space, we are also acquiring a data analytics practice and are looking to acquire IT consulting in a particular area to add on additional skills.
One big innovation in India is around internal audit. Technology is now being used extensively such that internal audits can be carried out of India for offshore locations.
We currently are performing offshore assurance for a large telecom company, where the work is based in Bangalore.