The overseas market is noticing the reforms which are taking place in India and also how the government is addressing the areas of concerns, including cyber security, said Arun M. Kumar, Chairman and CEO, KPMG in India. Kumar, who recently took over as the top man in KPMG in India, has served as the Assistant Secretary of Commerce for Global Markets and Director General of the US and Foreign Commercial Service in the Obama Administration. He was also closely involved when Prime Minister Narendra Modi visited the US. In an interview with BusinessLine, Kumar said the biggest message that has gone out to the international investors is the rollout of the Goods and Services Tax (GST). Besides GST, the Insolvency and Bankruptcy Code and infrastructure spending have also boosted investors confidence. Excerpts:

What is the message one gets from the reforms so far taken by the Indian government?

There are three areas where the reforms have been noted: First being GST. This is one reform everyone has been waiting for a pretty long time. There have been improvements in logistics and creation of one composite market.

Second is the Insolvency and Bankruptcy Code. Issues that were previously brushed under the carpet are now being openly dealt with. And finally, the infrastructure spending that’s happening is going to be extremely helpful to the economy. Overseas clients are noticing these things.

But, banking continues to remain a weak link in India’s growth story. Private investments are still not coming in and it is still the public sector that is dominating…

There is overcapacity in many sectors as well as there is a slowdown in some sectors. Once growth rates go back to higher levels, over capacity will get absorbed. The banking system lending has slowed down and that’s why we see this slowdown in private sector investments.

Bank lending has slowed down due to the NPA issue. Besides, more and more companies are raising funds overseas. What could be the reason?

You normally look at places where funds are cheaper. It’s pretty straightforward. Money comes at a high cost where the risks are higher or may be there are currency risks.

What is your view on the demonetisation exercise? How have businesses and investors internationally received it?

Demonetisation has facilitated faster movement towards adopting cashless digital modes of payment. Getting more funds into the banking system and creating transparency are important benefits.

How do your international clients view the government’s push to cashless economy?

Cashless transactions are more efficient than cash transactions and will reduce opportunities for tax evasion. Besides, the government can achieve substantial savings by transferring welfare benefits in a cashless manner. However, with the widespread adoption of digitisation comes the risk of cyber security. Robust cyber security capabilities need to be built to not only prevent malware attacks but also respond effectively in the event of incidents.

In India where do you see M&As are headed? Do you see more consolidation happening?

There will be some hyper-competition, some streamlining, but I would like to see more action in the MSME front. The engine of growth is MSMEs and they are part of domestic supply chains thereby they are now part of global supply chains. That is where we will see jobs and we will see growth.

How has the BMR acquisition been for you?

It has been good. It strengthens particular areas. For example, our work with Japan gets hugely strengthened because of this and in general M&A and tax space we have got a tremendous addition.

How do you see the whole focus around ease of doing business — the taxation issues such as transfer pricing and retro tax continues to haunt global investors …

The focus had been very vocal. I think that message has been heard. But how will this work? I think, frankly, the work is different from State to State. I think the ranking of States have helped a lot.

On retro- tax, if you go back three years back, there was enormous backlog of transfer pricing cases. That has now been removed. Today we are in a much better situation.

India is trying to become a hub of international arbitration on the lines of Singapore, London etc. Do you think this is a positive step?

I think you need alternate dispute resolution mechanisms because you do not want to rely on a completely back-logged court system. I think we are making progress there.

How do you see India’s progress in Limited Liability Partnerships?

LLPs are now becoming increasingly popular as they combine the benefit of partnership with the limited liability of a company. There is no restriction on the number of partners that can be introduced in LLPs. Further, LLPs do not have some of the obligations such as board meetings, annual general meetings, corporate social responsibility, etc. Professional partnership firms have adopted LLP as a new alternative on account of the advantage it provides of combining limited liability with the flexibility of the partnership firm.

How do you view the sudden growth of fintech companies in India?

Indian fintech start-ups are attracting attention. As credit underwriting for MSMEs remains a challenge, fintech firms bringing in technologies like artificial intelligence, big data, psychometric analysis and social media behaviour analytics to evaluate credit-worthiness is a welcome development.

While still in a nascent phase, in view of its potential, this is the time to provide a conducive environment and develop the opportunity. Going forward, international engagement and research in developing fintech must focus on its implementation within the government and for its services, building regulatory frameworks governing new technologies such as cryptocurrencies and strengthening cyber-security around those technologies.

What is your take on the H1B visa issue?

I see Indian companies being more forward-looking and looking at different ways to cope with it. The companies that are high-end have thought about it, they are hiring people there in various ways to address the cost structure appropriately.

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