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Feb 21, 2012, 09.28 AM IST
India needs clarity and certainty on its policies and infrastructure to be inviting to foreign investors in the long term says the Global Chairman of KPMG International, Michael Andrew.
China is a harder market in comparison to India in terms of growth. India has more negotiation power with the EU FTA because EU needs India. He is positive about the power and the banking sectors in India too.
Below is the edited transcript of the interview. Also watch the accompanying videos.
Q: Two significant events have happened in the India story; one has been the Vodafone judgement where Vodafone has won against the Indian IT Department, much to the government dismay and disappointment. The other has been the 2G cancellation where the Supreme Court has cancelled 122 licences. While the Vodafone case would have given foreign investors a clarity with regards to the way the tax department functions in India and the way the courts operate in India but the Supreme Court’s order on the licence issue has perhaps vitiated the environment as far as foreign investors are concerned. How do you read this?
A: Ironically, I think the Supreme Court verdict on Vodafone has been helpful for foreign investment because that shows the independence of judicial system that India still operates. However, I think there is an issue now around Brand India with foreign investors whether it is the cancellation of spectrum licences or issues around the Commonwealth Games or issues on some regulatory permits or some of the resources not coming through. Foreign investors are looking for little more direction and certainty as to the policy parameters to enable long-term investment into India.
Q: Are things on hold now. What are you clients telling you? Is it pause mode when it comes to big-ticket Indian investment?
A: It is in pause mode particularly the need is to try to get some greater clarity before going forward. Whether the government’s strategy in policy is to encourage foreign direct investment in many of these sectors.
Q: The India story, we were at 8-8.5% growth rate. We are still doing about 7%, the hope is that we will continue to trend around that area. Do you anticipate further slowdowns if the government does not become organized as far as reforms are concerned?
A: I think it might see full foreign direct investment in certain key sectors but at the end of the day every business is personal…
Q: It doesn’t matter whether there is policy paralysis or regulatory uncertainty because the size of the market and 7% growth rate is not something that you are seeing anywhere else in the world now with the exception of China?
A: That’s exactly right and India will consistently grow somewhere between 7-10% going forward. Interesting for me this week I thought just the foreign investors would be concerned about this but the more I talk to Indian business people they see this is a bit of a pause in the growth unless they see this as a big relatively short-term phenomenon that corrects somewhere in 2012 because the world needs India growing at 8-10%.
Q: Talking specifically about things that concern the big four and we have another Company Bill, which will perhaps become law. It is currently with the Standing Committee and it is expected to be taken up in the budget session when the parliament reopens. Auditor rotation and audit firm rotation that has been an area of concern. One point of view is that it will benefit the big four; the other is that it may not benefit anybody. What is your take on it?
A: I would agree with both propositions that it will probably benefit the big four if it was to come in but I do not think it is going to improve audit quality. I think all those studies show that you get most audit failures in the first two years of audit change. It also imposes huge cost of business and the other aspect where an Indian company in particular is not common for them to being conglomerates; there are four-five auditors.
So how is it going to work on a coordinated global basis? I do not think it has been thought through at this stage. It is quite complex when you are in specialist industries, you are in remote cities that means you have different rules applying different geographies across the globe. Therefore, I am not sure why India must take the lead on this particular proposition because this has been debated heavily in the UK and ironically in countries like Korea who abandoned audit rotation.
Q: How are you gearing up for the change here in India?
A: India consistently over the last three years has been fastest growing practice in the world so we are budgeting for 25-30% growth rate now because there is a huge appetite for the companies going overseas. We are centralising lot of knowledge management here. This week we launched our Technology Centre in Bangalore. We have around 7,500 people. I would like to think that is going to be 12,000 people in two years of time.
Q: One of the other things that have happened is IFRS and the push back has been further pushed back until 2015 as per the corporate affairs minister. Are you disappointed with that?
A: Extremely disappointed. The sooner we get to 1 consistent set of accounting standards across the world there is going to be much better transparency. You will be able to compare organizations particularly financial institutions, which was the hallmark of 2008 financial crisis.
The longer you prevaricate on this the less available relevant information is to investors. Therefore, it actually goes against what you are trying to achieve in the corporations amendment bill in the sense what you are doing is continuing very old practices.
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