Mumbai: All India Association of Industries (AIAI) is a premier Chamber of Commerce, an apex body representing the trade, industry and employment since 1956. AIAI is a think tank established to suggest government about remedial measures in the changing economic scenario.
Sangeeta Jain, Senior Director, AlAI states, “We have been reiterating in our every communication that Foreign Consultants should be barred to operate in Central and State Government offices, Government Institutions, Public Sector Banks etc due to the serious threat to Government mechanisms in India. Foreign management consultants have been gaining serious insights in the Indian economy right from the operating level to the Policy Making level.
There was a proposed access of foreign management advisory and audit firms under highly recommended prophesies such as,
• If the Indian government allows direct entry, more global firms are likely to invest big in their India network and also the market could see the entry of new players.
• Given the significant exposure of global investors in India, it’s natural to ask for an auditor of foreign origin, whom they would be comfortable with.
• More global players will mean more choice and better quality of services. It will also enhance the credibility of Indian markets.
Stressed Assets and Scams
However, all such prophesies have never seen the light of the day. There has been no significant betterment of the Indian economy post the crisis of Global Slowdown of 2010 and the same is evident with the rising number of cases being referred as stressed assets and turning NPAs in big groups in steel ,cement, construction sectors etc due to mismanagement of investments and wrong projections of project returns.
Moreover, the number of frauds and scams in the prominent companies of India, overtly been exposed due to gross non reporting of faults and leaks in the system. The7,800-crore Satyam scam has given rise to spate of actions against auditors, including against PwC in the Satyam case and against Deloitte and BSR in the IL&FS matter. BSR & Associates, an affiliate of KPMG, which was IFIN’s auditor, had on May 2018 raised queries about at least 17 of the company’s loan facilities being used for evergreening but ultimately never highlighted it in their report. PwC, Deloitte and all above firms are facing prosecution at all level at NCLT, High Court, Supreme Court which itself speaks volume about their credibility in ILFS and other cases for wrong audit figures certificates and reports.
Big Four Dominance
Again, in face of valuations of companies referred to the NCLT/IBC, the indiscreetly narrowed down valuations of stressed companies providing probable prey for oligarchy takeover has been made easy by these foreign management consultants.
In spite of many delinquencies, they have been very swift in carving their way into Government Policy Making Workshops. Critics say, the creeping role of big and expensive international consultants in areas that were once off-limits to the private sector offers poor value for money for cash-strapped developing countries. Worse still, they say, relying on private companies erodes state capacity and creates a long-term culture of dependency that can be hard to reverse. At the same time, they are not aware of Indian ground realities.
Foreign consultants are doing a roaring business in India. Turnover at consulting firms grew by an average of 10.8 per cent annually in the five years to 2018, according to Euromonitor, with industry revenues totalling Rs. 4.5tn ($64.8bn) that year. This revenue is being aided by Government Services along with the private sector. Overall public spending on consultants with Budget allocations for “professional services” at the agency increased nearly fivefold from Rs. 3.86m to Rs. 18.2m between 2016-17 and the following year, and rose by 30 per cent in 2018-19, according to data from the Ministry of Planning.
The boom has attracted established foreign management consultancies with public sector practices, such as the Big Four. In major markets, the global giants have a monopoly over the audit business. 99% of companies in FTSE are audited by the Big Four firms, while 86% of those listed on the NYSE work with these audit firms. But in India, 62% of the BSE 500 companies, including some of India Inc’s biggest firms, are still not audited by the Big Four.
In China, the Big Four lost domination to local firms after the government brought in regulations that were unfavourable for the global players. Indian accounting firms are also betting on government regulations that will keep their interests protected.
Foreign consultants have been enlisted to support a number of the central government’s flagship initiatives, including Clean India, Digital India and the smart cities programme. State governments have also enlisted private support for their own grand plans. McKinsey, for instance, is helping the southern state of Andhra Pradesh design a new capital city in Amaravati.
Some have found a niche in data collection and performance tracking in a large and populous country where policymakers have long struggled to gather reliable statistics.
Consultancies have also moved beyond outsourcing service delivery, as in the TCS passport project, to providing strategic advice to governments and designing policy interventions themselves under the guise of maximization of scale, efficiency and impact.
The entry of foreign management firms has led to serious victimization of the Indian Audit and Consultancy Firms. Lack of exposure to technology and International working standards in audit makes these firms liable for displacement. This is the very reason why many of the Indian firms are forging partnership with International firms.
However, we hardly see any impact on the operations of this entire value chain. This is basically because the Indian business and Government climate and culture is discreetly different from that of developed countries where these firms operate their head offices.
As it is, the mandatory audit rotation brought in by the Companies Act 2013, further sees a movement of big accounts away from Indian firms towards the Big Four and other two prominent in the network. For Indian audit firms, the move could spell further trouble, as they have been steadily losing the most lucrative audit assignments to the Big Four over the past two decades. The four global firms now dominate the book-keeping business in India making the Make In India theme futile for Indian Audit firms.
Many institutional investors across the globe are voting based on the recommendations of proxy advisory firms. And in the Indian scenario, decisions on whether to vote for or against various resolutions by shareholders at the annual general meetings is increasingly being driven by what the proxy advisor recommends. Also, voting is largely done by the custodians on behalf of the institutional investors, based on recommendations of the proxy advisors. This has shown doors to many prominent Indian figures in the Management boardrooms. Thus, this clarifies the fact, how these foreign consultants single-handedly take grip on company’s major decisions.”
Sangeeta Jain continues, “What makes disheartening and a cause of concern for the Indian Government is that if Foreign consulting firms start taking on the sovereign functions of the state, including policymaking and strategic planning, then this does raise serious questions about dependency and conflicts of interest. At a time when the foreign consultancy firms are unaware of Indian business culture and the prevailing ground realities.
Thus, we suggest that,
1. Indian Government – Central and State and other Government Authorities keeping in tune with the Self Reliant (Atma Nirbhar) India theme should rely exclusively on Indian Consultants and agencies for Audit, Taxation, Legal and other allied activities. Indian consultants are aware of Indian working culture and ground realities. Moreover, the last decade which considered many interpretations of these foreign agencies have not been able to be implemented for the sheer reason that they are not in gear with Indian circumstances.
2. Foreign agencies should be totally barred as there is a serious breach of data and privacy. At the same time, these foreign agencies have self-interest that make them liable to poach strategies and decisions in favour of their clients overseas.
3. Government departments must carry out due diligence while hiring any foreign Consultant if at all there is no compatible Indian agency. Moreover, foreign consultants should not be hired for project sizes smaller than Rs. 200 Cr. Also, while hiring any foreign consultant and engaging them they should only be in case of an urgent business. Some of the Government departments are heavily dependent on these consultants which leads to deficiency of expertise and information among Government officials. They turn out to be parrots while making policy recommendations.
4. The government will have to find a middle ground. It will have to create a regulatory framework that allows the global firms to invest and practice, also keeping in mind the concerns of the Indian accounting firms which service a large section of Indian companies, both big and small,
5. Penalty should replace persecution in case of accountant and advisory firms providing services to companies or government on account of failure to recognize and prudently declare audit defects. This will make the accounting and advisory business more responsible towards auditory processes and recommendations.
6. Indian Audit and management firms should be promoted by ICAI to acquire knowledge of International standards rather than forging alliances with foreign counterparts to acquire professional expertise. They should also be promoted to invest in technology in comparison with these foreign counterparts.”