IndAS (Indian Accounting Standards) is a huge step in the field of globalisation,” Richard Rekhy, CEO, KPMG in India, feels. “There will be no discounting to valuation just because of the accounting system we follow,” he adds. In a conversation with BusinessLine, Rekhy speaks about various growth areas and challenges of doing business in India. Excerpts:
Which sectors contribute most to growth for KPMG?
Biggest growth sectors for us are infrastructure practices and government. We are looking at rapid growth in infrastructure advisory practice. Also, a huge amount of expenditure is happening, both at the central government level and the state government level, because of the reform programmes launched over one year. When I talk about infra and government, I am including sectors like healthcare, education and development sector.
The next area where we are seeing a lot of activity is power — entire E&R i.e. natural resources through mining, thermal, and solar power.
We are also seeing a lot of interest in solar energy. Research is now being done in the US on storage. If they get it right, it will be a complete breakthrough and the entire power industry will shift to solar. There have been advancements, but they are not commercially tested. But we are confident about the solar sector.
And what are the challenges?
The challenge is from the global economy, which is still soft, and is not growing. So, any industry that is export-oriented is facing challenges. Also, with other currencies weakening, and the rupee remaining strong is not a great advantage. We are not seeing much devaluation taking place.
Has there been a change in how businesses are done?
Now, people are going up the value chain. Earlier, global companies were sourcing lower end-work, but now, they are sourcing more sophisticated work. For instance, global companies now want to outsource their entire book-keeping/accounts to India. They are also putting up their R&D centres in India. They are realising the talent is here. In our own business, we are experiencing a lot of growth in data and analytics.
Teams are getting built across the consulting firms, not just KPMG. Global firms are also building up their knowledge centres in India; it’s a great move. It would lead to original thought leadership that would be built in India.
What percentage of the KPMG India business constitute consulting/ finance/ accounting services right now?
About 50 per cent of our revenue comes from advisory services, and the rest 50 per cent comes from tax and audit i.e. about 28 per cent from tax and rest in audit — that's a broad break-up. Accounting advisory also comes under advisory.
How is digitalisation changing businesses?
Digitalisation has changed the way businesses are done. Information is available on a click of a button but what is more important is how to make business sense out of that information. And how do you provide clients with advice that will help them grow their business.
What are the common issues that companies face, when they come to you for consulting?
It is transformation. All clients are on a transformation agenda. And I am talking of business transformation here, so I am looking right from strategy, to process, to technology and business model. Lots of clients come to us and say we are X turnover and want to grow 2X, 3X in the coming two-three years. It’s a very ambitious number. Then we say, okay, this current business model is not going to work, so how do you look at new markets, new products, new way of delivering the product to the market? We are involved with various large, mid-sized companies for their transformation, which can take from nine months to two years.
Also, we are doing a lot of work in the Middle East — Saudi, Kuwait, Gulf, Muscat; and South Asia — Sri Lanka, Bangladesh, Nepal. We have a very close collaboration with practices, where people from India go and do the work. We work with African practices, we are doing a lot of consulting work in Africa especially in three sectors — financial services, power and telecom. Recently, we signed an MoU with the ASEAN practice i.e. Singapore and neighbouring countries — Myanmar, New Indonesia, Philippines; these are the new high growth areas. So, we are seeing a lot of export of consulting services out of India.
How has the new accounting standards (IndAS) changed financial reporting in India?
One of the good things that the new Companies Act did was to bring in a new financial reporting system — IndAS, which is very close to IFRS. This puts the India accounts on standard with global accounts. Earlier, when you did transactions, your shares were always discounted because people didn’t understand the numbers i.e. if you were giving it a value of 100, they (global companies) will give 90, 80 etc. Today, they are able to understand the Indian financial statements the way they understand it in their country. So, there will be no discounting to valuation just because of the accounting system we follow. This standardised account is good for the country. It is a huge step in the field of globalisation.
The other one is internal financial controls, where they are helping countries improve the control over reporting of finances. The other day, I was talking to a client, who said he likes the new system so much, he wanted to use it for his other unlisted companies as well. When you put controls in place, the promoter also feels happy that everything is going well.
All these steps are improving corporate governance in India. Our country is already very good when it comes to governance ‘on paper’; we need to see how we can actually bring it in spirit.