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‘India can’t grow solely on a consumption story’

KPMG’s new CEO talks about his priorities, independent directors and retrospective taxation policies
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First Published: Wed, Oct 17 2012. 08 36 PM IST
Rekhy says a lot of global internal audit is moving to countries like India as firms want quality services at competitive prices. Photo: Abhijit Bhatlekar/Mint
Rekhy says a lot of global internal audit is moving to countries like India as firms want quality services at competitive prices. Photo: Abhijit Bhatlekar/Mint
Updated: Thu, Oct 18 2012. 12 34 AM IST
Richard Rekhy , appointed chief executive officer (CEO) of KPMG India on 15 October, is the first non-auditor to head a consultancy firm in the country. He succeeded Russell Parera, who led the firm for six years. In his earlier role, Rekhy headed the firm’s advisory practice in India and is also part of its global advisory executive team. Rekhy was earlier a partner with Arthur Andersen LLP (the consulting business is now known as Accenture Plc). He is also on the national executive committee of the Confederation of Indian Industry (CII) lobby group on corporate governance. Rekhy spoke in an interview about his priorities while sharing his views on independent directors, retrospective taxation policies, leadership issues and the economy. Edited excerpts:
You are the first non-auditor to head a consultancy firm in India. As chief executive, what are your priorities in these uncertain times?
Our advisory practice accounts for 50% of the firm’s revenue in India. This perhaps was one reason for my elevation. That said, I believe my advisory background will help me boost other service lines. It is when economies are slowing down that good companies invest and go ahead of the curve. This is exactly what we plan to do.
But we will have to tweak our existing strategy to take advantage of the reforms that the government recently (since 14 September) introduced in the aviation, retail and financial services sectors since they open up new opportunities. We are a very young firm among the top four (the other three being PricewaterhouseCoopers, Deloitte Touche Tohmatsu Ltd and Ernst and Young).
We will be 20 next year in India. We are looking at areas like technology, internal audit and forensics to put up centres of excellence. We are also looking at defence, and waiting for the sector to open up. We have a global delivery centre in India called KPMG Global Services that employs 3,000 people. We plan to ramp it up so that more work is done out of the country. For instance, a lot of global internal audit is moving to countries like India as global companies want quality services at competitive prices. Our India Technology centre in Banglore develops business applications for our clients. We also have some alliances with IT companies and come out with joint proposals. On the government side, we are looking at opportunities like e-governance, etc.
In 2009, we had acquired a group of tax partners from PricewaterhouseCoopers (PwC) India, which has given a major fillip to our tax practice. We also want to be in a position wherein we can charge a premium for our premium services by being the first to market such services or offer a completely innovative solution such as our tax-efficient supply chain solutions which combines the work of both our tax and advisory practices. We have also set up an innovation cell to develop new solutions around our advisory and tax practices. We also collaborate with our counterparts in Africa in the field of telecom and finance, and work with our counterparts in the Philippines and Australia. Thus the international markets now offer us a new source of revenue. Lots of big infrastructure players are looking at India for strategic partnerships and alliances. We see a lot of opportunity here too.
Has the nature of the advisory practice changed over the years?
This practice gets business due to regulatory changes, growth in the economy or when there is a downturn which triggers restructuring. I have seen KPMG India grow at over 40% between 2005-08, what I like to call our golden age. Advisory comes to play a huge part in such time with a lot of mergers and acquisitions (M&As) and consulting work. In advisory, if you’re the first to market a solution, you get a premium fee. After that, solutions get commoditized. So we have launched new services like the digital advisory which takes cognizance of convergence and explosion of social media. Water is another opportunity.
How do you find the pace of growth and regulatory environment in India?
More than slowing growth, it’s the Vodafone tax case that has chased away many investors who suspect the government can change its policy at will, worse, with retrospective effect. Businessmen plan their business on the basis of existing policies and taxation norms. The government has the right to change policies. But it must do it prospectively. Investors put big money in India and look for stability in policies. The government also needs a good public relations (PR) machinery to make its views known. We may now have to wait for the next session of Parliament or the budget session to see if the government implements the recommendations of the (Parthasarathi) Shome committee. If the government resolves the Vodafone matter, it will prevent a lot of litigation that may take place while also giving an impetus for more money to flow in the country.
Having said that, the Indian economy is so big that no one can ignore it. The markets look at India as a great consumption story and with all these reforms, investments will increase since only China can compete with us. But India can’t grow on a consumption story alone. India’s growth happened because of FDI (foreign direct investment) too. Reforms like the direct taxes code (DTC) that will simplify taxation and implementation of the goods and services tax (GST) will also help improve investor sentiment while adding to the revenue of states.
How do you perceive the government’s handling of the telecom sector?
The telecom sector grew because of government policies. The government should now not kill a sector that has fuelled economic growth. Both the telecom and information technology (IT) and ITeS (IT-enabled services) sectors grew on the back of good policies and lack of government interference. The maximum wealth creation took place in these sectors. You need policies that will help entrepreneurs thrive. We need to have simple procedures. Bureaucracy is what is killing business here. This is why we may never have an Apple out of India. The government needs to align policies with its current thinking (referring to the reforms).
There is talk that the tenure of independent directors will be shortened in the new companies bill. If this is enforced, will it improve corporate governance?
I don’t believe tenures can decide anyone’s independence. It is a state of mind. Much depends on the selection process. Independent directors cannot be an Old Boys’ Club. The directors need to either understand the regulatons, business or the sector. Just a good name will not suffice. When Lehman Brothers collapsed, not a single director on its board was a qualified banker. That tells the story. Independent directors should not tell managements how to run the company. Rather, they should analyse transactions for breaches of corporate governance. But they should be compensated well for the time they invest.
Are companies doing enough to groom new leaders?
Organizations promote people who have technical competence and not necessarily leadership skills. So when a technically competent person assumes a leadership position, he is simply not equipped to handle interpersonal relationships. At KPMG, we identify top performers and groom them for leadership positions. I myself am a product of one such leadership programme. Seven people out of our batch have become CEOs of their practices. So the programme works.
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First Published: Wed, Oct 17 2012. 08 36 PM IST
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