India needs huge reforms in different areas, from corporate governance and responsibility, to reducing the cost of doing business in the country. These issues were thrashed out at a panel discussion on The India quotient: Is there room for more reforms?, moderated by Rajrishi Singhal of Mint.
“India needs to enhance its corporate governance norms," said Arun Kumar, chairman and chief executive officer, KPMG in India. “We need to emphasize the importance of boards and identify that their key purpose is in creating value and protecting minority shareholders."
“India also needs to look at the role of group governance, where we need audit committees at the group level, and independent directors, who bring skills and value and prevent the board from becoming an echo chamber are important. For example, Microsoft published the list of independent directors and their areas of expertise. Thinking on these terms is an important aspect of corporate governance. A certain amount of regulations is necessary, but we need to be watchful of the right level of regulation," said Kumar.
Seshagiri Rao, group chief financial officer, JSW Steel, said there was a need to encourage private investment in the country to fund growth. “There is a huge demand in India. We’re going to be a $10 trillion economy in the coming years and the private sector needs to lead the way in making investments to meet this demand and drive growth. But if you can’t fully convert currency and given that there are so many restrictions in raising capital, it hinders the capability of the private sector to invest. New regulations say we have to diversify sources of funding from banks to the markets. Sebi says listed companies must raise money from the market but the truth is that there are not enough suppliers of money in the market. Regulations are pushing you to the market but the banking sector isn’t able to finance this demand."
“The rupee is not convertible and there are a lot of restrictions in raising money, in terms of tenor, from whom you can raise, what is the end-use of funds, so it’s not always possible to tap the international market. So availability of capital to create infrastructure in India is an important reform," Rao said.
Rashesh Shah, chairman and chief executive officer, Edelweiss group, agreed: “We have to encourage capital formation. Interestingly we are a capital surplus country with $700-750 billion in savings every year, while FIIs and FPIs bring in only about $40-50 billion a year. We are a country of savers with no idea how to convert this to investment. Our equity markets have grown tremendously in the last two decades, we settle on a T+2 basis now, our markets are always open. All these are big achievements."
“So, while this equity market infrastructure is as good as anywhere else in the world, our credit markets are still backward because of historic dependence on the banking system. But we’re seeing this change slowly. I believe that every crisis—the NPAs, the IBC—I’ve learnt they make markets stronger. I think the same thing is happening in the debt market as well," said Rao.
Saugata Bhattacharya, chief economist, Axis Bank, expects the majority of capital formation to come from states. “I see that capital formation will happen in states, while the centre will play an enabling role. Actual reforms going forward will come from the states. We need to fix agriculture first, and that is almost 100% in the domain on states. For instance, farm sector distress is very real and we need to figure out ways to smoothen food prices."
“India has been losing market share in exports. So we have to find out what is it about competitiveness that we need to consider, at productivity, fixing details at the last mile. Sector by sector, we have to see what are the microstructure issues that hinder us," Bhattacharya said.
Forest development taxes and state cesses have a cascading effect on exports, Rao said. “We hear a lot about duty drawbacks but in reality, state taxes remain. This affects our competitiveness in exports," Rao said.
Bhattacharya said that the whole gamut of education needs to be reformed, from primary to higher education.
“You’ve seen the way that China has moved ahead in establishing world class universities. This is one area we need to focus on, which leads to our poor investment so far in research and development. My worry is that on one side you have the moon rover mission and at the other end you have jugaad and in the middle nothing. This is the missing middle," he said.
To Singhal’s question on the future of technology in India and the need for regulation to encourage and control it, Kumar said: “There is a huge future for India to progress through entrepreneurship. But there are many wrinkles to be ironed out. For instance the new tax structure on angel investors. There is plenty of infrastructure developing for all kinds of innovation. But innovation is not just tech. The other area is infrastructure, where there are certain projects that are at points of inflection. Like the bullet train and hyperloop..you don’t think about it as innovation but it is one way of thinking differently. We’re seeing success in highways, airports and look at how PPP investors sees that balance of risk between public and private is appropriate."