Why should CA, CS firms and professionals chart a new course?

The 2,000-year-old dilemma posed by Roman poet Juvenal, ‘Who shall watch the guards?’ has perplexed politicians throughout history. The latter understand that society and the economy cannot run without regulations. Yet, regulators frequently create rents for themselves by causing transmission losses between how laws are formulated, understood, practised, and enforced.

In this backdrop, India’s continuing systematic law rationalisation, digitalization, and decriminalisation is akin to climate change for the country’s 3.5 lakh chartered accountants (CA) and 50,000 corporate secretaries (CS). This transition from deals to rules necessitates a rethinking of their capabilities.

The CA and CS community has been a significant part of India’s economic ecology. It carries the gifts and wounds of the economic system created by the toxic 1955 Avadi Congress resolution, which set India on a path to a socialist cul-de-sac that handicapped India’s private sector by creating vast amounts of regulatory cholesterol that, in turn, sabotaged mass prosperity, corroded capital markets and bred corruption.

CAs and CSs became like licence raj entrepreneurs whose primary competence was ‘excellent contacts with authorities’. Captive-bred animals, on the other hand, struggle to survive in the jungle. By 1991, most licence raj entrepreneurs struggled because their regulatory arbitrage abilities were outcompeted by hungrier first-generation entrepreneurs.

The improvements enacted in 1991 were significant yet insufficient. They failed to address the root reasons of India’s huge employer informality. Because of excessive employer regulatory cholesterol; 69,000-plus compliances, 6,700-plus filings, and 26,000-plus jail provisions, India’s 63 million enterprises only end up in 23,500 corporations with a paid-up capital of more than 10 crore.

Identifying shell companies, faceless tax assessment, a simpler tax regime, GST subsuming multiple indirect taxes, PAN becoming the universal enterprise number, pre-filled tax returns, automatic notifications for TDS filings, mandatory e-invoicing, faceless assessments, and SPICe+ (Simplified Proforma for Incorporating a Company Electronically Plus) in the last decade have all resulted from reforms centred on ease of doing business and better enforcement.

The CA and CS community has yet to fully comprehend the implications of India Stack’s paperless, presence-less, and cashless capabilities – Aadhaar, Unified Payments Interface (UPI), DigiLocker, and Open Network for Digital Commerce (ONDC) – which a National Open Employer Compliance Grid will soon supplement. Luckily, policy is a huge danger to vast sections of existing business for old practitioners whose competence was ‘management’.

In 2017, Prime Minister Narendra Modi reminded the country’s CAs that significant bank and investor losses resulting from accounting fraud would not have been achievable without the accounting community’s active collaboration. Of course, drunk driving is not an argument against automobiles, and many bad practitioners have left the industry.

However, traditional CA and CS firms with ‘good departmental relations’ do not appear to be fully processing the full implications of the new landscape in public equity markets (growth and governance are the only premiums), bank loans (‘political telephone technology’ is not working), private equity investors (governance and supervision is coming back in fashion), and policy shift from deals to rules. Their reimagining requires strategy, talent, and technology.

Most domestic enterprises have been opportunistic. They make what they sell rather than selling what they make. Nevertheless, having five Indian CA and CS organisations compete with multinational firms globally necessitates doing less so they can do more. The unfair advantage of multinational corporations stems from their brand, talent, and technological decisions rather than their wealth.

Few domestic secretarial and accounting firms have transitioned to a new generation of partners. Most have accepted their fate as training grounds for global corporations. The best human capital wants to work for companies where they have the opportunity to lead, thus domestic businesses must transform into meritocracies. Their lack of technology is terrible, but the decline in technology costs brought on by cloud storage, SaaS platforms, AI, machine learning, etc. gives businesses a chance to reassess their capabilities and competitiveness.

India’s reform decisions are having an impact. Throughout the previous ten years, its economy moved up the rankings from 10th to 5th in terms of size. Since 1947, more than half of India’s foreign direct investment (FDI) has occurred in the last five years. India is in the beginning of a super-cycle in its economy. But, its infrastructure, both soft and hard, in accounting and compliance falls short of our goals.

If established CA and CS businesses and professionals don’t reinvent themselves, a new breed of businesses run and owned by experts will appear. They will support India’s aspirations with strong, contemporary financial and compliance scaffolding and increase India’s soft power by conducting business internationally.

Source: Economics Times