Roman poet Juvenal's 2,000-year-old question, 'Who will guard the guards?' has vexed policymakers down the ages. The latter know that society and the economy can't function without regulations. But regulators often create rents for themselves by creating transmission losses between how laws are written, interpreted, practised and enforced. In this context, India's ongoing systematic law rationalisation, digitisation and decriminalisation is not a passing shower but climate change for India's 3.5 lakh chartered accountants (CA) and 50,000 company secretaries (CS). This move from deals to rule requires a reimagination of their capabilities.
The CA and CS community has been an essential part of India's economic ecosystem. 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 essential skill was 'good relationships with authorities'. But animals bred in captivity find it hard to live in the jungle. Most licence raj entrepreneurs struggled after 1991 because their regulatory arbitrage skills lost to hungrier first-generation entrepreneurs.
The 1991 reforms were important but incomplete. They didn't fully address the causes of India's massive employer informality. India's 63 million enterprises only end up in 23,500 companies with a paid-up capital of more than ₹10 crore because of excessive employer regulatory cholesterol; 69,000-plus compliances, 6,700-plus filings and 26,000-plus jail provisions. Reforms in the last decade around ease-of-doing business and better enforcement have manifested themselves in steps like identifying shell companies, faceless tax assessment, a simpler tax regime, GST subsuming multiple in 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) integrated web form.
The CA and CS community has not fully internalised the implications of the paperless, presence-less and cashless capabilities of India Stack - Aadhaar, Unified Payments Interface (UPI), DigiLocker and Open Network for Digital Commerce (ONDC) - that a National Open Employer Compliance Grid will soon complement. Thankfully, policy is a significant threat to vast chunks of existing business for traditional practitioners whose skill was 'management'.
In 2017, Prime Minister Narendra Modi reminded the country's CAs that massive bank and investor losses from accounting fraud would not have been possible without the active cooperation of the accounting community. Of course, drunk driving is not an argument against cars, and many rogue practitioners are no longer in the business. But 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 do not seem to be fully processed by traditional CA and CS firms with 'good departmental relations'. Their reimagination needs strategy, talent and technology.
Most domestic firms have been opportunistic. They make what they sell rather than sell what they make. But having five Indian CA and CS firms competing with multinational firms worldwide requires doing less so they can do more. The unfair advantage of multinational firms does not arise from their capital but from their brand, talent and technology choices.
Talent is obvious. Few domestic accounting and secretarial firms have made generational transitions to a new generation of partners. Most are resigned to be training centres for multinational firms. Domestic firms must become meritocracies because the best human capital wants to work for organisations they have a chance to lead. Their technology deficit is painful, but deflation in technology costs from cloud storage, software as a service (SaaS) platforms, AI, machine learning, etc, offer firms an opportunity to recalibrate their capabilities and competitiveness.
India's reform choices are delivering results. Its economy rose from 10th to 5th in global size rankings in the last decade. Over 50% of India's foreign direct investment (FDI) since 1947 has come in the last five years. India is at the start of an economic super-cycle. But its soft and hard infrastructure in accounting and compliance lags behind our ambitions.
If traditional CA and CS firms and professionals don't reinvent themselves, a new generation of firms staffed and owned by professionals will emerge. These will fuel India's dreams with robust and modern financial and compliance scaffolding, and raise India's soft power by operating globally.
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