Economic policy needs to make job creation its primary focus: Arun Kumar, CEO, KPMG India

The Economic Times

The KPMG CEO, who was also part of the Obama administration (2014), in an interview with ET’s Sachin Dave said that the policy makers should focus on building healthcare, education, urban assets and digital connectivity in the next few years.

COVID pandemic may be a huge crisis but India shouldn’t waste it, says Arun Kumar – Chairman and CEO, KPMG in India. Kumar, who was also part of the Obama administration (2014), in an interview with ET’s Sachin Dave said that the policy makers should focus on building healthcare, education, urban assets and digital connectivity in the next few years.

The Indian economy has shrunk by about a quarter, which are the biggest risks the country faces in terms of hindrance to growth, and which are the top sectors/areas that you think need fixing? What would be your advice to the policy makers?
The global economy as well as India’s economy was already under pressure last year before the onset of the pandemic. Slow private sector capital expenditure, challenges to credit growth and various stresses complicated the demand situation. GDP growth around the world and in India was slowing, and the outbreak of the COVID-19 added untimely challenges. As is evident, the three major contributors to GDP– private consumption, investment and external trade – have all been impacted.

Trade related concerns are around supply chains. Globally, the issue gained prominence on account of the deteriorating US-China trade dynamics, pointing to the need to diversify and de-risk sources of supply. The logistics challenges brought to the foreground by COVID-19 compound this concern. KPMG in India’s sixth annual CEO Outlook survey report noted a fivefold increase in the number of CEOs noting supply chain vulnerabilities as a major and ongoing threat. Other immediate risks to India’s growth include weakened demand sentiment, even as the supply side eases. This can have a knock-on effect on investment.

As activity resumes, sectors such as manufacturing and infrastructure including construction present major areas of opportunity. A multi-faceted agenda of further reforms embracing the financial services sector as well as policies to improve productivity in manufacturing, agriculture and real estate will facilitate an acceleration of growth.

Further, the pandemic must be viewed as a crisis not to be wasted. This is a time to look at fundamentally new ways to enhance healthcare-both in terms of universalizing access to quality healthcare, as well as creating digitally enabled early warning systems to reduce community vulnerability to epidemics, education, job creation — and particularly income security for the vulnerable.

Most of all, economic policy needs to make job creation its primary focus. This means spending on areas that create jobs in the short term and improve competitiveness in the long term; infrastructure would be at the top of the list. Infrastructure for logistics as well as healthcare, education, urban assets and digital connectivity are all areas of importance looking forward.

The government has put the right focus on ramping up public infrastructure creation by putting together the National Infrastructure Pipeline, an assemblage of key projects totaling Rs 102 lakh crore, and now that we have largely emerged from the lockdown, their speedy implementation would be critical, also for fostering employment. Logistics costs and productivity will also help boost exports, and lately we are seeing renewed focus by the government on improving logistics infrastructure and allied processes, which are vital for easing GDP growth. For job creation, particular areas of focus would also be ramping up exports and handholding MSMEs, who have been hard-hit by the pandemic.

Everyone has been talking about recovery and the shape of recovery. when and how do you think the global economy will recover?
In re-opening and reviving economies, governments worldwide have already allocated more than $13 trillion to stabilize economies in freefall and restart growth. These measures, created and delivered at speed, have succeeded in many ways.

In India, we have seen a large Rs 20 lac crore stimulus package being rolled out – aiming to effect change in sectors such as MSMEs and domestic manufacturing. We are also hearing inklings of another round of significant stimulus-spending, possibly focused around infrastructure, which would be most welcome.

Several of the CEOs and analysts I have interacted with have suggested a Z shaped recovery – a downturn during the pandemic, recovery a downturn during the pandemic, but then bouncing back up above the level it would have been in a pre-pandemic baseline, as pent-up demand creates a temporary boom. This is indeed what we seem to be witnessing.

If I were to look at our own business as a surrogate indicator for the business sector of the economy, our recent experience suggests a steady and calibrated growth back to previous levels. This trend is driven partly by new demands that have been generated, for instance investments and transformations companies seek to make to embrace the digital economy.

Overall, a gradual normalisation of economic activity is the most likely scenario as the economy adapts to the disruptions and the new normal wrought by the pandemic. There is also reason for optimism given India’s inherent resilience, air for frugal innovation, and quick adaptability in the face of such massive course-corrections in the environment. But a vaccine or reliable therapies hitting the market quickly with efficacy and adequate availability can change the trajectory of the global and Indian economies.

Which are top factors that separate a better performing company to a laggard?
There is an increased consciousness that companies which are purpose-led, agile, innovative in quickly transforming their thinking and approaches, and work with a balanced agenda of creating growth and earning trust, will distinguish themselves in the longer term.

A crisis is a time when a company’s sense of purpose and values are tested. At such a time, employees and customers look for authentic leadership that is empathetic, transparent, honest and committed to a higher purpose.

In a workforce which is largely going to be dominated by millennials, being driven by purpose becomes even more relevant to attract and retain talent. Accordingly, we are also seeing an enhanced focus on the ESG agenda. Thus, aspects such as impact and contributions to its communities will occupy an increasingly important place in an organization’s strategic agenda. I also believe that the greater sensitivities to the environment that have been wrought by this pandemic will also leave beneficial legacies in its wake, particularly in terms of enhanced sensitivities by organisations and communities to existential issues like climate change. I’m also very glad to see that the Government of India has recently fostered renewed focus on Business Responsibility and Sustainability for corporates. In sum, along with authenticity, agility and resilience will be important to take advantage of the opportunities that the uncertain forces ahead continue to present, as businesses and lives are reshaped.

While no company or economy had planned for the Covid pandemic, how do you think the corporate strategy for companies has changed due to this pandemic?
Business leaders and organisations are navigating through the current once-in-a generation crisis by adapting to a new, and a very different way of leading, managing and working. CEOs in India are reconfiguring their strategies to address the headwinds of the changing risk landscape: supply chain risk, environmental concerns, rising protectionism and digital disruption. This means a pervasive focus, in particular, on digital, supply chain risk and ESG.

KPMG’s sixth annual India CEO Outlook identified digital transformation as a central focus in determining an organization’s future growth prospects. In addition, workforce reskilling and upskilling, especially to leverage digitization, are likely to emerge as key investment priorities for CEOs in India.

What will the future recovery look like for corporate India? Are there any sectors that you see have benefited from, or are poised to benefit from the pandemic?
Economic activity has started to recover from the sluggishness experienced during the lockdown, and many sectors seem to be adjusting to a new normal.

Auto sales are on a rising path, and sectors like telecom and insurance will be potential gainers as we move forward. The increasing digital adoption will go beyond the office and extend to the factory floor; thus, IT and IoT will continue to gain significantly. Ecommerce players will benefit, as sectors such as BFSI, FMCG and retail invest in next generation operating models, new revenue streams and seamless virtual customer experiences.

Recovery in sectors like travel and hospitality is likely to be more prolonged, with aviation being singularly affected.

India’s rural economy has been a beacon of hope, -thanks to the troika of a normal monsoon, a consequential good crop season, and government stimulus, and this is vital, given that the large majority of our population is dependent on agriculture. This is possibly the major sector that expanded in this financial year. The government has undertaken a radical system overhaul here, on two key fronts: in freeing up access of agricultural commodities to markets, and in launching an initiative to ramp up farm gate-to-markets infrastructure. While there have been concerns raised around providing price security to farmers, I am hopeful that going forward, the government will be able to reasonably allay these concerns and common ground, towards the twin objectives of infusing greater vibrancy in the sector and ensuring better livelihoods for farmers.

India will now allow a foreign listing. Do you think Indian startups/unicorns/companies are ready to raise capital abroad and face the increased scrutiny that comes with it?
The most likely candidates to access overseas markets will be new age companies that have already raised reasonable amounts of institutional capital. Given the current regulatory environment and reforms in India, these companies are expected to have more than adequately robust governance practices and risk processes that will enable them to function in and comply with foreign listing norms.

Preparatory work has begun in anticipation of these norms being formalized and companies are closely looking at their entity and business structures as well as processes to be able to derive value under this route — which promises diversified capital from a broader investor base.

An Indian startup which has achieved the desired scale will have to articulate their equity story to attract the right kind of investors. They need to get risk management and corporate governance in order including identification of a quality board of directors. They need to establish a robust framework of controls and processes especially around cybersecurity and data privacy. A company aspiring to be successful in overseas exchanges needs to have the right kind of organisational needs to have the right kind of organisational structure and finance function to meet the deadlines and pressures of regular compliances and reporting. On the other side, the government, while drafting the enabling provisions for overseas listings, should harmonize amendments in the required regulations to ensure that the listing process is easy to implement.

Direct foreign listings can go a long way to amplify the competitiveness of Indian companies and broaden the playing field for the country’s talent. It also means that companies will need to enhance existing systems, processes and compliances to global standards.


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