Sanjeev Krishan, 51, has long been regarded as PwC’s go-to man for business deals in India. He rose from an articled trainee to occupy the top job at the consulting major in January last year. As Chairman of PwC in India, he is developing capacity to help the corporate sector with digitalisation, risk management, ESG compliance, and the supply chain network. In a conversation with Business Today’s Sourav Majumdar and Anand Adhikari, Krishan talks about how India Inc. is dealing with the current difficult period of rising prices and interest rates globally. Edited excerpts:
Q: What is your sense of how India is coping with the current challenges? What are the key things it should watch out for?
A: From India’s perspective, whenever there is a US rate hike, India, unfortunately, has to mirror it. The good news is that India is still in a good position. Over the last two and a half years, most large Indian corporations have significantly de-leveraged their balance sheets. The balance sheets today are much stronger than they were prior to Covid-19. As a result, they are in a far better position to withstand any of the current challenges. The Insolvency and Bankruptcy Code and the consolidation have helped to a large extent. As long as the demand remains, I don’t see a big challenge for India Inc. at this point in time.
The government itself has put out a significant amount of money for the revival of the capital cycle. We should see an uptick in capital expenditure, particularly on the back of public capital. I would like to believe that it is going to help the private sector have the confidence to enhance [its capacity]. From a geopolitical perspective, there are two other things that are playing out very well for India. I think India’s reasonably neutral stand has helped us. We have managed to benefit from the low crude oil prices from Russia. Clearly, India is in a sweeter spot. The ability to do that [business] at scale and the presence of a huge local market positions India quite well. If everybody starts to think about localising manufacturing and even localising services at some point in time, India’s demographic dividend will come into play. I’m very positive about the whole captive space in India because that’s where the demographic dividend is going to show up. Globally, a big challenge is the shortage of right-, high-quality talent at an affordable cost.
Q: Demand is also a function of interest rates, which are on the rise. There is talk of a recession in the US. Don’t you think at some point demand will be crimped as a result?
A: As a student of economics, all I would say is that if the differential between the US and Indian rates is beyond 6 per cent, it is going to create challenges for the currency. Today, we are almost at 4.9 per cent in terms of the benchmark repo rate. I believe that we could go up to 160 basis points higher in the next nine months, whereas the composite effective federal funds rate is 2.33 per cent. The RBI is already squeezing a lot of liquidity from the system to control inflation. To my mind, a large part of the inflation problem is supply driven. Inflationary pressure is primarily caused by a supply-side anomaly… In a globalised world, the supply is in some places [countries] and the demand is in others. How will you make sure this changes? Today we are talking about creating local capacity, but it will not be created immediately… That’s the piece we are missing—that a large part of inflation is supply driven. And we need to make enough efforts so that supply-side challenges get sorted out.
Q: How are companies dealing with problems with their supply chains or addressing the long-term issue of supply chain localisation?
A: I think everybody is starting to think about the localisation of supply chains. But it’s not easy. It’s not like a switch that you can turn on and off. Take, for instance, the pharma sector, where the production-linked incentive (PLI) for drugs means you want to produce the end product, but you need inputs, and [those] primarily come from China. You need to be able to say that there is going to be incentivisation. And a large part of the incentivisation from the government and other bodies should be focussed on localisation of these supply chains, which, on the pharma side, was done at the peak of Covid-19.
The localisation of supply chains is bound to happen. I think that is going to happen everywhere, not just in India. And wherever and whoever can localise quicker, will be able to come through reasonably unscathed. Wherever you can’t, there will be challenges. The other piece is regional cooperation. I do believe you will see a lot more regional cooperation. It could be a collaboration between [countries in] the Asean region or parts of the region. You can see the signing of FTAs [free trade agreements]. India has already signed 13 FTAs. Can we do something with Bangladesh, Myanmar, and the like? The bilateral [trade agreements] will support the localisation of supply chains. That is going to be the order of the day. India is talking about signing an FTA with the UK. The FTA with European Union will be the bigger one.
Q: The PLI schemes apart, what are the encouraging signs you see for businesses?
A: At a broader level, there are quite a few encouraging things we are working on—the new SEZ policy, the climate change piece, the vehicle scrappage policy, etc. For instance, the vehicle scrappage policy means [consumers] buying a new car at some point in time. It will drive production and global corporations will get excited about India. The [Bharat Forge Chairman & MD] Baba Kalyani-headed committee is re-examining the entire SEZ policy to make it easier. The Vodafone retro tax settlement issue is also a positive development. I think it’s a combination of all these things, which hopefully will position India a bit better. I must say that multinational corporations with deep manufacturing capacity, which are present in India, are generally happy. Crossing the hump of coming to India—that is the challenging part.
Q: The SEZ policy has not had much success. What are your expectations from Baba Kalyani’s report on SEZs?
A: What we are expecting is that the infrastructure that has already been created, how does one continue to leverage that and not make SEZs ghost towns? A lot of it was predicated on financial giveaways. So how do you leverage that infrastructure and make it more productive? That’s one of the key things. The second question is how to align the broader SEZ policy with what we want to do in general, such as PLI and Aatmanirbhar Bharat. How do you align various government initiatives? China is also focussing on inputs. That’s very important. Clearly, the intent in India is also to focus on what is absolutely critical, whether it is chemicals for pharmaceuticals, whether it is semiconductors or chips for your automobile industry. So, whatever you are good at or wherever economics works for you, you really need a back end. We have to make it through the broader SEZ and other government policies. The SEZ law will reinforce India’s position as a manufacturing hub and key investment destination.
Q: Despite low capacity utilisation and demand, there has been consolidation and M&A activity. How do you justify this appetite of India Inc. for deals?
A: The good news is that deals will continue to happen, and as a deals person, I’m very happy. Until now, it [the deals] has all been for growth reasons, but today a lot of it is going to be for consolidation reasons. In the first quarter of 2022, if we look at the start-up ecosystem, the amount of private capital that the start-ups raised was very significant. The dry powder available globally has recently crossed $900 billion. Just as globalisation is a disruptor, so much private capital available globally is also a disruptor. Today, private capital is a major disruptor.
Q: There was a time when corporate India or the experts used to talk about focussing on core competence. Today, big corporations are diversifying into multiple areas. Do you see a rationalisation of portfolios in the large- or mid-corporate segment?
A: I think the question is that when money gets dearer, you want to do fewer things. I’m noticing that people are doing a big review of their portfolios and saying that this is something that is not going to withstand the vagaries of the VUCA world and that I might as well sell this business.
Private equity capital is available, but they [the PE funds] are looking at your metrics. For decent businesses, private capital is usually available. I believe that portfolio rationalisation is going to be key as we move forward. When you go beyond the top 20 corporates, there is clearly a focus on portfolio rationalisation and not doing the same things over and over again. At the end of the day, everybody wants to create value. When scaling up, forward and backward integration would be prioritised over inordinate expansion. We are also seeing a generational shift with many family businesses and conglomerates, changing perspectives and a more favourable approach to M&As.
Q: When you took over last January, you talked about a five-year strategy. How much progress has been made?
A: We articulated our aspiration of being more relevant to Indian businesses. When we looked at our portfolio, we needed to increase the work that we were doing with Indian businesses and create more relevance for them. And we identified certain sectors and areas like emerging technologies, cloud, ERP, analytics, cybersecurity, etc. If you look at the amount of money that India Inc. is spending on digital transformation, you will see that a large part of that is going into cloud and cybersecurity. For instance, look at financial services or consumer businesses. They are the ones that have a lot of consumer interface. They are adopting the cloud, AI, bots, etc. As rural area consumption [of technology] goes up, the next level is local language capabilities. Blockchain is one area where there is a huge possibility of use cases. I think these are the technology areas in which we are continuing to make investments. We recently signed an agreement to acquire Venerate Solutions, a digital company. We will look at a couple of acquisitions in the technology space in the next two to three years. A part of our strategy is also to support India’s $5-trillion GDP aspirations and we are looking at increasing our relevance in the domestic market.
@TheSouravM, @anandhikari