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Why Jet Air is a success and ICAI a failure

Writing her columns for a business daily a senior journalist recently wrote of her experiences of flying to Madrid via Brussels from Chennai in a private airline. Pointing out that the flight in the Brussels-Madrid-Brussels sector on Brussels Airlines 'was an eminently forgettable experience,' the scribe went on to add, '. . . but against that flight of a little over two hours, where the airhostesses were indifferent and no blankets were available on a freezing Madrid morning with the temperature close to zero degree Celsius, the Chennai-Brussels sector on Jet Airways [Get Quote] spanking new A330-220 aircraft was a virtual treat."

Further, she goes on to add, 'After exchanging notes with other international journalists -- from China, Canada, the United States and some Europe nations -- who had all travelled business class -- one was convinced that the Jet experience was indeed special.'

At the outset, this rise of the Indian civil aviation industry as a global player needs some elaboration. What is intriguing in the entire story is the fact that contrary to popular economic wisdom, the civil aviation sector remains as one of the most protected sectors even today in India.

It may be a bit baffling for the reader to note that though foreign direct investment is allowed in this sector -- it is open only for those who do not run airline industry abroad. That is, Pizza Hut, for instance, can invest in the airline industry in India, but not Singapore Airlines. Further, foreign airlines are not yet allowed to operate on the domestic sector. Obviously, the rise was fuelled by Indian capital and managerial skills.

The net result of this strategic protection offered to the civil aviation industry is there for all to see. Crucially, it has acquired the necessary technical, financial and managerial capability to partner the very best globally on its own terms while retaining its Indian identity. This, in turn, helps in building up the brand image of the airlines, industry and of the country.

The lessons behind the calibrated opening of the civil aviation sector are instructive and remain, in my view, an appropriate lesson in our process of globalisation.

Lessons of the accounting sector
If civil aviation is a lesson to emulate, the opening up of the Indian accounting sector is in contrast an abject lesson in mishandling the globalisation process. The Indian accounting sector too has extraordinary potential (because of its substantial numbers, knowledge of accounting and of course the English language) to be a global player but has been subjected to premature external liberalization and without adequate preparation.

Consequently it is becoming an endangered species even within India.

You may recall that the entry of the Multinational Accounting Firms (MAFs) into India coincided with the establishment of the World Trade Organisation regime -- why, it even preceded the establishment of the WTO. That is, as the coordinates for the WTO itself were being finalised, the government allowed the MAFs to enter India.

Ostensibly, this was done under pressure from the International Monetary Fund, which was providing financial assistance to the government in the aftermath of the foreign exchange crisis of the early 1990s.

This un-calibrated opening up was in sharp contrast where countries, notably developed ones, were busy erecting entry barriers and legalising them through the GATS-WTO regime. The impact of the premature entry of MAFs on the domestic accounting firms has been the subject of intense debate within the accounting fraternity with a dominant view holding that the entry of the MAFs had a debilitating impact on the accounting profession in India.

A crucial issue that needs to be factored in here is that external liberalisation of services pitted the unbranded, under-prepared and undersized Indian accounting services with branded services of MAFs. This skewed the competition in favour of the MAFs inexorably, so much so that even after a decade it is impossible to comprehend the emergence of a pan-Indian accounting firm even in the next 10 years.

Consequently, after a decadal experience with MAFs, it is evident that Indian accounting profession is now no longer a potential global force. Rather, it is fast becoming a weakened and marginalised local force. By playing the global game at the local level, the MAFs have succeeded in weakening the Indian accounting profession even within India.

In the context of effectuating our potential in the services sector, experts are of the opinion that India has to prepare for the opening up of the services sector while seeking access to markets abroad.

But for any service provider to dominate at the global level it has to be a dominant national player. And the corollary to this rule is that to prevent the emergence of a national power into a global power it is necessary to render it hors de combat at the sub-national stage. . . just as it has been done with Indian chartered accountants by the premature entry of the multinational accounting firms into India.

Why is the accounting profession in India paralysed? The most important issue for chartered accountants to face foreign competition is to acquire size, become multidisciplinary and acquire global partnerships. In this connection, one of the key impediments is the legal limitation placed on the number of partners in partnership firms, which restricts the number of partners to a maximum of 20.

Secondly, accounting firms in India are not yet functionally multidisciplinary. Consequently, Indian accounting firms are unable to compete with MAFs even within India, while MAFs with their deep pockets can penetrate the Indian market with ease.

What has aided and abetted the continued existence of the MAFs within India has been the virtual capitulation of some of the very best in the Indian accounting profession to these MAFs. In fact, some presidents and council members of the Institute of Chartered Accountants of India in the 1990s were party to their own firms tying up with these MAFs.

These leading lights of the profession were keen to play second fiddle and allow MAFs to subsume their identity and in the process avoid competition. Given these vested interests at play, is it possible for the ICAI to effectively act against these MAFs and protect the Indian CAs?

The net result is that the regulator, the ICAI, has been reduced to becoming an ineffective organisation on such matters. Of course, it does provide comic relief by seriously suggesting dress codes for members (ostensibly aimed at improving the image of the profession!), instead of looking at issues that confront the very survival of the profession.

When lobbying proved successful and when it turned personal
It is, indeed, a fact that the domestic airline industry may have successfully lobbied for protective measures; the fact that they have leveraged the same to emerge as successful global service providers -- surpassing even international standards -- is a matter of great pride for every Indian. This is one rare instance where the industry has defied conventional economic thinking and emerged as a success story.

On the other hand, it is pertinent to note that the ICAI has been unable to leverage its position as the premier accounting body of the nation to set the pace of external liberalisation to the benefit of its members. Obviously, when personal ambitions cloud judgement of individuals, especially of those in power, the net sufferers would be the people at large. This is what happened to the accounting profession.

Much as the ICAI would defend its past actions, the fact of the matter is that younger chartered accountants are keen to take up employment -- a sure sign that the accounting profession is doomed in India.

Want proof? Check out the latest statistics that indicate that less than 10% of the younger members are taking to practice, when 50% was the norm till a few years back. Given this fact it is evident that Indian chartered accountants -- as an entrepreneur -- are a vanishing tribe.

And that would spell the ultimate success for MAFs. For, if the accounting entrepreneur is eliminated within India, it could well mean the elimination of competition at the global level. And that could mean India's potential as a serious global player in the accounting sector is, to that extent, dented.

In conclusion, globalisation is the war of entrepreneurs, who are a rare breed and require nurturing by the State. It is the profound duty of the government to ensure that the entrepreneurs succeed by its appropriate choice of policy and programmes.

It is this success of entrepreneurs that propels the image of the country higher in the comity of nations. America is known by Microsoft, Japan by Sony. If Gates and Akio Morita were eliminated even within their own country by competition, their companies would never have emerged as serious global players, leaving their respective brand images of the countries poorer.

For India to emerge as a global power it needs to unleash its potential in the services sector. Accounting sector is one where it could have succeeded easily with, some game plan. Unfortunately, the ICAI has let down the accounting sector, profession and the nation by failing to calibrate the external liberalisation programme.

This is where the civil aviation succeeded and the ICAI failed in India. And for its sorry state of affairs, the accounting profession cannot blame anyone but itself.

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Last modified on Friday, 19 July 2013 17:25

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