As we finish another audit and tax return filing season, and
have a little time to relax after Diwali (scrutiny assessments permitting), we
get a little time to ponder on some broader issues of how the Indian economy and
business are faring, and their impact on our practices. It is now a little over
a year since the financial crisis struck, impacting economies and businesses
worldwide. Is the worst now behind us and can we expect better times?
If one reads reports of GDP growth, many economies worldwide
(including the USA and Europe) are now showing signs of positive growth, though
slow. Most economists seem to be of the view that measures taken by Governments
and Central Banks have had an impact of arresting the negative growth. Banks
which were in trouble, have been bailed out by infusion of fresh funds,
restoring public confidence in the financial system. Insurance companies with
worldwide operations indicate that credit insurance claims, which had peaked
towards the end of 2008 and early 2009, have abated to lower levels, though
still higher than the level prevalent before the start of the financial crisis.
Generally, the consensus seems to be that the bottom has been reached, and that
we can now expect a recovery, though perhaps gradual.
What we must however remember is that this recovery has been
based on money being pumped in by Governments by following an easy money policy.
Governments realise that an easy money policy has consequences in the form of
unsustainable deficits, higher inflation and bubbles in various markets, such as
stock markets or property markets. Cheap borrowing rates encourage investment in
stocks, properties or other assets, in the hope that the return from such assets
will exceed the borrowing cost. In India, the interest rates on savings were
lower than the consumer inflation rate, due to lower lending rates. We have seen
property markets starting to recover from the lows, and stock markets almost
doubling to nearly reach their historic highs. These inflated values seem to
have been fuelled by rising liquidity due to infusion of Government funds into
the economy, as well as inflow of foreign funds into an economy which was seeing
positive growth in spite of the slowdown.
The Reserve Bank of India has just announced an end to this
easy money policy, with a view to controlling inflation. This is bound to have
an impact, on interest rates on savings and lending, which are bound to rise, on
stock markets, which will see stocks being replaced by bonds in investment
portfolios leading to fall in stock values, and real estate prices, where
builders will find it difficult to hold on to unsold stocks of real estate with
higher borrowing costs. We may therefore witness an end to the high stock market
and real estate prices. One only hopes that the decline in both these sectors is
gradual, and does not cause major upheavals and pain that an abrupt fall would
trigger off.
Fortunately, India is still seen as an attractive investment
destination, notwithstanding the infrastructural, bureaucratic and taxation
barriers to growth. Therefore, the inflow of foreign funds should cushion the
economy to some extent from the impact of the end of the easy money policy.
However, we need to keep in mind the fact that many of our businesses are now
dependent on foreign markets for their growth, and these businesses would
continue to feel the impact of the worldwide slow growth. Our expectations need
to be tempered to understand that while we will surely witness economic and
business growth, such growth will be measured and steady, and will not be as
rapid and frenzied as witnessed during the boom preceding the financial crisis.
Our profession continues to enjoy a good reputation in India, notwithstanding
the battering that its public perception took in India over the last one year.
Given the economic scenario, one can therefore expect reasonable professional
growth. One hopes that the fall in standards of quality and integrity of the
profession that the recent scandals have pointed to, are arrested and reversed.
The important lesson that all of us need to keep in mind is that while earning
well from one’s profession is essential, such earning should not be at the cost
of relaxation of one’s professional or ethical standards. One can look forward
to enough professional work even while maintaining one’s professional and
ethical standards. With our increasing professional competence, worldwide
opportunities today beckon us. We need to gear up and be capable of grasping
these opportunities and growing in a sustainable and satisfying manner. The
current lull should be effectively utilised to hone or diversify our skillsets,
based on our individual perception of our professional drawbacks.
Gautam Nayak
