Not in the next 12 months, but over the next 3 to 4 years or 3 to 5 years, we should definitely see a shift back to manufacturing
Sanjeev Krishan, Chairman, PwC India
Sanjeev Krishan has been appointed as the chairman of PwC India at a time when companies are trying to adapt to a new and more challenging world. Krishan tells Financial Express that to survive in this demanding environment, companies must embrace technology and build a crisis-ready business model keeping their costs light. He believes it would be difficult for India to get back to 8% growth without manufacturing making a comeback. At the same time, Krishan is also concerned about a whole set of companies that have faced one challenge after another and might not find the necessary capital to grow to the next level.Edited excerpts:
What do you feel are the two key changes that companies will need to make in the new environment?
The first is embracing technology for even the most technology-deprived organisations. It is going to be absolutely critical. We did a survey amongst 200-225 CXOs in the middle of the crisis and one of the key findings was that nearly 77% of the respondents told us they would be looking to digitally enable their businesses. Today, whether it is us as consumers, or it is organisations who are trying to sell to us, I think everything has changed. So, in some ways, that is something which is going to manifest itself with the way businesses go about their work, whether B2B or B2C firms. They will have to use technology and, of course, the whole analytics around it; it will be almost central to what they do from here onwards. The second really is that status quo is not an option anymore. I need to make my business resilient. This element will find focus in boardroom discussions: how am I making my business, my processes resilient to any kind of crisis that might occur. Say, if I use more data and technology, is there going to be some kind of cybercrime or cyber-shocks that could happen. Being crisis-ready and almost assuming that something or the other will happen and planning your processes and business plans accordingly is important.
What would this mean in terms of costs?
Everybody is trying to, in some ways, be prepared for a near-term eventuality, so you want to keep your cost structure a bit shallow. One of the ways in which you will keep your cost structure shallow and make sure you are getting your productivity high and getting more for every buck that you spend is by using digital technology, even in your analytics as to which customer segment you should focus on. You are not going to stop innovation, you are not going to stop bringing out new products, you are not going to stop going into new markets. You will need to be a lot more productive, whether it is looking at past data, whether it is doing any kind of trending, etc. The adoption of technology, embracing everything that seemed rocket science to us including artificial intelligence and others has, in some way, been enhanced by this pandemic situation. I think 92% of the respondents mentioned in our AI report that they are looking to embrace AI now or manifest it in their operations.
How much consolidation are you seeing, and how much of growth, say in the next five years, will be organic for companies?
I do believe growth on the inorganic side would continue to be of a very high quantum. Look at the ecosystem around us. You see a lot of stress in 3-4 segments, though certain segments like maybe power and telecom and the whole e-commerce vertical are doing so much better these days because customer preferences have shifted. Some segments suffered because of supply chain issues but are coming back quite strongly, whether it is pharmaceuticals or automotive. But hospitality, aviation, construction and the more brick-and-mortar kind of businesses at the moment are not seeing significant pick up, even though the utilisation I think for the core sector is going up. This segment would require significant amounts of risk capital and this means there is going to be opportunity, either for consolidation or more likely than not for private capital to come in and own these businesses.
Is there enough growth capital?
Big corporates need to come out very, very strongly because that is really the backbone of the Indian industry. So, as you see, there is a lot of congregation at the top end of the business. But what lies between the MSME and the big corporate, the emerging segment, where will the next level of big corporates come from? It is not as if that segment doesn’t exist today, but I think it’s a bit shallower in the three business cycles that I have gone through. That is a bit worrisome because they need support. If I am a good local business, I can’t go national because it requires a significant amount of capital and either I don’t have the management bandwidth or I don’t have the capital, and for me, it is better that I sell my business. I don’t want to deal with it. They need some amount of support, even though some of them, not that they are doing badly, do not have the balance sheets that can sustain one crisis after the other. I think that is the question. I do believe this segment will continue to cause certain amount of opportunity for consolidation, for capital raises, for risk capital.
Where do you see the share of manufacturing in the next five years?
If India has to come back to 8% growth, manufacturing has to come back. We are finally starting to have some labour reforms, just starting to finally have some land reforms and are coming up with schemes like PLI, for instance, where we have the whole thing about Atmanirbhar Bharat. The important thing is that the relevance and importance of the manufacturing sector is getting recognised. We believe the time is not too far when even some of the existing businesses that are working at 60-70% capacities will reach a level that there will be a need for generating additional capital, and I think that will provide another fillip, together with some of the initiatives and the incentives that are now in place and the reforms process. Most of these will enable manufacturing in India and I am pretty sanguine that not in the near time, not in the next 12 months, but over the next 3 to 4 years or 3 to 5 years, we should definitely see a shift back to manufacturing. It is absolutely, absolutely critical because they are the ones who actually generate employment and have a multiplier effect on the economy.
In terms of environmental, social and corporate governance (ESG), how would you rank Indian companies on a scale of 0 to 10?
I will be candid; I am a bit challenged to answer that question. But in recent conversations with CEOs at least seven out of 10 have spoken about ESG in one way or the other. Having said that, it doesn’t mean everybody has embraced ESG. Everybody might want to talk about it, but the question is how quickly we can deliver on it because there is some amount of change that you need to do in your business processes. One of the CEOs was talking to me not just about being carbon-neutral, but water-neutral. I think these are great things, and people are starting to focus on the same. I have had funds talk to me about what are the matrices they should use to deliver on the ESG agenda, what is it that they must look at in a potential investee company, because if they are not ticking all the boxes, they will possibly not invest. So, it is definitely getting front and centre, but it will still take some time because invariably it so happens that there is a lot of excitement, but yes, there is significant shift that is required in business models to really deliver on it.
What would your key goals be and what advice you have for clients?
As a people firm which sort of succeeds fully when its clients succeed, I think we need to craft success for clients. Our feedstock is people so we need to make sure our people are skilled enough to be able to deliver a quality product. So, if I look at it, the course is that you just invest in your people, deliver quality to clients, and create relevance for you, for your firm, not just in the mind of clients, but also in the wider ecosystem.