Nick Talbot
In recent years, the Indian government, like many governments around the world, has focussed on growing foreign direct investment (FDI) into the economy. A look at the figures since 2013 would suggest that measures put in place have had the desired effect, with FDI in 2014-15 growing 27 per cent to $45 billion, to $55 billion in 2015-16, and to a record $60 billion in 2016-17, which is an all-time high.
However, there are concerns as to whether this excellent annual growth can continue following the latest Department of Industrial Policy and Promotion (DIPP) data showing growth of just 3 per cent in foreign equity inflows so far for 2018. Perhaps, unsurprisingly, it has prompted further debate on the attractiveness and viability of the Indian market to foreign investors.
India’s government believes that more can be achieved by making it easier to do business and that this will lead to further growth of investment, income and employment. In January, the government instigated further loosening of regulation to make India a more attractive place for FDI.
Different countries are essentially in competition for FDI and by way of comparison with the other major fast-growing economies, the Chinese government recorded $135 billion inward FDI for 2017, more than double that of India.
Transparency, comparability
One of the key things that investors look for is transparency and comparability so that they can analyse an investment opportunity and compare it with those available elsewhere within a country or overseas, as well as obviously looking at ‘ease of doing business’ and risk and return.
There is generally a correlation between the levels of data available, transparency and ‘ease of doing business’ with the amount of investment a country can attract. Typically, an investor will request a valuation to be done before making an investment. The quality of the valuation, which can be for any kind of asset, depends on the professionalism of the valuer as well as the valuation standards followed and the evidence and transparency available in the market.
Traditionally, most businesses were done within a country. As such, different approaches to accountancy and valuation evolved around the world on a national basis. Today, however, an increasing amount of business and capital is flowing across national borders, challenging the traditional and fragmented market systems and standards which are supposed to oil the wheels of trade and investment.
From an investor’s perspective if you are looking at 195 different countries where you could make an investment, you don’t want to have to understand 195 different approaches to accounting or 195 different approaches to valuation. Investors need to be able to make informed decisions based on comparable information and analysis. Proponents of more protectionist measures argue that there should be a unique approach for their country but, ironically, this is seldom in the national best interest. A crude but pertinent analogy to this would be the Cricket World Cup. Countries have together agreed what the global rules are.Chaos would prevail if cricketers had to play to different rules in every country.
Audiences wouldn’t understand the game, there would be a lack of transparency, it wouldn’t be possible to compare who is the best team or player and the facts would be presented differently in every country. Thankfully, a common taxonomy for the sport allows us to say with conviction that Sachin Tendulkar is the highest run scorer of all time in international cricket.
The country is right now at a key juncture where it is considering how valuations should be performed. The government has wisely created a Valuation Standards Advisory Committee, which is chaired by the well-respected Professor R. Narayanaswamy of IIM-Bangalore.
This committee has the very important task of deciding what valuation standards should be followed in India. One question it will answer is whether India will embed International Valuation Standards (IVS), or create a local set of standards?
IVS preferred
My perspective, based on what I have seen in many countries around the world, is that India should embed IVS while ensuring there is scope to consider any supplemental chapters which may be needed to cover, for example, local legislation or further detail. As long as these don’t contradict IVS, then it should be acceptable. This would help achieve the government’s goals to make India more attractive to FDI and also create a more stable financial system domestically.
This approach would also have many other benefits. India is well known for its education and professional services sector. An international approach would mean that increasingly young professionals are already equipped with internationally relevant skills should they wish to pursue careers which take them overseas or which allow them to take on assignments around the world. There is also a large professional services sector working within India for the likes of global consultancies performing some of the high-skilled work from within India but for projects which are being worked on for clients in other countries. A recognised international approach will also better equip these professionals and facilitate global business in India
India is an incredibly important country in the world order. It already participates within the International Valuation Standards Council (IVSC) through the following members of IVSC with offices located in India: AICPA-CIMA, CFA Institute, Chartered Valuers Association of India, Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Valuers, Practising Valuers Association of India, and Royal Institution of Chartered Surveyors .
However, the creation of the Advisory Committee gives India the opportunity to put forward a co-ordinated voice within the IVSC and influence the global approach. IVS aren’t created by a particular country, they are created by leading experts from around the world, including those from the US and China. India, as an increasingly influential economy, should without question become a global leader in valuation and, hopefully, a key influencer within the international community of the IVSC.
The writer is the CEO of the International Valuation Standards Council.