Episode 21: Abhijit Yadav - The Changing Indian Economy

Episode 21: Abhijit Yadav - The Changing Indian Economy

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BRG Principal Abhijit Yadav joins the podcast to talk about the Indian economy and BRG’s work in the region. Discussion includes his background as a signal intelligence officer for the Indian Navy, the evolving nature of India's economy, changes in regulation leading to economic growth, and the potential future for the Indian economy as a whole.


S1 00:35

On today's podcast, we'll speak with BRG Principal Abhijit Yadav. Abhijit heads BRG's Global Investigations + Strategic Intelligence practice in South Asia from our Mumbai office. Abhijit has extensive experience with a wide range of investigative assignments including fraud, business intelligence, due diligence, and Foreign Corrupt Practice Act investigations for a host of multinational and domestic Indian firms.

Today, we'll discuss how his experience working as a signal intelligence officer in the Indian Navy led to his current position, the rapidly evolving Indian economy, examples of his work for clients in India, and predictions for the future of regulation in the country. And with that, let's get started.

Abhijit, thank you very much for joining us on the ThinkSet Podcast today. You recently started the BRG India office, which has grown pretty rapidly to a sizable number. What has it been like starting an office there, and why is it vital BRG has an office in this part of the world?

S2 01:34

Eddie, that's an interesting question. We literally had our first assignment with us before we set up a coffee machine. Day one, we had our first assignment. That's the kind of pace and intensity that we've seen in operations here in India. Typically, we had no choice but to grow, because we had most of our clients that migrated along with us; most of our team members joined us. And the demand for our services comes from the fact that, today, investors are savvy and they understand that India is a complex economy. They also know that there will be risks, and they will not be able to control risk. So it's best to avoid them.

I think the specific rule of thumb here that works in this jurisdiction is “forewarned is forearmed.” Which is why people like to come to us and say that, "Hey, listen, can we know what's going to happen?" It's also a very interesting indicator that, typically, about a decade ago, we'd rarely see a client outside the Fortune 100 companies. Today, we see businesses—small, large, risk-averse, risk-friendly businesses, all of them; they come in all sizes and shapes and colors—coming to us. And they want to know: what's the lay of the land? What are the challenges, how risk is going to pan out? So I think, obviously, it's merit to the growth that forensic industry or the intel and information industry in India is growing at the pace that it is growing, close to about 30%, 35% year on year.

To underline this fact, also, and what we've seen, is the fastest-growing economy in the world right now. There are a wealth of opportunities. And, I think, corporates from everywhere, all the world, are realizing it. I mean, operations from Africa who are large enough, wanting to do business in India. Leave aside some of the more developed nations trying to obviously have a foothold here. There's been a great push in the country on financial inclusion of the world economy. It's emerging as one of the top consumer markets in the world, as India is. And also, geographically speaking, India is a subcontinent on its own, with a bunch of dependencies around it.

And this office not only services India-based requests, but also Bangladesh and Sri Lanka. And as a matter of fact, you would be interested to know that every third or fourth assignment that we do is either looking at a business opportunity or a risk in Bangladesh or Sri Lanka or Myanmar. So I think to answer, specifically, your question why BRG has an office in this part of the world is because when we decided to have an APAC [Asia–Pacific] operation, which is headquartered out of Hong Kong, the second office we opened was in Mumbai. It's just because that's how crucial this is to our clients, and you want to be where our clients want to do business...

S1 04:14

You have a really interesting background, including being trained as a combat diver. How did you end up from a combat diver to what you currently do here at BRG?

S2 04:24

Thanks. I didn't know you were going to bring that up here, but, yeah. I mean, well, I spent about thirty and odd years as an officer in the Indian Navy in various capacities and various very interesting assignments. And, as you mentioned, I was a combat diver. I spent a considerable amount of time under the water and the balance of it doing information warfare—that's what I specialized in—and especially, most of my time, I was deployed on men-of-war. Traveled all over the world… some great, interesting, high-stakes, high-sea… anti-piracy missions, chasing pirates, hostage situations. So there was a bunch of things, interesting to do. And that was an interesting phase of my life.

But the bedrock of soldiering, in whatever capacity you serve… is discipline. And it was a very natural kind of a transition for me to move into forensics and investigation.

I mean, any forensic practice leader will tell you that when you're faced with heaps of data or a room full of ledgers and transactions, the only way you can decipher and drive intelligence out of them is through perseverance and discipline. So discipline, typically, was the bridge for me.

But if one wants to look at it from a tangential angle, you'd say that logically speaking from my perspective, there's very little difference between chasing down pirates and catching people who have perpetrated a financial fraud or have done something caught up in their nature. And I look at it this way: pirates are non-state actors; they loot with impunity and owe no allegiance to anyone. And therefore, in order to combat them, we—when we were in the Navy—knew no boundaries. You would chase them anywhere in the high seas and catch up with them.

I think, similarly, we at BRG don't let anything constrain us or our work or our efforts to combat corruption and fraud. I mean, literally, we leave no stone unturned. I think, there are a couple of similarities. It's just that one misses the salt on your face and the odd wave breaking over the forecastle of the ship. But otherwise, I think it's quite similar.

S1 06:29

That is a pretty remarkable story. I mean, here at BRG I know we have people with a number of divergent backgrounds, but that one might be the most unique that I've heard.

So, coming out of the Navy then, you get into business intelligence. Obviously, you're from India, and you've worked in the region now for a while. What are some of the country or region-specific challenges that new businesses face in India? You mentioned the clients that have grown beyond just the Fortune 100 now to business of all shapes and sizes from everywhere. What are the things that they should know first and foremost about doing business in India that you talk about at maybe the first engagement you have with a new client?

S2 07:08

Broadly speaking, there are challenges that any new business faces in a country like India. To be fair, these are transient, dynamic challenges. These are constantly shifting goals. So, therefore, they don't only affect new businesses, but they are omnipresent. These challenges are multidirectional and can pop up at any different point.

And to understand this, you'll need to take a slightly different look at the way things in India work. Let's just look at our business. A lot of our work deals with information, and information in India is extremely decentralized, if not disjointed. It's at least decentralized, and it resides in very different pockets and different mediums—in most cases, non-digitized. And, therefore, it's in hardbound ledgers. Dust eaten, moth-eaten places. And so it's very difficult to get to them.

For example, I mean, if I compare the United States of America, all you need is probably a social security number and related to that and linked to that is a host of… full of information. Now, if you were to look at something similar in India, you can see that just a pure background screening, trying to understand whom you're dealing with … kind of an exercise could be a very laborious and challenging one in a jurisdiction like India for any client. I mean, it's typically like driving in fog. It's difficult. To compound this is the size of the country that you're dealing with, and the population—it's about 1.3 billion people—that you are databases or depositories which are looking at these people. And I think the problem resides elsewhere—and I don't even look at it as a problem, really. I think it's the curve in evolution that every economy goes through. Agreed, we've been 70-odd-years old, but we've always been this huge, elephantine in size kind of an economy. And the focus, hitherto, has been in feeding the masses and addressing more basic issues. And obviously, therefore, digitization, education, etc., has kind of taken a backseat. And still continues to do that. I think it's only a matter of couple of years before we catch up. The new regime… has gone into an overdrive. We are doing things at a pace and speed which is kind of unheard of. When the government was sworn in, we were 136th in the ease of doing business. In a matter of four years, we are down to 77th. I mean, every year, literally, the country has jumped about 30-odd positions. The point is, it sounds damn good, and I think businesses sometimes do the error of looking at the amount or quantum of improvement and mistake it for ease of doing business. But you just need to look at the fact that India is the third-largest economy in the world if you were to use purchasing power parity as a matrix.

So you can be the third-largest economy and, yet, find yourself as 77th-most difficult place to do business in. So, there's obviously a dichotomy here—a gap that needs to be bridged and a gap that I think every savvy investor should understand. But, I think, we're making a bunch of large reforms and changes in the country. And I think if you were to look at any rating agency, any report coming out the World Bank, IMF, you'll be heartened to see that it's obviously an economy on the move.

If I were to sum it up, I'd say that there are three major obstacles that stand between India's transition from an emerging economy—which is obviously fraught challenges—to a developing economy where things are more systematic and easy. First, transparency. B would be governance. And I think the third would be lack of focus in enforcements. I mean, we've got all the rules, regulations, laws, and needs; just a build and architecture and a desire to implement and enforce these rules and regulations.

S1 11:03

So you mentioned the juxtaposition between being the third-largest economy and the 77th-most difficult to do business in, and you talked about where the information resides, and the new governance that you would think could be implemented and help. The three steps there, that you just listed, what's the blocking and tackling of that? Is it changing laws that will make things easier? Is it digitizing records that would make it simpler for businesses to come in and operate?

If you could list two or three things that would, you think, make the biggest impact right away and the low-hanging fruit if you will, what would those be?

S2 11:41

To put in a nutshell, the government thought that there [was] overregulation in this jurisdiction. The prime minister came up with a very simple to digest, very simple to implement idea. It was just one catchphrase to it, which was: "Maximum governance, minimum government." Which typically meant that we had to pick up rules, regulation, laws, … all of that, and throw them out of the window and say that, "Listen, we've got enough. We just need to enforce it better." Just like we need better access to the three things that I said, I mean when you say our rules, regulations, enforcement—everything needed to be transparent. And when you say transparent, you obviously expect that it will be accessed not only by individuals seeking some kind of remedy but also through some of the other agencies, government agencies, regulators, etc. There's no linkages, and therefore I said the word transparency.

When you say governance, … obviously we lack, I've already shown you, the ease of doing business and therefore if we're the 146th out of—and we're behind Afghanistan in ease of doing business, that spoke for itself. I mean, typically, lack of governance issues and—just to build a house or a building to get wired, it could take about 47-odd approvals from different agencies. So that's all been done away with, and I think that's how you herald that this is the way to go forward. And it's just the sheer size of the economy, it's just the sheer size of the number of people and the diversity that it takes time for it to get implemented. And when you say, "It takes time to get influence," basically because the enforcement is poor and we have today a judiciary which is kind of struggling to deliver verdicts, we've got about—I'm just shooting from the hip at the moment, because my memory fails me—but I think about three and a half million outstanding cases.

That's a large number. Which is why if you don't have enforcement, you have very little motivation to follow rules and regulations. I'm sure there will be social scientists who would disagree with me, but we all typically stand in the line because, otherwise, you're going to get penalized. You don't jump signals because there's a cop waiting on the way around. When there isn't anything going to happen, you're going to all tend towards anarchy. But, I mean, that's my personal view. The changes that the government has set out to do are, I think, fabulous.

S1 13:55

So one other thing, you talk about the, obviously, the size of the Indian economy. Probably on a global scale, one of the countries that it's most often compared to is China, just given the size of the two economies and also the size of their two populations. What makes India unique from an investment risk perspective? Whether it's different or similar to China?

S2 14:16

India is definitely a unique marketplace to be in. Essentially, what we have in place is a system … as competitive federalism. So we've got twenty-nine states, each with different culture, language, traditions, economic status, different human and social development indicators. So culturally, we may be more diverse than the European Union.

But federally, we are more tight-knit than the United States of America. Obviously, this creates a sort of governance nightmare.

And for businesses, this could translate to tricky decisions like where to manufacture, where to sell, where to head operations from, where to find manpower who could head operations, where to find labor. I mean, Mumbai, you'd probably … a manufacturing union, and you'll find people to do the physical or manual work. But it's a great place to find managerial staff.

In India, all of these decisions, everything matters. There are some states which are very capitalistic in their outlook, whereas there are some which are far more left-leaning. So I think, once you factor in the differences in about a thousand-odd languages that we have, equal amount of cultures, and even more diverse number of attitudes, it becomes a very complex system to decipher thereafter. Leave aside, operating.

On top of that, Indians have a unique mindset. Something that breaks the barriers or state lines, I mean, I think. It's called jugaad. Jugaad is a Hindi word that roughly translates to a hack. It's kind of a methodology that Indians use for innovative but not necessarily ethical fixes to problems, to workarounds, to typically go around any constraint that's thrown at you. Typically, what some would like to call as out-of-box thinking, but then it's not measured or viewed through the prism of ethics and integrity, etc. Basically, all designed to utilize minimum possible resources, because being a little on the south of … economy, people had limited resources and they had to come up with this. And mind you, it's kind of a glorified Indian culture that we think that there's no negative impact to this.

How it differentiates is that most of all business theories talk about a can-do attitude. Jugaad is a make-do attitude, which typically means that let's get it done. I mean, as long as you get it done, doesn't matter how you got it done. It could be a serious compromise. And you've seen, and many of my investigators [have] seen, clients kind of … figure because there was a serious breach of ethics, serious breach of quality and integrity. I mean, that's something which people need to look out for.

And if this was not enough, when you talk about how are we different. Unlike China, we are a multi-party system. When I say, "Multi-party," multiple political parties. So the last general elections that we had in 2014, 464 political parties, I think, … participated. I mean, that's an interesting bit of trivia that shows diversity, that shows choice. "But, hey. Listen. I don't want to vote for you."

And that's one of the essential differences in India, that it's essentially a democracy. Which is why we're also heralded as a unique place where the underlying principle is unity in diversity. And I think every child here is taught about this. But then, in the recent times, there's been far more thrust to us to trying of getting a unified, kind of, … government is trying to bring, therefore, transparency, a dynamic, corrupt-free system.

I mean, last year, the government came out and—this is the wrong word—but struck off about 200,000 shell companies. If you're not going real business in it, we don't want you … here. We just … their directors, struck off the companies. We've just had recent amendment to Prevention of Corruption Act. You can no longer hold properties without legitimately having name to it. So you can't have unnamed properties, etc.

But then, also, I'm going to give a slightly political answer. We're also similar to China in many ways. Large size of the economy, therefore presence of large size of opportunity. I mean, I would like to say that we are what China was about twenty years ago in so far in as emerging economy index is going. And therefore, dealing with similar economic issues if not social. But our political systems are entirely different, and I think that makes us intrinsically different as people.

How do I say this? In India, despite its many flaws, Indians strongly cherish their democracy, accept the drawbacks that come with it, but obviously, we all admire what China has achieved in a short span. And we've been obviously making … and trying to learn from it. But India has a very nonhomogeneous kind of an outlook. So I think that's how we are. We probably are going to go on a similar incline as China did on a graph if you want to plot it, it's just that ours is going to be inclined with a sines-up curve kind of superimposing it.

S1 19:14

One thing that jumps out to me there in your answer is talking about the can-do attitude which might be adopted by a number of different countries versus a make-do, and how you mention that can lead to certain work because making-do can lead to questionable morals and questionable ethics. Can you share an example of, maybe, how that's come into play in some of the work that you've done recently?

S2 19:38

Before I answer that one. I would like to just to throw it to you, how our work gets piled up here. I think two-thirds of our work is proactive in nature, which includes diligences—that obviously there are savvier clients, and that's more vibrant in its demand. People want to know what they're getting into. I mean, even the recent past, seeing a lion's share of our clients being from the healthcare space, renewable energy, financial services space…

So let's take an example from the renewable energies space. And we had a very large, global fund which wanted to acquire Indian blue chip solar business in the renewable space, and they had about thirty, forty independent solar farms sprinkled all over the country. And, at the … looked like a very clean, neat business to acquire.

We did a quick deep dive and it came out with a bunch of issues, wrongdoings in land acquisition, land grabbing, literally beating up farmers, snatching away their lands, poorly compensated these farmers, using land ... I mean, it was full of this mark. And, if this was not enough, they were also not paying enough revenue to the government, because they were kind of sidestepping in the end; land use was not registered with the government. So on the government books, it was still showing as the land was being used for agriculture as it was being used for power production already. Flouting of norms for acquiring licenses. I think the typical problems that you typically see the moment you step aside from a highly regulated industry in India, you see all kind of mumbo-jumbo being used. All kind of tricks in the trade being deployed.

S1 21:11

Yeah. So right now, you describe that two-thirds of it is people doing proactive investigations, and another third, I imagine, is reactive to things that have happened. What are other services you're looking to provide for BRG clients in India? And are there needs there that are different than from other parts of the world?

S2 21:30

Eddie, I think that's an incisive question. Just one that probably gives the BRG strategy game away here, but I'm happy to answer that. I look at growth in South Asia as basically being under two umbrellas. One, obviously, growing and watering the forensic practice, which typically means bringing in some of the more complimentary services like data analytics, … cyber forensics, under the umbrella and growing that. Because obviously, our clients need all of these, and we'd be offering a far more colorful bouquet to them. And we've seen a lot of traction in these services.

But also, the next umbrella, which I think should be opened and is far more active at the moment, is offering the broader BRG services.

I mean, let's look at it. Given the fact that India's growth … so robust at the moment and the infrastructure … is so well invested in. I mean, you look at it that at the moment, we've got about eleven metro projects undergoing. And of all of them, out of that, ten are delayed by more than two years. Therefore, I think, at any given point of time, we've got at least one person from a construction solutions practice in India, multiple pitches that we've delivered, we've been shortlisted, we've been working on some very interesting assignments here. So construction solution, obviously, has got a strong role and they're actively present in the Indian market.

And second is obviously the damages practices. Because any given economy, you will see some of the giant organizations crumble, taking the wrong steps. You'll also see [unicorns] emerging every quarter, if not more often. And therefore, there's somebody who's got a disruptive business model, somebody's losing business. And so there's obviously a large space for the disputes and damages practice to shape up. We're in advanced stages here, and the teams are visiting very often.

The Energy practice is visiting India very often. India's going to be the largest energy consumer in the next ten years' time. So obviously, space for a lot of our Energy practice work. So I think, for us, it stays an interesting place. We are open to all kind of models, and I think very soon we should hear some big splashes.

S1 23:38

Looking forward then. Are there any big changes you see occurring in the next five to ten years that you want to make a prediction about? That you think could shake the ground there in India?

S2 23:49

I think, Eddie, it's one of the most important questions, but I don't think it's going to be such a long answer to this, because we get asked this question very often. Every time we deal with a client and the client wants to know, "Is this goal sustainable? Do you think it's going to last long enough? Do you think it's going to be relevant enough? Etc., etc."

And we go back every time, as a matter of diligence, a matter of curiosity, and in my interactions with the higher echelons in the government, with our interactions with fund managers, economists alike. I think there's one answer, which is that the momentum, I think, has been built. And I believe that the future's almost set in stone now. It's very difficult to change the outcome now. We've too far down the path, and derailment at this stage I think is very unlikely.

The current regime has done everything possible, I think, to bring out some very facilitating regulations. They've gotten rid of the old archaic rules—I think about 3,000 of them—just chucked them to a side. I personally don't see them being reintroduced. And having witnessed some of the really major policy decisions—like GSD, demonetization, all in the span of six or seven months—being rolled out. And these large events barely made a dent in the economic growth. We continue to grow in upwards of 7%. After seeing these two large events, I've become a believer that I think Indian growth story has reached critical velocity.

S1 25:18

Great. Well, Abhijit, thank you very much for taking the time to speak with us today. We'll look forward to catching up with you again soon down the road

S2 25:25

Thanks, Eddie. It's been a pleasure.

S1 25:29

This ThinkSet Podcast is brought to you by Berkeley Research Group. You can subscribe to the podcast and access other content from ThinkSet magazine by going to thinksetmag.com. I'm Eddie Newland, and thanks for listening.

The views and opinions expressed in this podcast are those of the participants and do not necessarily reflect the opinions, position, or policy of BRG or its other employees and affiliates.



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