Corporate governance is, by no means, an easy task, and probably many times more difficult with a system based on millions and millions of paper documents.
Raising the standards
The MCA-21 project, so-called by the Ministry of Corporate Affairs, to reflect India’s corporate governance goals for the 21st century has begun to address the complex issue. Last year, it rolled out the nearly paperless system across the country, starting with Coimbatore in Tamil Nadu. Today, almost 600,000 companies in the country make their filings online. Public online access to corporate filings is available for a mere Rs 50 ($1). These and other features of the new electronic system have raised the standards of corporate governance, and set the stage for better compliance and enforcement, says Y.S. Malik, a joint secretary in the Ministry of Corporate Affairs, who oversees the project.
Quoted as one of the principal e-governance projects in the country, MCA-21 was spawned, coincidentally perhaps, months after the fall of Enron, one of the world’s largest corporate collapses. Since the stock market scam of 1992, the MCA had begun to use electronic databases, thanks to the National Informatics Center, but it was piecemeal computerization and failed to address most issues. There was a need for a “holistic program with service delivery concept,” says Malik. In 2002, the MCA, along with the Hyderabad-based National Institute of Smart Governance and a team of financial professionals and bureaucrats, began a year-long study of the process of regulatory filings. The study resulted in an exhaustive, four-volume compendium that laid out a roadmap for the MCA-21 program, and recommended far-reaching business process re-engineering, Malik says.
Digital transition
Thousands of processes were redefined, hundreds of paper forms proposed to be redesigned to fit the electronic format and regulatory requirements, millions of paper documents were to be scanned and digitized, security had to be built into every online document, and the documents needed to be accessible to the public. Having laid out rigorous requirements, MCA was required to choose a technological partner with the skills and experience to implement its plan, and negotiate a wide range of service-level agreements to ensure a successful rollout. Still, says Malik, “change management was a massive exercise, both for internal and external stakeholders,” a reference to the thousands of employees, chartered accountants and company secretaries, and entrepreneurs who would use the system on a regular basis.
The success story
The NISG conducted the technological evaluation and picked Tata Consultancy Services, the nation’s largest software services company, to implement the project across the MCA’s 40 field offices, four regional directorates and 20 Registrar of Companies. Being a ‘Mission Mode’ project — the highest priority rating assigned by the Indian government — TCS and all other agencies “took it up as a challenge and delivered reasonably well,” says Malik. Under the agreement, TCS will run it on a BOOT — build, own, operate and transfer — basis before handing it to the ministry after six years.
Tanmoy Chakrabarty, a vice president at TCS who oversaw the technological deployment and training, says the company took only 77 weeks to develop and implement the program in its entirety. This included digitization of about 45 million paper documents in MCA’s archives, setting up a main data center in New Delhi and a disaster recovery center in Chennai. Apart from that, building the computing infrastructure, setting up 52 facilitation centers, designing the application software and setting up secure electronic payment gateways, were part of the list. TCS is also the sole issuer of digital signatures that authenticate all filings, adding integrity to the whole process. Under the program, all company directors and finance professionals are required to acquire digital signatures and use them to sign off on electronic documents.
“The implementation of such a large-scale transformation project, in the shortest possible time, is a landmark and has established a benchmark for such a program not only in India but across the world,” says Chakrabarty.
Today, the MCA-21 program is a year old and the Department of Information Technology has ordered a review. If responses from stakeholders are any indication, the project can be counted as a significant success. In a recent survey of CFOs by the accounting firm KPMG, a high 70% said they were satisfied with the program’s rollout. TCS’ Chakrabarty points out that the program has already exceeded its initial goals. A total of 2.3 million e-filings — 80%-90% of the total — have been made, compared with the modest target of 25% for the first year. TCS has issued 3 lakh digital signature certificates, “the largest planned deployment of DSCs for (an) e-governance project in India and possibly the world,” according to Chakrabarty. Over 211,000 companies have e-filed their balance sheets, and over 350,000 have e-filed their annual reports, according to MCA’s Malik.
Still, the transition, predictably perhaps, hasn’t been easy. Balaji Kuncham, a chartered accountant in Bangalore, called the process a “nightmare.” In the early stages, the e-forms kept taking new avatars, he says. In many instances the automated ‘pre-scrutiny’ kept rejecting some filings, frustrating users. Such issues could be resolved only by visiting the RoC. In one case, Kuncham had to hire a fellow professional in Delhi, pay him Rs 15,000 ($367) to visit the ROC and get the approval for a foreign client to open a branch office in Bangalore. Similarly, even though Malik says a new company can be incorporated online in a single day, Kuncham says there is hair-splitting over names and it is next to impossible to resolve it online.
TCS’ Chakrabarty says he experienced “unpredictable load patterns” that caused a lot of difficulties. He attributes it to early learning, since this was an e-governance project with “no past references.” Besides, it had a “very short stabilization time,” he observes.
G.V. Srinivasa Murthy, head of the Bangalore chapter of the Institute of Company Secretaries of India, prefers to call issues such as these “teething problems.” Considering its magnitude, he says, the program is both “well implemented,” and is a “truly wonderful initiative.” Except for Singapore and Malaysia, few countries have such an electronic system, not even the United States.
Malik says the Rs 345 crore ($3.6 billion) MCA-21 program has been, by-and-large, “very successful.” Revenues have grown from Rs 728 crore in 2006 to Rs 1,038 crore this year, though part of it is on account of robust economic growth. Still, if one needs to justify the investment, a big payoff has been the easy access provided to online documents. Under the earlier regime, people who needed to review corporate filings needed to spend days in long queues before they could gain access. Today, from all across India and even abroad, people can access any filing by paying Rs 50 for a period of three hours. In fact, this has become such a popular feature that 225,000 people have availed the facility, and some have built a business around downloading, printing and selling some documents, Malik says. He added that on the basis of this single feature alone, investment on the MCA-21 project has yielded ROI because companies spent thousands of rupees on accessing the ministry’s archives.
Agenda of optimization
Malik has his own “agenda of optimization” for the program. He says the ministry has received a tremendous amount of feedback from users and will begin to implement a number of changes, notably to enhance the user interface. One of the bigger challenges, Malik says, is trying to resolve the issue of stamp papers — a pesky state subject outside the realm of the central government. Despite MCA-21’s significant progress, companies need to submit documents requiring stamp duty to file scanned versions as also the physical ones. This, to Malik, is annoying and unacceptable in the overall scheme of things.
Now that most documentation has been brought online, the MCA-21 program needs to concentrate on a range of things that will improve corporate governance, Malik says. This means the ministry should improve compliance management — be able to quickly swoop down on companies and bring them to book whenever necessary. That is probably when the full benefits of the MCA-21 program will be revealed.
