CA Firms and the ‘Peanut Earnings’ Trap: A Growth Roadmap

Summary: A widely discussed interview of CA Madhukar N. Hiregange published by The Finance Story in February 2026 described Indian chartered accountancy firms as caught in a ‘peanut earnings’ trap. It attributed their limited scale to dependence on traditional compliance and attest work, risk-averse entrepreneurship, fragmented firm structures, regulatory constraints, inadequate reinvestment and the competitive advantages of multinational accounting networks. The interview went so far as to suggest that practitioners aspiring to build very large advisory organisations should consider surrendering their Certificate of Practice (COP) or separating attest work from consulting through distinct entities. This article examines that diagnosis with necessary legal and commercial qualifications. It argues that routine compliance should neither be romanticised nor discarded: it should be systematised, appropriately priced and used as the informational foundation for risk, advisory and implementation services. It also considers the practical limits of corporatisation, multidisciplinary practice, AOPs, networks, mergers, private capital and dual-entity structures; the asymmetry between statutory responsibility and professional remuneration; the policy objective of creating globally competitive Indian firms; and the significance of Mr Hiregange’s subsequent announcement of resignation from the ICAI Central Council and proposed surrender of COP. Finally, it offers a realistic transition framework for sole proprietors and small and medium practices (SMPs).

BEYOND THE ‘PEANUT EARNINGS’ TRAP
Rethinking Compliance, Scale and the Future of Indian CA Firms

CENTRAL THESIS Compliance is not an inferior professional function. The crisis arises when complex responsibility is sold as a commoditised filing service, without adequate pricing, systems, specialisation or conversion into higher-value advice.

Abstract

A widely discussed interview of CA Madhukar N. Hiregange published by The Finance Story in February 2026 described Indian chartered accountancy firms as caught in a ‘peanut earnings’ trap. It attributed their limited scale to dependence on traditional compliance and attest work, risk-averse entrepreneurship, fragmented firm structures, regulatory constraints, inadequate reinvestment and the competitive advantages of multinational accounting networks. The interview went so far as to suggest that practitioners aspiring to build very large advisory organisations should consider surrendering their Certificate of Practice (COP) or separating attest work from consulting through distinct entities. This article examines that diagnosis with necessary legal and commercial qualifications. It argues that routine compliance should neither be romanticised nor discarded: it should be systematised, appropriately priced and used as the informational foundation for risk, advisory and implementation services. It also considers the practical limits of corporatisation, multidisciplinary practice, AOPs, networks, mergers, private capital and dual-entity structures; the asymmetry between statutory responsibility and professional remuneration; the policy objective of creating globally competitive Indian firms; and the significance of Mr Hiregange’s subsequent announcement of resignation from the ICAI Central Council and proposed surrender of COP. Finally, it offers a realistic transition framework for sole proprietors and small and medium practices (SMPs).

1. The Debate: Is the CA Degree Being Consumed by Compliance?

India possesses one of the world’s largest pools of accountancy talent, yet its domestic professional-firm landscape remains overwhelmingly fragmented. The Finance Story article, based on the views of CA Madhukar N. Hiregange, stated that India had more than one lakh CA firms as of October 2025 and that 72,696 were proprietorship firms. The article’s provocation was not merely that these firms were small; it was that many highly trained professionals were expending their working lives on low-priced, repetitive and increasingly automated work while global professional-services networks captured the largest and most complex mandates.

That thesis has struck a chord because it describes a visible economic contradiction. A practitioner may spend years acquiring professional competence, remain personally exposed to disciplinary, civil, tax and sometimes criminal consequences, keep pace with rapidly changing statutes and portals, maintain staff and infrastructure, and yet receive a fee that bears little relationship to the responsibility assumed. The problem is therefore deeper than low income. It is an imbalance between responsibility, value perception and remuneration.

At the same time, the rhetoric of ‘wasting’ a CA degree on compliance requires caution. Compliance is not clerical merely because it ends in a filing. Correct classification, recognition, disclosure, reconciliation and certification often demand significant judgment. It is the manner in which the service is designed, delivered and priced—not the label ‘compliance’—that determines whether professional capability is being underused.

2. The Structural Diagnosis

2.1 Fragmentation and the proprietor-dependent model

The typical first-generation practice is created through personal credibility, individual relationships and the proprietor’s technical labour. This model can produce an honourable livelihood, but it often does not create a transferable institution. Client acceptance, review, billing, recovery, technical decisions and crisis management remain concentrated in one individual. The firm may have employees but little independent organisational memory.

Such a practice faces a ceiling. Its credentials are personal, its capacity is limited by the proprietor’s time, and its quality may fluctuate with workload. When a tender demands a large turnover, multi-city presence, sectoral experience, technology infrastructure and a deep bench of specialists, hundreds of individually competent firms remain ineligible despite their collective capability.

2.2 The survival and satisfaction traps

Small practices commonly depend upon predictable assignments—tax returns, GST compliance, statutory filings, bank audits, cooperative audits and certificates. This preference is not necessarily lack of ambition. It frequently reflects family obligations, uncertain cash flows, limited access to capital and the absence of a safety net. Advising a sole practitioner simply to abandon recurring work ignores these realities.

Nevertheless, predictability can become inertia. Once a comfortable income is achieved, investment in specialisation, succession, technology and managerial talent may stop. The professional then remains busy but does not build scale. Busyness is mistaken for growth, and turnover is mistaken for enterprise value.

2.3 Capital starvation

Professional firms often distribute nearly the entire annual surplus among partners. Consequently, they remain rich in knowledge but poor in institutional capital. Technology, cybersecurity, research, training, branding, geographic expansion and senior non-partner talent require sustained investment. A firm that treats every year’s profit as immediately distributable cannot build the infrastructure expected for complex mandates.

2.4 Process and quality maturity

Large clients do not purchase technical intelligence alone. They purchase confidence that work will be delivered consistently across teams and locations. Documented methodologies, engagement acceptance, conflict checks, review hierarchies, information-security controls, knowledge repositories and standard work papers are commercial assets as much as quality safeguards. Many smaller firms possess exceptional individual expertise but cannot demonstrate comparable process maturity.

2.5 Talent and multidisciplinary capability

Client problems increasingly cut across tax, accounting, law, technology, cybersecurity, data analytics, valuation, strategy, operations and sector regulation. A purely accounting-centric team cannot address every dimension. Indian professional regulation does permit multidisciplinary partnerships with specified categories of professionals under the applicable framework. It is therefore inaccurate to say that every non-CA is absolutely barred from partnership. The real constraint is narrower but important: a practising CA firm cannot freely offer equity, control or partnership to any technologist, engineer, business executive or financial investor merely because that person’s skills or capital are commercially valuable.

3. The Economics of the ‘Peanut Earnings’ Trap

The expression ‘peanut earnings’ is provocative but useful if properly understood. It does not refer only to a small fee. It describes a business model containing four distortions:

• High personal and regulatory exposure coupled with a low or standardised fee;
• Substantial time spent collecting, correcting and reconciling client data rather than exercising judgment;
• Continuous deadline pressure created by law, portals and client delay, with the professional absorbing the operational cost; and
• Competition based principally on fee reduction, making investment in quality increasingly difficult.

Digitalisation and artificial intelligence will intensify the pressure on purely mechanical work. Activities based on extraction, matching, population of forms and elementary variance identification will become faster and cheaper. Yet automation does not eliminate the need for accountability, scepticism, interpretation or representation. The commercial opportunity lies in moving the professional’s time away from data handling and towards exception management, judgment and decision support.

4. Compliance Is Not the Enemy

The strongest point of departure from the original interview is this: compliance should not automatically be abandoned. It gives the professional recurring access to the client’s transactions, controls, financing, vendors, customers, margins, tax positions and regulatory failures. Properly analysed, that information is the raw material for advisory work.

THE VALUE LADDER Compliance → diagnostic review → risk identification → advisory → implementation → monitoring.

A GST engagement, for example, need not end with return filing. It may disclose working-capital blockage, classification risk, defective vendor controls, credit leakage, inconsistent place-of-supply treatment or an inefficient supply chain. Accounts finalisation may reveal poor receivable governance, related-party exposure, inadequate documentation of loans, weak inventory controls or succession risk. Payroll compliance may lead to workforce-cost analytics and incentive design. The professional who merely files leaves value on the table; the professional who identifies, explains and helps implement a solution converts compliance into continuing advice.

This conversion requires client consent, defined scope and appropriate fees. Advice cannot be silently added to a low-priced filing engagement. The engagement letter should distinguish processing, review, advisory and representation so that responsibility and remuneration remain aligned.

5. Should an Ambitious Practitioner Surrender the COP?

The Finance Story interview’s most controversial recommendation was that a practitioner seeking to build a ₹100–1,000 crore organisation should be willing to surrender the COP. The commercial logic is understandable: an ordinary corporate vehicle can accommodate a wider ownership base, attract outside capital, offer equity to diverse talent and undertake branding and consulting activity with fewer professional-structure restrictions.

But surrender of COP also removes the practitioner from statutory and reserved professional functions that create trust, differentiation and client access. It is therefore neither an inevitable nor universally desirable step. The answer depends upon the intended business model.

A professional whose competitive advantage lies in audit, certification, tax representation or regulated assurance may destroy rather than unlock value by surrendering practice. Conversely, a founder whose real objective is to create a technology-enabled outsourcing or consulting enterprise may find the traditional firm structure restrictive. The choice should follow strategy; it should not become an ideological test of ambition.

6. The Dual-Entity Model: Attractive but Not Regulation-Free

The interview proposed a bifurcated model: an ICAI-regulated partnership or LLP for attest and compliance work, and a private company for consulting, outsourcing and advisory. This structure can be legitimate, but the proposition that the company then operates without ‘fetters’ is too broad.

• independence of the attest firm and restrictions on non-audit services, including Section 144 of the Companies Act, 2013;
• common ownership, management, staff, infrastructure and economic dependence;
• use of the CA firm’s name, professional designation, brand and goodwill;
• client solicitation, advertising, referral arrangements and sharing of fees;
• confidentiality, data sharing, cyber controls and client consent;
• conflicts of interest and acceptance procedures across both entities;
• whether the consulting company is indirectly carrying on activities represented as professional practice; and
• clear engagement letters so that the client knows which entity is responsible for which deliverable.

A second entity should have commercial substance: separate contracts, governance, billing, risk policies and delivery accountability. Merely incorporating a company while the same people, brand and systems operate indistinguishably may increase, rather than reduce, professional and legal risk.

7. Collaboration, Networks, Mergers and the AOP Question

The logic of aggregation is compelling. No sole proprietor can maintain deep capability in every emerging field. Collaboration allows firms to combine sector knowledge, geography and credentials before undertaking the more difficult step of merger. ICAI has issued or developed frameworks relating to networking, aggregation of LLPs, merger and demerger, multidisciplinary partnerships, corporate form of practice and overseas relationships. The Guidelines for Networking of Indian CA Firms, 2021 expressly identify networking as a platform for capacity building and multi-locational presence.

However, collaboration must not be reduced to an informal exchange of visiting cards. The parties should address client ownership, scope allocation, quality review, confidentiality, liability, intellectual property, billing, collection, non-solicitation and exit. A poorly documented alliance can collapse precisely when a large assignment creates significant revenue or liability.

An Association of Persons (AOP), mentioned in the interview as a possible vehicle, is not a universal answer. Depending upon its constitution and conduct, it may create separate tax consequences, unintended joint exposure, ambiguity over professional responsibility and disputes over ownership of clients and work product. Assignment-specific consortium agreements, compliant networks, LLP aggregation or carefully structured referral arrangements may be preferable in many cases.

The continuing uncertainty is illustrated by ICAI’s Global Networking Guidelines, 2025. The ICAI (Global Networking) Guidelines, 2025 were notified in February 2026, while ICAI subsequently announced on 15 July 2026 that further implementation was being kept in abeyance until further orders. ICAI Defers Implementation of Global Networking Guidelines 2025 records that announcement. Firms cannot build long-term international strategy on regulatory enthusiasm alone; they require stable and operational rules.

8. Multinational Networks, Market Concentration and Evidentiary Discipline

Mr Hiregange has for years been publicly identified with a firm stand on the influence and regulatory treatment of multinational accounting firms and with the cause of building large Indian firms. The structural concern deserves serious attention. Multinational networks possess established brands, cross-border referrals, sector knowledge, technology platforms, training systems and the ability to deploy large teams. Public and private procurement criteria based on turnover, office presence, team size and prior mandates may reinforce incumbency and exclude smaller but technically capable firms.

The issue is not new. A Committee of Experts report on Regulating audit firms & Networks examined the operation of multinational accounting-firm networks, conflicts arising from non-audit services, transparency and concentration of market power following the Supreme Court’s directions in S. Sukumar v. Secretary, ICAI. This establishes that network structures and concentration are legitimate regulatory subjects.

However, a professional journal must distinguish structural analysis from allegations against unnamed firms or public officials. Claims that work is obtained through influence, personal favours or improper relationships require verifiable evidence. The strongest case for reform rests not on rhetoric but on demonstrable asymmetry: fragmented domestic capacity, restrictive professional structures, capital limitations, procurement barriers and differences between the economic operation of global networks and the regulation of individual Indian firms.

9. A Significant Subsequent Development: Resignation from the Central Council

The Finance Story article was published on 8 February 2026 and edited on 28 May 2026. Events in August 2026 give its arguments a new context. On 23 August 2026, CA Madhukar N. Hiregange announced that he had decided to resign from the Central Council of ICAI, approximately 18 months into the 2025–28 term. In his public statement, he referred to governance, ethical issues, transparency, accountability, electoral practices and student welfare, and stated that numerous communications and reform efforts had not received adequate response.

He also stated that he would surrender his COP ‘in the coming week’ and continue his work outside ICAI. This point must be reported accurately. He had not, as of the date of that statement, said that he surrendered COP four years earlier. The four-year reference in The Finance Story concerned his having stepped away from active consulting work.

His announcement is significant because it appears to convert an earlier provocative recommendation into a personal institutional choice. Yet resignation and proposed surrender of COP do not, by themselves, prove that the same course is appropriate for ordinary practitioners. Mr Hiregange is associated with a large, established professional legacy and possesses intellectual capital, networks and public standing unavailable to a new sole practitioner.

THE INSTITUTIONAL QUESTION If a successful three-term Council member concludes that reform can be pursued more effectively from outside the Council and without COP, the profession must examine both his stated reasons and the structural message—without treating exit as the only route available to SMPs.

At the time of writing, the public announcement establishes his decision and intention. Formal effectiveness of the resignation and actual surrender of COP should be described according to the official record as it develops.

10. The Government’s ‘Big Indian Firms’ Objective

The aspiration to create globally competitive home-grown accounting and advisory firms has moved beyond professional discussion. The Union Budget 2026–27 expressly referred to the Prime Minister’s vision of home-grown accounting and advisory firms becoming global leaders and proposed rationalisation of the definition of ‘accountant’ for Safe Harbour Rules. ICAI has likewise promoted aggregation, networking, revised advertising norms and emerging services.

The policy objective will remain incomplete unless reform addresses the entire operating environment. Large firms require capital, multidisciplinary talent, brand-building freedom, predictable network rules, procurement access, technology investment and globally credible quality systems. At the same time, growth cannot be achieved by diluting independence, audit quality or public accountability. Scale and professional integrity must be designed as complements, not alternatives.

11. A Realistic Transformation Path for SMPs

Most firms cannot leap directly from routine compliance to global consulting. They require a sequenced transition that protects cash flow while building capability.

1. Segment the client base and service portfolio. Identify assignments that are profitable, strategically valuable, loss-making or disproportionately risky. Stop treating every client and every compliance item as economically identical.

2. Create a minimum-fee and risk-pricing policy. Fees should reflect complexity, responsibility, turnaround, quality of client records and exposure—not merely the number of forms filed.

3. Standardise recurring work. Use documented checklists, maker-checker controls, templates, workflow software, secure document exchange and deadline dashboards. Automation should reduce manual handling, not professional review.

4. Choose one or two specialisations. A tier-two-city firm may build national relevance in GST litigation, charitable institutions, real estate, healthcare, cooperative bodies, insolvency support, FEMA or another focused vertical without trying to replicate every service of a large network.

5. Convert annual compliance into periodic advisory. Use quarterly or half-yearly review meetings to present identified risks, trends, control failures and opportunities. The output should be a concise management note, not an informal conversation for which no fee is charged.

6. Build collaboration protocols. Maintain a trusted panel of specialists and agree in writing upon scope, confidentiality, responsibility, billing and client protection before accepting joint assignments.

7. Retain institutional capital. Partners should approve an annual reinvestment percentage for technology, research, cybersecurity, training and talent. What is not retained cannot compound.

8. Develop second-line leadership. Delegate defined authority, introduce review levels and reward professionals who build systems and client relationships. A firm that cannot function without its founder has not achieved scale.

9. Measure quality and economics. Track realisation per hour, recovery cycle, rework, deadline failures, client concentration, write-offs and professional-risk incidents. Turnover without these measures can conceal fragility.

10. Select the structure last. Merger, network, LLP aggregation, multidisciplinary partnership, consulting company or surrender of COP should follow a tested business proposition—not precede it.

12. Emerging Service Lines—Opportunity with Competence

The revised professional landscape includes virtual CFO services, transaction support, due diligence, forensic accounting, international tax, FEMA, succession and family-business advisory, internal controls, sustainability assurance, social-impact assessment, AI governance, cybersecurity-related assurance, GCC support and technology-enabled outsourcing. ICAI’s revised ethical framework effective from 1 April 2026 expanded the recognised field of management consultancy and other services to include several contemporary areas, including AI-related services and forensic accounting.

New labels, however, do not create competence. Firms should avoid replacing low-value compliance with inadequately understood high-risk consulting. Every new vertical requires training, documented methodology, engagement scoping, appropriate experts, conflict review, professional indemnity consideration and a clear statement of what is—and is not—being assured.

13. What ICAI and Policymakers Must Address

Responsibility for transformation cannot be placed entirely upon individual practitioners. The institutional agenda should include:

• stable and workable networking, aggregation and multidisciplinary-practice rules;
• clarity on permissible branding, ownership, investment and corporate practice;
• procurement reform that values technical merit and consortia without making turnover an absolute proxy for competence;
• shared technology, cybersecurity and quality resources for SMPs;
• implementation-oriented consulting and assurance guidance for emerging services;
• transparent consultation with members and publication of the rationale for major policy changes;
• proportionate regulation that protects the public without structurally disadvantaging domestic firms; and
• credible quality enforcement across firms and networks, irrespective of size or brand.

The profession must also confront destructive fee competition. Recommended scales alone cannot solve the issue; procurement practices, client education, engagement discipline and members’ willingness to refuse uneconomic risk are equally necessary.

14. Conclusion

The ‘peanut earnings’ debate exposes a real fault line in Indian accountancy practice. Thousands of firms possess technical competence and public trust but remain trapped in proprietor-dependent, low-capital and low-fee models. Multinational networks enjoy scale, technology, global referrals and institutional systems that cannot be matched through technical knowledge alone.

Yet the answer is not to denigrate compliance or prescribe surrender of COP as a universal cure. Compliance is the foundation of financial and regulatory order. Its value is lost when the professional becomes an unpaid data-cleaner, absorbs unlimited risk for a token fee and fails to convert recurring information into insight.

The sustainable model is neither a signature shop nor an unregulated consulting façade. It is a professionally governed institution combining credibility, specialisation, technology, multidisciplinary capability, documentation, capital retention and fair pricing. Some founders may build that institution within practice; others may use compliant networks, mergers or separate advisory entities; a few may consciously leave COP-based practice. Each path carries distinct rights, restrictions and risks.

Mr Hiregange’s resignation announcement and proposed surrender of COP make the discussion more than theoretical. They should stimulate serious examination of institutional responsiveness and the commercial architecture of practice. But the enduring policy test is not whether a few exceptional firms can escape the traditional structure. It is whether the system can enable thousands of ethical and competent Indian firms to grow without abandoning either professional identity or public responsibility.

FINAL PROPOSITION The CA degree is not wasted on compliance. It is wasted when professional judgment is reduced to a signature, a portal upload or a commodity price.