India among top 3 investment destinations over medium term
April, 14th 2017
Globalisation means a broader mix of countries is available to a global CEO for growth opportunities. India will, in the medium term, be one of the top three investment destinations (the country's FDI inflows have hit an eight-year high of $46.4 billion in 2016). Its ability to leverage technology — including on the policy front such as GST — will give it the competitive edge, says Robert E Moritz, chairman, PwC global, during his first visit to India. In tandem, PwC India is also set to grow. Excerpts of his views:
On the global CEO's interest in India — immediate and medium term: When you look at the 20th CEO survey (2017), you find that a lot of CEOs are struggling with prioritisation — what can be accomplished, when and how, with a degree of certainty. There is an increased expectation from stakeholders (not just shareholders), the environment is changing rapidly. Particularly over the last three years, CEOs from India have a high degree of confidence about doing business in the country. However, CEOs outside India have confidence, but that confidence is over the medium term, not over the short term. Ten years ago, it was easier to determine where to look for global growth — there were just six or seven countries on the list (including emerging markets like India). Today, as the ability to access the world is easier, CEOs have turned to a broader mix of countries for growth — there are nearly 50 to 60 countries on their list (see graph)
So CEOs are saying, 'For me, the degree of difficulty in doing business in India is more challenging. Thus, I will take a slower path, even though in the medium and longer term, I see tremendous opportunities — given the combination of a huge consumer base, infrastructure needs and availability of human capital, which can be a huge asset to the world, if Prime Minister Modi and his team continue to do what they are doing'. In the next two-three years, I see India rising very high in terms of opportunities for CEOs abroad, as then the relative world they have to choose from will not look as positive on a comparative basis.
When you look at policy, what the administration in India is trying to do is usher more certainty, more definitiveness around rules and regulations and enhance the ease of doing business — part of which is raising awareness and profile, which the PM is doing at a global level. On GST, there is a lot of positivity. The issue now is implementing it efficiently and effectively by leveraging technology. Technology can transform not just companies but also the country, and here India has a competitive edge.
With regard to the challenges, there is a perception that there is a lot more subjectivity here in looking at a tax case and even applying it on a retroactive basis than perhaps in other parts of the world. This perception needs to be better. Even as the government is trying to move in this direction, there is need for a better level of clarity on how to navigate the rules.
On the road ahead for PwC India: PwC's revenue from its network of firms across the world was $35.9 billion in 2016 — a rise of 7%. PwC India has been the fastest growing group of firms in the global network over the last three years, a trend that is expected to continue over the next five to ten years. PwC India is expected to end up being among the top four or five contributors percentage wise over the next three to four years and fivefold growth is anticipated by 2025.
For us at PwC India, cyber security, digital transformation and data analytics are the fastest growing areas of practice. We bring a combination of traditional practice areas like audit or tax to new areas and emerging client needs. For example, helping a corporate client to think about offering its customers an experience which is digital-enabled is a lot more than adopting technology. The client also needs assistance in internal transition, such as HR policies, or transfer pricing issues to determine where value is created in a digital era, which has its own tax implications.
PwC India is a more diversified workforce than it ever was, with not just accountants on board but also a lot of new people, such as computer scientists, engineers, mathematicians, data analysts, or even doctors for its healthcare practice. A current workforce of 15,000 is expected to reach 25,000 over the next 10 years, while hiring is a continuous process, it could bring on board 3,000 new employees this year, especially in its growth areas.
The future lies in technology, which is central not only in providing solutions to clients but our own operating practice. In one of the east European countries, PwC has purchased a drone company — in the foreseeable future drones, which are data aggregators, and can take on tasks like stock taking, a traditional audit function.
Challenges of protectionism: Challenges of protectionism and economic uncertainty are high on any CEO's agenda. In the long run, concepts of short-term protectionism have played out in a negative way. It is not just the UK or US, but all countries are following this path, who knows that they will need bilateral or multi-lateral trade agreements — not only do they need goods and services but they need to sell in other countries and cannot afford a retaliatory trade war. With regard to the US tax reforms, which include the much talked about US border adjustment tax (which would have the effect of taxing imports into US and providing subsidy for its own exports), the general perception is that it is a certainty. I don't think it is certain.
Tax is one of the top priorities of the US administration, be it reduction of tax rates, or solving what they perceive is an import export issue via taxation. But these issues are up for debate, it is not yet certain or definitive in terms of will it happen or when will it happen, there is a lot more work to be done in administration. There are mixed views in terms of what should be done, some trade-offs will happen, changes will not come so fast.