With the government implementing its reforms agenda in earnest, Indian businesses are looking to brighter days ahead, but they will have to adapt to shifting global realities, says Mark A Weinberger
Mark A Weinberger says compared with other countries in the developing world, India is positioned favourably
Image: Joshua Navalkar
The introduction of the much-awaited Goods and Services Tax (GST), the indirect tax reform that the industry was looking forward to, will lead to considerable improvement in the ease of doing business in India, and bring the country closer to par with tax regimes in many forward-thinking countries, says Mark A Weinberger, global chairman and chief executive officer of EY, one of the Big Four audit and consulting firms.
However, the introduction of GST by itself isn’t enough to propel India forward in the global ease of doing business ranking. Equally pertinent will be a reduction in corporate tax rates and the effective implementation of other “bold and positive” measures, says Weinberger, a former bureaucrat who served as assistant secretary in the US department of treasury in the George W Bush administration.
During an interview with Forbes India, EY’s global chief stresses on the importance of technology and related challenges like cybersecurity that companies will need to focus on and how EY is gearing up to assist them. Weinberger also says the current wave of nationalism—which has led to events like Brexit—being witnessed across the world is the logical outcome of slowing economic growth post the 2008 crisis. While it will alter the way business is done, it will not stop the wheels of globalisation from turning, he believes. Edited excerpts:
Q. How is the world seeing the Indian economy under the government led by Prime Minister Narendra Modi?
There is a lot of optimism and support for the bold initiatives that Modi has undertaken—the implementation of GST, digitisation of the economy, demonetisation to tackle corruption, the [Insolvency and] Bankruptcy Code to deal with bad loans, opening up the industry to greater foreign investment. Modi is a great ambassador for India who has been speaking to the world about what he is trying to achieve and why India will be a great place to invest in.
The promise made to the people of this country by the government is so great that you can’t let their expectations down. A lot of these plans now need to be executed. There are still significant barriers to ease of doing business with red tape and multiple layers of decision-making, which are issues that need to be worked through. GST is obviously a bold move, but there may be some difficulties over its implementation.
The bottomline is that India is viewed positively. Compared with other countries in the developing world, India is positioned favourably with a stable government, good macroeconomic position and low inflation. All of this stacks up well from an investment standpoint.
Q. How does India’s GST compare with the benchmark tax regimes of other countries?
Most OECD countries have moved towards a national sales tax on goods and services, replacing a bunch of cascading and ad hoc taxes. Like in other OECD countries, there are many different rates for different products in India as well because you don’t want to fan inflation with the new tax. It would be a positive development if, over time, the number of rates can be reduced to make it simpler. But coupled with GST, another important element of India’s tax reforms agenda should be a reduction in corporate tax rates to 25 percent. There is a battle for investments and labour around the globe and India’s tax rates need to be more consistent with the rest of the world. A related issue that India needs to address is the trust deficit between the tax administration and the business community.
Q. The proposed restrictions on immigrant labour in the US have made a lot of Indian IT companies anxious...
We are in favour of having open borders with regard to workers and immigration. It is hugely beneficial for an organisation like EY to be able to move people around and find employees to do the best work possible. There is some concern in the US that companies are hiring only foreign workers and not generating employment locally. But there is no discussion on the H-1B visa programme being done away with. I think the discussion is about raising the compensation for foreign workers to ensure that only highly-skilled workers enter the US. India still accounts for a big majority of the total H-1B visa applications.
Like you have ‘Make in India’ to enable local job creation, other countries are also increasingly looking to keep their local workers employed. Whether you call it protectionism or nationalism, the fact is that there has been pressure on politicians around the world to create jobs in their countries, especially since economic growth slowed down post 2008. I think businesses have to recognise that they have the responsibility to hire local workers in the community in which they operate. And I think businesses are increasingly doing that.Q. What is the message that international investors, including those in India, must imbibe from the political developments in the US surrounding Donald Trump’s presidency?
The business economy in the US is very strong. In fact, the world economy is perhaps at its strongest since the recession of 2008. In the US, the 2008 financial crisis is pretty much a thing of the past. Markets are strong and corporate earnings are healthy. Some of the economic optimism in the US is based on President Trump’s promises—tax reforms, infrastructure creation and deregulation. The current administration is dealing with some of these issues, but the politics of what is going on with the president is unfortunate. It is distracting and slowing down his economic agenda, and that’s not helpful.Q. The US has taken a contrarian stance compared to the rest of the world with respect to the Paris [Climate] Agreement. How will this influence its economic relations with other countries?
The US president has decided to withdraw from the Paris [Climate] Agreement, but you are hearing different voices from across US states, saying they remain committed to reducing carbon emissions and developing alternative and clean sources of fuel. That will continue. I personally believe the US should have remained a part of the accord, but the business community in the US is working very hard to achieve climate goals.Q. What are your views on the way in which technology has emerged as a disruptor of businesses, and associated challenges such as cybersecurity?
Technology isn’t just changing the way businesses operate, it is fundamentally also changing different industries with new business models evolving. From EY’s point of view, we are focusing on how we can help our clients make a successful transition using technology and how we can solve their problems. We have some 7,000 data scientists and STEM (science, technology, engineering and mathematics) research graduates that we didn’t have before. We also have 1,100 robots, which are really algorithms, out of which 400 are in India. These robots are helping us become efficient in our internal operations as well as assisting us in delivering client solutions.
We have hired a couple of hundred people in India to develop our cyber practice, including cybersecurity. At EY, we help companies device solutions to thwart antagonists who try and steal data. Almost every system in the world today has probably someone unauthorised in it. But the question is can they be stopped from taking data out?
Q. You are leading a joint initiative called Coalition for Inclusive Capitalism, of which EY is a part. How can companies ascertain whether they are inclusive capitalists or not?
When people think of inclusive capitalism, they think of CSR (corporate social responsibility). Inclusive capitalism is different. It looks at the way wealth is distributed. Very few own an awful lot of wealth, while so many others are left behind. Companies are constantly trying to enhance value for their shareholders. Inclusive capitalism entails persuading companies to feel a sense of responsibility not only for shareholders, but other stakeholders as well, including employees and the community at large.
What we are trying to do is to work together with asset owners, managers and some big companies to collectively look at developing a method to value a company based on how inclusively it looks at its business. We are doing this as a pilot in a couple of industries. If we are successful, we will open source the solution for all companies to adopt. Investors can also use this to decide which companies they want to invest in.