India can be the world's China-plus-one, but China is not to be dismissed: Deloitte APAC CEO

In an exclusive conversation, David Hill, CEO, Deloitte APAC and Romal Shetty, CEO, Deloitte South Asia spoke to Forbes India about macroeconomic trends, India on being a China-plus-one, generative AI and more

By Naini Thaker Forbes India Staff

Published: Dec 10, 2024 11:46:45 AM IST

Updated: Dec 10, 2024 12:22:15 PM IST

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Image: (L to R) David Hill, CEO, Deloitte Asia Pacific and Romal Shetty, CEO, Deloitte South Asia; Photo: Selvaprakash Lakshmanan for Forbes India

One big cliche for India has been ‘the back office to the world’. That is an insult to today’s India,” says David Hill, CEO, Deloitte Asia Pacific. India is Deloitte’s fastest growing market globally, at 28 percent. For Deloitte, in the next couple of years, the focus remains on Southeast Asia and India. It has a project called ‘Scale Southeast Asia’, which focusses on Singapore, Malaysia, Vietnam, Philippines and Thailand. Then, for India there is ‘Project Shakti’, which is a global and Asia Pacific commitment to India.

Deloitte India is working with centres of excellence across elite universities in India, to get access to skills at scale, “at a price that would be impossible anywhere else”, explains Hill. For India, the investment focus continues to be on GenAI, ESG and sustainability, cloud and analytics. The multinational company has also invested a lot on talent acquisition: 280 partners, and 3,500 people hired in the last 12 to 18 months. “This is more than the rest of the market put together,” reckons Romal Shetty, CEO, Deloitte South Asia. About 83 percent of the India team is millennials or GenZ, which, compared to anywhere in the world, is very high.

In an exclusive conversation with Forbes India, Hill and Shetty spoke about the macroeconomic trends, India on being a China-plus-one, generative AI and more. Edited excerpts:

Q. How are macroeconomic trends shaping business prospects in the Asia Pacific region and India?

David Hill: In the last several years, it has been a more challenging economic time globally and obviously in Asia Pacific. The standout feature of that really has been inflation coupled with high interest rates. We went through a period of great fiscal stimulus, in and around the Covid-19 pandemic. It was to be expected, when you put that much fiscal stimulus into economies, it's almost inevitable that inflation will arise. Therefore, many governments, particularly Western governments, don't have too many instruments to tame inflation, other than monetary policy. So, obviously interest rates rose, and the economic impact of that manifests itself most in M&A activity declining quite considerably. If you looked across the Asia Pacific region, we saw a decline in deals.

It also led to the decline globally around foreign direct investment. In fact, it is becoming a cliche to talk about the decline of foreign direct investment into China. Yet, actually, foreign direct investment in most markets around the world, in a high inflationary, high interest rate, environment declined.

Clearly, that has an impact on consumer confidence, which has an impact on consumer spending, which has been somewhat subdued. In many developed economies, the cost of living, combined with very high housing prices, resulted in more suppressed consumer spending.

But we’re seeing greener shoots of optimism in the last six months. If you look back across the EU, America and Asia, we probably started seeing the first central banks lowering interest rates about six months ago, and that's starting to move through. One of the reasons that I feel a sense of optimism is that despite all those challenges, the one redeeming fact globally was that actually unemployment remained very low. To add to that, now with interest rates coming down, consumer confidence up, I would hope that we will start to see a consumer-led rebound.

As for India, I was recently having a wonderful conversation with a client, and there was an expression that came up—India has three things going for them: Democracy, demography and development. So, I definitely think it’s India’s time!

Romal Shetty: India is in a little bit of a brighter spot. In our own Deloitte projection for the economy, we still believe that we could end this year at a 7 percent growth range. Next year might be a bit lower. We work with a lot of governments, and we are seeing that a portion of the informal economy is slowly moving to a formal one.

So, while the FII money has moved out of India quite a bit, the FDI has actually doubled in the last six months, if you compare it to last year. We are now seeing a lot more focus in terms of manufacturing, which is at a 75.6 percent capacity utilisation. We know that private investment hasn't come in, but I think at this utilisation, it will start coming in more. And, the PLI scheme is extraordinary.

Semiconductor is a sector that will see a lot more action. There is also a lot of focus from governments to bring in a lot more agri-tech, because there is a big population, 40 to 50 percent, that is involved in the sector.

Q. What kind of investment is made for generative AI?

DH: The challenge is that the investment going into generative AI in the US still dwarfs every other economy. However, economies such as China, interestingly, Canada, Israel and India, are coming through on the investment. We are increasingly seeing that in boardrooms, C-suite executives are now becoming impatient, and saying, ‘I’m over the experimentation; I want to bring GenAI into the heart of the business, into my core systems’.

The challenge here is providing necessary assurance to consumers around algorithms, and that they are free from bias. So, at Deloitte we put a lot of emphasis on ‘Trustworthy AI’, giving clients the confidence to adopt.

RS: In India, we are working with clients across sectors and seeing how transformative GenAI has proven to be. For instance, jewellery design would take up significant time, in the past. Now in a matter of seconds, you get all possible creative designs in the metal of choice, and it is linked back to the mould.

Another use case is building plans. Usually, it takes three months to get it approved at a government office. But now, it’s a GenAI platform, where all the by-laws of the state are codified, and within seconds the platform will tell you if you are compliant or not; there is no human interface.

Q. Given the changing dynamics in global trade and manufacturing, is India positioned to replace China as the dominant manufacturing centre? What challenges and opportunities are shaping this potential shift?

DH: China is not to be underestimated. Despite the rhetoric, the biggest portion of global GDP growth came from China last year. Even though its growing at 4.5 percent, that’s 4.5 percent on the second largest economy of the world.

Second, China is still the number one trading partner, with 120 countries in the world. That’s significant. We underestimate China, at our peril. However, India, in many respects, is the large Switzerland of the world, since it is on very good terms with so many economies in the world.

We see a pivot of FDI from China into markets like Vietnam, Malaysia, Indonesia, Thailand, Philippines or India. India provides the same demographic dividend, but with a much younger population. There has been a pivot of supply chains, and the Covid-19 pandemic exacerbated it. Corporates around the world were reminded that there was a huge dependency on China.

The challenge for India is to accelerate its infrastructure. There are extraordinary things happening: The multi-modal ports, sea ports, roads, rail and more. And all of that must continue to accelerate in order for India to fulfil its full potential.

So, I don’t see a decoupling; I think that’s overstated. But I do see China-plus-one. So, companies might build their next greenfield manufacturing facility in Vietnam, Malaysia or India, but they’re unlikely to withdraw from China.

Q. What do you anticipate for the future of business in India over the next few years?

DH: At the moment, our largest market across Asia Pacific, is Japan, followed by Australia and China. India has just moved past Southeast Asia. I strongly believe that in my time at Deloitte, India will be our largest market in the Asia Pacific region. It’s the simple math of demography, with the sheer size of India. The only thing that saddens me, is that youth unemployment is still far higher here than it should be. But with economic growth, comes opportunity.

The middle class in China today is 400 million; in 10-15 years, that will be 800 million. That’s why we don’t dismiss China. In India on the other hand, the middle-class is about 100 million. Over the same time period, it will be 200 million. This adds up to a billion middle-class in only two countries. There is no other region in the world—not in Europe or the USA—that is more exciting or dynamic.