Economic growth is barely noticeable in most parts of the developed world. Britain's possible exit from the European Union has created fresh challenges for policy makers. China is in the midst of internal economic readjustments, and India seems to be one among the very few bright spots in terms of growth potential. In an exclusive interview to Business Today's Joe C. Mathew and Rajeev Dubey, John B. Veihmeyer, Global CEO of KPMG, explains why global CEOs perceive India as a high-growth market worthy of investments, the possible fallout of Brexit, and more. Excerpts:
Has the global economy started recovering?
We just released our global annual CEO survey, and it has a pretty optimistic view from CEOs about prospects going forward. Compared to last year, of the over 1,300 CEOs in 10 countries that we surveyed, above 80 per cent are very confident about the growth prospects of their companies in the next three years. Since this was in the low 60 per cent a year ago, it shows the confidence CEOs have in their ability to transform their companies and make use of the opportunities the marketplace provides. So, it's pretty optimistic.
Are growth prospects in Asia and Africa the reasons for this optimism? Or does this include developed countries as well?
Optimism exists across regions.
How is the (Narendra) Modi government seen in the US and other markets? How far has India become easier to do business with?
The perception of India outside India has been very positive. Prime Minister Modi has been a key contributor to that increased positive perception. Just from the US perspective, he has been very engaged, very active. Visible, accessible to US business leaders and, frankly, he has done a very good job of creating a perception of confidence in the growth and the opportunities in India.
Is India easier to do business with as compared to, let's say, two years ago?
Everybody understands that reforms take time. There has been improvement for sure, but it's a journey and the government here recognises that. Business leaders also recognise that. What is important is that there is a commitment to continue on that journey. People tend to make investment decisions based on their long-term perceptions that India is committed to and wants to be a place that is easier to do business with going forward.
Any other specific areas where global businesses want India to do better?
One that has been very much on the minds of businesses outside India has been from the tax standpoint. India is trying to send very strong signals that they are not going to be opening up previous tax cases. That was a huge issue for many firms and was becoming a serious source of concern. The prime minister and finance minister have done a very good job by sending very clear messages on that front. Some specific industries looking for opening up of foreign direct investment have received positive response. Defence industry is an area where there are very productive conversations taking place. This government is listening, and understands what some of those concerns are.
Anything other than taxation and opening up of FDI?
Infrastructure is going to be an issue, and continuing to invest in and build infrastructure is something that will impact the investment decisions of overseas companies. So, all of the government's activities around smart cities and other infrastructure development is going to be very important for FDI.
Perception-wise, India ranks top in terms of FDI. Are we really seeing that happening?
I think we are seeing it. Going back to the CEO survey, one of the interesting questions we ask is: where do you believe the greatest growth opportunities are going to be? And the top three destinations are India, China and the US. These are the countries where CEOs plan to invest in the next three years.
Which are the most promising sectors as far as India is concerned?
Infrastructure is certainly one of those sectors. Defence is important. We see interest across the board, whether it is financial services, healthcare or pharma. We are seeing interest across most of the sectors in our survey.
How do you see the issue of black money? Do you think the approach to bring unaccounted money back into the country has been taken in the right direction?
It's definitely an issue. It's a bigger issue in certain places than others. Fundamentally when you have tax structures and systems that are conducive to reporting, it minimises the generation of black money. India has taken a positive step. There is no silver-bullet solution. It requires strong institutions, strong structures and tax policies that are supportive of reporting.
How do global CEOs see India's regulatory systems?
Over the years, regulatory systems have become more challenging for multinational companies. When you deal with the regulatory systems of several countries, it poses a challenge. When it comes to India, the government is committed to improving things and it is moving in a better direction. What businesses want is more consistency in regulations across borders.
How do CEOs see the post Brexit developments in Europe?
From a business standpoint, there are obvious and real concerns about the impact Brexit is going to have on the British economy and the global economy. Brexit has introduced a whole new level of uncertainty and there is nothing an economy dislikes more than uncertainty. We are hearing two levels of conversations right now. One is about the short-term volatility that it is creating. The other is about the real question of how this negotiation is going to get resolved. If you look at businesses historically, when they are not able to find answers to fundamental questions that will impact their business, they will stop investing, and stop hiring. They will stop doing things that will contribute to the growth of the economy. So that big worry that I have, and what I hear from the CEOs I meet these days is that this is just going to create a period where there will be more incentive to not do things that will encourage growth. And that's the big risk.
Is there any contingency plan prepared by any of the sectors to tackle the problem?
What we hear from the companies that we are dealing with is that the financial services sector has done a fair amount of contingency planning. People are going to be cautious and will wait to see how some issues are going to be resolved. The financial services industry is faced with questions like whether you will be able to settle EU transactions in London or not. And depending on whether that answer is yes or no, it's certainly going to have an impact on where MNC banks operate their basic corporate functions. So, people will be cautious.
I don't think anybody is taking precipitous actions right now. But the question they have before them is: for organisations that have a large non-UK workforce and UK residents working in other parts of their operations around EU, what are the rules going to be on movement of people and movement of labour? It's going to be very complicated.
How will companies react if there is any curb on free movement of people?
From a business standpoint, free movement of people is an advantage. It will attract talent with particular skills to particular markets. So, the worry is that there could be more restrictions on the flow of talent in labour and that is going to complicate business operations. This is not just a Brexit issue. You are seeing similar issues in places other than the UK.
What could be its impact on India-EU or India-Britian relationships?
It's very clear that there is a very strong bilateral relationship between India and the UK. So, the questions that I have raised are very much on the minds of Indian business leaders also. One of the challenges that we face is that there are no answers to most important questions. I will characterise the situation right now as a bit of worry, lot of uncertainty.
India has already said that it will relook at India-EU bilateral talks. What could be its impact on trade negotiations?
There are difficult questions. No one knows. All I would say is trade is one of the primary issues that is going to be impacted by how these things unfold. Talks have to proceed at a pace that will allow them to take into account the negotiations between the UK and the EU.
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