Indian government's promise to people too big to let them down: EY Global Chairman

EY Global Chairman Mark A Weinberger
Image: Joshua Navalkar

Introduction of the Goods and Services Tax (GST) in India, a much-awaited indirect tax reform that the industry was hoping for, will lead to considerable improvement in the ease of doing business in India, and bring the country closer to par with the tax regimes of many forward-thinking countries in the world, says Mark A Weinberger, global chairman and chief executive officer of EY, among the world’s big four audit and consulting firms.

But the introduction of GST by itself isn’t enough to propel India in the global ease of doing business ranking. Equally pertinent will be a reduction in corporate tax rates and effective implementation of the other “bold and positive” measures planned by the current Indian government led by Prime Minister Narendra Modi, says Weinberger, a former bureaucrat who served as the Assistant Secretary in the US Department of Treasury in the George W Bush administration.

During an interview with Forbes India in Mumbai, EY’s global chief stressed 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, often with the use of robots. Weinberger also said that the current trend of nationalism witnessed across the world that has led to global events like Brexit, was the logical outcome of slowing economic growth post the 2008 economic crisis. While it would alter the way business is done, it wouldn’t stop the wheels of globalisation from turning, he believes.

Edited excerpts:

Q. How is the world looking at the Indian economy under the rule of the current government led by Narendra Modi?
There is a lot optimism and support for the bold initiatives that the Prime Minister (Modi) has undertaken - whether it is the implementation of GST; digitization of the economy; a bold move like demonetisation to deal with corruption; the bankruptcy act to deal with bad loans; or opening up 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 will be difficulties over its implementation in the next few months that we aren’t aware of yet.  

The bottomline is that India is viewed positively at present. Also, compared to some of the other countries in the developing world, India is probably positioned favourably at present with a stable government, macroeconomic position and low inflation. Relatively speaking, 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 in the world?
Introduction of GST is a bold and positive move. Most OECD countries have moved towards a national sales tax on goods and services, replacing a bunch of cascading and ad hoc taxes that were in place before. 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.

The other issue that India needs to address is that the trust between the tax administration and the business community in India is very low, as compared to other parts of the world. That is something that needs to be dealt with.

Q. The proposed restrictions over visa issuance for immigrant labour in the US has made a lot of Indian IT companies anxious. How is this likely to impact the way immigrant labour is employed in the US?

We are very much in favour of having open borders with regards to workers and immigration. It is hugely beneficial for an organization like EY to be able to move people around and find people to do the best work possible. There is some concern in the US that there may be an effort by companies to hire only foreign workers and not generate employment locally. But there is no discussion on the H-1B visa program being done away with. I think it is a discussion of raising the compensation amount that would be required to hire a foreign worker through this program, to ensure that only highly skilled workers enter the US. But India still has a vast majority of the total H-1B visa applications.

Like you have ‘Make in India’ in India to enable local job creation, other countries are increasingly looking to keep their local workers employed as well. 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 recognize that they have the responsibility of hiring 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, should take away from the political developments in the US surrounding Donald Trump’s presidency?
The business economy in the US is very strong at present. 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 the President’s promises – around 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 to the rest of the world with respect to the Paris climate accord. How do you think this will influence its economic relations with other countries?
The US President has decided to retreat from the Paris accord, but you are hearing different voices from across US states who remain committed to reducing carbon emissions and developing alternate and clean sources of fuel. That will continue. I personally believe that the US should have remained a part of the accord. But the business community in the US is also working very hard to achieve these 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 changing different industries themselves 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 can we 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 itself to build out our cyber practice, including cybersecurity. It is something that we will be dealing with for the foreseeable future. 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 unauthorized in it. But the question is can they be prevented from taking the data out?

Q. You are leading a joint initiative called Coalition for Inclusive Capitalism, of which EY is a part. What is this about and how can companies ascertain whether they are inclusive capitalists or not?
When people think of inclusive capitalism, they think of CSR (corporate social responsibility). But inclusive capitalism is different. It looks at the way wealth is distributed with very few owning 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 metrics to decide which companies they want to invest in.