The world is no longer a familiar place. For finance specially, there are hardly any crests to offset the troughs of a business cycle. Yet, opportunities can be found in the deepest adversities.
The world order has lost all semblance of normality. The US has forsaken the idea of the world being its fiefdom, China’s bellicosity is on the rise and Europe is in thrall to the uncertainties of Brexit and an influx of refugees from the Middle-East and Africa. Countries are in a bind over taking sides, with the minnows anxious about the withdrawal of largesse and protection of the global powers-that-be. These changes have further put resources and finances at stake, and even though a sliver of economic recovery is visible, the world is still reeling from the financial meltdown of 2008. There’s no end in sight to the economic rehabilitation of this crisis; if anything, the world must brace itself for the developing crisis of mass unemployment caused by the advent of Artificial Intelligence and automation. Unplanned and unforeseen urban growth and natural disasters have upended entire cities and the best-laid plans of governments. The internet has stopped being a benign creation, as a few rogue actors can wreak havoc on businesses and individuals by stealing and replicating identities and databases. Worse still, the preponderant threat of a nuclear blunder has misplaced priorities, with many countries developing WMDs, even at the cost of starving and blighting their citizens.\
A finance professional, especially a CFO, might feel like a fish out of water, given the lack of a clear guide to the future. But hasn’t a state of flux been standard territory for the CFO? Were it otherwise, financial edifices could only have been conjured out of thin air. If anything, CFOs have become ever-so important today. They now must steer their firms through unprecedented technological changes and reckon with socio-political events that threaten the viability of business and the flow of finance. Mindful of these facts, the eighth iteration of the CFO India Leadership Conclave dwelt on eight pressing issues of our time. And, hence, the Big Eight: Ideas that are shaping our world, to which the speakers and participants lent their intellectual heft. The three days of churning and contemplation made for sombre reflection on the state of the world, financial and otherwise, providing some answers but leaving many more to be tackled in the future.
Anxiety is rife about a rethink on globalisation. The rise of a contrarian Donald Trump has seen the US reneging on many of its commitments. It has withdrawn from the TPP and sought to renegotiate the NAFTA. China has tried to fill up the space ceded by the US, but its mix of high-handedness and beneficence hasn’t done much to stem the rise of centralising authoritarians, enhanced regionalism and fragmentation of the world. Global growth has crawled at the best of times, with protectionism becoming the norm. An analysis of the global “risk landscape” points to the wheel of misfortune where a domino effect seems to have been set in motion, with no country is insulated from any problem, however remote it maybe. India is very much a part of this landscape and its biggest challenge is creating jobs in millions in an era of AI and automation. It can’t take the old alliances for granted and must leverage its relations with the great powers and developing countries. Indian companies must be at par with international standards. India can strengthen its economy and lift its people out of poverty and contribute to global peace and prosperity. But for this to happen, an enabling environment, free of unviable taxes and endemic corruption, has to be created.
The wait for a return to pre-2008 growth levels has been agonising and seemingly eternal, with the IMF downgrading its forecast year after year. But trade has picked up in 2017, and financial market valuations have risen. Monetary policies in major advanced economies are normalising, with the USFed hiking rates and the European Central Bank also mulling a gradual tightening.
India’s growth has been modest at best since 2011 when the downturn began. Private infrastructure investment has nearly halved, exports have plummeted and there’s a looming threat over Indian monetary policy in the form of resumption of currency management. Lack of transparency in monetary policy and how the RBI executes its policy instruments mean that official data on GDP should be viewed with skepticism. Indian banks are neck-deep in NPAs and for the next five-eight years bank credit to GDP will decline substantially. But wallowing in pessimism isn’t the answer and the government has taken some steps to rectify problems by inflation targeting, creating the MPC, completing the SEBI-FMC merger and approving the law on the insolvency and bankruptcy. As far as taxes are concerned, India has signed the multi-lateral convention for preventing Base Erosion & Profit Shifting (BEPS), which will expand the global tax net, ease the flow of information between countries and curb tax avoidance by MNCs. The GST has also been set in motion, but it is still a work in progress, with many glitches. The byzantine nature of the GST has created transitional issues, but these are expected to would yield to a uniform and streamlined tax regime in the future.
Traditional businesses have been disrupted by a “shared economy” and Robotic Process Automation (RPA). From being buzzwords, IoT, AI, robotics and predictive analytics have now turned into nightmares for organisations and employees alike. An even bigger issue is the surreptitious transformation of Big Data into Big Brother. While companies were supposed to thrive on this global data mine, ransomware has turned the tables on the most secure of firms, whose future now depends on provisioning for data security. This is bound to affect the finances of small and mid-sized companies. Policies and business processes would inevitably have to be innovative to mitigate the fallout of the next machine age.
This seemingly dire prognosis is only an extrapolation based on present facts. The future can be one of opportunities for those adapting to a business environment fostered by technology. The CFO, and indeed the CEO, must be willing and eager to keep learning to stay ahead of the next disruption. As always, he/she must be mindful of those ominous words: perform or perish.