Deloitte India conducted a survey of around 250 CFOs to get a pulse of their views on the Indian economy and also the impact of several policies and regulations on their companies' performance. In an interview with CFO India, Porus Doctor, Partner, Deloitte India shares a wider view of what it means to the businesses in India.
Q: What would you say is behind the optimistic economic outlook among the CFOs and how is it impacting their business sentiments?
Porus Doctor (PD): The Deloitte CFO Survey 2018 reveals that 64 per cent of CFOs are optimistic about India’s economic outlook in next one year, and this optimism increases to 94 per cent for the next two- three years. This positive optimism indicates that the initial concerns and challenges around GST along with the temporary impact of demonetization are behind us. The government’s focus to improve the environment for doing business has helped the economy to stay on the path of sustained growth, and CFOs are optimistic about India’s economic outlook. Additionally, government’s measures to boost infrastructure, healthcare and education have bolstered confidence. Further, continued efforts towards Digital India initiative, focus to improve digital infrastructure in rural areas, and promoting research in the field of artificial intelligence have collectively fuelled a sense of optimism.
57 per cent of the surveyed CFOs believe that it is an appropriate time to take greater business risks, as the next couple of years are expected to consolidate gains from recent reforms. CFOs believe that India is likely to remain one of the fastest growing economies in the world.
Q: What are the main concerns of the finance community currently?
PD: The Indian industry is undergoing critical transformation with changes in the business environment.
79 per cent of the CFOs surveyed were concerned about the constant regulatory and policy changes such as IndAS, demonetisation and GST. More than 50 per cent of CFOs believe that it is a challenge to execute against their plans or strategies, and are concerned about their product and cost improvements. Developing, managing and retaining critical finance talent has been recognised as a major challenge by CFOs. 52 per cent of CFOs state that securing and retaining key talent is a great concern, and at the same time 44 per cent of CFOs state that availability of good talent itself is a challenge.
Q: It is still being debated whether GST has been a boon or the bane of Indian economy. What is the view of the CFOs on GST? How has GST impacted business sentiments? What are the main challenges CFOs face in the GST regime?
PD: Companies faced multiple challenges during the actual implementation process of GST, which had a far-reaching impact on business. It necessitated a re-look at the existing business models by finance professionals, compelling CFOs and functional teams to redesign their organisation’s business model. GST was not just an indirect tax issue; it had far-reaching implications on the entire supply chain of the organisation, required a revamp of existing technology, transforming the IT infrastructure and had various other implications. As per the survey, the key challenges faced by CFOs during the GST implementation were increased regulatory compliance (68 per cent) and technology upgradation (57 per cent).
However, as we complete one year of GST implementation, 77 per cent of CFOs believe that GST had a positive impact on the overall business, as it has replaced the complex indirect tax laws that were prevalent in the Indian tax system since decades.
In terms of challenges, the CFOs surveyed believe that GST had a negative impact on their working capital and finance cost, as stated by 66 per cent and 55 per cent CFOs respectively.
Q: Are the conditions conducive for improved company performance going forward? What do the CFOs say on this?
PD: The Indian economy seems to be on the path of recovery and downsizing that occurred on account of demonetization and uncertainty around the implementation of a unified tax regime seems to have bottomed out. As per the survey, India’s short and medium term economic outlook remains optimistic.
Even though surveyed CFOs believe they are spending a significant amount of time on managing the firm wide technology and regulatory changes, 83 per cent of the CFOs are optimistic about growth in their revenues in the coming year. However, these CFOs are less optimistic about improvement in operating margins and only 45 per cent of the CFOs believe this will happen in the next year which is driven by CFOs concerns due to increase in costs and no significant improvements in productivity.
88 per cent of the CFOs believe that the growth will be organic rather than inorganic in next one year. In addition, 66 per cent of the surveyed CFOs believe same product offerings would be key for growth but only 51 per cent believe growth will come from new geographies. Thus, exploring new markets with the same products to expand revenue base is the key theme.
Q: What are the chief priorities of the CFOs going forward? What role will they play to improve their company's prospects?
PD: Our survey reveals that profitable growth is the CFO’s top-most priority. 77 per cent of the surveyed CFOs believe that profitable growth is the most important priority and one of the most important factors for a business to sustain, especially in the dynamic business environment. At the same time, compliance to changing regulatory environment remains important for 54 per cent of CFOs.
The priorities of the CFOs are changing at a fast pace and so is their role. Business partnering is another critical aspect of CFOs role. CFOs believe that it is important to collaborate closely and effectively with CXOs to ensure that operations are running efficiently and effectively, while helping the organization to shape the strategy for future growth and stability.
With growing business challenges, there are increasing regulatory pressures on the company with various changes introduced by government in last few years affecting the way business is being run and how the reported numbers are being interpreted. The CFOs and their finance organization therefore have a crucial role to play – its compliance and risk teams, in particular – in collaborating closely with other stakeholders such as IT, security, internal audit, and legal departments.
Technology and analytical solutions will be another key focus areas for CFOs. Finance analytics arms CFOs with the tools to make sense of an increasingly complex environment. By combining internal financial information with external information such as social media, demographics and big data, finance analytics may address critical business questions with unprecedented ease, speed and accuracy.