"Let Market Decide Fate of Bad Assets"

Last year, global consultancy PwC did something it would have never done a decade ago. It acquired a drone company and added a commercial drone services division in an attempt to position itself as a technology-driven company. This transformation is being done because technology is a bigger disrupter than globalisation for countries, corporations and societies, PwC's global Chairman, Robert E. Moritz, tells Business Today's Joe C. Mathew & Rajeev Dubey. Here are the edited excerpts:

Is the idea of globalisation under threat?

It is under threat depending on the angle you take. Globalisation has brought billions of people out of poverty. Has it done enough to reduce income inequality? No, there is more to be done there. But let's not blame globalisation for that (inequality). When you look at employment, and this is an issue in even this country, job creation is happening in a big way, but there is also a lot of skill mismatch when you look at the implications of technology. In developed countries, jobs are being replaced by robotics and artificial intelligence and technology in general. How do you deal with disruption caused by technology? It seems our politicians, media and citizens are more focused on globalisation than technology. I would argue that technology will have a bigger impact than globalisation.

How can we tackle the situation?

There are several options. We think technology has displaced a lot of jobs. During industrial revolution, too, a lot of jobs were displaced. There was job displacement but an equal or additional job creation too. So, if you see how many coders we need to deal with this (technology disruption), perhaps we need more. So many countries are struggling with shortage of engineers. If you believe there will be a lot of job displacement, and I am not convinced myself, you should think of a social support system. And there are positives and negatives here too. So, it is important for governments and businesses to watch the trends carefully and come up with the right policy support.

How should global corporations see Brexit?

There are four or five issues that need to be dealt with after Brexit. One is Customs. Trade agreements will have to be re-negotiated and immigration and mobility looked at. Then there is the issue of regulations. And we still have two-three years of uncertainty, as we still don't know how it is going to be negotiated. So, companies will have to do a lot more scenario planning. Brexit is one example of people being unprepared for an event. You will have to respond to developments quickly. You will have to understand what the EU will do considering that it is now less dependent on Britain. And who is going to take the lead? And what happens in the EU? Can they keep it together? If so, will they become more strong? You will have to think about economic, security and immigration issues. So, corporates will have to think about the changing scenarios quickly. Instead of long-term planning, you would want to become short-term planners and long-term scenario planners.

One reason investments are not picking up in India is the bad asset issue. Do you have any thoughts on this?

There are different approaches for dealing with non-performing assets. To get off the ground, you need capital. I hear the government wants banks to put capital in such institutions. But where is the money going to come from for buying those assets? Can traditional market forces deal with the problem? Can the government, banks and the business community come out with the right frameworks? Through appropriate bankruptcy proceedings, appropriate asset sales and market determination of prices, someone may take losses. I think it is an option, but you need to do two or three fundamental things before proceeding in that direction. To create that (bad) bank you need capital. I have not yet heard if the government or banks or tax payers are willing to put capital into that institution. So, you will have to allow market forces to decide (the fate of bad assets).

Protectionist policies are becoming the norm. How can we deal with the situation?

I think markets and consumer compulsions will overcome the political statements. The reality is that the world has become very connected and I do not think that it can be disconnected anymore. There is too much interdependency. I would argue that if some countries close their borders, they will be at a bigger risk of job losses than job creation.

You mean the US?

You got the same issues in Brexit. You also have them in the Southern part of Europe. Look at what is happening in France or Spain or Germany with elections coming up. There are a number of places where it becomes a problem when not managed correctly. That is why our business and government leaders will have to be smart. Yes, there is a short-term need to be elected, but there is a medium-term opportunity to remain in office by doing things for job growth. Honouring campaign promises is okay but it is better to do good things that are balanced and give long-term benefits.

How do you see the Modi government's performance?

I will point out three things specifically that we, PwC, and I think he (Modi) is focused on. First, he is trying to bring certainty when it comes to doing business in India. GST and demonetisation are some examples. These two things will enable the system to move ahead by allowing for cleaner transactions, creation of a revenue stream for investment and getting long-term investments. The second thing that has happened is leveraging of technology. Technology, along with India's young population, can provide the country the ability to leapfrog ahead. The third thing that is positive is the promotion of brand India. Our own CEO survey indicates a high degree of confidence in India, in terms of their ability to continue to grow over the next 12 months and beyond. But this is not consistent with the views of CEOs outside India.

Why is there such divergence?

I don't know the reasons and I can't speculate. I don't know if that is because they know less about the country, or whether they are waiting to see the momentum accelerate before investing. One theory is that when you look at opportunities in a world of limited capital, in a world of limited time and energy, you have to make choices. And if you are not the closest to consumers, potential employees or citizens, you don't have enough knowledge to make those decisions. And in a world where people are looking for short-term opportunities, if I know a country better, then I will place my dollars there. In our CEO survey, we used to ask where would you invest if it were not your home country. Five to 10 years ago, the response was limited to a small number of countries - US, China, Brazil. Today, there are at least 50 countries in that list. So, in a world of limited capital, companies will go to a market they are familiar with.

How did global corporations see demonetisation? Did it result in uncertainty?

For those outside India, and I am speculating here, I am not sure if they understood what was going on, why it was being done and how long it was going to continue. So, for them, it was perhaps a period of uncertainty. They (global corporations) can manage (India's) risks. What they struggle with is uncertainty. More transparency is needed. A lot of changes are happening. But if you make changes and don't explain why, there is scepticism and people imagine the worst.

How do you see GST?

GST is still not in its final form. We need clarity on some details. Your timeline is pretty short, so that is a big challenge. Right now, it is creating a bit of uncertainty. We need to know what GST means to the manufacturer, to the consumer and to the trader. The first lesson to be learnt from countries that have adopted GST is that there should be clarity as quickly as possible so that people can understand and adjust. The second thing that has to be done is to create infrastructure that will make it easy for people to know how much they need to pay and the ways to pay it. If the infrastructure is not there, there will always be fear that if someone doesn't pay, the cost may be placed on somebody else. The third piece that has to be dealt with is ensuring that the money being collected is clean and goes to the right place. That transparency is equally important. Finally, one should know that GST will have to evolve even after it is rolled out to deal with inefficiencies. The more dynamic you make the exercise, the better off you will be. And, as in demonetisation, there will be short-term issues here too. The intended benefit will have to justify the short-term issues that may arise.

How big is the business opportunity for companies to invest in India's digital push?

We did a study on implications of the technology revolution on manufacturing. Here we are talking about three-four percentage points of incremental growth for companies that do that well; there is a similar percentage point of margin improvement. So, I think it is a big opportunity.

@joecmathew; @rajeevdubey