Sweeping economic, social, and political changes underway in India have created new opportunities and compliance challenges for corporate financial executives in the country.

One of those drastic changes occurred in July 2017, when Prime Minister Narendra Modi launched the most sweeping tax reform in the country’s 70-year history. The new “Goods and Services Tax” (GST) created a single tax rate across the country, replacing each of India’s 29 state tax regimes and their varying tariffs, duties, and fees.

Prior to roll-out of the GST, it was not unusual, when shipping goods from one side of India to the other, for truck drivers to have to pay taxes and have goods inspected at each state’s jurisdictional boundary. “It was a hodge-podge of a taxation regime that prevented the flow of commerce,” says Raef Lawson, vice president of research and policy at the Institute of Management Accountants (IMA), a global association of accountants and financial professionals.

Manoj Raut, chief executive officer and director of the Institute of Directors (IoD) in India, says transitioning to the GST has made things easier on companies in India: “The general impression is that taxation is too complex for non-finance personnel. Therefore, issues related to the tax and regulatory environment are left only to the financial and accounting experts in Indian companies. However, the impact of GST transition and focus of government on digital platforms have simplified the tax regime and regulatory environment in India recently.”

In addition to major changes in tax reform, Indian companies were also forced to significantly change the way they do business and without any warning at all, when in 2016 Indian Prime Minister Narendra Modi declared that all 500- and 1,000-rupee banknotes (86 percent of India’s banknotes at the time) were no longer legal tender.

“We’re starting to see an evolution of the profession, in which management accountants are starting to serve as strategic business advisors.”
Raef Lawson, Vice President, Research and Policy, Institute of Management Accountants

Collectively, such recent events have created tremendous opportunities and challenges for financial and accounting executives of Indian companies. “We’re starting to see an evolution of the profession, in which management accountants are starting to serve as strategic business advisors,” Lawson says. “In the past, that might have been more of an aspiration than a reality, but with evolving technology freeing up accountants from a lot of repetitive and rules-based activities, management accountants can now focus on more strategic issues.”

Companies should not overlook the value that the finance function can provide to the company in their role as a strategic business partner. “They can work on helping provide, validate, and implement organizational strategy,” Lawson says.

In fact, a recent survey of 169 corporate financial and accounting executives conducted by the IMA assessing the state of management accounting practices in India today found that financial executives are balancing not only traditional roles (statutory reporting, finance operations, and business finance), but also emerging ones (strategy development, business analysis, and risk management). Newer management accounting techniques—such as anti-bribery compliance—are also being adopted.

In that survey, respondents were asked a series of questions, in which they were asked to rank what roles the finance function plays in their companies based on a five-point sliding scale, ranging from 5 (strongly agree) to 1 (strongly disagree). Most financial executive respondents “strongly agreed” to the following roles:

Control of our costs is essential to our remaining competitive (70.6%)

The work of financial planning and control is integrated with the operational planning and control of the business (66.4%)

Advising executive management in ongoing operations is an important job of the finance and accounting function (63.5%)

The role of the management accountant is very much integrated with the value-creating business functions (54%)

Respondents indicated that they excel most at regulation and tax matters, in addition to other traditional responsibilities, including working capital management and improving the control environment. In comparison, emerging roles—supporting strategy formulation, validation and execution, and providing effective business insight and analysis—are creating hurdles for financial executives in India, indicating that these areas demand more attention from companies.

Best practices

As with most functions and most companies around the world, finance and accounting executives in India are struggling to do more with less, despite have increasing roles and responsibilities. “I would recommend to companies that they look at the strategic value that their finance function can play and provide the resources that enable them to fulfill that role,” Lawson says.

How Indian finance functions spend their time

Sources: MyCFO; IMA

Except for large, multinational companies, Indian companies generally under-prioritize investment in, and are slow to adopt, newer management accounting techniques that are considered most effective in yielding better business insight. This finding was highlighted in the survey, in which most respondents cited lack of adequate IT infrastructure—such as legacy systems that don’t talk to each other—as a common impediment, preventing companies from operating as effectively as they could be. “Through technology, they can put resources to better use and come up with more efficient ways to look at data and data analytics beyond looking at the numbers,” Raut of the IoD says.

“Given the under-investment in the finance function and the shortage of good quality finance talent, the solution lies in being able to build a team or bring in firms that can take over the routine day-to-day activities,” says Deepak Narayanan, co-founder of MyCFO, an Indian-based CFO services firm, which partnered with IMA in conducting the survey. “While India has been an outsourcing hub for global companies, Indian companies haven't embraced outsourcing.”

In addition to poor finance IT infrastructure, “non-standard finance processes” and “poor internal relationships” were also cited as barriers. Poor internal relationships with other functions is especially concerning, since it’s difficult for the financial function to evolve outside its traditional role and become a true business partner without effective relationships, the report stated.

“Developing a business partner mindset, developing empathy, and spending time with people in other departments not just understanding their issues but also being a part of some key initiatives of other departments will go a long way in helping finance executives being a lot closer to the ground,” Narayanan says.

Companies can also ensure that their accounting and finance professionals possess the knowledge, skills, and abilities necessary that enable them to act as a strategic business partner. “The widening gap between academia and the requirements of companies need to be addressed,” Narayanan adds. Putting more emphasis on building the skills of existing finance professionals, training new candidates, and retaining bright talent would go a long way in ensuring professionals start contributing to the business, he says.

Companies should also consider professional certifications like the IMA’s Certified Management Accountant (CMA) program, which tests proficiency across a variety of key competencies needed by today’s financial and accounting executives. The IMA also offers its new CSCA (Certified in Strategy and Competitive Analysis) credential, which complements and expands upon the strategic planning and analysis skills developed through CMA certification.

The main lesson to take from all this is that it is becoming increasingly essential for companies with Indian operations to equip their financial and accounting executives with the expanding set of skills needed to remain effective in their role, if the company is to effectively develop strategies and manage their performance.

Over the next decade, Narayanan foresees positive progression in the financial function at Indian companies: “More companies realize the need to train their finance executives; more is being invested in leadership development; there is more investor capital, which is pushing companies to bring in professionals to run the function; and finance professionals themselves are investing in themselves, realizing the need to stay competitive.”