Members of a delegation of business leaders from the Federation of Indian Chambers of Commerce and Industry (FICCI) on the India-Australia trade relationship
The Panel:
Harshavardhan Neotia: President FICCI & Chairman Ambuja Neotia Group
Rashesh Seth: Vice President FICCI & Chairman and CEO Edelweiss Group
YK Modi: Past President, FICCI, Executive Chairman Great Eastern Energy Corporation Ltd.
Harsh Pati Singhania: Past President, FICCI, Director, J.K. Organisation and Vice Chairman & Managing Director, J K Paper Ltd
Rajan Bharti Mittal: Past President, FICCI, Vice Chairman Bharti Enterprises
Pawan Luthra: The India-Australia trade relationship has been fairly stagnant for the past few years. What has been holding back this business relationship? What can be done to improve it?
Harshavardhan Neotia: One of the important things on the agenda is to sign the FTA or Comprehensive Economic Cooperation Agreement. Secondly, of course, I think for a long time perhaps the concentration of most business in Australia was more towards the US and China and I see that perhaps they have started looking at India. India also sees Australia as a national ally because it has a lot of minerals and products that India will need to feed its very large population. Also, the super funds here are now looking for investments and at the returns India can give – especially as the world is slowing down and India is able to grow.
YK Modi: In my line of business I was always interested in Australia. I was always willing to come and look at the opportunities. It’s only in the last two or three years that we have had a policy framework which is transparent and which, according to me, can attract investment from countries like Australia, South Africa, Brazil, USA, into oil and gas and mining and things like that. Now this PM and Finance Minister talk of transparency and ease of business, and they are trying to move in the direction which helps both entrepreneurs like us in India and prospective entrepreneurs who want to invest.
Rajan Mittal: As far as India-Australia business is concerned, I think much needs to be explored both ways. While the trade is happening, India and Australia need investment to come into both countries. Indian industries have already started making investments here, hoping that Australian companies will also start investing in India. We are part of the team to say “India’s open for business”. While the government speaks for itself, the industry validates that. Sometimes you need industry validation from both sides and that’s really the objective this time around.
Harshpati Singhania: I think there is a mental issue, a perception of Australia being so far away and in a different direction. Both Australia and India need to be working more at marketing themselves to each other. There is a large student community in Australia and Australia supplies a large amount of commodities to India such as wool, uranium, gold and coal. We need more understanding between people and stronger business-to-business linkages. Business delegations and bilateral agreements are positive steps in achieving this.
PL: The Indian economy is growing at a rate of about 7.5%. With this level of success, do you think that Australia has to work harder to get India’s attention as compared to the other way round? And is India growing fast enough?
Rahesh Seth: We have to look at it in a world context. In that context, India stands out as a relatively brighter spot. We still do have a very large part of our population that has a tremendous amount of need for goods and services. For the next 20 to 30 years, before we can even become a developed nation, we will have a huge appetite for consumption of all products. So even though the growth is not as fast as we want, it is still relatively high. Therefore, I think there is an opportunity for Australian business to look to India for investment as well as supplying certain raw materials.
RM: I think both sides should be engaged and since Prime Minister Modi’s visit here, I think the momentum has picked up. Last year we had about 11 ministers out of Australia coming to India; we also saw the Indian Power Minister here, now the Finance Minister’s here, so I hope this gets attention on both sides and we can engage deeply now as the process has started. The US and Europe are bigger markets and engagements are deeper, so I hope both Australia and India engage more deeply now as the process has started.
YM: We need to increase our agri productivity which is one of the lowest in the world. We process 2-3% of our food against 60-70% which other countries do. Building infrastructure is another important opportunity. These measure will help accelerate growth in India.
PL: If you had to advise Australian PM Malcolm Turnbull on how to increase trade between the two countries, what three ways would you suggest in which Australia can develop more business opportunities?
RS: First, it’s already starting to happen – the Indian government has people coming here and the Australian government has officials visiting India. We need to expand the trade relationship beyond resources and look for opportunities outside that sector.
Second, investment between the two countries is not at the scale it should be. We have to expand the relationship beyond trade to investments. We have to educate investors on what investment opportunities there are in India. The Indian infrastructure sector has large scale investment opportunities for investors all over the world. In the next five years, India is expected to invest close to $1 trillion in infrastructure.
Third, we should encourage more council relationships such as the Australia India Business Council and FICCI. These will become the channel of communicating opportunities. I think this is already happening, which is a good thing.
RM: First, I have to say that the current Indian government is the first in 30 years which wants to position India in a different way to do business. They’re clearing all the paths, all the stumbling blocks, to make sure that ease of business happens in every way. It is a great opportunity to engage with India where politically the government has such a strong majority which can drive its way on economic issues. Second, India is a large market which no international company or CEO that wants to go international can ignore. India is a bright spot; it’s currently growing at 7.5%, and will grow to potentially 8.5%. India can’t be ignored. With a large part of the population in the 15-35 age bracket, it is a consumption society.
Politically it’s already engaged. Economically we need to take a few more ‘bold bets’. Australia needs to do that. For example, Telstra was there in 1995. And they just walked out. And look at where the telecom story is in India now. You cannot ignore India; you have to come and invest in India. You have to have a long term vision on India, and be more insightful about it. Engage India in tourism – both counties have a lot of play in this area.
YM: I would say that agriculture would be a very big thing. Australia is much more invested in that sector and productivity is very high. That is one way in which India can learn and there can be big opportunities. Another is mining and minerals, Australia is far ahead in this and a deeper relationship can develop. Food, mining, and monies in sovereign funds can be invested in India, especially infrastructure. Also, use the diaspora to build up this relationship.
HS: It is important to have more understanding. It is interesting to note that in the recent past, Australia has reached out to India for more interaction business to business. Secondly, it is important to look at what Australia needs. Australian trade with China is $100 billion and Australia is importing a lot of things. So, let’s look at what can be bought from India which China supplies because Australia is buying these things. The Indian auto components industry has become big, there is a strong incentive to invest in the capital goods sector in India, especially given Australian manufacturing is limited. Other most obvious ones are those which have already started, such as IT and IT services and pharmaceuticals.
PL: What kind of returns could the Australian superannuation funds expect? Should they be investing in infrastructure projects in India?
HN: There are various investment opportunities in India. A few Australian investors have already invested in the Indian stock exchange which is the Indian capital market. I’m starting to see funds come in. We expect a good long term return in Indian rupees.
RM: I would say the engagement is there but we need people to bring money to the table. Money is already on the table from large investors, especially sovereign funds, and insurance companies which have pension funds. This will probably be the largest FDI India has ever seen.
YM: The physical infrastructure in India is very poor – whether it is roads, ports, waterways, railways. Billions and billions of dollars are being invested by the government to provide another opportunity to accelerate growth. The superannuation accounts can be used by India to boost their infrastructure. The Indian diaspora can also help improve relations between the two countries; the better the connection, the more the goodwill.
HS: Australia has a lot of capital in its $3 trillion in savings, while India needs money to build infrastructure. It seems like an obvious answer for Australia to invest money in India. FDI inflows have gone up in India for a reason.
RS: Long term returns in INR can be 13-15% to 18-20% but do note this is in Indian rupee terms. If we factor in currency fluctuations and take it to USD terms, we can lose up to 5%. But returns of 11-15% on a long term basis are very attractive in today’s world. In India there was no policy stability for infrastructure before Modi, but we have seen more and more investors in India over the last few years. This government is focusing on providing stability for the longer term. Now, there have been headlines of retrospective tax changes. We are a democracy and investors have to understand that the two-steps-forward-and-one-back issue will keep on happening. Investors should play India for the long term; play India for the next 15-20 years. Indian GDP will double in size every seven or eight years. In 2007 we became a $1 trillion GDP, 60 years after independence, in 2014 we became $2 trillion GDP. Now we want to add $1 trillion in the next five years and by 2025 we will be adding $1 trillion every 18-22 months. Compounding growth is happening and investors need to take a long-term view.
PL: In 20 years, how would you like Modi-Jaitley economics to be remembered?
YM: The Modi government is building infrastructure, providing opportunities to young people, by not only getting jobs but creating jobs, and bringing in entrepreneurship from the ground level. This is important because India has to provide 10 million job opportunities every year. Until now, in India, an entrepreneur was not someone who was on a high pedestal – this government is trying to encourage people to become entrepreneurs. And also note that this is the first government we have which, even after two years, faces no talk of corruption. So this seems to be a very transparent government. It is also good to note that monitoring of big projects is being done from the Prime Minister’s office. If this government is successful and I hope they are, they can change the way future governments are run in India.
RS: In 1991 India was in crisis and had to make rapid changes which in a democracy is easy. Right now, India is in a sweet spot with low inflation and low oil prices, and in that situation to make fundamental changes is more difficult. This government is starting to do that. And that is heartening. One is structural changes for long-term growth. It has looked to bring corruption under control and has taken many steps in making it a more transparent regime. I hope India is able to maintain this growth and make sure that there is an equitable, egalitarian benefit to society.
RM: The government has been very clear in creating a stable policy for all which is fair, equitable and consistent. I would go back and say it’s a job well done. It’s a job well started and I hope it will be maintained. They are looking to create a business-friendly environment which is extremely important. The new laws which are coming in, such as the bankruptcy laws, are now providing ways to make it as easy to enter as it is to exit. Because a lot of businesses – especially in an entrepreneurial society like in India – do fail. There are strings of failure before you see success. The question is, are you able to move out of that failure or are you just stuck with it? Thirdly, the biggest achievement of India will happen if I look back in 20 years and we have successfully completed our infrastructure story. India cannot grow at a rapid pace if the infrastructure does not catch up. This government is now saying infrastructure is a dominant need and we will invest in that. Railways, huge; roads, huge; agriculture, that’s being looked into. I would say, if this is the pace the government goes in and does all this, we will have a very different country in 20 years.
HS: The legacy of the Modi government will be the demonstration to the world that India means business. What this government is trying to do is to build from the foundation up and therefore there will be things not visible instantaneously. But this will be the groundwork where the building blocks will be placed. Initiatives such as opening bank accounts in rural areas, giving a thrust to manufacturing, all of these are long-term plans which will position India to take full advantage of its potential. We are a large country in terms of population and there needs to be jobs for people. Traditionally, 65% of the population relied on agriculture but agriculture is only 14-15% of our GDP, so it is clear that a propionate number of jobs cannot come from agriculture. The services sector has to be tapped into and programs have to be put in place for people to move away from farms into productive and income generating jobs.
HN: The biggest challenge for India is eradication of poverty. Everything else will have to work to bring together a very equitable society. Larger economic development can only be built on a foundation of social stability. The inclusive agenda of this government is very welcome as the subsidies are well targeted with minimal leakages. This government has recognised that social stability is needed as the foundation of economic growth. It has looked to the agrarian sector, building infrastructure, at processes to make doing business easier. So the basic building blocks are getting in place. We at FICCI feel that the efforts to get the basics in place are laudable by this government.
