Great next era for India-Australia, says Hall Chadwick

Peter Pryn is a regular visitor to India and assists market entry for both India and Australia

As we approach Indian Republic Day and Australia Day – both on 26 January – here is a great message from my good friend Peter Pryn, Director of Hall Chadwick. This firm has a long commitment to building India-Australia business relations.

Change brings opportunity

This year, we see there to be great opportunities for international enterprises entering the Australian market. While there are niggling concerns about the Omicron variant, the post-COVID landscape is certainly one of rapid technological change, a transformational shakeup of global trading norms has occurred and there is an increasing focus on sustainable business. There is no doubt the way Australian business manage supply chains and source skilled staff has changed over the last two years. We see our clients, irrespective of scale, continue to look at ways to minimize supply chain interruptions to achieve an acceptable level of profitability.

Looking ahead: India – Australia relations

The Australian economy is very strong and the trend of high levels of foreign investment is forecast to continue. Along with a further easing of border restrictions in 2022, we are likely see a more aggressive migration program to catch up on lost population growth. This could be announced in the Federal Budget in May. We hope to see an expansive trade partnership (CECA) between India and Australia come to fruition before year-end. In a joint statement from Ministers Mr. Piyush Goyal and Mr. Dan Tehan last December, officials have been directed to speed up the negotiations.

These are all signs of a great next era in India – Australia business relations. We encourage you to start a conversation with us about opportunities to collaborate on business initiatives in 2022. 

We wish you all the best for your Republic Day and the year ahead.

Peter Pryn

Director

+61 3 9820 6400
  ppryn@hallchadwickmelb.com.au

India economy has weathered the pandemic and set for growth – ASK Capital Management report

ASK Capital Management is a Singapore based entity with a focus on managing and advising India centric investments for institutional and family office clients. Their latest report shows how the Indian economy has weathered the pandemic and is set for growth:

This report relates to ASK India Opportunities Fund – Fund 1

The rapid rise in COVID cases due to the new Omicron variant, hawkish tone by major Central Banks around the world and persistent inflation contributed to a volatile December for the global equity markets. Despite this the markets ended on a positive note with most markets registering positive returns in the month. India was amongst the better performing markets with benchmark BSE500 ending up 3.2% in USD terms while the Fund was up 2.7%, net of fees in December. For the year 2021, the Fund returned 29.7%, net of fees compared to 27.6% for BSE500.

After another year spent in the shadow of the COVID, we begin 2022 with a new variant of the virus disrupting resumption of normal life. This, along with inflationary pressures and a move away from high liquidity and accommodative stance of Central Banks are the biggest risks to global economy for the year. While the new variant of the virus appears less fatal, the disruption means global supply chain issues will take longer to resolve. Tighter liquidity and end of cheap money means investors will have to temper expectations of returns in the new year and bottom-up stock picking will become crucial differentiator.

The Indian economy has weathered the pandemic induced slowdown well due to the proactive and effective steps taken by the RBI and the Government. The economy is above pre-COIVD levels in size and expected to grow around 9% in FY22 and 7.5%-7.9% in FY2023 by various estimates, one of the highest growing major economies in the world. As described in the past, lower debt on corporate balance sheets, controlled NPAs in banking sector and Government policies such as “Make In India” and Production Linked Incentives (PLIs) for various sectors should revive a domestic capex cycle.

While the recovery in India has been strong, it has also been uneven with the rural segment affected more from the Delta variant in Q1FY22. This should normalise over the course of the year and aid in demand recovery. Similarly, hiring activity continues to remain strong which should support demand.

As commodity prices and inflation stabilise, companies should report increase in margins over the coming quarters as prices increases are passed on to consumers. Thus, companies with higher pricing power and better cost controls should be able to deliver superior earnings growth with likely increase in market share. This has historically been the case for our portfolio companies, and we see no reason that this cannot be the case again. Our expectation is for the portfolio to deliver an average earnings CAGR of 26% over the next 3 years.

During the month we exited from Pidilite Industries and added Avenue SuperMart to the portfolio. We believe Avenue SuperMart is a well-oiled business model in a large opportunity landscape with a strong focus on low procurement and operating costs. Its store ownership model, right store size and low supply chain cost with auto replenishments help it to maintain low operating cost to achieve the key pillar of its success – everyday low cost and everyday low price. In a predominantly food and grocery business (52% revenue contribution) with wafer-thin margins (15% gross margin), the company is able to offer everyday low pricing, unlike peers that offer discounts on select days in a week or month, creating a competitive edge.

Contact:

Nikhil Iyer, CFA, Head of Institutional Business, APAC

ASK Capital Management Pte Ltd

m: +65 83800064 EMAIL nikhil.iyer@ask-capital.com

https://www.askfinancials.com/

How the QUAD can help Australia in trade talks with India

At last night’s meeting in Melbourne of the Australian Institute of International Affairs, Trade Minister Dan Tehan MP made reference to how the QUAD could be useful for future trade agreements.

The QUAD includes Australia, India, Japan and the USA. It focuses on supply chains and “independent and free region” – that is, a buffer to China.

But it might be a big help on trade.

India wants to use the QUAD as it steps up global trade relations.

And Australia already has FTA deals with the other two QUAD parties – Japan and USA.

The Quad is a diplomatic network of four countries committed to supporting an open, inclusive and resilient region. It complements our other bilateral, regional and multilateral cooperation, including with ASEAN.

The Quad aims to respond to the defining challenges of our time, including COVID-19 vaccines, critical and emerging technology, cyber security, climate change, infrastructure, maritime security, countering disinformation, counter-terrorism, and humanitarian assistance and disaster relief.

Will India and Australia achieve “early harvest” trade deals and lay groundwork for a CECA?

Former PM Tony Abbott was instrumental in getting trade talks going again

INTO INDIA believes the two big issues facing Australia are allowing greater people movement from India to Australia, and directing more of our massive A$ 2.3 trillion pension fund sector that could be a regular source of investments in the Indian infrastructure and disinvestment story.

The key for Australia is to see India as more than a “quick sale” – Indian negotiators will be looking to push the two countries to become partners, adopting policies that streamline physical movement, including, on-arrival visas, multiple entry long term business visas, etc.

From India’s perspective, it will want to ensure that trade deficits in the post agreement period do not widen. And two, non-tariff barriers and differences in standards or recognition of qualifications do not offset higher access through the trade deal. As an Indian report recently wrote: “This is the crux of the matter.”

In the larger CECA agreement, investments from Australia will play a big role in the growth of bilateral trade between the two countries, because the growth trajectory of India will create new opportunities for Australian companies, including in areas like water management and up in future, for which Australia can be a long term reliable supplier.

In the early harvest agreement, Australia wants services included with goods – an area where India has not performed well in earlier trade deals such as with ASEAN.

Australia however just needs to accept the sensitivity of the agribusiness sector in India – the deal will fall over if Australia demands substantially lower tariffs across the board for fruits, dairy, agriculture and processed food items.

INTO INDIA RECOMMENDS Australia narrow its ambitions down to selected niche items in the agriculture sector. Finding ways that Australian expertise, technology innovation and scale can actually transform Indian agriculture sector towards value addition would give Australia a big advantage.

Finally, you can expect India could show flexibility in tariff lines related to commodities and minerals, which are needed for its growing economy and the e-mobility program. In turn, Australia could be accommodative in tariff lines related to refined petroleum, medicaments, railway vehicles, gems and jewellery, auto components and made up textile items, which it imports in any case from countries around the world, in addition to India.

Thanks to Confederation of Indian Industry (CII), in collaboration with KPMG and led by Amb Anil Wadhwa, who is Former Secretary (East), Ministry of External Affairs, Government of India.

Indian consumers flocking to Ultra-Premium groceries

Retail is changing fast in India

Freshpik has just been launched and marks Reliance Retail’s foray into the Ultra-Premium grocery segment in India. It is a new “experiential gourmet food store” and comes within the retail arm of Mukesh Ambani-led Reliance Industries Ltd.

Freshpik will offer a range of food items comprising fruits and vegetables – with specially curated organic varieties and live microgreens, essential ingredients for international cuisines like Japanese, Italian, Korean, and Thai, breads, ice creams, artisanal cheese, chocolates from local and international producers, and frozen desserts.

The ‘Good for You’ range of premium and healthy food products caters to the diverse dietary preferences of health-conscious customers.

Apart from this, customers can also choose from exotic varieties of tea and coffee; a wide range of personal care products, including premium ayurvedic and natural products; a host of kitchen accessories like cooking ware, serve ware, and bespoke and ready-to-pick gifting options.

A distinctive aspect of Freshpik is its immersive shopping concepts – created by integrating digital and physical themes – that elevate the experience of shopping to a whole new plane.

“If good food is your thing, Freshpik is a paradise. It’s a playground to delight all our senses, touch, see, smell, hear, taste, enjoy… Freshpik is a food experience, not just a store” said Damodar Mall, CEO Grocery Retail, Reliance Retail.

How is India travelling? Some developments for investors and exporters

Some developments for investors and exporters

  • One billion vaccines: The cumulative coronavirus (Covid-19) vaccine doses administered across the country surpassed the 1-billion milestone, today. Over 700 million people have been administered the first dose of Covid-19 vaccine, while 290 million have been fully vaccinated, according to the government’s CoWin website. The government has set a target to vaccinate all adults by the end of 2021.
  • Moody’s banking rating: Moody’s Investors Service has upgraded the outlook for the Indian banking system to ‘stable’ from ‘negative’. It believes that the deterioration of asset quality since the onset of Covid-19 pandemic has been moderate and an improving operating environment will support asset quality. Moody’s expects asset quality to further improve, leading to decline in credit costs, as economic activity normalises. The rating agency has projected India’s real GDP growth for 2021-22 at 9.3 per cent.
  • Tax targets overshoot: The Centre is likely to exceed the budgeted tax collection target of Rs.22.2 trillion for the current fiscal year by Rs.2.5 trillion, according to experts. This is driven by better indirect tax mop-up, compliance measures and recovery in most sectors following the second wave of the pandemic. Personal income and corporate tax collections grew by 74 per cent to Rs.5.7 trillion in the first half of the current financial year, mainly due to advance tax and tax deduction at source (TDS) payments.
  • Power deficit: The power shortage situation in the country is improving as per the data released by the Central Electricity Authority. Power shortage came down to 1,456 MW on 17 October 2021 from 2,714 MW a week back. Peak power shortage stood at a massive 11,626 MW on 7 October 2021. According to power sector experts, demand has moderated due to the onset of autumn and heavy rains in many parts of the country. Moreover, an improvement in coal supplies would further bring down the power deficit.
  • Data consumption: India has the highest mobile data consumption in the world which is about 11 to 12 GB per user a month. The country is adding as much as 25 million new smartphone users every quarter making it a flourishing ground to launch digital initiatives, Ram Sewak Sharma, chief executive of the National Health Authority of India said. By 2025, India’s data consumption is likely to be doubled to nearly 25 GB per person a month, driven by affordable mobile broadband services and changing video viewing habits, Swedish gear maker Ericsson said.
  • E-Commerce sales: The share of e-commerce in the overall sales pie has touched new highs in the first fortnight of October 2021, according to market trackers and companies. Several categories, including smartphones, consumer electronics, apparel and daily necessities are growing faster than last year. The share of smartphone sales online surged to around 60 per cent in the first fortnight of Navratri-Dussehra from around 55 per cent, early estimates by market tracker Counterpoint Research showed. Televisions grew to 40 per cent from 31 per cent in the same period last year, while refrigerators, air-conditioners, washing machines and kitchen appliances rose to 9-10 per cent from 6-8 per cent. Market research firm RedSeer Consulting said the overall online shopper base has grown by around 20 per cent this festive season compared to last year, with tier II markets contributing to almost 61 per cent of all shoppers
  • Foreign investment: India witnessed net foreign investment inflows of USD 8.3 billion in August 2021, as compared to net inflows of USD 649 million in the preceding month. Net inflows of foreign direct investment (FDI) rose to USD 5 billion from nearly USD 3 billion in July 2021. Net inflows of foreign portfolio investment (FPI) worth USD 3.3 billion were seen in August 2021, after witnessing net outflows of USD 1.6 billion in July 2021.

Thanks to ASK Capital Management Pte Ltd for the above information.

Don’t get too excited about the new India and Australia talks on CECA

The relationship between these two might hold the key to the current CECA talks

INTO INDIA is optimistic that some deals will emerge from the current round of talks on the Australia-India Comprehensive Economic Cooperation Agreement (CECA) – spearheaded by Australian Trade, Tourism and Investment Minister Dan Tehan and, Commerce and Industry Minister Piyush Goyal.

But a look at Australia’s stance and recent Indian trade policy actions is not reassuring.

India withdrew from the negotiations for the Regional Comprehensive Economic Partnership (RCEP); it renegotiated a number of its free trade agreements; it terminated most of its bilateral investment agreements; and it has failed to agree a mini-economic deal with the United States. Not to mention India’s stance in the World Trade Organisation which has been unchanged.

At the domestic level, India has imposed prohibitive tariffs in several sectors and introduced a range of incentives to attract reshoring and investment.

How does Australia’s record stack up? Eager to send more resources and agriculture to India, Australia has been reluctant to allow great services access and people movement from India. This is a thorny issue.

So our word is CAUTION – don’t get your hopes up too high – there has been little progress to show after ten years of negotiations.

So, why be optimistic now?

First, Australian professional trade negotiations have loosened up on what was a cornerstone article of faith for them – preferring the “single undertaking” negotiating model – in which nothing is agreed until everything is agreed. Now even they are talking about “early harvest” deals. But can they change their spots? The Morrison government, desperate for a trade win, hopes they can.

Second, India has direct concerns about China and is nervous about the US-China rivalry. It has sensibly decided to build up strategic and economic partnerships as a hedge. There is much talk in India about potentially good trade outcomes arising from China’s “trade war” on Australia.

But the stalemate is always market access.

Australia wants agriculture access – India is hesitant because this sector employs 40% of India’s population. India wants liberalisation of the services “mode 4”, specifically the short-term entry of business persons. India has argued that Australia’s short term business visitor regime constitutes a barrier to India’s services exports. Australia has pushed back on these demands, reflecting concerns at the potential impact on the labour market. In a nutshell – one big stalemate!

Overall, India is not a fan of Free Trade Agreements, seeing most of them widening its trade deficit. That is, India feels the other party benefits most. It has negotiated on five FTA’s over the last 11 years and only one has been signed.

True, India is looking eager, having revived trade talks with the European Union, United Kingdom, United States and Australia. But is it all just a lot of talk?

Remember, India is primarily after foreign investment, exports, making domestic industries competitive and incentivise other countries to manufacture in India. Can Australia play a role in any of this?

The key for Australia and India is to somehow align Australia’s export goals with India’s investment and new exports priorities.

Australia could partner India on technology, innovation and R&D.

Australian companies could boost investment into India – and there are good economic and government subsidy reasons to do so.

Australia has one big advantage here – critical minerals. India has high sustainable energy and e-mobility goals and will need these minerals.

Add to that, Australia has growing expertise in the hydrogen industry, while India has a National Hydrogen Mission. There are good R&D opportunities for both.

While India is the “pharmacy of the world”, Australia is a leader in biotech R&D. Biotech in dairy, marine and more could provide trade deal motivation.

But finally, there is the big blockage.

India wants to increase skill migration to Australia. Australia has opposed it. Most of the talks in the last decade have faltered at this point.

What has changed?

Border closures have left Australian businesses struggling to fill roles. Australia needs an ‘early harvest deal’ to attract skilled professionals from India.

So, despite the gloom of the past, there are reasons to have some optimism for these talks on CECA.

Watch this space.

India’s Economy “Picking up Steam” Says S&P

Australian exporters – take another look at India

S&P Global Ratings said that after stalling post the second wave of the Covid pandemic, India retained the country’s BBB-sovereign rating with a stable outlook.

INTO INDIA has urged Australian firms looking for new markets to take another close look at opportunities in India.

S&P said that growth will improve over the July-September quarter, pointing to high-frequency indicators such as goods and services tax receipts and motor vehicle sales. Record forex reserves, and India emerging as an external creditor to the world has also supported the rating and stable outlook, S&P said.

Data released in July showed India’s economy expanded 20.1% year-on-year in the April-June quarter on a low base though sequentially it was down 16.9% over the previous quarter. 

S&P anticipates another Covid wave in India, but with rising vaccination coverage, it expects this to be less severe both in terms of health and economic impact. India’s vaccinations have crossed 700 million and in the first week of September, the daily average has been over 7.6 million doses.

Source THE INDIA EXPERT blog of Gunjan Bagla

CONCLUSION – INTO INDIA asks exporters and investors – if you are not now heavily committed to India, now is the time to take action.

Despite the huffing and puffing, China and the USA remain at the top of India’s trading partners

China trade is holding at much the same level as USA

China and the USA might fluctuate in terms of who is the biggest trading partner of India, but the one stable thing is that they both remain around the same level as India’s biggest trading partners.

If you pay attention to the posturing over border clashes with China and the “contain China” rhetoric of the QUAD, you will be surprised that very little has changed in India’s trading relationships. There might be change ahead, but it is not happening now.

In Fiscal 21, China two-way trade is at US$86 billion, USA US$80 billion, and UAE US$43 billion.

The countries that India IMPORTS vastly more than it exports are (roughly in order) China, Germany, Saudi Arabia, Australia, Japan, Kuwait, Indonesia, Iran, Switzerland and Iraq.

While the US trade does favour the US, it is the closest major trading partner to delivering anything remotely close to trade balance – India exports roughly US$38billion while it imports US$50 billion.

Smaller partners that Indian EXPORTS dominate the relationship are Bangladesh and Sri Lanka.

India now chasing trade deals – having resisted for decades

Indian PM Narendra Modi meets recently on trade with former Australian PM Tony Abbott

What has changed for India? It seems that having resisted trade deals for years, it now plans by the end of March 2022, to complete multiple quick-fire bilateral trade agreements.

Something has not changed however – the Indian government, distrustful of full scale FTA’s, is prioritizing “early harvest” pacts over comprehensive free trade agreements.

What has changed is the pandemic and the rise of China.

Therefore, the Indian government is focusing on strengthening the trade with G-7 nations with strong Indo-Pacific strategies and those with growing influence in central Asia such as the United Arab Emirates.

Australia, at a key position in the Indo-Pacific, is a high priority. As a fellow member of the QUAD, India and Australia have never been so close strategically and are keen to add trade now.

In large part, this is India’s push to do well as supply chain realignments take place – there is only a narrow window of opportunity to get these deals done.

How big is this? The government is negotiating bilateral trade agreements with 20 countries and expects to complete half a dozen deals, including those with Australia and Britain by this December and March 2022. 

India is ambitious – Mr. Piyush Goyal has set kept a target of US$ 400 billion for annual merchandise exports – almost 38% higher than US$ 290 billion achieved in last year and plans to achieve US$ 2 trillion annual merchandise exports by the end of this decade.

Outcome? Lots of deals that will not be quite world class Free Trade Agreement (FTA) but which will have some wriggle room.