Trade presents as a very mixed story for countries in the Indo-Pacific region – there appears to be both peril and opportunity ahead.
On the peril side – lockdowns, disrupted supply chains, security tension and travel restrictions.
What’s on the opportunity side?
Not much, but we should be optimistic.
The plunge in world trade could be bottoming out. Weak global growth could turn into moderate growth. Closed borders might soon open. And tensions around key areas of trade, technology and security (ie around China) could stop festering.
Two facts demonstrate India’s amazing economic growth:
First, today India is the world’s 6th largest economy.
Second, as soon as 2030, it is likely to be the 3rd largest.
Mugunthan Siva, CEO of India Avenue Investment Management (Sydney and Mumbai) makes a compelling case for India focused, actively managed high conviction funds and the investment themes he likes include technology, manufacturing, construction, rural, real estate, B2B and market share leaders.
INTO INDIA has been advocating for Australia to do what deals can be done with India, and “park” a Free Trade Agreement for later on.
The UK-India Virtual Summit has done just that.
Their newly created Enhanced Trade Partnership (bureaucratic speak for “these are the things we can agree on now) will create immediate opportunities for British businesses in India across industries including food and drink, life sciences and the service sector.
Non-tariff barriers on fruit and medical devices will be lowered, allowing British businesses to export more of their products to India and boosting UK growth and jobs. It also commits both sides to addressing immediate market access barriers as well as continuing to seek further opportunities on the road to an FTA. That is, “parking” the FTA for later on – it is just too hard to achieve.
Prime ministers Narendra Modi and Boris Johnson held their Virtual Summit this week and agreed on a “Comprehensive Strategic Partnership” – the first European country to gain this status.
Australian PM Morrison achieved a CSP with India in 2020 and set out collaboration across science and technology, maritime issues, defence and more.
CSP deals are a sign that India is become more outward looking and – like everyone else – concerned about the behaviour of China.
The trade and investment package unveiled by the British government contains over £533 million of new Indian investment into the UK, covering areas such as healthcare and technology.
British businesses have also secured new export deals with India worth more than £446 million, which is expected to create more than 400 British jobs.
I hope our Australian trade officials are going through all the detail to see if any deals Australia has with India can now be updated on a deal-by-deal basis.
When a company sends a salesperson into the Indian market, the goal is to fill the order book as quickly as possible – there is no time for that person to build ongoing relationships.
The result at best is a quick transaction based on price. It rarely lasts.
India is a country where relationships drive and impact all aspects of business. That is “how they do things there” and expect us to be the same.
Some tips for relationship building in these tough times:
You can build good relationships during Covid by hosting a zoom or similar catchup to see how things are going – no big agenda, just share experiences and listen.
You can join groups and chambers and be seen as a player.
You can accept the intangibility of relationships and give your key executives time and resources to build them.
You can look up Indian culture, architecture and history so you can have informal conversations about things close to their heart.
You will need strong curiosity and listening skills.
Really, decisions about future business with India need to be C-Suite and Boardroom driven, based around a minimum three-year strategy. And giving your people the right to spend time on the intangible of relationships is the best first step.
It is high time the close friendship between the PM’s Modi and Morrison led to an FTA.
It is great to see so much friendship and collaboration between India and Australia – but it is time to go to another level and have a serious shot at getting a free-trade agreement between the two countries.
Here’s 3 reasons why an FTA is now urgent:
India wants greater access to Australia’s resources.
Australia wants alternatives to China for resources and wine.
India wants investment and Australia has huge funds under management.
Patience around the FTA has been a good approach but now we have to step up the pace and get on with it.
We need some form of harvest agreements to take the heat out of agriculture – which is always a super-hot political topic in India.
Also, India seriously wants investment flows and Australia has not been forthcoming. Time for the Australian Government to lead our huge investment funds into India.
The reality is – close relations in trade mostly follow investment, and Australia has not invested heavily in India.
Wine barriers to India are huge – there is a 150% tariff – and yet wines like Orlando Jacob’s Creek have done well there.
One problem for India is they are encouraging their own wine industry, typically at the low end of the market. Perhaps they can free up tariffs on high end wine imports?
The relationship between Prime Ministers Modi and Morrison is close and could be a building block for an FTA.
My good friend Mugunthan Siva is the CEO of India Avenue Investment Management – an India and Australia investment company – and he has advised me of great news for the Indian economy and investors.
The International Monetary Fund is now forecasting India to grow GDP at 12.5% in 2021 – the only double digit forecast amongst developed and emerging economies.
Expected global growth of 6% will also play a role in India’s growth given its incrementally increasing role in supply chains, the rise again of the IT outsourcing industry and its strength in pharmaceutical manufacture and export.
In 2022 the IMF forecasts a further 6.9% GDP growth for India – once again the leader of the pack. If India continues to grow like this the US$5tn goal of the Modi’s Government appears within reach in the next 4-5 years.
According to Mugunthan, India’s equity market is evolving nicely given the pivot post COVID. Market breadth has normalised and active managers are dominating the landscape again, as they should in an inefficient equity market like India’s. The next 3 years should see a strong recovery in corporate profit.
Indranil Sen Gupta, BofA Securities, recently expressed the view that India is likely to become the 3rd largest economy over this decade. This will be driven by: – sweetspot for the demographic dividend – significant FX reserves to protect the economy – 9-10% nominal GDP growth over the decade – Low interest rates will lead to the next capex cycle, earnings growth
He said: “We see the economy growing at 9% nominal, that is 6% growth, 5% inflation, and 2% depreciation for the next two years. There are three drivers. The demographic dividend which we have all been talking about for the last 15 to 20 years is actually going to kick in from 2020 and help savings and investments. Secondly, there is financial deepening. Compare it to GDP ratio, which is around 40 to 50 per cent of GDP, should jump almost 100%. And thirdly, there is the emergence of mass markets, which the US probably saw 100 years ago. For example, the price of an entry level car today is 2.5x down from 14x 20 years ago. We think that is close to 1x on export basis.”
Despite a tariff as high as 150% plus state taxes, Australia’s Jacob’s Creek is a standout leader in the imported wine market of India. This Aussie winemaker is owned by global giant Pernod Ricard.
Here are some stunning statistics – imported wine accounts for 40% of wines sales in India. 70% of that 40% is Jacob’s Creek. This means Jacob’s Creek accounts for over 20% of the wine market in India.
Another stat – every year 19 million Indians reach legal drinking age.
Wine is mainly an urban success story in India, with three cities dominating the consumption – Mumbai, Delhi and Bengaluru. Apparently women are driving demand for wine – while men stick to whiskey and beer, women have become major consumers of red wine.
Jacob’s Creek has succeeded despite stiff competition from local winemakers, including Sula and Fratelli.
In the context of exporters urgently seeking alternatives to China, Jacob’s Creek is a success story that should be studied by those seeking to succeed in India.
Now – about those tariffs. Australia needs a coordinated campaign to get some relief for wine. This campaign needs to encompass governments, industry and culture/education. My advice – don’t go head-on against the tariff. Subtle approaches are best. Work out what we can offer India and how some reduction in tariff therefore becomes mutually beneficial.
Commenting on the recent Indian Budget, Vishal Kampani, Managing Director, JM Financial Group, said “the Finance Minister has laid the foundation for next-generation growth and deserves a big round of applause.”
The Union Budget 2021-22 presented by Finance Minister Nirmala Sitharaman on Monday has laid out the road map for India to achieve sustainable growth in the years to come by delivering on key expectations. By choosing growth imperatives over fiscal puritanism, the FM has clearly indicated where the government’s focus and priorities rightly lie.