As this year comes to a close, INTO INDIA reflects on the game changer – the Economic Cooperation and Trade Agreement.
It surprised us all. Many did not expect it to be signed. Nobody expected it to be so vast in potential impact.
ECTA will save Australian exporters around $2 billion a year in tariffs, while consumers and business will save around $500 million in tariffs on imports of finished goods, and inputs to our manufacturing sector.
The tariff commitments provided by India in the agreement will open up access for Australia’s exporters of products including critical minerals, pharmaceuticals, cosmetics, lentils, seafood, sheepmeat, horticulture and wine.
Australian service suppliers will benefit from full or partial access across more than 85 Indian services sectors and subsectors. Australian suppliers across 31 sectors and subsectors will be guaranteed the highest standard of treatment that India grants to any future free trade agreement partner.
Australian services sectors to benefit include higher education and adult education, as well as business services such as tax, architecture and urban planning.
ECTA will support tourism and workforce needs in regional Australia by making 1000 Work and Holiday Program places available to young adventurous Indians. It maintains opportunities for Indian students graduating in Australia to undertake post-study work, with a bonus year of stay for high-performing STEM graduates.
INTO INDIA has written regularly on agribusiness growth in India – and the opportunities this presents. The story is gathering pace…
India’s exports of processed food and agricultural products increased by 30% to US$ 9.6 billion from April-July of this fiscal year. Fruit and vegetable exports increased by 4% during the time period, according to data from the Directorate General of Commercial Intelligence and Statistics (DGCI&S).
According to a statement released by the Ministry of Commerce & Industry, an export goal of US$ 23.56 billion has been set for the basket of agricultural and processed food goods for 2022–2023.
The first four months of the current fiscal saw a growth of 61.91% in the export of dairy products, reaching US$ 247 million. Basmati rice exports climbed by 29.13%, rising from US$ 1.21 billion in April–July 2021 to US$ 1.56 billion in April–July 2022. Non-Basmati rice exports increased by 9.24% to US$ 2.08 billion in the same time period.
There is a lot happening in the agriculture sector in India – time for you to upgrade your India engagement strategy?
One of the most frequent questions for INTO INDIA is how do we find the right business partner in India? Most case studies of Australian businesses succeeding in India reveal one key element – finding the right local partner.
What is the right local partner?
It is much more than someone who says “yes”. Too many have been frustrated in Indian market entry because they forged alliances with any and everyone who said “yes” – which means everyone they meet. India is a culture that cannot say no, so be wary of the yes answer.
The right partner is already active and successful in your field. They can show you their track record.
Your right partner will have connections among suppliers and customers, and will be keen to introduce you to them so you can form your own judgement.
In the collective culture of India, your right partner will be well connected in the various business chambers and will have good connections in government – central and state. This right partner will demonstrate these connections by organising meetings for you, rather than just saying “yes” we are connected.
Your right partner will be someone you double check with Austrade and with other reliable connections you have in India or Australia.
Your right partner could ultimately become an agent, a joint venture or more. They might just be a trusted individual who willingly offers to make connects for you – this freely opening doors does occur in India.
Your right partner might be a talented individual who you hire into your business. Or it might be a combination of external and internal. Patience will be your best friend as you make these choices.
Finally, your right partner will develop relationships for you – because in Indian culture relationships matter. Relationships first, business second is the path to long term business in India. Quick deals are just that – one transaction that might not lead to anything.
So, how are you going finding the right partner in India?
Citrus exports from Australia to India are expected to boom following the trade deal – from 2019 –21, Australian growers exported more than $18 million of oranges and mandarins to India. This rates India as a key market for Australian horticulture exports.
Australian Fresh Produce Alliance CEO, Michael Rogers is upbeat about the trade deal and said: “The opportunities presented by the agreement will enable a number of existing exporters, like those in the citrus industry, to capitalise immediately.”
INTO INDIA has advocated setting up some form of horticulture centre in India for knowledge sharing, skills training and more – good timing now!
The interim agreement will see tariff elimination over 7 years on a variety of Australian horticulture products including blueberries, avocados, onion, cherries, asparagus, lettuce and celery. Other significant gains for the sector include an immediate halving of the tariff within the tariff rate quota for oranges and mandarins.
Despite the interruptions caused by the COVID19 pandemic, Australian horticulture exports continue to grow, with exports in 2021 reaching $2.65 billion.
Future growth of horticulture exports to India is definitely on the way!
The Australia-India Economic Cooperation and Trade Agreement signed on 2 April has some big winners for Aussie agribusiness:
Sheep meat tariffs of 30 per cent will be eliminated on entry into force, providing a boost for Australian exports that already command nearly 20 per cent of India’s market
Wool will have the current 2.5 per cent tariffs eliminated on entry into force, supporting Australia’s second-largest market for wool products.
Tariffs on wine with a minimum import price of US$5 per bottle will be reduced from 150 per cent to 100 per cent on entry into force and subsequently to 50 per cent over 10 years (based on Indian wholesale price index for wine).
Tariffs on wine bottles with minimum import price of US$15 will be reduced from 150 per cent to 75 per cent on entry into force and subsequently to 25 per cent over 10 years (based on Indian wholesale price index for wine).
Tariffs up to 30 per cent on avocados, onions, broad, kidney and adzuki beans, cherries, shelled pistachios, macadamias, cashews in-shell, blueberries, raspberries, blackberries, currants will be eliminated over seven years.
Tariffs on almonds, lentils, oranges, mandarins, pears, apricots and strawberries will be reduced, improving opportunities for Australia’s horticulture industry to supply India’s growing food demand.
Indian Commerce Minister Piyush Goyal is negotiating multiple trade deals
Benefits of AI Economic Cooperation and Trade Agreement include:
Sheep meat tariffs of 30 per cent will be eliminated on entry into force, providing a boost for Australian exports that already command nearly 20 per cent of India’s market
Wool will have the current 2.5 per cent tariffs eliminated on entry into force, supporting Australia’s second-largest market for wool products.
Tariffs on wine with a minimum import price of US$5 per bottle will be reduced from 150 per cent to 100 per cent on entry into force and subsequently to 50 per cent over 10 years (based on Indian wholesale price index for wine).
Tariffs on wine bottles with minimum import price of US$15 will be reduced from 150 per cent to 75 per cent on entry into force and subsequently to 25 per cent over 10 years (based on Indian wholesale price index for wine).
Tariffs up to 30 per cent on avocados, onions, broad, kidney and adzuki beans, cherries, shelled pistachios, macadamias, cashews in-shell, blueberries, raspberries, blackberries, currants will be eliminated over seven years.
Tariffs on almonds, lentils, oranges, mandarins, pears, apricots and strawberries will be reduced, improving opportunities for Australia’s horticulture industry to supply India’s growing food demand.
The resources sector will benefit from the elimination of tariffs on entry into force for coal, alumina, metallic ores, including manganese, copper and nickel; and critical minerals including titanium and zirconium.
LNG tariffs will be bound at 0 per cent at entry into force.
Tariffs on pharmaceutical products and certain medical devices will be eliminated over five and seven years.
These two Ministers are transforming the Australia-India relationship
Wow! The Australia-India Economic Cooperation and Trade Agreement signed yesterday is a whopper.
Get on the plane now if you are in business or education! The trade and investment doors are open for you.
The two trade ministers, Australian Dan Tehan and Indian Piyush Goyal, are transforming the economic relationship and created a platform for decades of growth for India and Australia. Well done.
Prime Minister Mr. Narendra Modi has announced that India had passed the US$ 400 billion mark in goods exports for the first time, calling it a “key milestone” for his government’s Aatmanirbhar Bharat (Made in India) initiative for manufacturing self-sufficiency.
He made the statement as India’s services and industrial activities remained stable in February, despite the fact that the crisis in Ukraine has clouded the outlook for prices and growth in the consumer-driven economy.
“India set an ambitious target of US$ 400 billion of goods exports & achieves this target for the first time ever. I congratulate our farmers, weavers, MSMEs, manufacturers, exporters for this success,” he said posting a graphic showing the target being met nine days ahead of the deadline.
Conservative figures put the Indian middle class at 228 million
How big is India’s middle and wealthy class? And where are they?
Although this information is essential to your India engagement strategy, until now the answers have really only been speculation.
Lack of data continues to be a challenge, and estimates can vary wildly.
So, INTO INDIA brings you some numbers robust enough for you to use in your planning.
While some estimates put the middle class at 500 million or more, using a much tighter definition of middle class, Hurun Research produced much smaller numbers than most. They defined middle class as households who have more than over A$4,682 per year to spend on housing, travel, cars, education and products. These numbers found 57 million Indian households in the combined class of middle class and wealthy. Now, assuming each household might be four people, that becomes 228 million people.
Most of my research – but not all of it – comes from the Hurun Report, a leading research, luxury publishing and events group established in London in 1998 with presence in India, China, France, UK, USA, Australia, Japan, Canada and Luxembourg. It is widely recognized world-over for its comprehensive evaluation of the wealthiest individuals across the globe.
There are 412,000 dollar-millionaire households/affluent households in India with a networth of at least US$1 million.
Hurun Rich Listers have a wealth of Rs 1,000 crore (142 million), the report says, and pegs the number of such cumulative households in India at 3,000.
At the other end of the spectrum is the ‘Indian middle class’ that has earnings of over Rs 2.5-lakh per annum (over A$4,682) and a net worth of less than Rs 7 crore (A$1.3 million). 56,400,000 families in India fall under this category – approximately 224 million individuals.
The McKinsey Global Institute, which defines India’s middle class as households with real annual disposable incomes between 200,000 and 1 million rupees (US$3,606 to $18,031), estimates the ranks of middle class will more than double by 2025 to 583 million—41 percent of the population.
Where are they?
The top 10 states home to 70.3 per cent of millionaire households in India are Maharashtra (capital is Mumbai) has the highest number of millionaires (56,000), followed by Uttar Pradesh (36,000), Tamil Nadu (35,000), Karnataka (33,000) and Gujarat (29,000). City-wise, Mumbai is home to most millionaires (16,933), followed by Delhi (16,000), Kolkata (10,000), Bengaluru (7,582) and Chennai (4,685).
Aslany, who published a study on the Indian middle class in 2019, found that contrary to most assumptions, a significant segment of the Indian middle class resides in rural areas. About 28.05% of India’s population was middle class, Aslany found, adding that 52.31% of the lower middle class, more than 32% of the comfortable middle class, and more than 23% of the upper-middle class was in rural India. Most of the lower middle class in rural India are involved in agriculture, he said.
These realistic numbers should excite you to engage with India – right now demand for everything has gone through the roof!
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
Into India 