India is a tantalising prospect for business, on a bedrock of recent revolutionary reforms, strong and stable government, aspiring population and growing wealth. With GDP growth tracking 7+% (I expect between 8.5 – 9% in 18 months if global parameters remain constant), a population of 1.2 billion and a middle class of around 400 million that keeps growing, it should be a business wonderland, right? Yes we’ve been hearing this for over two decades, but this time its different. Developed nations need to change the old lens though which they’ve been viewing India.
India is not completely a homogeneous market. There are regional divides (North, South, East, West), city vs country (rural) divide, city gradings (metros vs city tiers 1-3), linguistic and religious (cultural) preferences, etc. These drive product and service preferences and expectations, as well as ease of doing business. Certainly e-commerce helps in levelling the field a bit but the scale of the country, regional logistics and differing rates of technology adoption, means a phased approach is prudent. Its wiser to focus on one state, even one metro or city to begin with. That’s a population of 15-20 million by itself.
India’s goods and services pricing mix is unrealistic. Decades of being a controlled and patronage influenced economy created monopolies, multiple layers of ‘clip on the ticket’ middlemen in addition to a culture of influence buying, resulting in high inflation and fat margins. There was more money in marketing distribution than in manufacturing. To its credit, India’s current government has done wonders in moving to a true free market economy though grass roots reforms , farmgate sales and emphasis on human capital development. The internet revolution also kicked in by flattening multiple distribution layers into direct B2B and B2C models. This and the recent imposition of a unified GST tax, replacing a slew of sundry taxes, should force a reset of the pricing mechanisms leading to lower prices and a barrier free, efficient movement of goods across the nation. It should have a profound effect on consumer spending and opening of wallets in 2018.
The opportunities currently are in learning & development, bilateral cooperation & assistance, consumer goods, F&B, technology, capital investments, sports and entertainment (e.g. film & game design) and farming & live stock management. Designed in Australia and Made in India for both domestic and world markets. Alas the Australia – India Free Trade Agreement would have opened up significantly more opportunities, but its been floundering. Hopefully the new quadrilateral security arrangement covering Australia, India, Japan and the US, will provide fresh impetus to have the FTA quickly signed off.
And if you think its a one way investment into India you’re wrong. Many Indian businesses are looking to make investments and tie ups with Australian companies to improve products for for own domestic market as well as the Australia and New Zealand markets. Indian and many US, Europe and Middle East domiciled investors of Indian heritage have been steadily investing in Australian businesses and equity. Unlike the Chinese who prefer paying a premium to acquire local assets, the Indians prefer under-performing assets or greenfield projects which they can turnaround with lower capital and astute management. This makes these businesses more resilient to shocks and world class in productivity.
Unfortunately some high profile cases in Australia in which the Indian investors appear to be victimised and hounded (e.g. Burrup, Adani), the violent bashings of Indian students, higher rate of thefts in Indian heritage homes, the generally negative commentary about India in Australian media and the perceived bias of Australian law makers towards China, makes Indians apprehensive about business, investment and even education and tourism to Australia. This trust deficit belies the strong cultural, sporting and security links between Australia and India.
The significant opportunity for business and investments is not just for big business; small businesses looking for innovation and growth can collaborate or invest in incremental amounts taking small steps. At Gains5 we’ve assisted many SME’s as well as start ups with their Indo Australian ventures. Investments have ranged from $10,000 to $2 million over the past 6 months.
The other latent opportunity is for Australian altruistic individuals to donate their time and expertise in voluntarily mentoring the skills development of Indians through business facilitation channels rather than the traditional non-profits or NGOs, which focus on social development.
Plenty of challenges still remain with India. There remains a need for stronger anti-monopoly laws, better consumer rights advocacy, oversight by corporate regulators and fast track unblemished legal redressal process. Hey, every society including Australia, will continue having such imperfections as businesses push for quick profits. Then there is the display by many an Indian, of poor business ethics and misplaced pride in gazumping foreign business partners. Woolworths is one Aussie company who withdrew from India.
These challenges also provide an opportunity for government to government co-operation and assistance from Australia to India with its structural reforms. And for business associations to collaborate for shared learning and development outcomes. In reality its not that India lacks the expertise, it lacks the discipline and strong change and stakeholder management approach that Australia has as its core strength. Fortunately it has the willingness and an aptitude to change.
The good news for Australian businesses and investors is that all these risks can be mitigated by using an experienced trusted facilitator with deep understanding and business networks in both Indian and Australian markets, availing of the Indian governments ‘red carpet’ investment window and importantly, fully leveraging various export incentives available to Australian businesses. With every opportunity there is a risk. Its not the quantum of risk but how you manage it, your risk appetite and patience, that will deliver bountiful returns. Its time to get out of that comfort zone and go west. India beckons with abundant opportunity.