Roadmap for growth: Why India offers untapped economic potential for Australia
Many Australian businesses have long put India in the 'too hard' basket, but companies with a global focus can no longer afford not to be in the fastest-growing large economy in the world.
In brief
- India is on track to become the world’s third-biggest and most populous economy by 2035, but Australia’s two-way trade and investment links have not matched those of some other major economies.
- A new landmark economic strategy calls for Australia to make India a top-three export market and foreign investment destination.
- It suggests focusing on 10 priority states and 10 priority sectors.
Brought to you by Mukund Narayanamurti
One of the world’s most significant transformations is well underway in our region – the rise of India as an economic giant.
It's a remarkable story, with distinct characteristics and a unique and complex trajectory. While this growth may be uneven, it can no longer be ignored by Australian businesses.
India's scale alone makes its exceptional. Within the next decade, about one-fifth of the world's working age population will be Indian and there will be more than 850 million internet users in India. Moreover, according to a new landmark strategy, “by 2035, India's five largest cities will have economies of comparable size to middle-income countries today.”
These numbers speak for themselves: Few markets anywhere globally will offer more than India.
Yet beyond the narrow traditional focus on resources and education, most of this potential remains unchartered by Australian businesses.
In fact, Australia’s total trade with India in goods and services currently represents less than 4% of our two-way trade globally, placing it well behind China, Japan and South Korea.
Fortunately, the new strategy makes a compelling case as to why this must change.
Unique path to growth
The report by former Secretary of the Department of Foreign Affairs and Trade and current Chancellor of the University of Queensland, Peter Varghese AO, An India Economic Strategy to 2035: Navigating from Potential to Delivery, underlines why Australia can no longer ignore India’s size, scale and unprecedented growth.
The report looks beyond the immediate horizon and provides ways to unlock the opportunities that will help India and Australia grow together. It sets ambitious targets to increase exports to India, “from A$14.9 billion in 2017 to around A$45 billion measured in today’s dollars, and outward Australian investment to India rise from A$10.3 billion to over the A$100 billion mark, reflecting a transformational expansion of the relationship.”
Not surprisingly, these returns will not flow automatically. They will require careful planning and long-term commitment, along with a deep appreciation of the unique cultural and historical contexts that shape India’s growth trajectory.
Where to focus: sectors and states
India’s scale and diversity can be overwhelming. To help distil this complexity, at the core of the strategy outlined in Navigating from Potential to Delivery is a focus on sectors and states.
The report identifies 10 sectors in which the strengths of Australian businesses match India’s needs. These are:
Chapter 14 of the report also identifies 10 priority states where business should focus its efforts. These 10, selected from India's 29 states and seven union territories, each have their own distinct growth drivers, characteristics, and investment climates. They represent the states that dominate economic output, international engagement and investment and trade. For example, the strategy identifies that:
Example: Financial services
The financial services market offers an example of why a highly nuanced sector and a state-based approach is necessary to translate ‘promise’ and potential into outcomes.
Driven by rising incomes, a heightened government focus on financial inclusion and digital adoption, India’s financial services market is growing rapidly, with the strategy citing that digital payments alone could pass A$1 trillion by 2030.
This growth is clustered around fintech and financial services hubs, in particular Mumbai, and by extension, the state of Maharashtra, of which Mumbai is the capital.
But as the market matures, there will be opportunities for Australian businesses to partner with Indian financial services companies in sectors that align with our competitive strengths – especially in asset management, general insurance and fintech.
Other promising cities and states will emerge, as Indian cities with the greatest unmet demand for capital and insurance begin to offer the best prospects for the types of financial services in which Australia specialises.
In fact, several Australian financial services firms are already making inroads, with a long-term view.
Take State Bank of India General Insurance Company (SBI General), a joint venture between Insurance Australia Group (IAG) and the State Bank of India (SBI), India’s largest and oldest bank. with more than 24,000 branches across India. (Source: India Economic Strategy: Chapter 10)
As highlighted in one of the case studies in the India economic strategy, SBI General was established in late 2009 and commenced operations in 2010, building a portfolio in the corporate, retail and SME markets across India. SBI owns 74 per cent of SBI General and IAG 26 per cent, with an option to increase its shareholding.
While not without challenges, SBI General has continued to grow strongly and has achieved significant growth from nil revenue in 2010 to $750 million in 2017.
And given the solid 19% growth of the insurance industry annually, IAG’s future in India looks promising.
Success requires local knowledge
For financial services firms, as for businesses in the other priority sectors, achieving success in India will require strong local knowledge and a willingness to operate on longer time horizons.
As Mr Varghese notes in the introduction to the report:
“Ultimately a strategy is only as good as the commitment which backs it and the resources and priorities which drive it.”
An unambiguous commitment by Australian business and a deeper understanding by both government and business of the transformation underway will be essential if we are to participate in India’s remarkable and unique growth story.
Mukund Narayanamurti is the CEO of Asialink Business, Australia’s National Centre for Asia Capability. He was a member of the expert reference group that helped inform the India Economic Strategy to 2035.
Read more:
- An India Economic Strategy to 2035
- Australia's trade in goods and services 2017
- An India Economic Strategy to 2035: Navigating from Potential to Delivery
- An India Economic Strategy to 2035: Introduction
- An India Economic Strategy to 2035: A collection of states
- An India Economic Strategy to 2035: Agribusiness sector
- An India Economic Strategy to 2035: Financial services sector
- An India Economic Strategy to 2035: Tourism sector
- An India Economic Strategy to 2035: Sport sector
- An India Economic Strategy to 2035: Science and Innovation
