Changing India a vast untapped opportunity

By Brian Fallow

For everything you know about India, the exact opposite is also true, says Indian economist Reuben Abraham.

Director of the Centre for Emerging Markets Solutions at the Indian School of Business in Hyderabad, he has been in New Zealand as a guest of the Treasury, recognising that India and New Zealand are two countries which should know each other better.

One overarching piece of advice Abraham has for companies thinking of doing business in India is to "zoom in" and recognise that its continental scale encompasses a wide diversity.

States differ widely in income, the quality of public policy and the ease of doing business.

"People like me live in the 21st century but there is a part of India that is still in the 16th century," he says. "That is a contrast people struggle to get their heads around."

Broadly speaking, economic growth is coming from the south and west of the country, Abraham says.

A New Zealand food exporter, for example, looking for supermarket chains is much more likely to find them there.

Abraham's other overarching advice is to recognise the magnitude of the opportunity the changes India is undergoing represents, but to be patient and take a long-term view.

Central to those changes is urbanisation. Over the past 10 years, 100 million people have moved from village to city and 250 million to 300 million more are expected to do so over the next 25 years.

Policymakers are coming to recognise that urbanisation is not a consequence of growth, to be managed, but a driver of growth, to be encouraged, he says.

"The largest urban infrastructure project in the world right now is a $100 billion freight corridor linking Delhi and Mumbai. The idea is that along it 24 new cities will be built."

That is a lot of people to be fed, and educated.

In 2025 between a fifth and a quarter of the world's workforce will be Indian. "There is significant room there for partnerships in all sorts of training."

Abraham points to the longer-term benefits a country like the United States derives from the flow of foreign students through its universities.

"We have a venture capital arm in my centre," he says. "When we look for new technologies, let's say in turning waste to gas, we automatically turn to the US.

"That's because we all studied in the US, we have relationships in the US, so we default to it or, if not, to parts of Europe.

"The reason we don't look to New Zealand, which probably has a lot of these technologies as well, is that we don't have those relationships."

Tourism is another underdeveloped opportunity, Abraham believes.

India is a source of around 15 million outbound tourists a year and they are big spenders. Switzerland attracts 450,000 of them, 30 times as many as New Zealand does.

Why Switzerland? Because quite a few Bollywood movies are made there and people like the look of it.

"Tourist numbers from India to South Africa have gone up dramatically. It typically uses cricket as the lever then overlays it with other things, safaris, food and wine.

"New Zealand has vineyards but doesn't seem to offer wine holidays."

Abraham does not gloss over the challenges of doing business in India.

He laments a complacency among politicians at the national level, but contrasts it with more progressive attitudes among some of the states' chief ministers.

Policies intended to aid the poor - subsidies and labour market regulations - have created counter-productive distortions, Abraham says. Corruption is an issue, often linked to campaign finance costs.

"I'm a fan of democracy. I would prefer messy India any day over China, where things get done.

"But it is important also to point out the obvious, which is that democracy does impose a tax on getting things done," he says. "And that's okay. You simply need to be more patient. It means all stakeholders are getting their voices heard. That's important in the long run."

Abraham recommends investing in sectors where you can own at least 51 per cent of an enterprise - recent reforms have expanded the list - and taking an Indian partner, carefully chosen. "It amazes me when people don't do due diligence about that."

- NZ Herald

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