Understanding India: 'It's not another China . . .’

COMPARISON with China  will get in the way of understanding the opportunities in India, warns a new report to the Australian Government . . .

TRANSFORMATION of the Indian economy now under way should generate annual growth of between six and eight per cent over the next two decades, according to a new Australian Government report.
The report urges Australian business not to put India in the "too hard" basket, but rather to seriously consider opportunities that will come from the Indian sub-continent.
"Over the next 20 years, no single market in the world will offer more growth opportunities than India," says Peter Varghese, author of the report.  "India will be the world's fastest-growing economy. By 2025, it will overtake China in population and is forecast to become the world's third-largest economy by 2035, as measured by exchange rates."
Varghese says India will not be another China, and that it is a mistake to try to compare the two Asian giants. "India needs to be seen in its own terms," he says. "It has the scale of China, but it will not be another China. Indeed, comparison with China will get in the way of understanding the opportunities in India."
Varghese addressed a luncheon hosted by CEDA (the Committee for Economic Development of Australia) in Sydney to launch the report. A briefing followed in Melbourne.
He said the fundamental difference between India and China was that no Indian Government could ever direct the country's economy -- or control the allocation of resources.
"China has the discipline for economic planning that stems from its political system, and the competence of its State institutions," he said. "There is no counterpart of the Chinese system in India."

And, unlike China, which has enjoyed decades of double-digit growth, Varghese said growth in India would be more moderate, but sustainable. "Progress is uneven, but the direction is irreversible."
Varghese said Australia had to set a goal to turn India into its third-largest market by 2035. That meant tripling its exports to India over this period.
 But investment must accompany trade to reap the full economic benefits of the Indo-Australia relationship. He suggested that investment needed to rise 10-fold from what is currently a 'miniscule' level.
India should no longer be seen as just the back office of the world, he said. This was a dated perception. India was now an expanding economy, offering a range of services and research and development centres.
At a time of global trade uncertainties, he said, when the contribution of trade to global GDP was less than in the past, it made sense for Australia to look to India for diversification of its export markets.
He pointed to the complementarity between the two economies, and India's scale. What made India even more interesting was its young population -- with an average age of 27 years.
 Varghese said the Australian Government and Corporate Australia must start to develop a strategy to capture the potential of India.
"It will be too late if they leave it much longer, when other countries are clamouring for a piece of the Indian market," he said .
"The India of today is different to that in the days of the 'Licence Raj'. India in 1990 was very different to the India of today. Aand the India of 2035 will be different again."
 Varghese said that, in 1999, the level of applied tariffs in India was 10 times what it is today. Then, trade, as a  component of India's GDP, was 13%. Today, it was just shy of 40%, almost the equivalent of the trade component in Australia's GDP. "Yet," he said, "we see ourselves as an open economy, and not India."
Varghese said India was undergoing urbanisation of the world's largest rural population, with millions of Indians moving from the informal into the formal economy.
The Government had an ambitious programme to upskill 400 million Indians, and was spending to develop infrastructure.
Australia, he said, was well-placed to provide services, like education, food and resources.
The CEDA event concluded with a panel discussion led by two prominent business leaders, Shemera Wikramanayake, the newly-appointed CEO-designate of Macquarie Bank, and Ashok Jacob, a long-term executive with the Packer family. The two agreed that many Australian companies had a "once bitten twice shy" mentality when it came to India because of past experience.
Speaking of Macquarie Bank's experience in India, Wikramanayake said it was important for the business community to shed entrenched views, and for the business community and larger Australian companies to have a better understanding of what was happening in India today. Economic reform in India was making it easier to do business on the ground, with less regulated policy settings, she said.
Risk had been high historically, and India was a difficult market in Macquarie's chosen sector - infrastructure. "Currency was hard to hedge and there was no liquidity (for hedging) beyond two years," she saId.
Macquarie first went to India in 2004 to start a stockbroking business in joint venture with State Bank of India. Today, it owns 53 assets in India, and runs three funds with assets totalling US$3 billion. It employs 1,300 people.
As well as back office functions, Macquarie has finance and operations teams based in India and these professionals support Macquarie businesses in the U.S. and Mexico.
Macquarie, said Wikramanayake, was a patient long-term investor in India. "We took baby steps (to get to where we are today)."