As Minister Robb noted, Australia-India relations are at an all-time strength.
“Over the last six months, we have concluded a civil nuclear agreement, developed a new Framework for Security Cooperation, signed a Social Security Agreement to reduce business costs and enhance two-way mobility, extended our science cooperation with a new focus on commercialising research outcomes, and achieved strong growth in two way tourism, migration and education flows,” he wrote in the Economic Times.
That India’s economy is getting back on track is reflected in growing international interest, not just from Australia, but also by the presence of large American and other contingents at the preceding Vibrant Gujarat investment summit. The latest International Monetary Fund report emphasised this progress, India was one of only a few positive stories.
The resurgence in the relationship thanks to diplomatic efforts, industry impetus, and the interdependency of our two peoples has benefited Australian banks and the sheer scale of the opportunity for industry and financiers is huge.
As a banker, I note Australian banks that have set up their India operations over the past three to four years are already making a significant contribution – in financing, across trade flows and advisory.
I will discuss the central role of Australian banks in more detail shortly but first a few thoughts on the Resources sector that’s a key area of collaboration.
India is a promising source of Foreign Direct Investment (FDI) both globally and into Australia and its significance will continue as Indian companies chase new markets, technologies and resources while seeking to manage risks and uncertainty in the domestic market.
The broader resources opportunity was one Minister Robb emphasised. “As a mining superpower, Australia also wants to share the technology, expertise and capital that will help unlock India’s own vast mineral and resources endowment,” he wrote. “Our world-class mining companies such as Rio Tinto have a proven commitment to India. Australian companies are excited by the opportunities to ‘Make in India’.”
But Australia is not an automatic investment destination.
As a panellist at the FDI round table, my colleague Rajesh Gupte observed business leaders were keen to understand the drivers to invest in Australia, emerging trends in investment behaviour, the extent of Indian government support for this and how cultural differences can be managed.
In particular, mining, mining technology, water resources management, project management, contract mining, opportunities for sale of technology for water management and defence equipment (now opened up for foreign investment) are areas of high interest.
Parallels were drawn between the resources environment in both countries. While there is now greater transparency in India’s iron ore and coal acquisition policy and the upfront outlay of funds required is less, the advantage Australia offers is scale; a settled operating environment that has historically promoted mining and mining technology and the availability of operating assets – especially attractive in the background of low global commodity prices that are making acquisitions competitive and affordable.
This leads into a discussion on financing options available for large overseas investments.
In 2014, an uncertain election year, Indian companies raised about $US34 billion.
With a business-friendly, stable government and the slow but sure pick-up in the Indian economy, the prospects for 2015 are better. Over the past 12 -18 months ANZ led/jointly managed close to a quarter of the $US19 billion debt raised in offshore bonds by Indian corporates.
The momentum for overseas issuances from India will continue. There is surging overseas appetite for Indian risk and issuers have been enticed by a cut in withholding tax too.
Nearly 30 per cent of bond value has come from debut issuers. Large jumbo deals are getting done across an investor base spread across Asian and other markets. We are seeing deeper liquidity in corporate bonds with high yield corporates contributing to over a quarter of 2014 volume.
While the USD-denominated offshore bonds remain the top pick currently, with US interest rates likely to rise, we do expect a shift to more regional currencies.
There will also therefore be a greater requirement for advisory services in financial structuring and risk management. The investment made in the broader Asian infrastructure and syndication and distribution capability is enabling ANZ to connect both Indian and Australian borrowers to the strong investor base in Asia.
We are seeing many corporates reach out for advice on capital and investments, asset acquisitions and trade flows.
Over the last decade, Australian exports to India have grown 12 times. By 2020, India is expected to rank as one of Australia's top five overall trading partners.
Australian banks in this high growth ecosystem have expanded beyond the home market to cover the entire Asia Pacific and I would remind you most notably ANZ. The retreat of European banks has also contributed to this shift.
As Minister Robb mentioned in Delhi, more and more companies right across India and Australia are entering the global supply chain. So apart from product and financing capability, connectivity and efficient processing are really important.
ANZ and indeed all Australian banks can help bridge the unfamiliarity of Australian and Indian exporters and importers to assist customers achieve greater reach. A great example is our work for one of India’s largest conglomerates where our seamless ‘catch and throw’ model for efficient financing and cash management has helped us bank at least 30 of its group companies across nine countries.
After financing and facilitating trade flows, advisory is the third pillar in financial services.
As Australia seeks to broaden its trade relationships, amidst high risk environs and volatile asset classes, local expertise is at a premium.
That’s why it is most critical to partner with experts on the ground. Whether it be local consultants and lawyers, Austrade or bankers like us.
Most customers have sought our insights around asset acquisition and disposal by Indian companies in Australia; setting up Australian businesses in India – particularly questions like landscape evalutions or introductions for legal and consulting services - facilitating the set-up of Indian companiess in Australia and comprehensive banking across geographies for conglomerates.
To summarise: the opportunity is here and is growing. The need for efficient financing across a variety of requirements will only increase. Trade Flows will continue to dominate. And strong contextual advice will be a premium.
Most importantly, the mature Australian financial system is more than equipped to maximise the huge potential between our nations.
- Australia Business Week in India (ABWI) began on 12 January and around 450 business leaders visited India’s major cities to meet their Indian counterparts through a series of industry programs, seminars and meetings. It also incorporated participation in Vibrant Gujarat.
- India is Australia’s 11th largest trading partner with two-way trade of A$15.2 billion and fifth largest export market, with total exports of A$11.4 billion. Total Indian investment in Australia is near A$11 billion (up from A$600 million in 2006), while total Australian investment in India is over A$6.5 billion.
- After nearly 12 years in Asia and a successful India stint having secured approvals for 2 new branches in India, Subhas returns to Sydney as Executive Director – Super Regional Business Development to focus on ANZ’s growth in high potential corridors with Australia.