| There is much debate about India's long-term economic growth path, with some predicting that its economy will be the third largest in the world by 2032.
India’s emergence as a major economic player in the Asian region has caused a wave of investment into the subcontinent, covering everything from manufacturing, telecommunications, hotels, minerals processing, food processing, to oil and gas.
But most significantly for Australia – the Indian automotive sector is booming.
There are 13 international companies building vehicles in India.
Domestic sales of passenger vehicles amount to well over one million units per year and the multifacited TATA has worked hard to produce a car which is under US$5000.
The Indian Automotive Advantage
“Many people mistakenly see India as just a service economy, but while 54 per cent comes from service - 16 per cent comes from manufacturing, which is still a significant portion of the economy,” South Asian senior trade commissioner Michael Moignard says.
“Engineering exports out of India last year were a total of $US 24 billion which is a 40 per cent increase on last year. Those two numbers indicate that there is a manufacturing industry here and there is a focus on export.”
According to Moignard, India is becoming a major destination for Engineering Process Outsource, or EPO.
This is due to the nation’s low cost labour pool and number of high quality engineers - an equation that very much follows the logic of the Indian IT sector explosion.
Areas included in the EPO are manufacturing process optimisation which includes things such as process simulation, product design and product testing.
Australia is also beginning to become recognised as a source for sophisticated manufacturers, with exports of elaborately transformed manufactures (ETMs) showing a substantial increase.
Economic Outlook
India's income per capita remains significantly lower than other large economies and the challenge of wealth distribution will continue.
According to Invest Australia, Indian investment in Australia is worth around $1 billion, making Australia the ninth most important destination for Indian foreign direct investment.
AIG Talks Shop
Australian Industry Group trade and export development manager Louise McGrath also recognises the advantages to be gleaned by Australian manufacturers.
“There are lots of opportunities for Australian companies in India,” McGrath says.
“Compared to China we’ve probably got more opportunities with advance manufacturing and finished goods. In China, they really needed a lot of tooling and industrial machinery.
But in India it’s more of the finished goods.
Retail Loyalty
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The other advantage, McGrath says is that Indian consumer loyalty has always been with the retailer - not on the brand, thus providing an entry point for foreigners.
“Because then you are capitalising on the existing goodwill found with an Indian company you are at an advantage. This doesn’t exist to the same degree in China.”
Logistically Speaking
But McGrath is careful to stress that one important factor when considering investing in India is to be aware that infrastructure is still quite undeveloped.
There are not the huge highways foreign investors enjoy in China and tolls are paid frequently.
“Any manufacturer looking to go to India has to take into account that the logistics system is challenged,” she says.But on the upside, Indian companies are far more sophisticated than their Chinese counterparts.
“India is in a very different situation to China,” McGrath says.
“China had cheap man power and infrastructure but didn’t know how to be an international company.”
Variety is the Spice of Life
Compare that with Indian companies. TATA, as mentioned earlier, is in everything from trucks to IT and this diversification is the trademark of many large Indian organisations.
“Reliance is another Indian company which began in Dubai. From starting off in the oil business it got into hospitals, telecommunications - you name it.”
Reliance’s turn over equates to a whopping total of six per cent of India’s GDP, however, McGrath says that but most investors outside of India have never heard of the powerhouse.
“The difference is that Reliance made its money in India rather than being cheap to the rest of the world,” she says.
“To me it’s a real business with real money and has longevity.”
It’s no secret that with Chinese salaries increasing and resource costs rising, foreign investors will soon be looking for a cheaper option.
“India is in a better position than China from that perspective because they are competitive, diverse and they have far more R&D,” McGrath says.
View from a Different Point
According to McGrath, what manufacturers are doing when surveying India as a potential investment point, is rather than assessing it as a place where they can produce goods and sell them, they are looking to develop strategic partnerships.
“India does have cheap labour as a competitive advantage, not just within the workshop, they have cheap business processing,” she says.
“But because the education system in India really is on par with the rest of the world, the company you’d be partnering with could bring some R&D and new ideas as well as access to a huge market - there is still a billion people.”
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