India: A Billion Opportunities

  • Dr Lockwood Smith
Foreign Affairs and Trade

India was certainly an experience! It's good to see some familiar faces from last month's trade mission. I believe you'll agree it was highly successful.

My visit to India was my first. As usual, it was a four-day whirlwind of meetings and functions. The members of the India New Zealand Business Council who came with me will be able to give those of you less familiar with India a far more in-depth perspective of the business opportunities and challenges in the world's second biggest country. But with the contact I had with senior ministers, officials and businesspeople, I hope I can offer you a perspective of its long term potential.

The first point, I believe, is that, vast and fascinating the country may be, it is important not to look at India through rose-tinted glasses. The price of onions was a key political issue when I was in India, which led to interesting manoeuvres in the coalition of 19 parties and four independents. The Chairman of the India New Zealand Business Council, Paddy Marra, will be able to tell you about his difficulties managing AsiaPower's NZ$3 billion hydro-project - with two states unable to agree on who owns the water. Businesspeople wanting to start exporting should really concentrate on Australia.

India is a market for experienced businesspeople. It's for those wanting to make a commitment to a more difficult market with higher risk, but very high potential return. In that context, I urge more of our businesspeople to give it serious consideration.

One sixth of the world's population lives in India; nearly a billion people. And while many Indian people live in poverty by New Zealand standards, the consumer class is estimated to be up to 100 million people. Some even suggest India has more millionaires than any country in the world. What's more, India's economy is growing and its living standards rising.

New Zealand has not, in the past, given India sufficient recognition as a major world power. The Muldoon Government even closed our High Commission. Sir Edmund Hillary did much to repair the damage when the Lange Government appointed him High Commissioner. While I cannot fathom why the Muldoon Government turned its diplomatic back on India, the historic lack of interest by our business sector is perhaps more understandable. India was for many years one of the most closed economies on the world. It has only been since the early 1990s that India has started to integrate into the global economy.

In 1991, the country embarked upon a comprehensive programme of economic liberalisation. It has included liberalising India's trade and investment regimes, rationalising the tax structure, deregulating the private sector and reining in Government expenditure. The average tariff level has been cut from 75% to 20%. Now the returns have come, just as they have in New Zealand through our liberalisation programme. Between 1993 and 1996, annual GDP growth in India has averaged 7%. It's economy is forecast to continue to grow at between five and six percent.

With that 19 party coalition, plus the four independents, not to mention the onion issue, the political environment in India cannot be said to be certain. But the Minister of State for Finance, the Commerce Secretary and the Governor of the Reserve Bank all stressed to me their continued commitment to reform. They assured me that there would be no turning back. Perhaps even more importantly for the long term, there was firm determination at the bureaucratic level - particularly amongst younger officials - to press on. And the key businesspeople I spoke with extensively in both Delhi and Mumbai all stressed that their vision for India was of an open, confident India, integrated into the global economy. It was heartening to hear the same message from the politicians, the bureaucracy and the business sector.

There was even some criticism of New Zealand for not focussing on India early enough. They believed that India passed the point where u-turns were an option some time ago, and that perhaps we should have recognised that a year or so sooner. Balancing that was some appreciation that we had firmly separated our differences over nuclear policy from our trading relationship, being the first country to send a trade mission since the recent nuclear tests.

Despite the degree of commitment to reform, the fact is that India's full transition is not going to come fast. In New Zealand's case, we had a simple political system and the pain of transition, while very

tough for some, was never going to tear New Zealand apart. India's political situation is far more difficult, and the complexity of its coalition management means it needs to proceed more carefully. But I am confident the necessary commitment to reform is there. That's why I see it as a market with great potential, particularly for our more established, secure businesses.

In my view, operating in India requires an understanding of its history. Historically, it was a trading subcontinent. But its experience with the British means it has become more wary of outsiders. It's colonisation began with trading companies. As it now welcomes outsiders again, it needs to see directly the benefits for India. New Zealand businesspeople have to demonstrate that they are offering win/win partnerships. I believe we can.

India is putting emphasis on infrastructure development. It is estimated it needs infrastructure investment of over NZ$500 billion in the next five years. Just as in New Zealand, it means that its investment needs are clearly greater than its own capacity to meet them. And, just as in New Zealand, it can benefit from outside expertise. There's particular potential for our construction, telecommunications, roading and food processing and handling sectors.

We've seen New Zealand playing a role already. There is AsiaPower's NZ$3 billion hydropower project on the Krishna River. Fletcher Challenge has built India's first ready-mix concrete plant in Bangalore. Fletcher Construction has built two state of the art abattoirs. New Zealand Airport Technology is likely to form a major joint venture to supply airport technology. ANZ Grindlays has assisted India to modernise its banking sector. There are more of these sorts of opportunities for New Zealand businesspeople, and they directly benefit India.

Our agriculture-related industries also have much to offer India, and much to gain too. We've seen it in the horticulture sector. New Zealand became the first country in the world to export kiwifruit to India. While I was India, we also reached agreement for New Zealand to become the first country in the world to export apples to India - four years before anyone else. How ENZA went about achieving that provides something of a case study to other sectors. It got alongside the domestic apple industry. It's assisting it in developing a higher quality product, providing it with access to New Zealand varieties, and helping it with marketing. It means third countries will continue to have supply of high quality New Zealand apple varieties during our off-season, which is good for our apple industry. In return, New Zealand will have access to India's vast market during the Indian off-season. That's a win/win deal.

Wool provides a similar case study. Our biggest export to India right now is wool. India's biggest exports to the world are carpets and textiles. The Fernmark strategy offers us a way to assist India in capturing bigger premiums in third markets for its finished products. At the same time, it will help enhance the Indian carpet and textile industries' commitment to New Zealand wool. It seems to be working. Already, nine Indian manufacturers are Fernmark partners, and the Fernmark dominated discussions at the Indian Woollen Mills Federation AGM in Mumbai which we attended. Our profile was also enhanced by the First India New Zealand Joint Business Councils' Scholarship being awarded to a representative of the Indian textiles industry.

Education, of course, is a key Indian priority. Currently, only around 100 of the 42,000 Indians who study abroad each year come to New Zealand. The very committed education sector representatives on my delegation all reported success in building relationships with Indian tertiary institutions to improve upon that.

The common theme from each of these relationships was that India could see the benefit of working with New Zealand in these sectors. There was no sense that we were simply trying to exploit the Indian market, nor was there any perception of it. I believe avoiding any such perception is one of the keys to operating in India.

India will continue to open. Further tariff cuts are scheduled through to 2002. By the year 2000, import liberalisation will give New Zealand access for another 34 products, including frozen lamb and yoghurt. I also stressed to ministers the need for India to simplify its tariff structures and streamline its investment procedures in order to encourage greater trade and investment. I don't believe I was the first to make that point, but it was certainly heard receptively. India is aware of the need to remove many of the bureaucratic obstacles which have become legendary.

My advice to New Zealand business - particularly more established, experienced business - is to give India a go. I am sure the India New Zealand Business Council would agree. It is not the most open market. It is far from the easiest. But with a billion people, a growing economy and what I believe to be firm commitment to steady liberalisation, it offers us enormous potential. Our businesses need to get in there now if they are to benefit; if they are not each to be seen as a johnny-come-lately; if they are going to be able to establish a presence in India before their international competitors.

In the political sphere, I'm looking forward to working with India to achieve liberalisation of trade in agriculture and textiles through the next WTO Round. We have common interests in those two sectors. I'm looking forward to establishing further agreements between our two

Governments to facilitate trade. I urge our business sector to do the same in the commercial sphere. The India New Zealand Business Council has depth of experience in the market. I urge potential new entrants to the Indian market to network with, and learn from, its members. India has a billion new opportunities.