Overview

• India truly is both a new economy and an old economy. It has always encompassed
  huge economic and cultural diversity, but a decade of uneven reforms is
  increasing the divergence between sectors and states.
• In particular, several 'new economy' sectors are growing much more rapidly
  than old economy sectors.
• Also, four southern and western states are performing much more strongly
  than the rest of India and attracting the bulk of new investment.
• However, growth prospects in all sectors and states depend on continued
  reform. Furthermore, the business environment remains challenging.
• This report identifies the fast growing sectors and states where prospects
  are brightest for Australian traders, service suppliers and investors. It
  also considers more general growth, trade and investment prospects.
• Looking First at Growth Achievements and Prospects
• Since opening the economy in the early 1990s, India's real per capita
  income growth has doubled.

Slide 1

• And the percentage of people living in poverty has fallen more quickly

Slide 2

• Already about are 60 million people are believed to live in Indian middle
  class households, with income over $6,000 per year; this number could reach
  125 million by 2007.
• However, since the mid 1990s, governments of India's large decentralised
  democracy have found it difficult to achieve consensus for further rapid
  reform. Hence, growth has slowed in recent years.

Slide 3

• In early 2001, the Indian Government again announced its intention to
  make further comprehensive reforms.
• If implemented, these could return India to previous growth peaks
• A more likely scenario is continuing incremental reform. This should
  ensure India maintains 5 to 6 per cent growth over the medium term, in line
  with Consensus and IMF forecasts for this year and next.
• However, at a time when much of Asia apart from China faces very slow
  growth or contraction, India's growth prospects look relatively robust.

Fast Growing Sectors

• One of the report's main findings is that the higher growth since the
  early 1990s is focused almost exclusively in a few 'new economy' service
  sectors like IT, finance and telecommunications. These new sectors have
  grown much more strongly since reforms started
• Manufacturing's growth is about the same in the 1990s as in the previous
  decade.
• 'Old economy', agriculture, mining and infrastructure are growing more
  slowly than in the 1980s.
• The report finds that this distinction has grown up largely because these
  fast growing services sectors are less exposed to key deficiencies in the
  business environment.

Slide 4

• IT and particularly software is undoubtedly India's most successful sector,
  and is characteristic of the new fast growing services sectors. Total revenue
  expected to have reached about US$11.4 billion in 2000-01, or 2 per cent
  of GDP.
• The software sector now dominates the IT industry and has been growing
  almost 50 per cent per annum over the past 7 years

Slide 5

• IT's spectacular growth is due the country's huge pool of skilled, relatively
  low cost IT engineers and strongly supportive government policy.
• Unlike 'old economy' manufacturing, India's high interest rates, infrastructure
  shortages and rigid labour laws do not hold back the software industry;
  furthermore, it exports about 70 per cent of its output.
• However, skilled staff shortages have been pushing up IT engineer salaries
  by around 20 per cent per year since the late 1990s and are a challenge
  to its medium-term competitiveness.
• The IT enabled sector, including call centres, back office support and
  data entry, is growing even faster than software. This sector accesses a
  much larger pool of potential employees, so may have even stronger long
  term growth prospects.
• In combination with the considerable strengths and creativity of the Australian
  IT industry, collaboration with India's IT industry offer Australian firms
  major opportunities to enhance internal competitiveness and secure new markets
  both at home and abroad.
• The report examines several Australian firms successfully developing software
  in India including ANZ IT and Lumley Technology.
• Like IT, other new economy sectors including financial services, telecommunications,
  health, education, biotechnology, environmental services, media and entertainment
  also are benefiting from reforms and suffer less from the constraints the
  old economy faces. The report details reforms, opportunities and many case
  studies of Australian firms succeeding in these sectors.
• Also, the number of Indian students and tourists coming to Australia is
  increasing exponentially.

Slide 6

INDIA'S FAST GROWING STATES

• Reforms not only favour 'new economy' sectors but also a few high performing
  states that are capturing the lion's share of India's growth.
• Four southern and western states, Gujarat, Karnataka, Maharashtra and
  Tamil Nadu, are growing significantly faster than other major states.

Slide 7

• While they have only 28 per cent of India's population, these states produce
  40 per cent of its output and attract 55 per cent of its local and foreign
  investment.

Slide 8

• These states are excelling because of beneficial economic structures,
  better than average infrastructure, higher export orientation and more encouraging
  attitudes towards business and education. As well, most are centres for
  new economy sectors including IT. More recently, some state policy reforms
  are reinforcing these advantages.
• Australian businesses can benefit from focusing their export and investment
  efforts in these high performing states.
• Their higher incomes, faster growth and better business environments often
  offer investors and traders more and potentially better opportunities.

THE BUSINESS ENVIRONMENT

• Another key message of the report is that despite many reforms, foreign
  companies still consider India a challenging business environment.
• The main problems foreign companies encounter include red tape, transparency
  issues and infrastructure shortages and expense.

Slide 9

• Three key strategies emerging from the report's 30 Australian firm case
  studies and numerous further business interviews are:
  • o the crucial nature of business partner choices
  • o the need for patience and perseverance in dealing with the bureaucracy
  • o the good potential for sales growth and profits if businesses succeed
    on these first two issues and have a well priced or unique product or
    service.
• As well, India still imposes many import restrictions including high tariffs.
• While many key sectors including manufacturing, infrastructure and software
  now permit 100 per cent FDI, several other sectors still cap foreign ownership
  below 100 per cent.
• Hence, despite India's reforms, growing incomes, low labour costs and
  the widespread use of English India only received only US$2.5 billion in
  new FDI in 2000, while China attracted over US$40 billion.

WHERE ARE THE BEST BUSINESS OPPORTUNITIES

• So, India's reforms are creating interesting trade and investment opportunities
  for Australian firms in a range of fast growing 'new economy' sectors and
  high performing states.

Slide 10

• As well, higher incomes and trade liberalisation are boosting Australian
  commodity, niche manufactures and services exports to India.
• Resources still dominate Australian exports to India, and are likely to
  do so for some time.

Slide 11

• Among the 'old economy' sectors, some parts of mining, advanced technology
  manufacturing and niche infrastructure like ports currently are the most
  prospective for direct investment and related goods and services exports.

Slide 12

SUMMING UP

• Apart from these prospects, in new and old economy sectors, the report
  finds India needs further comprehensive reforms to consolidate its growth
  and expand these opportunities.
• In the short term, Australian businesses operating in India can expect
  incremental economic and business environment reforms to continue; more
  comprehensive reform is unlikely given political constraints the central
  government faces.
• Infrastructure shortages are likely to remain acute and labour market
  reform is unlikely in the medium term.
• Nevertheless, if India's reforms deepen, its growth potential is huge.
  Already Australian businesses are accessing promising trade and investment
  opportunities and prospects for expanding commercial relations