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If this is "India's time", how should NZ respond?
17 Nov 2014
A week may be a long time in politics, but it's not long to sum up the prospects of a country as large and complex India. However, that's not going to stop me trying after a flying visit to Delhi and Mumbai this month, joining New Zealand firms on a short trade mission, to take the pulse on the Indian economy and its new government, and to explore for myself a long-held business idea.
What follows are some high level observations from that visit: • India is on the move. Both "hard" and "soft" data are improving. A quickening growth rate and falling inflation could see an interest rate cut soon. At the same time, business confidence is buoyant on expectations of more effective government under Modi. This makes India unlike other BRIC economies, which are slowing (China) or struggling (Russia and Brazil);
• But patience is required. The current uplift in "animal spirits" will take two or three years to start translating into substantial new capital investment on the ground. Likewise, Modi's reform agenda will proceed at a pace that keeps the population on board, rather than pleasing bank economists who would always counsel faster reform. He is doing well in state elections and can expect to gain a majority in the federal upper house by 2017. At that stage, his political position would be even more unassailable than it is now;
• The economic advisers closest to Modi are internationalist, favouring foreign direct investment and trade liberalisation. This week's breakthrough with the WTO, which sees last year's Bali Declaration back on track, is proof of that. India appeared to have collapsed the Bail consensus, but is now back on board. Note, however, that this has involved acceding to some of India's particular concerns about food security;
• This episode is therefore a guide to how India is likely to think about the stalled free trade agreement with NZ, even as Australia talks up the prospects for its own bi-lateral deal with New Delhi. Indian dairy farms are small and inefficient, compared to NZ farms, as is much of the country's food production and supply chain. Exposing producers to global competition won't be favoured because of its potential to upset domestic stability;
• What I think this means for NZ is that the best commercial opportunities in this new, invigorated environment will be in areas where trade barriers are already relatively low or where there is obvious demand for what NZ has to offer. When Agriculture Minister Nathan Guy made an early morning visit to the New Delhi fresh fruit and vegetable markets, his guide - big in the apple trade - almost berated him for the absence of NZ-sourced fruit-packing and grading equipment in India. If we persist in pinning all trade efforts on an FTA, especially if it's include dairy, it's likely either to be a very long and/or fruitless effort. Luckily, NZ's trade advisers are already starting to realise they need to put more effort beyond dairy, not just in India, but everywhere;
• Indians receive New Zealand businesspeople with warmth, respect and genuine interest in doing business. There is no Aussie-style "big brother, little brother" problem, and unlike China, dealings can be conducted easily in English. But beware of the presumption that a shared Commonwealth heritage, similar rule of law and a mutual love of cricket somehow make doing business in India easy. This assumption is a common mistake, the locals say;
• Note, however, that along with "Make in India" and Modi's "clean-up" campaigns, one of his government's top aims is to move India into the top 50 countries for "ease of doing business", instead of its current position, around 150th;
• The cracking pace of business dealings and the hectic matter of just navigating India's big cities will be a challenge to NZ businesspeople, but that can be overstated. That said, senior Indian businesspeople can struggle with NZers' informal style. Wear a tie, greet formally at first, and definitely have a stack of business cards on hand for an Indian business trip.
In conclusion, after a false start in 2011, when India was identified as the first country to be targeted under the government's new NZ Inc strategic approach but nothing much happened, it's time to dust off that thinking and for NZ re-engage with India commercially and diplomatically.
Failure to do so would be to miss a huge opportunity that, in my swiftly gained view, is suddenly becoming much more available.
Pattrick Smellie is co-owner of the BusinessDesk NZ business news wire service, carried in the NZ Herald, NBR, TVNZ, and Australian Associated Press, among others. His travel to India was assisted by the Asia-New Zealand Foundation.