Time for corporate Australia re-set its view on India

From a lower skilled manufacturing base, the country is now moving up the value chain.

In 2023, the South Asian has surpassed China as the world’s most populous nation. It has registered droves of fintech firms in numbers second only to Silicon Valley. Economists forecast it will pass Japan and Germany to become the world’s third largest economy by the end of this decade.

India’s ambition to become a global consumer superpower will be more fully realised when it further opens its capital account to more international trade and investment.

This is starting to happen with the recently ratified Australia India Economic Cooperation Trade Agreement (ECTA) – the first India has signed with a developed market for more than 10 years.

Herein, lies a massive opportunity for Australian companies seeking to tap a market of 1.4 billion people whose personal incomes are rapidly rising.

The ECTA is expected to enhance the robust trade relationship between the two countries and boost bilateral trade from the existing US$31 billion to $45 billion in the next five years, according to both governments.

We feel these estimates could even be on the conservative side given the potential linkages and, if executed to its full potential, could become one of Australia’s largest trading partners within a relatively short period.

But its full potential won’t be realised unless more Australian boardrooms are committed to exploring the India opportunity.

Looking into the details, the deal makes it easier for Australian companies to do business in India by eliminating tariffs on almost 91% of our goods exports within 10 years, including a range of agricultural products, pharmaceuticals and wine. It would also guarantee preferential treatment to our service suppliers in sectors such as business services, research and development, and construction and engineering.

HSBC has been a strong supporter of numerous Australian clients which have been progressively expanding in India over an extended period: some clients have long-viewed India as a potential growth avenue and established a presence many years ago, whilst others are increasingly evaluating the opportunity and looking to partner with Indian corporates to open up greater market access and relations between the two countries.

Many of our clients now see the ECTA as the starting gun to finally and fully pivot a stronger commitment there. This will be bolstered further by the Australian delegation – led by Prime Minister Albanese - to India this week.

But we think more Australian corporates need to turn in this direction.

Investment into Australia

On the flipside, the contribution that India and its population make to Australia is already of a considerable magnitude and will only be enhanced with the trade deal.

Around 673,350 Australian residents were born in India, according to the recent census, including approximately 100,000 international students.

It recently leapt ahead of others to become the third largest country of birth for Australian residents, behind only England and Australia itself. It has also proved our third-largest largest source of international tourists since the border reopening, with only our traditional mainstays of New Zealand and the United Kingdom providing more support for our recovering tourism industry.

Importantly, the deal allows more Indians to work and study in Australia to provide another fillip to tourism and a much-needed addition to our drained pool of workers. For example, 1,000 young Indians will be able to enter into Australia every year for working holidays. And students with first class honours degrees will be able to stay in Australia for three years’ post-study, up from two, if they work in either STEM or IT sectors of the economy.

Another avenue for Australian inbound investment will be in support of its green agenda which received a massive boost towards the end of last year with the accelerating of its Net Zero commitments to reduce emissions by 43% by 2030.

The Australian Government has touted that these overall climate ambitions will require AUD$76 billion in investment by 2030 with less than one third to come from the public purse. Indeed, the Government’s modelling estimates that AUD$2.13 in private investment will be needed for every public dollar spent . The increased connectivity between Australia and India lays the groundwork for more two-way investment in the green space, particularly in hydrogen and renewables.

Timing is everything; India is well on the way to entrenching its status as a fast-growing major economy and its already strong relationship with Australia is only going to strengthen with the freshly penned free trade agreement. If used to its full advantage by Australian corporates, the ECTA will prove a significant avenue for Australia to tap the commercial opportunities offered by its exploding middle class.

By Hitendra Dave, CEO HSBC India and Antony Shaw, CEO of HSBC Australia.