Transcript No Slide Title

Australia & India
Trade, Investment and Opportunities
June 2010
Doug McTaggart , CEO- Queensland Investment Corporation
Section 1
The Australia – India Relationship
2
Australia, India and China: A Quick Comparison
GDP (US$ trillion)
GDP Growth 2009
GDP- Per Capita (US$)
GDP Composition
Agriculture
Industry
Services
Population (mn)
Demographics
0-14 years
15-64 years
65+ years
Area (mn sq.km.)
Public Debt (% of GDP)
Exports (US$bn)
Imports (US$bn)
Forex Reserves (US$bn)
Cumulative FDI (US$bn)-inbound
Cumulative FDI (US$bn)-outbound
1. Twelve months to March 2010
3
Australia
931
India
1,095
China
4,814
1.0%
38,800
7.4%1
3,100
8.7%
6,600
4%
25%
71%
21
18%
20%
63%
1,173
11%
49%
41%
1,330
18.4%
67.8%
13.7%
7.7
18.6%
161.5
189.9
45.0
282.3
366.5
30.1%
64.6%
5.3%
3.3
59.6%
165.0
253.9
287.5
161.3
77.4
17.9%
73.4%
8.6%
9.5
18.2%
1,194.0
921.5
2,206.0
576.1
227.3
Australia’s trade with India
Composition of Australia's trade with India
Merchandise Exports
Gold
Coal
Copper ore & concent.
Others
Services Exports
Education related travel
Personal travel excl. Edu.
Other
Australia's Trade with India (2009)
A$mn % of total
14,484
Merchandise Imports
6715
46% Electrical Plants and parts
5006
35% Pearls, Gems & Jwellery
826
6% Medicaments
1,937
13%
Others
3,701
3,187
232
282
86%
6%
8%
Services Imports
Personal travel excl. Edu.
IT
Other
Trends in Australia's trade with India
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A$mn % of total
2,031
341
16.8%
206
10.1%
90
4.4%
1,394
68.6%
666
392
139
135
58.9%
20.9%
20.3%
The changing Economic Relationship
 India’s become Australia's third largest Export partner, up from # 13 a decade ago
 India is now Australia's seventh largest trading partner
 India is Australia’s fastest growing two-way trade partner
 The trade is expected to grow at double digit rates in the medium term as India’s demand for
resources shoots up
 Beyond Gold and Coking Coal trade
•
Thermal Coal- India’s import demand for coal will grow manifold during the next few years
•
Travel- Education and Tourism related travel have shown potential to grow
•
Manufacturing- Indian companies have grabbed opportunities in textiles, tractors and machinery
•
IT Services- Indian companies have a significant presence in Australia
 Beyond Trade
•
Opportunities in building, managing and investing in Indian Infrastructure
•
India’s trillion dollar economy and a growing market presents opportunities to Australian companies in
India’s emerging sectors like Dairy Products, Healthcare, Retail, Engineering Consulting and Education
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Beyond Economics
 India, the largest democracy, emerging as a leading economic, political and military
power in Asia during the last two decades
 Australia and India complement each other in several areas:

Australia can provide resources to fuel the Indian economy in the form of coal, metals, minerals, technology
and capital

India has the potential to provide human resources and a vast consumer market to Australian companies

There are exponential growth opportunities for both the countries through collaboration in the areas of
financial services, capital investment, infrastructure development, professional services and obviously the
resources trade
 With increasing trade, the two countries can diversify their existing trade partnerships

Strategic cooperation between the two countries is important for stability in the Asia-Pacific region
 India has always looked to the ‘west’ for technology, expertise and capital

Australia provides an alternative
 Australia has focussed on Japan and China for exports of its mineral resources

India provides a large and long-term option
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Section 2
An overview of the Indian Economy
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India: A Quick Overview
National Income
Nominal GDP (FY09, US$bn)
Population (mn, FY09)
Population Growth (% CAGR, FY95-FY09)
Per Capita GDP (FY09, US$)
Nominal US$ GDP Per Capita Growth (%, FY95-FY09)
Savings, Investments and FDI
1,212
1,154
1.4%
1,050
8%
32.9
34.9
35.0
3%
Market Statistics
GDP Composition (%, FY09)
Agriculture and Allied Activities
-Agriculture
-Mining and Quarrying
Industry
-Manufacturing
-Electricity, gas and water supply
-Construction
Services
-Trade, hotels, transport & communication
-Financing, insurance, real estate & biz services
-Community, social and personal Services
Savings (FY09 % of GDP)
Gross Capital Formation (FY09 % of GDP)
Level of Gross FDI (FY09, US$bn)
Gross FDI as % of GDP, FY09
18.9%
17.0%
1.9%
23.8%
14.6%
2.0%
7.3%
57.3%
28.6%
14.8%
13.9%
Current Market Capitalization (US$bn)
MSCI Weight (Asia Pac ex Japan)
Average Daily Volumes (US$bn)
-Cash
-Derivatives
Tot Domestic Mutual Fumds Assets (US$bn)
FII Ownership (% of market Cap)
8
1,355
8.1%
4.3
14.0
166
17%
A Regional Comparison
Market Cap (2009)
ROEs-high capital utilisation
3000
2500
USD bn
2000
1500
1000
500
Thailand
Malaysia
Singapore
Taiwan
Korea
Australia
India
Hong Kong
Shanghai
0
India’s corporate sector and individuals under-leveraged, hence insulated from the financial crisis
Loans as % of GDP: Regional Comparison (2009)
Total Loans
-Business Loans
-Retail Loans
-Mortgage Loans
-Non-mortgage Loans
India China Indonesia Vietnam Thailand Korea Malaysia Taiwan Hong Kong Singapore
51% 106%
29%
86%
96% 83%
98% 141%
196%
125%
38% 87%
19%
83%
70% 45%
48%
82%
144%
61%
13% 19%
10%
3%
25% 38%
50%
59%
52%
64%
8% 10%
2%
0%
17% 23%
26%
45%
39%
50%
5%
9%
7%
3%
8% 15%
24%
14%
13%
14%
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India coming out of the Global Recession
Capacity Utilization-Picking Up (RBI survey)
Industrial Production picking up
Sharp recovery in Exports
Credit growth likely to increase
10
Signs of Revival…
Upward Earnings Revisions (y/e Mar 2011)
Consensus GDP Growth expectations uptick
Apartment Registrations in Mumbai
Cement Sales Growth
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Coming out of the Global Recession
Markets have recovered
Capital Flows are improving fast
Leading to an exit from an easy Monetary Policy
Leading to a withdrawal of the Fiscal Stimulus
12
Key Trends and Reforms
 The Government is committed to reduce the Fiscal Deficit to 4.8% of GDP by FY12
•

The deficit shot up to 6.7% in FY10 (6.0% previous year) driven by fiscal stimulus to support the economy
during the global recession
Tax reforms
•
•
Consolidated Goods and Service Tax regime to be implemented from April 2011
Direct Tax Code targeted to be introduced in April 2011
 Significant rural push
•
•

Has improved rural income
Reduced dependence on Agriculture for rural demand
The Government has initiated an aggressive divestment program
•
Stake sales of USD5bn in key Government enterprises such as NTPC, NHPC, REC, SJVNL, NMDC
 Financial institutions remain strong
•
Asset quality of Indian bank has remained good through the global crisis
 Demographics
•
Bucking the trend witnessed in the western economies and in China, the proportion of dependents in
India’s population fell from 64.7% in 2000 to around 50% in 2010
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Key Risks

Inflationary pressures building up in India
•


Can stoke up inflation again
India’s fiscal deficit could balloon, however
•
3G auctions yield around USD15bn
•
Privatisation could yield a further USD10bn
Drying up of capital flows remains a risk
•

Inflation remains a concern
Oil and commodity prices
•

While non-food inflation is around 5%, food
inflation remains high at 17%
The high current account deficit has been
sustained by capital flows
NPA’s of banks could rise
•
RBI allowed a one-time restructuring of assets in
2009
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Section 3
Opportunity areas for India-Australia trade
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Coal Exports
 Coal is the second largest export commodity to India from Australia
 India’s coal imports have increased from near zero five years back to around 70mn tonnes in FY10.
India’s annual coal imports can potentially increase to more than 200mn tonnes by 2014.
 Australia exported around 261mn tonnes of coal in FY09, 24.7mn tonnes of which was to India.
 Going forward, Australia exports could rise significantly
•
•
More than 90% of coal exports comprises coking coal

The demand is likely to grow significantly as steel production in India likely increases at 10-12% per
annum during the medium term.

India will likely become third largest steel producer in FY11 producing 71.6mn tonnes of steel (9.4%
CAGR since FY06).
However, growth in thermal coal exports will likely be exponential as:

India plans around 50GW of power capacity addition during the next five years mostly coal-based

Although India has the 4th highest proven reserves, quality and infrastructure issues point to
continuing reliance on coal imports

Large planned power capacities and scarce domestic coal supply will mean India will be importing
at least 60 mn tonnes of coal per annum in near future

Australia with its large thermal coal reserves can potentially become a large thermal coal exporter
to India
 Challenges
•
Port and Rail capacity in Australia
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Financial Services
 During the global credit crisis, the Indian banking system emerged largely unscathed
 India’s growing economy will continue to drive demand for banking services, financial products,
technology and capital
 Financial sector engagements between Indian and Australian firms are gaining momentum
•
Insurance Australia Group recently announced an investment of AUS$ 126 million for a 26%
stake in its general insurance JV with the State Bank of India
•
On the banking side, Australia's four major banks ANZ, NAB, Commonwealth and Westpac
are all in various stages of processing applications for entering the Indian banking sector
•
Meanwhile, Indian banks are increasing their presence in Australia
 There are other opportunities for Australian companies
• The Insurance and Pension sector reforms in India continue to throw up opportunities for
Australian firms
•
As the Indian banking system continues to open up to foreign players, Australian Banks will
have opportunities to participate in growing demand for credit, mortgages, assetmanagement and other financial-products
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Other Opportunities
Travel and Tourism
 Education-related Travel
•
Australia's education related exports to India were A$3.2bn in 2009
•
Australia is now the 2nd biggest overseas education destination for Indian students
•
Total students enrolment in Australia from India were 120,000 in 2009
 The two –way personal travel between the two countries was A$624mn in 2009
•
As the trade and business between the two countries grow travel will grow significantly
•
Both the countries are great tourist destinations
Agriculture and Agri Processing
 Australia- India trade in Agriculture, despite growing at 15% CAGR during the 2005-2009 period,
remains modest at US$456mn
 The key imports to Australia are tea, rice, cashew nuts and tobacco, while export items are wool,
pulses, almonds and paper
 The opportunity for growth is significant as:
•
India needs expertise in setting up large efficient dairy farms
•
Demand for various wheat and dairy products grows in India
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Section 4
India Infrastructure Space: Opportunities
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Infrastructure
 India long-term growth is constrained by the lack of adequate infrastructure in most sectors
 The country is likely to spend US$1 trillion over the next seven years to bridge the infrastructure gap
 Significant investments are being planned for Ports, Roads, Energy, Airports, Mining and Urban
Infrastructure segments
 Australian companies have cumulatively invested around A$2bn across sectors In India
•
Australian companies are currently playing a significant role in planning, construction and
financing of various infrastructure projects (Leighton, Thiess, Macquarie)
 Going forward, India will present significant opportunities for Australian companies in:
•
Strategic and Financial investments in infrastructure projects
•
Design and construction of infrastructure projects
•
Consulting and engineering services for projects
•
Firm supply agreements for resources like coal with Indian energy companies
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Infrastructure—picking up again
Infrastructure Investment again picking up
Sector (US$bn)
Electricity, Gas & Water
Railways
Communication
Roads
Ports
Airports
Urban Infra
Total
% of GDP
Growth %
2006
18.5
3.5
7.4
5.4
1.3
0.5
1.6
38.1
4.5%
Highest growth in lending is to the Infra. sector
2007 2008 2009E 2010E
22.2
27.9
29.4
32.7
4
5.9
6.3
6.8
11.6
17.4
17.3
19.2
5.8
7.8
7.6
8
1.8
1.9
2.1
2.1
1.1
1.5
1.7
2.1
2.9
3.9
4.7
5.5
49.3
66.3
69.1
76.5
5.2% 5.4% 5.7% 6.0%
29.4% 34.5% 4.2% 10.7%
Power Sector: Despite aggressive buildups, deficits will continue
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Infrastructure
The roads sector: Likely to pickup after a slowdown during 2008-2009
The logistics sector: Rail traffic turnaround
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Infrastructure
The ports sector: Traffic has picked up…and is back to 2008 levels
…while Utilization remains high
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The growing relationship
 Australian Companies in India
•
•
•
•
•
•
Mining - BHP, Rio Tinto
Macquarie Group
Bluscope Steel
Leighton Holdings
QBE- Insurance JV with Raheja Group
Woolworth- JV with Tata group
 Indian Companies in Australia
•
•
•
•
•
•
Aditya Birla Group’s Mount Gordon Copper mine in north-west Queensland and Nifty Copper Mine in
western Australia
Sterlite’s Copper mine in Tasmania
Gujarat NRE Coke’s two mines in Queensland
Gujarat NRE Coke’s investment in Hunter Coal mining industry in NSW
All large Indian IT services companies have presence in Australia (Infosys, TCS, Wipro)
Tata group owns Hotel Blue in Sydney
 Recent Activity
•
•
•
Mahindra & Mahindra Group’s acquisition of Gipps Aero
NTPC, India’s largest Electricity generation company’s plan to acquire coal mine near Perth
Coal India’s plans to buy coal mines in Australia
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Long term comparisons – Buy chaos, sell order!
India
Economic:
Social:
China
Internally driven growth –consumer led
Externally driven growth – export led
Market based
State directed
Strong financial sector
Opaque financial sector
Democratic
State controlled
English language
Rule of law – independent judiciary
State intervention
Private ownership
State ownership
Freedom of the press
Significant censorship
Demographic:
Young/dynamic
Older/aging
Long-run prospects:
Very good
Questionable
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Thanks
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