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India the next frontier for global companies: three compelling reasons

The world’s most populated country, India, is a nation of stark contrasts, juxtaposing incredible opulence and large-scale poverty, the world’s largest youth population coexisting with the second-largest global ageing population, and job creation not keeping pace with high economic growth. Additionally, most Indians prefer jobs with large and established organizations instead of startups; nevertheless, India is home to the world’s third-highest number of unicorns (startups valued at US$1 billion or more).

Despite India being a country of vast contrasts, it is currently the world’s fifth-largest economy, and is likely to overtake Germany and Japan to become the third biggest economy globally by 2030, as stated by both S&P Global and Morgan Stanley. It is also projected to be the “The fastest-growing economy in the world in 2023”, according to the International Monetary Fund (IMF).

India has arrived on the global stage and offers attractive long-term economic opportunities and a thriving investment environment to multinational corporations and overseas investors. As an investor-friendly jurisdiction, India continues to be a major destination of foreign direct investment (FDI), and it moved a notch up to the seventh position among the top recipients of FDI in 2021.

An emerging global economic power, India is being viewed with strategic importance even by the most valuable company in the world, Apple. According to Morgan Stanley analyst, Erik Woodring, India actually is Apple’s “next growth frontier”.

In fact, Woodring said in a note to clients last week that India could “Account for 15% of Apple’s revenue growth and 20% of installed growth over the next five years.” While India represents $6 billion in Apple’s annual revenue today, farther out, Woodring forecasts that Apple India can grow its revenues “7x” to $40 billion over the next decade.

India’s growth and success drivers have been spurred by its internet revolution, technology innovation, infrastructure investments, political stability, recent geopolitical shifts and closer partnerships with Western powers.

Here are three reasons India is expected to be the next frontier for global corporations and why there is no better time than now for companies to focus on entering, expanding or investing in the new engine of global growth.

Surging stock market and robust economic growth attracting record foreign investment

Morgan Stanley’s chief Asia economist Chetan Ahya wrote in an article published in the Financial Times last year that “India will add more than $400 billion to its GDP every year, a scale that is only surpassed by the US and China. My colleague Ridham Desai projects that India’s market capitalisation will rise from $3.4 trillion to $11 trillion by 2032, the third largest globally.”

In April, The IMF released its World Economic Outlook report estimating India’s economic growth for 2023 will be 5.9% percent, compared to 1.6% in the US and 5.2% in China. Spurred by its market size, economic resilience and growth potential, Indian shares have received $9.4 billion of net inflows from foreign portfolio investment in the second quarter, Bloomberg data shows.

The other factors that have caused foreign investors to pile into Indian stocks are China’s economic recovery losing momentum, India snapping up discounted Russian oil to power its economy, the strong earnings performance by India’s domestic companies, and a rebound in high-end consumer discretionary spending by upper middle class and rich Indians.

According to a recent article published on CNN Business titled India’s stock market is hitting record highs, “India’s stock market is booming as investors take a chance on one of the few bright spots in a fragile global economy. The country’s stocks are so hot that India is now home to the world’s fourth most valuable equity market, behind only the United States, China and Japan.”

Against this backdrop, the “Total value of Indian equities has hit $3.5 trillion, greater than the value of Europe’s two biggest stock markets, in the UK and France”, as per data from Refinitiv.

India’s evolving aviation landscape is also testament to the country’s robust economic growth. European aerospace corporation, Airbus, struck a historic deal last month with India’s Indigo airline. Considered as the biggest single purchase agreement in the history of commercial aviation aircraft, Airbus will sell 500 narrow-body A320 family jets to India’s largest airline. The 500-plane deal surpassed the mammoth deal signed in February by Air India (India’s second-largest domestic carrier) for 470 Airbus and Boeing passenger jets.

India is “The world’s fastest-growing aviation market”, as per Bloomberg, with its government spending “$12 billion over the next two years” in ramping-up airport infrastructure to meet resurgent travel demand. Record plane orders and splurging to boost airport infrastructure are another vote of confidence for India’s economic strength, huge potential and strategic importance as a sought-after destination for foreign investment.

An attractive “China Plus One” alternative spurred by massive infrastructure spending and deepening economic ties

The term “China Plus One” refers to a global business strategy that encourages corporations to avoid investing only in China and diversify their business operations and supply chains into other countries (see the CTMfile article, Strained US-China relations: key considerations for treasurers, CEOs and CFOs). These strategies have gained ground amidst lockdowns and international conflicts that worsened global supply chain disruptions and contributed to inflationary pressures worldwide.

This supply chain crisis has positioned India for global trade growth and helped present it as a manufacturing alternative to China. The Indian government intends to invest over a trillion dollars on modernising the nation’s infrastructure to harness India’s manufacturing competitiveness and allow it to serve as a counterweight to Chinese manufacturing.

“The Indian government has announced plans to invest over $1.4 trillion in infrastructure projects over the next five years. This includes investments in energy, transport, and urban infrastructure, as well as enhancing digital connectivity and the development of smart cities. This investment will help to strengthen India’s manufacturing sector, as well as create an efficient and reliable supply chain that will support the country’s economic growth”, Trade Finance Global noted in an article published earlier this year reflecting on India as a potential winner in the China supply chain crisis.

This focus on national infrastructure overhaul to increase the manufacturing share of India’s GDP has helped many multinational corporations recognize India’s growing potential as a global manufacturing hub.

Apple, looking to diversify manufacturing away from China, is now producing 7% of its iPhones in India. A shift of over 18% of its iPhone production from China to India is expected by 2025.  According to JP Morgan analysts, “Apple will move 25% of its entire iPhone production line to India by 2025 as it looks to diversify its supply chain.”

US digital communications technology conglomerate, Cisco Systems, is another company that will begin manufacturing in India to strengthen and diversify its supply chain and “To meet the growing demand from customers in India as well as globally.” It has set a target of $1 billion in combined domestic production and exports from India over the next few years.

Besides exhibiting the potential to be a manufacturing powerhouse, India has strengthened its economic ties with the US, the EU, Japan, Australia, the UAE and Saudi Arabia. In particular, the deepening of the US-India bilateral relations has resulted in the United States becoming India’s biggest trading partner in 2022-2023.

“In 2022, our bilateral trade reached over $190 billion. And we have significant cross-border investments and durable people-to-people ties as the two largest democracies in the world”, observed US Treasury Secretary Janet Yellen at the U.S.-India Business Council Ideas Summit in June 2023. Yellen has made three visits to India this year and said that, “By this fall, I will have traveled to India more times than any other country as Treasury Secretary”.

World leader in real-time payments and one of the fastest-growing e-commerce markets

One of the most important pillars or components of payments modernization is real-time payments (RTPs). India, fuelled by its homegrown instant payment system, has emerged as a global leader in instant payments. Research by ACI Worldwide shows that India was responsible for 46% of global real-time payment transactions in 2022. With a staggering 89.5 billion real-time payment transactions and a year-over-year (YoY) growth rate of 76.8% last year, “India remains the undisputed RTP leader — followed by Brazil, China, Thailand and South Korea”, the ACI report stated.

The ACI report further added that as the trend shifts from cash to digital-based real-time payments, India is estimated to hit 235 billion RTP transactions by 2027, with its share of global real-time payment transactions forecasted to soar from 46% in 2022 to 67.1% in 2027.

India's powerful real-time payments system, the Unified Payments Interface (UPI), has not only catapulted the nation into the forefront of domestic digital payments. Its success has also been instrumental in paving the way for payments interoperability among various providers and across borders, easing cross-border payments and overseas transactions and reducing the cost of fund transfers and remittance payments.

Countries that have embraced UPI payments include UAE, Maldives, Bhutan, Oman and Nepal. Plans are afoot to take UPI to Bahrain, Saudi Arabia and other Gulf nations. QR-based UPI payments are also enabled to be accepted in 10 Asian countries that include South Korea, Japan, Malaysia, Singapore, Thailand, Philippines, Cambodia, Vietnam, Hong Kong and Taiwan. A few weeks ago, India and France agreed to use UPI in France.

“The widespread adoption of real-time payments resulted in estimated cost savings of $US12.6 billion for Indian businesses and consumers in 2021, which helped to unlock $US16.4 billion of economic output which represents 0.56% of the country's GDP”, states the ACI report.

Instant payments have benefited organizations operating in India by improving liquidity and cash flow management while providing greater visibility into payments. They have also reduced operational risk with intraday credit and liquidity management, as well as enhanced the ability to streamline supply chain finance.

In addition to the proliferation in RTPs, India has witnessed an internet revolution propelled by one of its most influential business leaders, Mukesh Ambani. According to The Economist, “Mr Ambani’s landmark $46 billion ten-year investment in Jio, a domestic 5G telecoms business”, has helped a majority of Indians access the internet.

For the first time, 52% of India’s population (759 million), are active internet users and accessed the internet at least once a month in 2022, stated a joint report published in May 2023 by the Internet and Mobile Association of India (IAMAI) and Kantar, a data, insights and consulting company. The report projects that by 2025, the active internet user base will grow to 900 million.

The internet explosion, the adoption of varied modes of electronic and mobile payments, and the exponential rate of growth in the e-commerce market are primary factors that have contributed to India’s digital transformation. Locking horns in the battle for supremacy in India’s e-commerce space are Amazon, Walmart-owned Flipkart, and Reliance.

Carl Douglas McMillon, president and chief executive officer of Walmart, the world’s largest retailer, on a visit to India a few months ago, spoke to Business Standard (one of the most popular business newspapers in India) and remarked, “We talk about India in every board meeting.”

The global retail giant further commented that it is focused on growing “An ecosystem of suppliers and partners in India, including micro-, small- and medium-sized enterprises (MSMEs), to meet the company’s goal of sourcing $10 billion of India-made goods each year by 2027”.

With e-commerce sales in India forecasted to reach $135 billion by 2025, triple the amount from 2020, as per Bernstein research, Amazon is also betting big on India. The biggest e-commerce company in the world, Amazon plans to invest an additional $15 billion in India over the next seven years. Amazon CEO Andrew Jassy conveyed this information to India’s Prime Minister Narendra Modi during his state visit to the US last month. This will bring the total investment across all Amazon businesses in India to $26 billion by 2030.

Reliance is the other key player in India’s e-commerce marketplace. In partnership with Reliance Retail and Jio Platforms (subsidiary of Reliance Industries), Facebook’s parent company Meta is challenging Amazon and Walmart for a share of the Indian e-commerce industry.

In April 2020, Meta invested $5.7 billion in Jio Platforms for a 9.99% stake. A month later, JioMart, an e-commerce venture powered by Reliance Retail and Jio Platforms, was launched in 200 cities and towns across India. In August last year, Jio Platforms partnered with Meta to enable grocery shopping on the instant messaging platform, WhatsApp.

The promise of immense growth in the Indian e-commerce sector has brought Walmart, Amazon and Meta to the next big online consumer market. India’s rising spending power and its position as one of the top five preferred retail destinations globally is also causing it to attract brands in the retail sector.

Around two dozen global brands like Dunhill, Roberto Cavalli, Lavazza, Armani Caffè and Foot Locker are expected to enter India with their stores this year, The Economic Times (ET) reported last month.

In the last few months, McLaren, Valentino and Balenciaga, among several others, have debuted in India. Tim Hortons, Popeyes, Pottery Barn, and Pret A Manager are some others on the list, ET further added.

As more companies enter, expand or invest in India, there will be a greater adoption of instant payments. With these businesses transferring money and making and receiving payments in real-time, and as more e-commerce transactions move to instant payments, a lucrative digital payments system will be reinforced in India. Additionally, with India’s central bank, the Reserve Bank of India, stepping up its wholesale and retail central bank digital currency (CBDC) pilot, the nation’s digital economy is expected to be further bolstered, and its payment system likely to become more efficient.

Earlier this month, CNBC reported that “India’s largest private lender HDFC Bank has completed its merger with Housing Development Finance Corporation, the country's biggest mortgage lender, in a deal that pits the new entity against the world’s largest banks.”

In the same article, Soumya Rajan, CEO and founder of Mumbai-based Waterfield Advisors, said that “The merged entity will be the world’s fourth largest bank by market cap – behind JPMorgan Chase, Industrial and Commercial Bank of China and Bank of America.”

In an interview with Outlook Business last year, after the announcement of the merger, HDFC’s outgoing Chairman, Deepak Parekh, stated, “The larger balance sheet and larger capital base will allow greater flow of credit in the economy, it will enable underwriting of larger ticket loans including infrastructure loans which are the need of the country.”

The merger is anticipated to result in increased lending or enhanced credit availability to businesses and consumers at lower interest rates, and that will benefit the bank’s customers and shareholders, while also fostering growth in the Indian economy and strengthening the payments system.  

Like many other countries, India is also increasingly focusing on artificial intelligence (AI) to harness its future. According to Stanford University 2023 Artificial Intelligence Index Report, India is ranked fifth among countries that have received the highest AI investment in 2022. Moreover, it stands as the sixth-largest recipient of AI investments between 2013 and 2022, amounting to a total of $7.73 billion.

As India leverages technological advancements, strategic infrastructure investments, political stability, strong economic growth, evolving geopolitical dynamics and enhanced partnerships with Western nations, it is opening a new economic chapter in the 21st century that multinational corporations would be unwise to ignore, risking being left out of the huge opportunity for growth.

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