Vulnerabilities in China-based supply chains, exposed by the COVID-19 pandemic, as well as muscle flexing by the Asian giant on trade has some companies looking to India as a new market.
Long-awaited incentives to attract companies to India from China are again in process, with possible tax and duty reductions, fast track approvals by national and state governments, more land availability, and relief from India’s leviathan regulations in special economic zones.
The Narendra Modi government announced a $US1.3bn package in March to attract more local pharmaceuticals production.
The COVID-19 pandemic is likely to significantly lift India’s $750bn speciality chemicals industry as well from its current 3 per cent share of the global market, said Ambit Capital, an Indian brokerage house, in a research note.
Companies such as Mumbai-based Vinati Organics hope India’s cheap labour and cheap manufacturing processes will be the final straw global customers need to make the move, according to the Financial Times.
Not the new China
But while ASX companies have longed to enter India, which is only slightly smaller than China in population, few have penetrated the south-Asian country’s opaque bureaucracy and state-sponsored cronyism.
Indian fund manager Ruchir Sharma wrote in an op-ed last year that China and India had little in common aside from populations of just over 1 billion.
“China is a one-party autocracy that mobilised its homogeneous Han, Mandarin-speaking majority behind a decades-long campaign of radical reform,” he said.
“India is a diverse, multiparty democracy that will always struggle to rally its hundreds of ethnic and linguistic minority groups behind any single goal.
“India has never risked anything like mass firings and large-scale migration to promote growth because its democratic leaders fear that voters would punish them for the short-term upheaval and pain.”
And while some deregulation of the Marxist planned ‘licence raj’ economy in the 1990s created billionaires of unimaginable wealth, it hasn’t wiped away an unfair tax system, a slow justice system, or rigid labour laws, wrote former Financial Times correspondent in Mumbai, James Crabtree, in his book The Billionaire Raj.
Possible but much harder than China
Companies that have attempted an entree to India include Wattle Health (ASX:WHA), which made a big deal in July 2018 of a 12-month deal to sell baby food there.
A year later the company was in court in India claiming its counterparties to the deal, India-based Vasudevan and Sons Exim Private, failed to provide a bank guarantee in connection with an agreement and therefore didn’t buy any of the contracted goods.
iCollege (ASX:ICT) has had a slow-growing Indian arm for several years based in Delhi, which produced first revenue in the June quarter last year. It also bought a coding school in December last year.
To give an idea of how long a deal in India can take, AVA Risk Group (ASX:AVA) was in negotiations to sell its security devices to the Indian military before mid-2018, when it revealed its hand to the ASX.
It delivered the first cargo in January this year.
Another case of over-optimism is Zoono (ASX:ZNO).
Zoono said in May 2017 it had secured its first Indian customer and it expected to deliver the first order just three months later.
Approvals for that sale finally came in last year.
Chief Paul Hyslop told Stockhead that to get a deal in place and sales to start in India, he had to visit 12 times.
Vortiv (ASX:VOR), formerly Transactions Solutions International, was onto a good thing with a part ownership in Indian ATM machines — until in 2016 Prime Minister Narendra Modi overnight cancelled all 500 and 1000 rupee notes in the name of reducing corruption and the black economy.