Australia & India Australia & India

Trade, Investment and OpportunitiesTrade, Investment and OpportunitiesJune 2010June 2010

Doug McTaggart , CEO- Queensland Investment Corporation

2

The Australia – India Relationship Section 1

3

Australia, India and China: A Quick ComparisonAustralia India China

GDP (US$ trillion) 931 1,095 4,814GDP Growth 2009 1.0% 7.4%1 8.7%GDP- Per Capita (US$) 38,800 3,100 6,600GDP Composition Agriculture 4% 18% 11% Industry 25% 20% 49% Services 71% 63% 41%Population (mn) 21 1,173 1,330Demographics 0-14 years 18.4% 30.1% 17.9% 15-64 years 67.8% 64.6% 73.4% 65+ years 13.7% 5.3% 8.6%Area (mn sq.km.) 7.7 3.3 9.5Public Debt (% of GDP) 18.6% 59.6% 18.2%Exports (US$bn) 161.5 165.0 1,194.0Imports (US$bn) 189.9 253.9 921.5Forex Reserves (US$bn) 45.0 287.5 2,206.0Cumulative FDI (US$bn)-inbound 282.3 161.3 576.1Cumulative FDI (US$bn)-outbound 366.5 77.4 227.31. Twelve months to March 2010

4

Australia’s trade with India

A$mn % of total A$mn % of totalMerchandise Exports 14,484 Merchandise Imports 2,031 Gold 6715 46% Electrical Plants and parts 341 16.8% Coal 5006 35% Pearls, Gems & Jwellery 206 10.1% Copper ore & concent. 826 6% Medicaments 90 4.4% Others 1,937 13% Others 1,394 68.6%

Services Exports 3,701 Services Imports 666Education related travel 3,187 86% Personal travel excl. Edu. 392 58.9%Personal travel excl. Edu. 232 6% IT 139 20.9%Other 282 8% Other 135 20.3%

Australia's Trade with India (2009)

Trends in Australia's trade with India

Composition of Australia's trade with India

5

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

6

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

7

An overview of the Indian Economy Section 2

8

India: A Quick Overview

Market Statistics

Savings, Investments and FDI

GDP Composition (%, FY09)

National Income

Agriculture and Allied Activities 18.9% -Agriculture 17.0% -Mining and Quarrying 1.9%Industry 23.8% -Manufacturing 14.6% -Electricity, gas and water supply 2.0% -Construction 7.3%Services 57.3% -Trade, hotels, transport & communication 28.6% -Financing, insurance, real estate & biz services 14.8% -Community, social and personal Services 13.9%

Nominal GDP (FY09, US$bn) 1,212Population (mn, FY09) 1,154Population Growth (% CAGR, FY95-FY09) 1.4%Per Capita GDP (FY09, US$) 1,050Nominal US$ GDP Per Capita Growth (%, FY95-FY09) 8%

Savings (FY09 % of GDP) 32.9Gross Capital Formation (FY09 % of GDP) 34.9Level of Gross FDI (FY09, US$bn) 35.0Gross FDI as % of GDP, FY09 3%

Current Market Capitalization (US$bn) 1,355MSCI Weight (Asia Pac ex Japan) 8.1%Average Daily Volumes (US$bn) -Cash 4.3 -Derivatives 14.0Tot Domestic Mutual Fumds Assets (US$bn) 166FII Ownership (% of market Cap) 17%

9

A Regional ComparisonMarket Cap (2009) ROEs-high capital utilisation

Loans as % of GDP: Regional Comparison (2009)

0

500

1000

1500

2000

2500

3000Sh

angh

ai

Hon

g Ko

ng

Indi

a

Aus

tral

ia

Kore

a

Taiw

an

Sing

apor

e

Mal

aysi

a

Thai

land

USD

bn

India China Indonesia Vietnam Thailand Korea Malaysia Taiwan Hong Kong SingaporeTotal Loans 51% 106% 29% 86% 96% 83% 98% 141% 196% 125% -Business Loans 38% 87% 19% 83% 70% 45% 48% 82% 144% 61% -Retail Loans 13% 19% 10% 3% 25% 38% 50% 59% 52% 64% -Mortgage Loans 8% 10% 2% 0% 17% 23% 26% 45% 39% 50% -Non-mortgage Loans 5% 9% 7% 3% 8% 15% 24% 14% 13% 14%

India’s corporate sector and individuals under-leveraged, hence insulated from the financial crisis

10

India coming out of the Global RecessionCapacity Utilization-Picking Up (RBI survey) Industrial Production picking up

Sharp recovery in Exports Credit growth likely to increase

11

Signs of Revival…

Apartment Registrations in Mumbai Cement Sales Growth

Consensus GDP Growth expectations uptickUpward Earnings Revisions (y/e Mar 2011)

12

Coming out of the Global Recession

Leading to a withdrawal of the Fiscal StimulusLeading to an exit from an easy Monetary Policy

Markets have recovered Capital Flows are improving fast

13

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

14

Key Risks Inflationary pressures building up in India

• While non-food inflation is around 5%, food inflation remains high at 17%

Oil and commodity prices

• 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

• 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

Inflation remains a concern

15

Opportunity areas for India-Australia trade Section 3

16

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

17

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, asset-management and other financial-products

18

Other OpportunitiesTravel 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

19

India Infrastructure Space: Opportunities Section 4

20

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

21

Infrastructure—picking up againInfrastructure Investment again picking up Highest growth in lending is to the Infra. sector

Sector (US$bn) 2006 2007 2008 2009E 2010EElectricity, Gas & Water 18.5 22.2 27.9 29.4 32.7Railways 3.5 4 5.9 6.3 6.8Communication 7.4 11.6 17.4 17.3 19.2Roads 5.4 5.8 7.8 7.6 8Ports 1.3 1.8 1.9 2.1 2.1Airports 0.5 1.1 1.5 1.7 2.1Urban Infra 1.6 2.9 3.9 4.7 5.5Total 38.1 49.3 66.3 69.1 76.5% of GDP 4.5% 5.2% 5.4% 5.7% 6.0%Growth % 29.4% 34.5% 4.2% 10.7%

Power Sector: Despite aggressive buildups, deficits will continue

22

InfrastructureThe roads sector: Likely to pickup after a slowdown during 2008-2009

The logistics sector: Rail traffic turnaround

23

…while Utilization remains high

InfrastructureThe ports sector: Traffic has picked up…and is back to 2008 levels

24

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

25

Long term comparisons – Buy chaos, sell order! India China

Economic: Internally driven growth –consumer led Externally driven growth – export led

Market based State directed

Strong financial sector Opaque financial sector

Social: 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

26

Thanks