An opportunity for Australian investors in India

India's ambitious proposals to tackle corruption will be warmly welcomed by Australian firms, which will be looking to capitalise on the country's sizeable and growing economic base.

Tony Abbott’s visit to India last week came at a critical juncture in the country’s history, as newly elected Prime Minister, Narendra Modi embarks on a war on corruption.

As the former chief minister in the north western state of Gujarat, Modi’s investor-friendly policies resulted in significant deregulation, investment in modern infrastructure and job growth. Gujarat is now one of the easiest parts of India to do business and foreign investors will be watching with interest to see if he is able to introduce similar reforms across the country. However, before Modi can move forward, he is acutely aware that he needs to take steps to tackle corruption in the country.

India has long been an attractive market for companies all over the world given its size and growing economic base. However, many foreign companies are hesitant to do business in India because of the risks that they face. Bribery and corruption is ingrained in society, business, the court system and politics and is often regarded as a ‘necessary’ practice in order to conduct business efficiently.

Faced with low paid officials and drawn out processes, companies’ often find it ‘easier’ to circumvent the system by paying public officials bribes in order to receive licences or approvals quickly, rather than having to deal with bureaucratic red tape. However, such practices merely perpetuate an already broken system and leave companies dangerously open to the risk of prosecution both by Indian and international regulators.

There is growing recognition that corruption in India is damaging the country and that solving this problem is a step in the right direction to improving business confidence domestically and globally.

As India celebrated its 67th Independence Day on last month, Modi’s sentiment was clear:“Corruption is troubling us. People are angry. I assure that we will fight corruption and work with those against graft. Corruption has ruined the country. I promise that we will fight against corruption with our full might.”

It is not only the people of India who will take comfort from these words, which also provide hope to foreign investors and companies throughout the world. They have been waiting for the right time to enter the Indian market and to take advantage of the opportunities that the growing economy of 1.2 billion people holds.

More importantly, it is apparent that this anti-corruption sentiment is translating into active steps to combat bribery. This week the India’s Federal Police filed charges against South Indian politician and former telecommunications minister, Dayanidhi Maran, his brother billionaire Kalanithi Maran and Malaysia's second-richest man T. Ananda Krishnan over alleged corruption to help Malaysia's Maxis group take control of an Indian mobile phone carrier eight years ago. Last week, the Indian Supreme Court found that every coal mining licence the government had allocated between 1993 and 2009 had been granted in an illegal manner stemming from endemic corruption. 

As the Australian government seizes the opportunity to forge stronger economic ties with the country, Australian companies will also be eagerly waiting to see if the new government can deliver on its plans to improve India’s infrastructure by building new roads, factories and high speed trains. One hundred new cities have been proposed.

To achieve these ambitious plans, India will need natural resources. Australian companies are well positioned to take advantage of the opportunities that this presents. India will also need the skills and expertise in the areas of mining, urbanisation and education that Australian companies can offer.

While countries cannot transform overnight, foreign investors can look forward to a more level playing field and a country which has the tools and will to hold those breaking the rules to account. The old Indian saying, “India grows at night while the government sleeps” may become a thing of the past.

Justin McDonnell is a partner at King & Wood Mallesons and Natalie Caton is a senior associate at King & Wood Mallesons.

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