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Indian Challenges and Opportunities The fundamentals for long-term growth are there but many challenges still remain, as these case studies from AirBus Group India and Publicis Groupe show.

Indian Challenges and Opportunities

by Neil Ainger, freelance journalist & treasury writer

The Indian economy is expected to grow 7.4% in 2015, according to the World Bank, aided by a liberalising new government that wants to integrate it further into the global economy. Its population will outpace China by 2040 and it’s a young country with half its people still under 24, many with exceptional skills and languages. The fundamentals for long-term growth are there, as an audience at BNP Paribas’ 8th Cash Management University (CMU) heard on 28 May in Paris.

Challenges remain, however, with infrastructure that needs overhauling, lopsided development and 10 million new jobs a year needed – not to mention the difficulty of doing collections across such a vast country.

Bipin Tibrewal, chief financial officer (CFO) of Airbus Group India and Krishnan Sharma, the treasurer at advertising firm Publicis Groupe, discussed their respective treasury experiences in the country. They also provided the BNP Paribas CMU workshop audience on 28 May with case studies on their different shared service centre (SSC) integration projects and cash management capabilities (see case study boxes).

Meanwhile, Rupa Balsekar, head of transaction banking at BNP Paribas India, provided a macro-economic overview of this fascinating country. She explained how the new immediate payments ACH infrastructure in the country - with e-Banking and

e-Invoicing to the fore - and recent developments in the mobile field should help treasurers seeking more efficiency and speed of operation.

The National Payment Corporation of India (NPCI) is now offering speedy payment and cash management services in the B2B and B2C merchant arena, for instance, and there is also exciting new authentication and mobile-enabled functionality in the country.

Admittedly, adoption rates among corporates for these new tech-based services have been slow to take off, but theoretically the new ACH and immediate payment system, including mobiles, should mean easier access, less cash, faster processing times and new services for everyone. The infrastructure is backed by the Reserve Bank of India (RBI), the country’s central bank.

Over time, as migrations increase, the country will have one of the most modern payment, debit and credit systems in the world with potentially huge implications for accounts payables (A/P) and receivable (A/R); treasury centralisation and global integration.

“RBI’s Vision Statement for Payment Systems in India 2012-2015 talks about creating a less cash reliant society, that promotes innovation, uses paper and bureaucracy less, and more technology to encourage frictionless payments,” explained Balsekar. “The cash management opportunities available with such an infrastructure in terms of speed of payments, cost and global integration are great.”

That is not to say that challenges do not remain, however, with the sheer size of India and the scale of some of its nationalised industries, such as the railways, meaning it can take time to modernise. The government and RBI are nevertheless telling them to migrate to electronic payments and collections wherever possible as part of their key performance indicators (KPIs), so change is happening in the public sector as well as the private sector.

Bipin Tibrewal, CFO at Airbus Group India, drew a telling analogy when he said: “From an aeroplane at 30,000 feet you can see the challenges in India, but lower down in a helicopter at 1,000 feet you see the opportunities.” Truly, a nice overview there for the Parisian CMU audience.

His treasury colleague, Krishnan Sharma of Publicis, pointed out one of the remaining key issues for cash managers, however, when he commented that: “The rupee is not yet fully convertible.”

Liberalising India

The still relatively new BJP Indian government, elected in 2014 with Narendra Modi as the prime minister, is seeking to further integrate the country globally by relaxing the foreign direct investment (FDI) rules, upping the ownership limit to 49% to allow more foreign control and investment in Indian insurance and other companies. In some industries 100% control is already permitted. The banking sector is slowly being liberalised too.

The government wants to encourage more free trade and Indian ownership of foreign companies as well. For instance, Land Rover and Tetley Tea in the UK have both flourished under the ownership of India’s Tata Corporation. Both are considered successful advertisements for India’s increasing integration with global companies and trade.

Greater privatisation can be expected in the future under this new government and further liberalisation of the country’s currency, cash and financial rules, which have traditionally been quite restrictive, in terms of moving cash in and out of the country, banning notional cash pooling and so on.

For cash managers, the recent establishment of the SWIFT India Domestic Services company should also be beneficial in regard to bank connectivity. It is designed to run domestic payment messaging traffic, aided by nine local banks and the participation of international partners like BNP Paribas.

With a diversified economy where no individual sector accounts for more than 26%, and the automobile and consumer sectors have strong growth potential, the World Bank is predicting India’s GDP growth rate will outpace that of China this year. The RBI is also predicting that inflation will dip below the 6% target. It’s a good time to invest in India, therefore, and international treasurers at multinational corporations are likely to deal with the expanding country more and more in future years.

BNP Paribas’ Rupa Balsekar’s explained the specific rules about setting up cash pools in the India to the CMU audience – notional pooling isn’t allowed yet – and other relevant local rules and norms, before the CFO at Airbus India and treasurer at Publicis shared their experiences with their peers.

Continue to page 2 to read case studies from both Airbus Group India and Publicis Groupe.

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