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.

[[[PAGE]]]

Case Study: Airbus

Bipin Kumar Tibrewal, CFO of Airbus Group India, presented a case study at BNP Paribas’ CMU on 28 May outlining how Airbus has recently merged its previously multiple legal entities in India into one single entity. He explained the implementation challenges and finance benefits of this new structure and the plus points of its associated new shared service centre (SSC). The domestic cash pool and single entity established has saved Airbus money, giving it US$25m in surplus funds, more efficient operations, less real estate and improved governance. The firm also now has a ‘helicopter’ overview of its operations, a better consolidated brand and a single strong voice for negotiating with suppliers and communicating its strategy. The new SSC also fits in with Airbus’ global plans, with similar regional treasury centres (RTCs) planned for other growing parts of the world in Asia and elsewhere.

The Airbus Engineering, Training, Eurocopter, EADS and other Airbus subsidiaries in India - spread across New Delhi, Bangalore and Mumbai - were disparate units in the past. Separate boards, administrative HR, IT and finance structures; multiple tax arrangements and low brand visibility all meant the cost of operation was higher than it needed to be, with fund movement between entities a costly and slow process.

All this has been swept away in the last couple of years as Tibrewal introduced the SSC and created better tax efficiencies, control, a lower cost base and simpler compliance procedures – not to mention a consolidated local treasury unit that serves all its units in India and is now scalable and ready to meet the demands of the future.

Case Study: Publicis

Krishnan Sharma, the treasurer of Publicis Groupe, an advertising and media firm in India, presented a case study at BNP Paribas’ CMU on 28 May outlining how it merges newly acquired companies into its shared service centre (SSC). Publicis Groupe has bought more than 20 entities over the last decade with established businesses such as Saatchi India joined by digital entity Resultrix and PR firm CNC in recent years.

At one point Publicis was aiming to buy a new advertising or media agency every three months, explained Sharma, adding that with any new acquisition: “We immediately want to get them into our SSC quickly. Ideally within two months, in order to get centralisation and efficiency benefits.”

The firm also seeks to reduce the number of legal entities under its corporate umbrella, although unlike Airbus India Group it has not yet got down to being a single entity. Some intercompany loans, tax and other cross-company treasury structures therefore remain in place.

Publicis aims to merge a newly acquired entity with its next biggest firm within two to three years of the purchase. By following this procedure it effectively has a continuous consolidation process which is designed to reduce the number of entities under its umbrella over time.

The sheer volume of acquisitions means forming a single entity at Publicis will take time, so it is not as advanced as Airbus yet in this regard, but in the meantime Publicis does get operational efficiency benefits by continuously consolidating on an SSC treasury structure that commonly looks after accounts payable, receivables and other cash management functions.

An established procure has been formulated for Publicis’ aggressive merger and acquisition (M&A) activity. An investment bank and boutique finance house identify targets and carry out the valuations, due diligence and purchase agreements, while exploring potential synergies. Treasury only comes into the process later on when Sharma looks at the accounting, legal and tax implications. He handles the deal closure if a takeover is greenlit. Sharma effectively acts as an internal advisor and financier to the business, receiving help from BNP Paribas India where needed, and oversees post-merger integration support.

Integration is no easy matter with each new firm having to be added to the Enterprise Resource Planning (ERP) technology stack that Publicis has. Sharma has to oversee each new entity’s integration into a new banking, invoicing and SSC structure; all the while taking account of local rules concerning cash pools, payments, regional collections differences and other specifically Indian factors that require local expertise and knowledge. Sharma, his banking partner, BNP Paribas, and local advisors now have the process honed to perfection after many years of activation and are doggedly pursuing further entity consolidation and centralisation SSC efficiencies.