UAE-India Trade Forum: Tit For Tat

The UAE stands out as a very attractive market for investment and to do business. It is in the strategic location of being at the cross roads of Asia, Europe and Africa and is India’s largest investing country, accounting for 81 per cent. In 2017 trade relations between the two reach $35 billion, according to HH Sheikh Hasher Maktoum Juma Al Maktoum, Director General, Dubai Information Department, while delivering his keynote address at the fourth edition of the UAE-India Economic Forum.

The event focused on the benefits of the increased collaboration between the two countries while moving away from the hydrocarbon sector and emphasising collaboration in the areas of investment, trade, infrastructure, ports, banking, finance, and tourism between the UAE and India. In terms of what this increase in bilateral trade between the two countries means for the financial sector, Rishi Kapoor, Co-Chief Executive Officer, Investcorp Bank says there are significant opportunities on both fronts. “The first thing we have to accept over here, that is almost taken for granted, is that India is both a fast-growing and attractive market but also it is also a capital-starved market.

There is insufficient capital being generated through organic sources to finance all of the growth needs of India, and I’m not just talking about things like infrastructure—I’m talking about basic things like providing consumer credit, providing mortgage loans at an affordable rate to the segment of the middle income group so that they can buy homes, and providing loans to students so they can pursue higher education and become more skilled for pursuit of gainful employment in the future, and so on,” said Kapoor.

Once the economy is identified as capital-starved economy, the opportunities on both the banking front and the private equity front start becoming readily apparent. Kapoor said that one of the biggest challenges facing the Indian economy at the moment is that India’s traditional credit providers—namely retail and commercial banks—are largely paralysed by the weight of non-performing assets. Consequently, the biggest opportunity in non-banking in India in is non-banking finance companies which can provide credit to a capital-starved economy both at the corporate and consumer levels in the absence of the traditional banks being able to provide that much-needed credit.

Put differently, if an economy is growing at 7.5 per cent per annum it needs credit expansion by 20 per cent per annum that credit expansion cannot be tapped through the traditional bank channels, so actually the big opportunity sits in the non-bank space at a grassroots level, he said. Kapoor added that small things like providing loans to real estate developers, so they can complete construction, is a huge opportunity on the banking side. There is an equal opportunity for private equity investment. “The two major investment trends that we see having a long-term runway ahead of them, because private equity is by definition a long-term asset class, are led by consumption which, on one hand, is driven between by the adoption of e-commerce by a young population which is very agile with the use of the internet.

On the other hand, it is also driven by the adoption of large retail shopping centres which are not necessarily just brick-and-mortar retail but are also destinations for entertainment and leisure. They subscribe to the idea of ‘live, work, play’ that is pursued by the millennials. That explosion in consumption of leisure services, apparel, electronics, to basic services like health care and education will provide a lot of investment opportunities from a private equity perspective,” said Kapoor.

The other, more obvious opportunities for private equity investment lies in supporting the social infrastructure of India. Kapoor gave the example of the need for providing a better platform for supply, with many reports and analysts referring to the fact that approximately 30 per cent of the food produced in India never reaches the counter—it just rots in the warehouse or in transit. Therefore, transport and logistics infrastructure offer significant opportunities.

Investment and the growing middle class

With India’s fast-growing economy comes a fast-growing middle class, which means a vast cross-section of the population is underserved on healthcare, education, safety and security, access to basic utilities like clean water, electricity, sanitation, and pollution is a major issue. When considering the quality of life for the growing middle class, Kapoor noted that they’re not going to accept feeling half ill every day of the week. It’s simply not a sustainable proposition. “This is where we start looking at green investment and renewable energy, non-polluting renewable energy, a sharing economy, mass transport, all as part of infrastructure, but coming at it from different angles.

It is still the same ecosystem and the same underlying thesis that you need to have a reliable, functional, and sustainable infrastructure platform to be able to support a large and growing economy like India’s. You cannot have one without the other,” he said. That reliable, efficient, and sustainable infrastructure spans everything from transport to healthcare to renewable energy, to provision of basic services and amenities including safety and security of women, children and the elderly, none of which can be ignored, which Kapoor said summed up where opportunities for investment in India lie within the banking and private equity sectors.

Give and take

The growing bilateral trade isn’t only beneficial to India. Kapoor considers the UAE to be well-positioned as a thought leader in terms of sustainable, efficient, world-class infrastructure development along with the concept of an inclusive ‘live, work, play’ environment. He added that the UAE has, owing to its demographics, and the level of per capita income of its population, up until now at least, focussed more on the upper end of the value chain and the population segment.

But the mindset of how the UAE has approached the transformation of its local economy, from previously being a heavily hydrocarbon-dominated domestic economy to a much more diversified economy which includes tourism, retail, entertainment, services, including creating a massive logistics hub in Dubai, all of that means that the UAE is probably best as being a true though leader and a global champion. “If you consider the countries side by side—what does India need most? It needs help to develop that kind of sustainable, efficient infrastructure. What does UAE have? It has at least two decades of experience doing that very successfully; it’s possibly the most successful case study in the world, other than Singapore.

But Dubai has had to achieve this world-class infrastructure a lot more quickly and a lot more efficiently, while bearing in mind the needs of the entire cross section of the population in an inclusive sense. It needed to be sustainable and to minimise the use of precious resources. The UAE really ought to think about positioning itself as a global champion. It shouldn’t be a case of the UAE simply investing capital in India, it should be value added capital,” said Kapoor. Kapoor gave the example of the China–Pakistan Economic Corridor (CPEC). Chinese companies built it, using Chinese equipment and Chinese labour, and financed it with Chinese capital, but it’s for the benefit of Pakistan. “The UAE is able to do the same thing.

The UAE can approach other countries and say, ‘We have experience in developing smart cities and self-contained inclusive townships and marry all the principles of sustainability and inclusion. We will also finance it and we will help operate it before transitioning it to you.’” He added that the UAE has a golden opportunity, particularly where India is concerned—given the symbiotic link between the two—there are very strong personal relationships between the two at a government level. Those levels of engagement and affinity at the top are hard to duplicate. “The continued bilateral trade between India and the UAE offers the two countries the opportunity not just to collaborate on a piece of paper but to make a tangible difference that can be felt on both sides,” said Kapoor.