1875 Winter 2022

1875

A PUBLICATION FROM REDMAYNE BENTLEY

WINTER 2022

INDIA:

1,380,004,385 AND COUNTING

EYES ON INDIA The New Norm in Asia

TATA MOTORS Driving the Market

EASY STREET: A Cherry-picked Liberalisation

RENEWABLE ENERGY Powering India’s Development

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INDIA:

CONTENTS

1,380,004,385 AND COUNTING

INTRODUCTION

2

India: 1,380,004,385 and Counting

PEELING SHELL OFF THE NEST EGG

3

EYES ON INDIA

4

The New Norm in Asia

TATA MOTORS

6

Driving the Market

EASY STREET

8

A Cherry-picked Liberalisation

RENEWABLE ENERGY

10

Powering India’s Development

INDIA IN NUMBERS

12

THE ROAD TO A SELF-RELIANT INDIA

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OPENING HOURS

Monday–Friday, 08:00–17:00

JAMES ROWBURY | INVESTMENT RESEARCH LEAD As one of the countries hardest hit by the COVID-19 pandemic, registering over 480,000 deaths, India was once an epicentre of this global crisis. Though, behind the tragedy lies a country with burgeoning optimism for its future and an opportunity for investors. With a fast-growing population of nearly 1.4bn people and a relatively young demographic, India is just one step away from becoming the world’s largest country.

Investing in India is no new story.

For years, the country’s young and dynamic workforce has demonstrated a unique example of economic growth in the 21st century, providing an antidote to China’s shrinking labour force and tightening government control over business growth. From a structural point of view, it has bypassed the challenge of an ageing population that weighs on China, while having an open and democratic political system, which you will seldom find in emerging markets.

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Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned 2

As with any emerging economy, there are numerous hurdles to overcome to compete with the likes of its eastern neighbour. Firstly, agriculture makes up around a fifth of the country’s economic output and around 40% of the total employed workforce. As an industry with extremely tight costs, the average annual national income is stifling the potential for workers spend beyond their essential means.

Likewise, the reliance on a rural industry, makes workers isolated.

Only a third of the population live in urban areas, compared to twice that in China, and steering a ship of this size requires a huge amount of investment, but only if investors can see clear reward for their risk.

While there has long been an economic case for India, its investible market has fallen somewhat short of expectations. China’s dominance has overshadowed the region with hightech innovation and a world leading export market, but India remains a domestic story, with a lesser-known handful of global enterprises.

It is not for lack of trying by the central Government. Since assuming office in 2014, the country’s Prime Minister Narendra Modi promised a package of reforms that would help balance inequality, spur entrepreneurship and open India’s business to international markets. However, much of the country’s industry remains state owned, and the opposition party remain staunchly against privatisation (See: Easy Street: A Cherry-picked Liberalisation). Nevertheless, Modi’s key successes are his efforts to boost financial inclusion and encourage enterprise, where he has given credit access to low-income workers by introducing a fully digital banking network.

Despite its roadblocks, India has fostered some world-leading industries which are playing a part in shaping the country’s future (See: Renewable Energy: Powering India’s Development and Tata Motors: Driving the Market). 2022 has got off to a good start and the country’s leading stock index is in positive territory in the year-to-date, flying in the face of a wider global sell off (See: Eyes on India – The New Norm in Asia). This follows an encouraging trend from 2021, where investment flows into private equity topped US$40bn and companies with public market ambitions raised US$15bn through initial public offerings. As China pulls the curtains on the international investment community, India will no doubt welcome displaced investors with open arms. Whether they reap rewards or not is an open verdict.

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PEELING SHELL OFF THE NEST EGG JAMES ROWBURY | INVESTMENT RESEARCH LEAD If last year’s COP26 summit showed us anything, it was that international agreements are an almost impossible challenge when they involve a collection of nations with disparate agendas. Our subject this month, India, joined forces with its Eastern neighbour China at the eleventh hour to revise the COP26 target to phase out coal entirely in favour of phasing it down. It was a blow to the conference agenda and the COP’s president, Alok Sharma, made little attempt to hide his disappointment during his closing speech.

Climate activists were understandably furious too, with two of the largest Co2 emitters – making up around a third of the total global emissions - flaking on their commitment to combat the global crisis. Even so, it feels rather arrogant to expect a nation like India to advance its economic BOARD DIVERSITY development without the same means in which its Western counterparts did for much of the 20th Century.

POLITICAL Without coal, India’s AFFILIATIONS population of around 1.4bn would be £ without electricity and replacing this CORPORATE with renewable PAY energy sources is a gargantuan undertaking.

a promising outlook for financial returns. On the contrary, ‘dirtier’ sources of energy have become taboo investments, banished to the sin bin with the likes of tobacco.

It is little surprise to see the UK state-backed pension fund ditching the US Oil giant Exxon Mobil from its investment portfolio late last year. The fund cited its criticism of the company’s progress in managing climate change risks. Is it not, however, a little unrealistic to suggest an oil company can ‘manage climate change’ when its primary source of revenue is directly linked to fossil fuel production? Well, in fact, yes. UK oil companies Shell and BP are trailblazing a new initiative to become net-zero carbon emitting entities by 2050, with action already afoot to transition their operations into renewable energy sources.

Of course, to do this, it requires deep pockets of investment from shareholders and with many ESG mandates now simply screening out ‘dirty’ companies, CLIMATE it seems they are stuck CHANGE between a rock and a hard place. Perhaps institutional investors with the largest of pockets (like Nest) POLLUTION should begin to use their capital to engage with these companies £ rather than divest entirely.

Ultimately the latter approach won’t change these EMPLOYEE companies, merely leave them BENEFITS with the existing operations they have; forever destined to run down our planet’s resources until they are gone.

WATER CONSUMPTION

ESG

So, it is clearer than ever that geo-politics HEALTH are not to be relied upon & SAFETY in the climate agenda. The INEQUALITY UN Intergovernmental Panel on Climate Change estimates that around US$1.6-US$3.8tn is required annually to avoid warming exceeding 1.5°C (India’s entire GDP sits somewhere ‘Invest and engage’ is not revolutionary but does add additional challenges for fund managers and requires in the middle of this figure) and governments just don’t have extra due diligence. For a more conscious client with the the firepower to address such spending. Instead, the future of motivation to invest for good, it might be worth considering the planet must have a helping hand from private investment. looking beyond the obvious green labelled funds to see who is trying to make a difference. Investment capital can be a Indeed, ESG (Environmental, Social & Governance) very influential tool and companies are under a degree of investments have a become a hot topic over the last few obligation to appease their largest shareholders. years, with a strong demand for cleaner energy sources and

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EYES ON INDIA THE NEW NORM IN ASIA

BEN STANIFORTH | RESEARCH ANALYST

For many years, India was viewed with a certain amount of scepticism by many in the investment community.

High levels of poverty, poor regulatory frameworks and a lack of large enough investable companies had prevented many from allocating towards the country, despite a rapidly growing population and economy. India was, more often than not, included in small quantities in both fund holdings and investor portfolios, despite the size of its economy, with many reluctant to hold direct shares or even funds dedicated to the country.

14.2%

14.61% 6.92%

18.35%

8.97%

36.95%

Source: Factset

CHINA TAIWAN SOUTH KOREA INDIA HONG KONG OTHER Chart 1 – MSCI Asia ex Japan Country Weightings Dec 21

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China had taken centre stage as the number one emerging market to look to for business and investment, with billions poured into financial assets across the country. Thanks to substantial backing from the Chinese Communist Party, China played host to a booming tech sector that has seen the likes of Alibaba, Tencent and Meituan all skyrocket in value and become household names globally. Healthcare and other sectors also roared as the country looked to create a selfsustaining economy that could rival the US for innovative technologies. This meant that for some time China was the dominant exposure within Asia-focused funds and allocations within portfolios; even to this day China remains the single largest country by far within the MSCI Asia ex Japan index at 36.95%, with India lagging behind both Taiwan and South Korea, two countries with far smaller economies.

However, a recent clampdown on exploitative business practices by the Chinese government has hit the technology and education sectors hard, dragging down other parts of the economy with it and leading to a torrid year for Chinese equities. Such worries have now affected the region for nearly a year now, with the MSCI China index down -25.7% over the period, reflecting the sour mood of investors towards the Asian superpower.

India, on the other hand, has shown a strong resilience towards any problems within the region, bucking the trend with a blowout couple of years in equity markets. The country has positioned itself as one of the major beneficiaries of the

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140

120

100

80

60

40

20

MSCI CHINA 0

01/2021

JAN

02/2021

FEB

03/2021

MAR

04/2021

APR

05/2021

MAY

06/2021

JUNE

07/2021

JULY

MSCI Chi na

Chart 2 – MSCI China vs MSCI India 1yr (2021) chart problems in China, as investors and fund managers look to redeploy capital within the region after a lack of trust in Chinese financial markets. Many investors across the globe still remain hungry for risk and continue to allocate towards the region as a way to diversify and improve the performance of their portfolios in the long term.

However, it’s not just the problems within China that have led to the relocation of capital towards India. The economy has continued to grow strongly, despite a poor handling of the pandemic; social improvements have also been made in rapid fashion, with the share of the population considered impoverished (living on less than US$1.9 per day) declining from 37.1% in 1990 to just 9.6% in 2015, affecting hundreds of millions of lives.

The ability to provide its residents with clean water, quality housing and career prospects has fuelled the growth of industry in India. As employment increases and spending rises with it, Indian businesses are now able to both flourish domestically and compete internationally. In fact, just recently the Indian conglomerate Reliance Industries struck a deal to buy the Mandarin oriental hotel in New York City for just shy of US$100m, adding to the growing empire of Mukesh Ambani, Asia’s richest person.

The booming business environment has also caught the attention of several powerful US firms who are looking to capitalise on the growth in the region and get their foot in the door when it comes to entering and understanding the Indian market. Both Facebook and Google have invested large sums of money into Jio Platforms, the Reliance-owned

MSCI INDIA 08/2021

AUG

09/2021

SEPT

10/2021

OCT

11/2021

NOV

12/2021

DEC

01/2022 JAN

MSCI India

Source: Factset mobile network operator which has amassed more than 400m subscribers in less than four years of its existence. Google has invested US$4.5bn whilst Facebook has also ploughed US$5.7bn into the firm, for a combined stake of 17.72% that represents a significant foray into the Indian market.

General capital inflows from investors have also increased as a result, with a 112% jump in foreign direct investment equity inflow during the first four months of the financial year 2022, reflecting the appetite that international investors have towards India. Top Asia Pacific funds have also taken note with the Pacific Horizon Investment Trust, a highly successful Baillie Gifford-run investment trust focused on the region, pivoting away from China and into India. In fact, since 2018, the portfolio has decreased its exposure to China by over 16% and increased its exposure towards India by 20%, with countries such as Singapore and Indonesia also seeing their slice of the pie increase.

The past year has been nothing short of a revelation for investment into India. A flourishing economy and business landscape and vastly improved social progress alongside problems in China have created the need for investable opportunities in India, many of which have provided excellent returns for those able to tolerate higher risk. Given the continued lack of communication and trust in China and the stellar returns in India, capital inflows are likely to continue trending upwards, siphoning much of the cash initially earmarked for China.

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TATA MOTORS DRIVING THE MARKET HARVEY EAST | INVESTMENT EXECUTIVE

Tata Motors has rewarded investors handsomely over the past 12 months. The US-listed American Depository Receipt (ADR) of the Indian automotive giant has returned gains of 110% since January 2021 driven by an impressive change in fortunes as the company clawed back its share of India’s personal vehicle (PV) market.

ADR has mobilised faster than competitors to gain an early advantage within India’s electric vehicle (EV) market.

The Tata Group conglomerate has long been a poster child of Indian business with the overall group valued at over US$300bn, however, its motoring division has had mixed fortunes in recent times. A series of popular first-generation releases throughout the 1990s and 2000s led Tata Motors to control just shy of 14% of India’s PV market in 2010, but a string of disappointing second-generation releases left the door open for foreign competitors to enter and capitalise, such

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as Toyota. In 2016, Tata’s share of the PV market fell to as low as 4.6% with many writing the carmaker off as nothing more than a fleet taxi operator. The inadequacy of the group’s product portfolio combined with increasing cost pressure and waning quality left them in dire need of a turnaround.

In 2016, the group hired ex Airbus Chief Operating Officer Guenter Butschek who set out to take the group on its “transformative journey”. The turnaround focused on improving operational performance via multiple avenues, but there was a particular emphasis placed on greater utilisation of the Jaguar Land Rover (JLR) subsidiary that the group acquired in 2008. A specific area of focus was a renewed approach to vehicle platforms; the design architectures of vehicles that include the underfloor, engine compartment and frame of the vehicle. Previously, Tata created individual platforms for each vehicle model, a cost and research-intensive process. The new strategy, instead, focused on identifying

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This, amongst other improvements, has reversed the group’s fortunes. For the first half of financial year 2022, on a standalone basis, the Indian division achieved revenue growth of 145.6% with market share increasing rapidly to breach the 10% mark once again. The turnaround strategy has been a success, as investors assess whether Tata Motor can to continue to deliver strong growth in a fiercely competitive landscape.

The electrification of vehicles remains the hottest topic within the automotive sector and Tata has wasted no time in staking its claim within the Indian market. At present, the group controls 75% of India’s EV market following a recent US$1bn investment from private equity group TPG Rise Climate which valued the group’s total EV subsidiary at US$9bn.

It is a market, however, very much in its infancy given that current EV sales account for just 5% of total PV sales, with many incumbents, as well as international players such as Tesla, yet to enter. Nevertheless, Tata has gained a first-mover advantage that could prove significant and have the potential competitive edge of being able to leverage existing capabilities and investments of the wider parent company.

As part of a conglomerate, Tata Motors can utilise synergies across the group to control all stages of the value chain from battery components and charging stations to technological hardware and software required for EV’s. As 2021 proved, security of supply chains is of paramount importance and there is already evidence to suggest this is an area Tata may thrive where competitors are left vulnerable. The motoring division has already commissioned a partnership with Tata Power to provide end-to-end charging facilities at home, work and in public places as well as a partnership with Tata Chemicals to build a component supplier ecosystem for lithium-ion battery cells. Investors can also hold confidence in the business’s early portfolio of EV offerings, that now deliver ranges of over 300km and have proved to be an early hit with the Indian consumer.

Tata Motors has committed to investing an additional US$2bn into the EV subsidiary over the next five years to continue its development, no real surprise given the potential of the market opportunity. Today, the Indian PV market generates sales of 3.5m units a year and is forecasted to grow to close to 7 million by 2030. Due to India’s commitments to the Paris Climate Agreement, the government has put in place the Faster Adoption and Manufacturing of Electric vehicles (FAME) policy which offers upfront incentives to encourage faster adoption of electric and hybrid vehicles. Due to this, we can anticipate a significant increase in EV penetration alongside growth in the PV market, which in turn, will provide an attractive avenue for future growth provided Tata can maintain its dominant position.

In addition, the business remains well-positioned to capture growth within the Internal Combustion Engine (ICE) market and has hinted that it expects to develop hydrogen fuel cells to power its longer-range commercial vehicle offering.

While intuitive, this future pathway to growth is not without risk. First, the group will have to succeed in areas it previously failed in by innovating within a competitive landscape to ensure its offering continues to meet the current needs of the Indian consumer while simultaneously developing technologies to ensure demand in the future. Alongside this, incumbents such as Maruti Suzuki and international players such as Tesla are yet to truly enter India’s EV market and are thus clear threats to Tata’s current dominance. Nonetheless, the early signs appear promising and it would appear management have learnt from failures in the past.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.

“

As part of a conglomerate, Tata Motors can utilise synergies across the group to control all stages of the value chain from battery components and charging stations to technological hardware and software required for EV’s. As 2021 proved, security of supply chains is of paramount importance and there is already evidence to suggest this is an area Tata may thrive where competitors are left vulnerable.

“

existing platforms that could be leveraged across a series of models to streamline both manufacturing and development processes. Tata identified JLR’s highly successful Discovery model to create the Tata Omega platform that would form the basis of Tata’s SUV offering in the Indian market. This decision was a renowned success as the group’s SUV offering has proved to be a hit within the PV market.

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EASY STREET:

A CHERRY-PICKED LIBERALISATION BEN PICKETT | INVESTMENT RESEARCH

India was once the world’s single largest recipient of aid.

In 1991, Manmohan Singh set it down a path of economic liberalisation, shifting the economy from a state-led Soviet style economic model to an increasingly market based one. Since the reforms, inflation has reduced, GDP has grown by nine times, and services have grown as a share of GDP, while agriculture has done the opposite.

The country’s government hails a promised new wave of economic liberalisation as 1991 reincarnate, but does it have what it takes to realise such ambitions?

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A legacy of its command economy, India has many stateowned enterprises which it is beginning to divest, with plans to sell US$81bn, or 3% of GDP, of state assets over the next four years. Such a move is welcomed by the success of the previous privatisation spree in the late 1990s, where many of the divested companies have become successful players in their respective markets. The profit motive often ensures private companies are more efficient and innovative than their public counterparts, and a widescale shift of public assets into private hands should allocate them more productively with macroeconomic benefits. Such is the intent of India’s Chief

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Economic Advisor, who expects the reinvestment rate to reach 40%, and growth to resultantly accelerate.

In its reforms, the government may soon learn a lesson applicable to all walks of life: that partial commitment leads to partial improvement at best and, at worst, a growing problem. In its review, New Delhi identified 18 strategic sectors where it will retain a presence, admittedly with a limit to the number of public companies in each one. A liberal use of the word ‘strategic’ seems to have been applied, with warehouses, export credit guarantees, IT, banking, and insurance, as well as consultancy services related to all strategic industries being deemed in need of a state presence.

A wide web of industries with public companies contradicts the promise and essence of a privatisation drive.

Though the headline figures for asset sales appear promising, they believe the truth of the matter, where many of the sales are for minority stakes in existing assets, with the government retaining control over them. A vast pool of assets from highways, railways, and airports, to pipelines, ports, and hundreds of coal mines, exists with no indicated intention to sell. One can point to the sale of Air India to the Tata Group as a symbolic step in the right direction, yet the state had been trying to sell it as far back as 2018. Moreover, it has dragged its feet on promises to privatise other large companies such as the Life Insurance Corporation of India, which has had its IPO valuation delayed, and progress on current divestments has been glacial.

One sector in much need of reform is India’s banking sector.

Two of the twelve state-owned banks are being privatised, Modi having announced the intention to oversee more, and insurance companies can now be completely foreign owned.

The state bank of India is well run, and one of the country’s largest, but it is the exception rather than the norm, with the remaining sector being marred by inefficiency, political pressure, and a vulnerability to scandal. These factors have culminated in a non-performing asset ratio (the proportion of assets that fail) forecast to reach 9.8% by March 2022.

While a ‘bad bank’ has been set up to purchase bad loans, which will make the sector more appealing for private investors, the price tag for recapitalising its banks has ranged from anywhere between US$15bn and US$58bn. Though untested, the country’s new and improved insolvency code should not only ease the transition for particularly hardhit banks but improve dynamism and the rate of creative destruction in the wider economy too. The greater hurdle to privatising India’s banks is political: that will require unpopular reforms and iron political will to bring to bear.

Freer markets come not only from privatisation, but deregulation also. It may beggar belief to find that the legislation governing India’s telecoms sector dates from 1885, and it is encouraging that it has been earmarked for an overhaul. Telecoms have already been drastically deregulated, through the relaxation of cumbersome rules on bidding, contract length and borrowing costs for related firms, while projects can be entirely funded by foreign direct investment.

The spirited entrepreneurialism of Indian business is a point worth noting, embodied by Jio, an insurgent telecoms company that has come to dominate the subcontinent’s mobile internet after ducking and weaving past incumbents through its creaking regulatory system.

Yet an assessment of India’s agricultural sector portends a troubled future in the liberalisation story. Reforms to allow companies to buy directly from farmers, thus promoting competition, have been defeated after they staged a yearlong siege of New Delhi, blocking highways. Encouraged by the government’s climbdown, the protests have continued with fresh demands for public procurement at a guaranteed minimum price. The current structure limits competition and raises the profitability of farming, which is significant because already 21% of farmers’ incomes are derived from subsidies, distorting the allocation of resources in the economy away from productive businesses to unproductive farms. Deep reforms are needed, but excessive state support has created a large constituency of voters dependent on it and the ruling party appears to govern in accordance with old Indian proverb: “He who does not climb, will not fall either”.

Though currently touting its own market friendly policies, investors would do well to recall one of the Bharatiya Janata

“The spirited entrepreneurialism of Indian business is a point worth noting, embodied

by Jio, an insurgent telecoms company that has come to dominate the subcontinent’s mobile internet... ” Party’s flagship policies upon coming to power. In a bid to tackle food price inflation, the government implemented export bans, raided food warehouses, and banned trading in food futures, demonstrating a credibility gap in its liberalisation drive. The party’s hyper focus on popular support and winning elections causes it to squander its supermajority and backpedal on much needed reforms when they incite anger – which in a decades old system of pork barrel politics, is inevitable.

In India, economic liberalisation is a much-needed tonic. There is a welcome current of change, but a slow running one, unfortunately thickened by political timidity.

Privatisations must come at a faster pace than the sale of Air India for the programme to be meaningful, and the tight leash of regulation allowed to slacken for the Indian economy to truly roar. This is not to say that India cannot be the home of brilliant, investable companies, but to say that their brilliance will not be because of its economic policy, but in spite of it.

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RENEWABLE ENERGY POWERING INDIA’S DEVELOPMENT ANDREW RHODES | MARKETING

The renewable energy sector is continuing to grow strongly in markets across the world as countries ditch fossil fuels and adopt greener, more environmentally conscious power solutions.

Globally, the renewable energy sector is expected to reach a value of US$1,977.6bn by 2030, more than double its 2020 value of US$881.7bn. A number of factors have led to the upsurge in the market value of renewable energy, including greater demand for alternatives to fossil fuels, more stringent legislation and financial initiatives from governments. As a result, a host of countries have already invested significant funds into building their electric, wind and solar power infrastructures but India, the second most populous nation on Earth, is more ambitious.

Despite the country currently being heavily reliant on fossil fuels, most notably coal, India has set multiple targets for the years and decades ahead, ultimately aiming to become carbon neutral by 2070. In the shorter term, Prime Minister Narendra Modi has a target of the country getting 50% of its energy from non-fossil fuels and reaching a 500-gigawatt (GW) capacity by 2030, something which newspaper The India Times expects the country to achieve with ease.

In order to meet the growing demand for cleaner energy, India is experiencing somewhat of a green revolution, with a host of players stepping up. In October 2021, Reliance New Energy Solar Ltd (RNESL) acquired two companies – Norwaybased REC Solar Holdings AS, and Indian firm Sterling & Wilson Solar – in deals exceeding US$1bn. Reliance is aiming to achieve a solar energy capacity of 100GW at its site in Jamnagar by 2030, a target equivalent to 20% of Prime Minister Modi’s target for the entire country.

Similar investments took place throughout 2021 as companies looked to get the jump on their competitors in this fast-growing market. Adani Green Energy Ltd acquired SB Energy India for US$3.5bn to boost its capacity, while Reliance Industries, the parent company of the aforementioned Reliance New Energy Solar, announced plans to invest INR750,000 crore (US$10.07bn) in the green energy segment. In December 2021, Reliance New Energy Solar announced a deal to acquire

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UK battery firm Faradion for £100m to expand its operations.

Building and infrastructure projects are also taking place across India as its green energy network grows, something often backed by government initiatives. In 2021, the Indian Ministry of Power unveiled new rules designed to reduce the financial stress of stakeholders in electricity production, while the government also encouraged rooftop solar power across the country, aiming to install capacity of 4,000 megawatts (MW) in the residential sector in 2022. Similarly, the Ministry of New and Renewable Energy gave the green light to build a 4,750MW renewable energy park, one of India’s largest, in the province of Gujarat.

By 2028, India’s renewable energy sector is expected to see investment worth US$500bn, building on the foreign direct investment (FDI) already seen. According to data from India’s Department for Promotion of Industry and Internal Trade (DPIIT), FDI in the country’s non-conventional energy sector reached US$10.28bn between April 2000 and June 2021. It is to these international investors and other key figures that India must sell itself as a future leader in renewable energy.

However, despite India investing heavily in its renewable energy infrastructure, the country received criticism at COP26 in November after lobbying to water down its pledge to abandon the use of coal. After pressure from India, China and other nations, the final deal committed to countries to “phase down” rather than “phase out” coal. As minor as the wording change may be, the difference in the environmental impact of a slower phase out of coal could be much greater. According to Our World in Data, India is the third largest user of fossil fuels in the world, behind only China and the United States. To meet its climate targets, India must balance its phasing down of coal with its uptake of greener energy.

As India continues to develop as a nation, renewable energy can play a huge role in the country’s infrastructure. It is clear that investment in green energy in India will continue, but whether it can meet the targets it has set itself remains to be seen.

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POPULATION % LIVING ON US$1.9 PER DAY 15

$ $

$

12

$

$

POVERTY IN INDIA IS RAPIDLY DECLINING, WITH THE SHARE OF ITS POPULATION LIVING ON BELOW US$1.9 PER DAY FALLING AT A SIMILAR RATE TO THE REST OF THE WORLD.

9 %

$

$

CHINA

6

$

INDIA

$ $

3 0

1987

1993

2004

2009

2011

Source: World Bank

GDP PER CAPITA (US$) 2020 2015 2010 2005 2000 1995

CHINA

1990

INDIA WORLD

1985 1980 1975 1970

0

2000

4000 World GDP (current US$)

ALTHOUGH GDP PER CAPITA IS RISING IN INDIA, IT IS STILL FAR BEHIND THE GLOBAL AVERAGE.

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6000 (US$)

India GDP (current US$)

8000 China GDP (current US$)

10000

12000

Source: World Bank

IN NUMBERS

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CO2 EMISSIONS CHINA

25

INDIA

EUROPEAN UNION

UK

UNITED STATES

WORLD (AVERAGE PER CAPITA)

METRIC TONS PER CAPITA

20

15

10

5

0

1970

1975

1980

1985 China

India

1990 European Union

1995 United Kingdom

2000 United States

2005

2010

2015

2018

Source: World Bank

World (average per capita)

INDIA’S CO2 EMISSIONS PER CAPITA HAVE FALLEN IN RECENT YEARS WITH THE COUNTRY INVESTING IN MORE RENEWABLE ENERGY SOURCES.

FOREIGN DIRECT INVESTMENT (FDI) 35

40

INVESTMENT IN ENERGY WITH PRIVATE PARTICIPATION

35

CHINA

25

INDIA

30

20

US$ (BILLIONS)

NET INFLOWS (% OF GDP)

30

15 10 5 0 1970

25

20

15

10

1980

1990

2000

2010 2019 Source: World Bank

China India INDIA EUROPEAN UNION European Union United Kingdom UK UNITED STATES United States World (average) CHINA

WORLD (AVERAGE PER CAPITA)

FOREIGN DIRECT INVESTMENT (FDI) IN INDIA IS RISING AND IS NOW ABOVE THE GLOBAL AVERAGE BY NATION.

5

0 1995

2000

2005

2010 China

India

2015

2020

Source: World Bank

INVESTMENT IN ENERGY WITH PRIVATE PARTICIPATION HAS STALLED IN INDIA COMPARED TO CHINA.

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THE ROAD TO A SELF-RELIANT INDIA COLIN PIERCE | MARKETING The concept of a ‘self-reliant India’ is not a new one: almost since partition in 1947, the phrase began to appear in multiple Five-Year Plans issued by the country’s former Planning Commission. Even before that, the concept was one of the central tenets of the Swadeshi movement, a pre-independence self-sufficiency movement that culminated in Ghandi’s pledge to boycott foreign goods and the symbolic burning of English cloth, which itself echoed the earlier actions taken by Ram Singh Kuka, who is widely believed to be the first British Indian to use non-cooperation as a tool in the service of Indian independence at the beginning of the 20th century.

several Production Linked Incentive (PLI) schemes. In mid2021 FAME-II was updated, with the aim of accelerating the uptake of EVs in India. The amount of subsidy available to consumers increased by 50% from INR10,000 to INR15,000 (approximately £99 to £148) per kWh of battery capacity and the maximum subsidy was increased from 20% to 40% of the total cost of the vehicle. These changes meant that EVs would be cheaper to buy and, therefore, attractive to new customers in new markets but also, and perhaps more importantly, that this market penetration would in turn grow the ancillary services and support needed by an EV transport network.

Many decades later, in 2014, the current Prime Minister Narendra Modi and his government revived the phrase as part of their political and economic programme to move India to a more prominent and significant role within the global economy. In 2020, the Hindi translation ‘Atmanirbhar Bharat’ came to prominent use in India’s COVID-19 response and has since seen increasing use in government communications and policies. While it is used across multiple departments and areas of economic activity, it has a particular relevance to the automotive sector with its reliance on global supply chains.

In short, how can a self-reliant India, with its focus on homegrown manufacturing and supply, accommodate those foreign companies with whom they wish to do business?

Key players in the Indian EV sector, including Suhas Rajkumar, Founder, and CEO of Simple Energy, Bhavish Aggarwal, Chairman and Group CEO, Ola, Rahul Sharma, Founder, Revolt Motors and Jeetender Sharma, MD & Founder, Okinawa Autotech, responded positively to the update and identified that while these changes would initially benefit the manufacture and sale of two-wheeled EVs, the improvements to the underlying infrastructure and the growth of component supply chains would feed into the perhaps longer-term uptake of four-wheeled EVs. Crucially, all spoke of India being at a turning-point in terms of EV uptake, and most identified India as being both a future huge market and a key supplier of EVs, components and infrastructure, firmly ensconced in the global EV revolution and highlighting that self-reliance needn’t mean insularity.

It has been estimated that the Indian electric vehicle (EV) market will be worth approximately US$206bn by 2030. EV sales in India constitute only 1% of all vehicle sales in the country, but these are rising, with new monthly registrations of around 50,000. This represents an attractive opportunity for global players such as Audi, Tesla and Hyundai, to name but a few. However, these companies prefer to do business on their own terms, and, in this case, this means selling ‘completely built units’ (CBU), which is to say, complete, finished cars, built elsewhere and shipped in. These CBUs attract import duties, though, and in India, these run at 100%, making the final price to consumers prohibitively expensive and no doubt what Elon Musk meant when he said in a Tweet that his company was “facing a lot of challenges” making its vehicles available in India.

It is impossible to predict who will ‘blink first’ in this standoff: Elon Musk has insisted that he wants to first develop a market for his vehicles by being able to sell them in India, with a reasonable assumption being that he could begin manufacturing there if sales warrant it, and he is supported in his calls for a reduction in import duties by other manufacturers. However, Narendra Modi seems as insistent that duties remain in place to grow and support the nascent native sector. That said, whether or not Tesla, or any other foreign company, can or cannot manufacture or sell their vehicles in India isn’t really the interesting question: India is potentially the biggest untapped market for EVs so the question is, why should foreign investors be interested?

Several regional governments in India responded by issuing open invitations to Tesla to open factories in their states, citing manufacturing-friendly policies and support such as those laid out in the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles Scheme-II (FAME-II) and in

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It certainly has the skilled workforce needed for large-scale, complex manufacturing and access to the renewables that underpin a truly Green economy. Add to this the aforementioned government support and India’s policy of allowing 100% foreign direct investment and it perhaps will eventually become a question of whether India needs Tesla at all?

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