Opportunity knocksas India's appetite for business grows

Published on Saturday 30 May 2009 14:29

A shared history has paved the way for investment – now between equals, writes William Lyons

WHEN Vijay Mallya, the Indian drinks tycoon, splashed out nearly 600 million for one of Scotch whisky's most recognised brands, the historical significance of the transaction was not lost on him. Speaking a year after taking ownership of Whyte & Mackay he confided that for his family the deal had gone full circle as his father for a brief time had sold Scotch whisky to the Indian army.

Such is the rich heritage between Scotland and India his revelation wasn't surprising. For centuries Scots have lubricated the wheels of Britain's colonial past as soldiers, bureaucrats, diplomats and traders. There was a thriving jute trade between the east of India and Dundee and today there are more than 20,000 Scots living in Scotland of immediate or recent Indian descent.

This week Gerry Grimstone, the chairman of Standard Life, will lead a briefing for Scottish Financial Enterprise on the theme of doing business in India. He will tell members that following the re-election of prime minister Manmohan Singh's pro-commerce party, India is open for business.

"India is an easy country to do business with," says Grimstone. "We have an historic relationship between our administrative, commercial and legal systems. When I sit in an Indian board meeting I know exactly what the process and what the structures are because company law in India is very similar to company law in the UK. In this sense our shared heritage is a tremendous advantage to British business."

In recent years, India, which has been seen by some in the West as merely a good place to set up call centres or back office and technical functions, has played a major role on the international stage. A year after Mallya took control of Whyte & Mackay, the Mumbai-based conglomerate Tata, headed by Ratan Tata, spearheaded a 1.15 billion takeover of Jaguar and Land Rover. This followed similar deals by Tata in the UK, including the acquisition of Tetley, which had been selling Indian tea to the UK since 1856, and the 6.2bn takeover of British steel giant Corus, the biggest foreign takeover by an Indian company.

"The history of the UK and India wasn't always seen historically as two countries dealing with each other equally," says Grimstone. "But now there is a much greater perception of the reality of an equality between India and the UK. India was pretty much the largest foreign direct investor in the UK last year."

There are more than 450 Indian companies in the UK, and the number of firms is forecast to keep growing. Last year India's economy grew at 9 per cent and Goldman Sachs, the US investment bank, has predicted that the country's gross domestic product will outstrip Britain's between 2015 and 2020 if it continues at the same rate. Germany and Japan would be overtaken in the following decade.

China may have spent more on global takeovers than India, but Britain's history of empire gives India a clear advantage. It is now the third biggest investor in the UK after the United States and Japan.

Yet as Grimstone says, the opportunities for British businesses are also huge. Already companies such as Standard Life, Prudential and Aviva are making inroads into the insurance sector, while HSBC and Standard Chartered Bank are doing well in banking. Cairn Energy, the Scottish oil and gas explorer, has significant interests in Rajastan and has listed part of its business, Cairn India, on the Bombay Stock Exchange and National Stock Exchange of India.

One industry in which Scotland will play a major role is whisky. India is by far the largest whisky market in the world with annual consumption hovering at around 70 million cases a year. This is compared with 92 million cases for the entire Scotch whisky market. Analysts say there is a clear "ladder of growth" which will see the consumer trade up from indigenous molasses-based whisky to Scotch, a drink Mallya describes as the most "aspirational drink in the world".

It was this trend that persuaded Mallya's United Spirits group to pay 595m for Whyte & Mackay (W&M) in 2007. Since introducing its brands, which include Whyte & Mackay blended whisky, The Dalmore and Jura malts, into the India market at the start of the year, it has already secured a 13 per cent share.

W&M's recently appointed chief executive John Beard says: "India is a hugely attractive whisky market for the future and we have a route to market through United Spirits which really is quite remarkable. It has 60 per cent of the market, so six out of ten bottles of spirits sold in India come out of our parent company. Already we have gained a 13 per cent share of the malt whisky category, which in time will be a very, very significant profit opportunity.

"If you compare India to China the interesting comparison is that China is not only about whisky but cognac, whereas in India whisky is what consumers drink."

This growth has not gone unnoticed. In February Mallya revealed he was in discussions with Diageo over an acquisition of up to 14.9 per cent of his United Spirits Group. Diageo, which markets brands such as Johnnie Walker, J& B Rare and Smirnoff vodka in India, is thought to want more access to the Indian market.

Beard doesn't think there is "any possibility of the company being sold outright" but discussions are "ongoing and active". He says: "There has been a lot of speculation of another player taking a stake principally in the parent company because the prize of getting access to India, if you own a Scotch whisky company, is enormous. It is one of the last untapped markets and is probably the net winner of this recession. India's concept of recession is that its GDP growth has dropped from 9 per cent to 5 per cent."