India launches Australia Economic Strategy: roadmap for diversification in challenging geopolitical times
With our China relationship at its lowest point in decades, Australian businesses should be thinking more seriously about other attractive market destinations – while continuing to carefully manage trading relationships with China in 2021 and beyond.
Trade between Australia and India is worth $30bn at present. While India is suffering significantly from the COVID pandemic, and health measures must take priority, nonetheless business is still going on and KPMG estimates that, post-crisis, there is potential for a 400 percent increase in the current trade figure between the two countries. This could help relieve some of Australia’s emerging trade pressure in the medium term.
The launch by India on 18 December of its Australia Economic Strategy (AES) – the first of its kind for India – could be an exciting step along the way to increased trade. It demonstrates India’s intent to fast-track the relationship with Australia in a post-pandemic world.
Historically, protectionism has run deep in India, and it remains outside the Regional Comprehensive Economic Partnership (RCEP) for the foreseeable future, despite widespread urgings among neighbouring countries for it to join. For this reason, the AES is an encouraging move.
The AES is India’s response to Australia’s An India Economic Strategy to 2035 (IES), launched two years ago, and it adds to the blueprint for increased cooperation between the two countries set out in the Comprehensive Strategic Partnership (CSP) announced by Prime Ministers Morrison and Modi in June 2020.
As announced by the two Prime Ministers to help boost two-way trade, it is in Australia’s economic interests to quickly revive and accelerate negotiations for a CECA or FTA equivalent. This was one of the CSP action items from June, and a post COVID-19 Australia will benefit from having the bilateral infrastructure in place to allow for the freer and faster flow of goods and services to also achieve diversification and supply chain resilience into the future.
Three pillars of India’s strategy
The AES takes a whole-of-Australia approach whilst also recognising the competitive advantages of the states. It is based on three pillars: resources; technology & services; and research & innovations. Like the IES before it, the AES sets out the opportunities for bilateral trade and investment across focus and emerging sectors and highlights the key opportunities for Indian foreign direct investment into Australia as well as various collaboration initiatives in both countries.
On trade, the AES largely mirrors the IES in its outline of the opportunities for enhancing trade in goods and services in the traditional areas of education, natural resources, pharmaceuticals, gems & jewellery, software & IT. But it also covers the new, emerging, sectors of significant potential; agricultural produce, mining equipment technology & services, and the industrial goods & services which India manufactures at relatively lower cost.
On investment and broader collaborations, the AES and IES also cover much common ground but with the key addition of infrastructure & logistics from the perspective of outbound Australian investment into India.
Five key sectors
Of the 12 focus sectors in the AES, five deserve mention given the opportunities they present in the short to medium term.
The first is Indian investment in Australia’s mining and resources sector, especially lithium, cobalt and nickel, important for a rapidly growing e-vehicle market.
Next is Indian investment in renewable energy both in the establishment & operation of solar farms as well as the supply of EPC services with Sterling Wilson Solar Limited being a case in point. There are also significant opportunities to collaborate in areas of solar and grid technologies.
Third is health and pharmaceuticals. Collaboration in clinical trials, cancer research, medical & health-tech and training, knowledge transfer and sharing of Australian best practices in hospital administration and patient care.
Fourth is investment in Australia’s agribusiness sector including farmlands and Australian food processing capabilities. There is also significant potential for knowledge sharing and collaboration in best practices for dairy processing.
The fifth is software & information technology. India’s tech giants already have sizeable operations in Australia with further organic and inorganic growth on the cards and an opportunity to extend their business portfolio into government accounts. Further, as Australia looks to build up internal capability and capacity, there is opportunity for the tech giants to set-up centres of excellence or innovation hubs in strategically important areas such as cyber security, cloud and digital, for Australia and the wider ASPAC region.
Make in India program
The new AES, and IES serve as detailed guides to help Australian businesses navigate through the unique considerations and key issues for doing business with and in India. The two documents, and the wider strategic partnership, all serve to complement India’s flagship Make in India program, which makes India a credible alternative for lower cost manufacturing for Australian companies as they look to diversify business and supply chain risk in a post pandemic world.
The launch of the AES is a fresh reminder of the importance of India to Australia, and vice versa. Australian businesses should explore the large Indian market as well as Indian FDI, and there are many new channels for this to happen.
This year, India celebrates its 80th anniversary of a trade office in Sydney and its long history and experience, coupled with the large and fast-growing 700,000+ strong Indian diaspora in Australia, only reinforces the potential for a stronger and mutually beneficial relationship.