India Trade Pitch a Big Ask

Article published in the Australian on 22nd January 2021. India trade pitch a big ask

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Indian paceman Shardul Thakur celebrates his wicket of Australia's batsman Marcus Harris with teammates on day one of the fourth cricket Test match at the Gabba in Brisbane. Picture: AFP

The dejected faces of the defeated Australian cricket team at the Gabba on Tuesday are a stark reminder of the reality of doing business with a much more confident, modern-day India.

India, which fielded a B team (as a result of injuries and the absence of captain Virat Kohli) to defeat Australia in the Test series, is a country that plays to its own rules and defies attempts by outsiders to pigeonhole it. While Australia is in constant danger of looking back to past glories (and congratulating itself on how well it has survived the pandemic), the countries of Asia continue to expand, grow and set their own rules.

In India’s case, the experience of players in the lucrative but demanding Indian Premier League, with a turnover of well over $5bn, has battle-hardened its players like never before, proving over the past week that they can all too easily slough off low-rent sledging and racist comments from the stands in Australia.

The future for Australia is in continued interaction and trade with Asia, but in a way that sheds past colonialism and recognises the opportunities and challenges of countries that are inevitably different to our own.

The call for more trade with India has intensified in the past year, with Australia’s political ties with China hitting new lows.

But like defeating the new-look, more resilient Indian cricket team, grasping the trade opportunities with India continue to prove difficult.

All too often — particularly by critics of China — India is portrayed as an easy option for trade diversification, oversold to the public by politicians and some foreign policy analysts as a lucrative new market that somehow Australian business has overlooked.

Amid the projections and hope, Australian trade with India is a fraction of the trade with China, despite the constant efforts by Australian politicians to push ties with India.

As outlined in some detail by The Australian’s former economics editor David Uren in a recent article in The Strategist, Australia’s trade with India has actually declined in recent years.

Australia’s merchandise exports to India over the year to the end of June were a meagre $11bn (of that, 70 per cent is coal), compared with $15bn in 2017.

In contrast, Australia’s exports to China during the year were $150bn, despite a deteriorating political relationship.

While China is still by far Australia’s largest trading partner, peaking at some 46 per cent of all exports last year, as Uren notes, India’s share of Australia’s trade was less than 2 per cent — its lowest level since 2003.

Australian Bureau of Statistics figures show Australia’s merchandise trade with India for the year to the end of November 2020 (the latest available) were down to $9.9bn, a fraction of the $145.8bn with China over the same period.

While the Chinese economy has rebounded from COVID-19 and is expected to grow at more than 8 per cent this year (one of the strongest growth rates of any country in the world), the Indian economy has been hit hard by the pandemic. India has always had a strong, independent and often protectionist attitude to trade, holding itself off from multilateralism.

It has stayed out of signing the Regional Comprehensive Economic Partnership (RCEP) that brought together countries in the region including China and Australia last year, and has dragged its feet on signing any free-trade agreement with Australia, defying constant efforts from FTA-loving regimes in Canberra.

Politically, Australia is working hard to boost ties with India, with the Morrison government enthusiastically supporting “the Quad” between India, Japan, Australia and the US.

But looking back, it continues to seem like a one-way street, with Canberra looking to engineer an arranged economic marriage with India that never eventuates due to lack of grassroots interest.

While there is continued political goodwill on both sides, the practical reality around boosting trade ties continues to prove challenging.

“In the short term, there should be some scope for India to play a role in absorbing some of our exports that was previously going to China, especially coal,” Lowy Institute lead economist Roland Rajah told The Australian on Wednesday.

“Going in the other direction however is that India’s economy has been very badly hit by the COVID pandemic and may only recover rather slowly.”

He points out that the trade opportunities with India are similar to those with China — coal, international students, tourism and agriculture. But as he says, the biggest constraint is one of scale — a fact starkly evident in the merchandise trade differences.

“India’s economy is far smaller and average Indian consumer incomes are far lower compared to China. The scale of Indian demand is much lower and that will likely remain the case for a long time,” Rajah says.

“A large part of why the trading relationship is not more advanced is simply that the business environment in India is inherently difficult and the country has a strong protectionist strain.

“India has been hesitant to sign free-trade deals, including bilaterally with Australia, and even pulling out at the last minute from RCEP, and that is unlikely to change anytime soon.”

The former head of the Department of Foreign Affairs and Trade, Peter Varghese, delivered a report in 2018 that set the goal of Australia lifting its merchandise trade with India to $45bn by 2035 (that is, still a fraction of trade with China).

As he emphasised in a discussion with The Australian on Wednesday, his report began with the clear declaration that doing business with India was never going to be a substitute for trade with China. For one thing, Varghese says, “the scale is just so different”.

“The Chinese economic is five times the size of India’s,” he says.

But he argues that he is still optimistic about the longer-term potential of trade and investment with India.

There is also considerably potential for more Australian direct investment in India — with companies such as Macquarie Group, AustralianSuper and the Future Fund investing or looking at investing in the country, particularly in infrastructure.

Other Australian companies, however, have tried the Indian market and retired hurt.

The biggest single Australian exporters to India at the moment are probably those Australian cricketers playing in the IPL — and good luck to them, as they have a service Indians are willing to pay for.

But despite the goodwill on both sides, the concept being peddled with increasing frequency of India somehow becoming a substitute for the vast export market of China is simply deluded. GLENDA KORPORAAL

ASSOCIATE EDITOR (BUSINESS) Glenda Korporaal has been covering business and finance in Australia and around the world for more than thirty years. She has worked in Sydney, Canberra, Washington, New York, London, Hong Kong and Singapore