Abbott in India: the Asian Century won’t be all about China

In the same week Australian Prime Minister Tony Abbott is to visit India, Indian PM Modi has visited Japan. Toru Hanai/EPA/AAP

Despite recent slumps in economic growth (now at just over 5.4% compared to 10.3% in 2010), former Indian Prime Minister Manmohan Singh this year handed the new Prime Minister Narendra Modi a much more successful India than the one he inherited as Finance Minister back in 1991.

India is now Australia’s 5th most important export destination, with 1908 Australian businesses exporting goods to India, and a vibrant two way services trade.

Twenty years ago, India wasn’t even in our top ten trading partners. There was a view India was a closed economy that was naturally hostile to foreign investment and had economic nationalist tendencies. Just like the reluctance of our cricketers to tour India (Greg Chappell used to send Kim Hughes in his place as skipper and only played home tests), not many Australian exporters went to India either.

Today, India means much more to Australia than the three Cs – cricket, curry and call centres. It has been the two Us - uni students and uranium – that have dominated diplomatic relations in recent years. But both countries also have two new governments.

Abbott meets Modi

In India, Prime Minister Narendra Modi’s BJP broke the shackles of the Congress Party and the Nehru-Gandhi dynasty and won a spectacular 51% of all seats in Parliament. Modi has announced an aggressive “Made in India” push – commentators have said that doesn’t apply strictly to foreign ownership. Representatives of Indian defence companies like Pipavav that has strong ties to Swedish company SAAB explained to me Modi is keen to build Indian capability in key sectors like defence.

In Australia, Prime Minister Abbott also leads a (relatively) new government, now just a year old. The Abbott government’s trade and investment focus has been more on East Asia with an aggressive agenda led by Trade and Investment Minister Andrew Robb winning free trade agreements (FTAs) with South Korea and Japan and one with China on the cards (Clive Palmer notwithstanding). So Prime Minister Abbott’s visit to India will be more than welcome in New Delhi, especially given the time and resources already spent by Australia in Beijing.

Comparing India and China

But while India does not necessarily focus on Beijing (Japan is a big investor in Indian infrastructure), how does India compare to China?

In Australian export terms it’s like comparing a cricket test match to a Twenty20 game. As China opened up its economy early (Deng Xiaoping said let a 1000 flowers bloom in 1979 and Dr Manmohan Singh didn’t get economic reform going until 1991), China has moved up our export ranks steadily.

But India is a recent addition – largely on the back of education, tourism, professional services and the IT sector, and in 2013, trade between Australia and India actually fell by 14%.

India may improve its relative trade position with Australia when compared to China because of both democracy and demography. The two countries share British democratic institutions, rule of law and language, all useful to growing trade ties. At the same time, India’s relatively young population – 50% of the nation are under 25 – will give India a demographic dividend, while China’s ageing population and one child policy means that it will grow old before it gets rich.

However, Australia and India do share some institutional frustrations too as well as strengths. The system of federalism and overlapping regulations affects business in both countries and the “licence raj” has still left a red tape legacy in India to deal with despite recent improvements.

Demography too can be an issue, as many of India’s young are in the east of the country and many jobs in the south and the west. There’s also an issue of raised expectations in the labour market as not everybody can be a rocket scientist or IT entrepreneur. But India certainly wants to move its way up the value chain in education, beyond call centres, so collaboration with Australian institutions in post graduate research and R&D is the name of the game.

One advantage India has over China is its success in building global brands, such as Tata, Mahindra & Mahindra, JSW Steel, Dr Reddy’s Labs, and Infosys. All these companies now have interests in Australia and will play an important role in Australian corporate life as joint venture players and investors.

But how do we lure more Indian companies to Australia? Despite the sophistication of the new India, it still comes down to cricket.

At next year’s World Cup, India will be based in Adelaide and will play Pakistan at Adelaide Oval. Cricket will be the venue, but business will be the name of the game at a business networking event to be held alongside. As Raju Narayanan, the South Australian government’s India business guru says: “To succeed in business in India, you first have to prepare the pitch well.”