Shaping the Future of the Australia-India Trade and Investment Relationship

India is the fastest growing economy in the world. With much of the world beating a path to India’s door, the Australia-India trade and investment relationship will depend on two fundamentals: delivering on India’s expectations for an upgraded and broadened relationship that benefits both partners.

The current shaping power and influence in the Indo- Pacific region are producing an environment in which Australia and India have strong common interests in working together. This may involve working to improve Indo-Pacific security. It could involve Australia in some way supporting India’s longer-term ambitions to become a permanent member of the United Nations Security Council and shorter-term ambition to join the Asia-Pacific Economic Cooperation forum.

The single most important underpinning of the economic relationship with India is that neither party should see it as a one-way opportunity. Prime Minister Modi’s signature Make in India agenda targets relationships that deliver improved access to resources, technology, skills and investments that help to build India’s domestic economy and expand its international reach. Australia has much to contribute to this agenda.

Opportunities for investment in mining and METS

India has one of the most open regimes among emerging economies to FDI in mining and metals and machinery, but attracts little international investment in mining.

Without more clarity, the easiest option for the majority of foreign resources companies is to trade with India and stay away from the bureaucracy and regulatory complexities of operating businesses there. Some stay there, albeit often on a small scale, simply because if India transforms into a manufacturing powerhouse, it must start to modernise its state-dominated resources sector. International companies do not want to miss out.

Developing METS opportunities in India, particularly for equipment suppliers, will probably require direct investment in India at some stage. METS provides Australia with its best near- and medium-term opportunity for mining-related investment in India.

Policy priorities for mining and METS

If the Australia-India relationship is to move to a higher level, three priorities stand out:

• The relationship must deliver benefits both ways and they must be seen as significant.
• The Australian Government has built up expectations on the relationship and needs to do much of the heavy lifting to meet them. Australia is not the only country courting India.
• Over the medium-to-long term, a key priority for Australia must be to build a much better understanding of India and its enormous variety and complexity within Australia.

In addition to Cooperation, including facilitating training programs in areas like mine safety and the environmental aspects of mining, would assist India and showcase Australia’s excellence. Using an existing Indian mine, in partnership with Indian companies, to demonstrate Australian and Indian techniques and skills is an idea that warrants further examination. Capacity building via RCEP (Regional Comprehensive Economic Partnership) and AICECA (Australia-India Comprehensive Economic Cooperation Agreement) would be valuable. In an AICECA context, staff exchanges between Australian and Indian regulatory agencies could be useful.

‘Soft power’ can be used to great effect. There is scope to engage with India on what regulatory approaches have worked in Australia and what have not.

Domestic reform is key to Australian firms’ continuing international competitiveness. Some of these policy instruments involve working not only with Indian Government, but with state governments also.