"Indo-Australian trade: $22bn & growing" – Rohini Kappadath

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One area of opportunity is in infrastructure. India’s Planning Commission calculates a need for $1 trillion of infrastructure investment in the country over the next five years alone. Australia has an abundance of the critical metals and energy needed for a country going through an intense industrialisation and urbanisation phase

The government’s approach of taking super-sized trade missions, though highly laudable, is faced with the challenge of meeting individual requirements of such a large number of participants

The volume of trade between Australia and India grew from $3.3 billion in 2000 to $22.2 billion in 2010-11. Rohini Kappadath discusses the challenges and opportunities ahead.

The Australia-India economic relationship has grown steadily in recent years and has the potential to increase considerably as India’s economic expansion continues. Australia’s strength in exporting primary products, particularly minerals and fuels as well as services like education, has positioned us well to supply growing Indian industrial and consumer demand so far. However, as India steps up her search for world class expertise to meet the challenges of mass urbanisation, food security and energy security, the country will build an appetite for skills and knowledge in a vast array of sectors such as advanced manufacturing, bio-technology, clean technology, aerospace and professional services, just to name a few. To meet these needs India needs to look no further than the shores of its close neighbour Australia.

Relations between Australia and India have advanced impressively over the past decade. India was Australia’s fourth largest export market in 201011. Two-way trade has grown in value from $3.3 billion in 2000 to $22.2 billion in 2010 — a rise of 23.4% per annum since 2000. Although the trade relationship is dominated by resources coal, gold, copper ores and crude petroleum the role of services is growing. Australia exported $2.5 billion worth of services to India in 201011, mostly in the form of Education exports. India is the second largest source of international students studying in Australia. Imports of Indian services totalled $660 million in 2010-11.

Although Australian imports from India have remained fairly static over the past decade, Australian investment in India has grown to $4.7 billion in 201011. This investment covers manufacturing, telecommunications, hotels, minerals processing, food processing, oil and gas, and the automotive sector. Energy security remains central to the trade and investment relationship and we are seeing growing participation by Indian investors in coal mining and infrastructure investments in Australia.

Prospects for trade with India continue to grow as liberalisation progresses. Companies like ResMed, Cochlear, Leighton Contractors, Macquarie Group, FAT Systems and Woolworths are examples of Australian success in India.

New prospects continue to emerge in virtually every sector. One area of opportunity is in infrastructure. India’s Planning Commission calculates a need for $1 trillion of infrastructure investment in the country over the next five years alone. Australia has an abundance of the critical metals and energy needed for a country going through an intense industrialisation and urbanisation phase. We also have the managerial and financial expertise that is vital to infrastructure delivery as well as experience in building ports, roads, rail, and urban infrastructure that can help India meet its infrastructure deficit in the coming decades. Tourism and financial services are other industries with great growth potential. Australian lawyers are also increasingly being sought after to provide advice to corporate and financial services clients in India. These are all areas in which our companies are already working together. Australia is now positioning itself to sell uranium to fuel India’s nuclear energy generators, helping to guarantee security of electricity supply.

AMPLE GAINS FOR KNOWLEDGE INTENSIVE INDUSTRIES
Another significant area of opportunity is in knowledge-intensive industries. Australia punches above its weight in the development of IP in many industries. India is a developing country searching for IP to accelerate economic growth. Large Indian companies, backed by strong financials and global aspirations may present the fertile ground needed for Australian technologies to commercialise and flourish on the world stage. Collaborations, licensing arrangements, joint ventures or acquisitions by the right Indian partner could be the very tonic required to rejuvenate the prospects of our highly specialised and IP rich companies.

Given the size of our own markets, it is now becoming more important that Australian companies increasingly view the rest of the  globe as their core market, rather than relying on our local markets for sustenance and sustainability.  International expansion and leveraging global markets therefore need to become core survival capabilities for Australian businesses.

Australia should also strive to become an R&D centre for the world or a specialist R&D centre feeding other major R&D destinations such as India and China.

India has already cemented its position as a strategic player in the global supply chain proposition for many industries.  Leading companies in India have had their sights on global markets from their inception, but have not always had the specialist, high-end skill set within its own indigenous labour force.  This is another area of opportunity for innovative and highly specialised Australian companies.

For example, India has a well established reputation as the R&D destination for IT companies across the globe. A selected cluster of highly specialised, innovative Australian IT service-sector companies who provide a niche solution could collaborate with successful global Indian IT services well versed in growing such businesses and exporting them to the world. Joint export of services to the rest of the globe should be a combined long-term goal for a strategic India-Australia partnership in IT. Such partnerships will require the engagement of government on both sides.

This model can be replicated for the aerospace sector, advanced manufacturing, meat processing and bio-technologies industries. We have already seen examples of this in the Aerospace sector where the acquisition of Aerostaff and Gippsland Aeronautics by Mahindra & Mahindra has been vital in helping M&M to execute their global ambitions in the Aerospace sector. The acquisition has been a win for the Australian companies too, who now have access to a much bigger global market than they could have aspired to on their own.

TRADE BARRIERS
The journey that Australia and India embarked on 25 years ago still has a long way to go. There are still major barriers to trade with India, despite recent reforms. The IMF highlighted the importance of continued tariff reduction and the lowering of administrative barriers to trade. Indian tariff rates and trade barriers more generally remain among the highest in the world. In addition to tariffs, India imposes various duties, such as safeguard and anti-dumping duties, and non-tariff restrictions such as import bans and standards or certification agreements.
In May 2011, Trade Minister Craig Emerson and Indian Minister for Commerce and Industry Anand Sharma formally launched negotiations to conclude a Comprehensive Economic Cooperation Agreement (CECA) between Australia and India. Earlier studies indicate that an Australia-India CECA could result in a net increase in Australia’s GDP by up to $45.5 billion and India’s GDP by up to A$48.3 billion over a period of 20 years.

But achieving the level of integration the two countries desire requires more than just a trade agreement. Therefore significant effort and investment has been made by the Australian government into this trading partnership.  A recent Victorian Government mission to India saw more than 200 companies and organisations travel to India to promote their capability in the services sector.  Another mission is being planned by the NSW Government. State and federal government agencies are rapidly expanding their trade and investment networks in India and becoming a valuable resource for Australian companies in their engagement with India.

To help Australian businesses close significant deals in India will require some innovative thinking by both Government and Industry. The government’s approach of taking super-sized trade missions, though highly laudable, is faced with the challenge of meeting individual requirements of such a large number of participants. Government supported structures that facilitate large-scale direct collaboration between services companies in the two countries could act as the next step from super-sized missions. This would require the Australian Government to evaluate our highly specialised sectors, find the critical gaps in the Indian supply chain, then try to match those gaps with Australian skills. Organisations like Austrade and the State Government Trade and Investment agencies are well-equipped to work with government and industry on both sides to execute this approach.

An instituted program of closer co-operation between our governments and industry participants similar to what was executed in the Education sector could provide a model. Why wait for a crisis situation to arise. The investment made by government towards addressing a critical socio-political situation demonstrates capacity within government to work with strong industry focus to deliver positive outcomes for all industry stakeholders. The same model can be applied to other industries leveraging government capacity and investment to create a deeper engagement platform for the negotiation of trade and business outcomes for key players within an industry sector.

There are boundless opportunities for Australia to integrate its economy more fully with that of India and the rest of Asia in this Asian Century. To explore and exploit these, what is required is a continued focus on innovation in Australia, particularly in knowledge intensive industries that will fuel the propulsion of these rapidly emerging global enterprises. And elephants will fly!

Rohini Kappadath is the Director of Cross-Border Business at Pitcher Partners accountants, auditors and advisors

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