• Date:01 Sep 2007
  • Type:CompanyDirectorMagazine

Tim Harcourt explains why pretty soon, India will mean much more to Australia than the 3 C’s – cricket, curry and Commonwealth.

Much more than cricket, curry or commonwealth

Is India the new China? Or even the new India? There’s certainly been a lot of new media interest in India and its potential as the world’s next economic superpower alongside the Middle Kingdom.

Why the comparison with China? Well, it’s partly because of the enormous population of each mega-nation. China has 1.3 billion people, while India has 1.05 billion. Lots of people mean lots of potential, but it also can mean lots of poverty too. After all, India accounts for one-fifth of the world’s population but around one in three of the world’s poor people live in India.

But the comparison is also made because of the relative economic success of China compared to India over the past 20 years. Their relative economic progress over the past 20 years is food for thought. In 1980, China and India were about level pegging when it came to GDP and per capita income. By 2000, however, China was about twice India’s size in terms of GDP and GDP per capita and eight times its size in terms of exports.

Why is this so? It’s partly due to the policy stances of the two nations. China, since Deng’s reforms in 1979, has transformed itself from a Maoist, closed economy to a more market-based, open economy, keen to engage in the world. By contrast, India stuck to a closed economy model with state planning dominating economic policy and import-replacement policies instead of the export led development approaches of its East Asian neighbours.

In fact, it was only during the balance of payments of crisis of 1991 that India changed economic policy direction and opened up its economy under the reforms of then Finance Minister (now the recently-installed Prime Minister) Dr Manmohan Singh.

As a result, India has a lot of catching up to do. However, over the next few years, it has the potential to be a real ‘hare and tortoise’ race. Will it succeed? A report from the Lowy Institute, India – the next economic giant, states the sub-continent’s prospects look good. Report author Mark Thirlwell believes India’s catch-up will be based on growth in investment, labour force and productivity.

“India’s fiscal position is poor but its demographics will help as a younger working age population will be able to provide tax revenue for government services. The labour force is actually growing as a proportion of the population. In addition, India’s comparative advantage in the export of services and software makes it an exciting economic prospect,” Thirlwell explained. He expects that India’s rise will be based on a ‘services-orientated development path’ in contrast to the ‘merchandise driven’ models followed in the past by the East Asian economies.

So what does this mean for Australia? In the past, the Indian market has been a tough nut to crack for Australian business (with too much reliance on the 3 C’s – cricket, curry and Commonwealth). But Australia’s Senior Trade Commissioner in New Delhi, Mike Moignard notes: “There are vast opportunities for Australian exporters in India for food and beverage, intermediate manufacturing goods, tourism, education and entertainment.”

Trade reform and demographics are working hand-in-hand to raise demand for foreign goods and services, including Australia’s. “The rise of ‘Western’ fast food outlets has helped the export of processed foods from Australia and there’s increased interest in Australia as a safe haven for Indian students and tourists,” says Moignard.

Moignard has led Austrade’s expansion of resources for exporters to India, including a strong thrust in both north and south India, and the establishment of a new Austrade managed Consulate-General in Chennai. The Commonwealth Games baton will be passed from Melbourne to New Delhi in 2010 and this will also assist the presence of the Australian brand in India.

This is good news because, when it comes to Australian exporter presence in India, there’s only one way to go – up. According to Austrade research, there are only 1,806 Australian companies exporting to India, which is half that of China (at 3,815), and well behind Singapore, USA, and New Zealand.

In summary, India’s rise means it will soon join China in increasing market share of world output and in turn, Australian exports. Progress has already been made over the 2000s with Australian exports growing at an annual average rate of growth of almost 29 per cent, compared to China at almost 23 per cent. Pretty soon, India will mean much more to Australia than the 3 C’s – cricket, curry and Commonwealth.

Tim Harcourt is the chief economist of the Australian Trade Commission and the author of Beyond Our Shores.