Unfinished Business: Re-imagining the Australia-India Economic Relationship

Michael Moignard

Winter 2013: Volume 2

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The Fearless Nadia Occasional Papers on India-Australia Relations

The Fearless Nadia Occasional papers are original essays commissioned by the Australia India Institute focusing on various aspects of the relationship between India and Australia. Fearless Nadia (1908-1996) was an Australian actress born Mary Ann Evans in Perth, Western Australia, who began her career working in the Zarko circus and eventually became a celebrated star of Hindi films in India. Fearless Nadia brought a new joie de vivre and chutzpah into Indian cinema with her breathtaking ‘stunts’. Her role in the renowned film Hunterwali, where she appeared dressed in boots and wielding a whip, became an iconic image in 1930s Bombay. The Occasional Papers series seeks to inject a similar audacity and creative dialogue into the relationship between India and Australia.

www.aii.unimelb.edu.au

Permission to use the name and image of “Fearless Nadia” is a courtesy extended by Wadia Movietone to the Australia India Institute for use only as the title of its Occasional Academic Papers. This is on the clear understanding that the name and image will be used only for the Occasional Academic Papers under this umbrella, and not for any commercial use. Wadia Movietone retains sole global copyright and ownership under intellectual property and copyright law of the Fearless Nadia and Hunterwali characters and personas, and any depiction and usage of the same.

The Australia India Institute expresses its deep gratitude to Wadia Movietone for this gesture and wishes to record the contribution of JBH Wadia who thought up the Hunterwali character, gave Mary Evans her screen name, and popularized the Fearless Nadia persona through his films.

The Australia India Institute, based at The University of Melbourne, is funded by the Australian Government Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education, the State Government of Victoria, and The University of Melbourne. Copyright: Australia India Institute 2013

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The Fearless Nadia Occasional Papers on India-Australia Relations

EditorCHRISTOPHER KREMMER

SUMMARYChanges occurring in India present a once-in-a-generation opportunity for Australia and India to redefine their economic relationship. The right response will require a new set of outputs from Australian businesses. A new approach can turn the trading relationship - currently dominated by resources sales to India, and fee-paying Indian students - into one in which Australia also becomes a significant supplier of a broader range of services. The rise of India’s middle class is creating a massive market for skills that Australia is well-placed to provide in such areas as town planning, architecture, childcare and aged care, online medical services, education and skills training, infrastructure, finance and insurance, environmental and waste management, transport and logistics. Australia’s mineral wealth will not last forever. The main challenge, this reports argues, is to diversify and synergise other complementarities that exist between the two economies. Australia must position itself as an innovation solutions provider whose skills and resources can facilitate India’s growth. These two nations, which have long been rivals on the cricket field, can and should team up to hit India’s growth obstacles for six. By helping India realise its development goals, Australian companies can also expand their customer base, with obvious benefits for both countries.

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Telling the India Story in the Asian Century

The Australia India Institute The Australia India Institute is a centre for the study of contemporary India based at the University of Melbourne.

The A.I.I promotes dialogue, research and partnerships between India and Australia across a wide range of areas of common interest, including teaching and academic research, policy roundtables and debates, and diplomatic and cultural exchanges and dialogues.

The Institute’s Task Forces bring together leaders in key areas from both nations to focus attention on important issues, opportunities and challenges. Previous Task Force reports have examined Australia-India Perceptions, Indian Ocean regional security, Tobacco Control and Science Technology Innovation. Its Occasional Papers, including the Fearless Nadia Papers and other publications provide thought leadership in areas of common interest to Australia and India.

The Institute also maintains partnerships with the University of New South Wales, and La Trobe University.

We welcome your interest in this report, and invite you to become part of the India story in the Asian Century.

www.aii.unimelb.edu.au

TABLE OF CONTENTS

Introduction 4

The Story So Far 5

Rivals to Partners: Australia’s role in India’s Growth 6

Energy 6

Education and Skills 8

Urban Infrastructure 9

Population 11

Water 12

Food 13

Re-imagining the Economic Relationship 14

Bibliography 15

Acknowledgements 16

About the Author 16

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Unfinished Business: Re-imagining the Australia-India Economic Relationship Michael Moignard

Introduction The India-Australia trade and investment relationship has been built on Australia providing industrial inputs for India’s resource and energy needs, and India’s ability to support Australia’s Information Technology (IT) requirements at low cost. Australia has also benefitted from strong inflows of fee-paying Indian students attending its universities and Vocational Education and Training (VET) institutions. Trade and investment has grown strongly over the past decade, but is lumpy and lopsided. The partnership is skewed, and insufficiently deep and diverse.

In the next decade, however, emerging challenges for India may create a new kind of economic relationship between Australia and India. This paper envisages what that relationship might look like.

Like people everywhere, Indians aspire to build prosperous and secure lives for themselves and their families. Rising aspirations challenge governments to remove obstacles to the realisation of these aspirations, and to facilitate growth and mobility. The country’s youth need jobs. In order to get jobs they need skills. Elderly and vulnerable people need aged care and other kinds of support. As India’s population continues to balloon, pressure on water resources and food production, and the potential impact of climate change all increase. In many parts of the country, urban infrastructure is in dire need of renovation.

As Australia’s economy expands beyond mining and builds expertise in innovation, education and services, greater synergies can arise between our two economies. For example, as the traditional Indian extended family gives way to the modern nuclear family, seniors will need more aged care services. Demand for online medical assistance, medical equipment, new hospitals and access to clinics will likely increase. So too will interest in better pension and health insurance funds. With their experience in catering to an aging population, Australian companies may be able to satisfy a proportion of these needs.

Similarly, as India’s cities grow, services in town planning, architecture, waste management, heritage conservation and new funding models for city governance may be needed. Environmental management is likely to be another growth area in which Australian expertise in water conservation, irrigation, dry land farming, and project management could prove valuable, not just in India but elsewhere in South Asia.

Australia can play a significant role in supporting India’s exciting, but difficult transition from developing nation to global economic powerhouse. We stand on the brink of a once in a generation chance to diversify Australia’s economic relationship with India. Grasping this chance by making the necessary adjustments is the need of the hour.

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The Story So FarThe bilateral trade and investment position between Australia and India has never been better. Bilateral trade in 2011-12 stood at A$18.3 billion, with a trade balance in favour of Australia. Investment flows from India to Australia in the same year, based on Foreign Investment Review Board (FIRB) approvals, rose to A$11 billion. Australian investment in India is relatively low, probably not exceeding A$1 billion. Reliable figures for actual two-way investment are not available.

Looking beyond the figures, both trade and investment suffer from the lack of diversification in the relationship. Trade from Australia is highly commodity driven, with exports dominated by coal, gold, copper and other industrial inputs. Education is the largest services export. Likewise, from the Indian point of view, exports to Australia are limited to some manufactures, chemicals, and crafts and textiles. Recent investment from India, once dominated by IT, is now focussed on resources and infrastructure.

The number of companies doing business between the two countries is relatively small. Recent Australian Bureau of Statistics (ABS) data indicates that just over 2,000 Australian companies are exporting to India, while only some 150 of them have a substantial presence there.1 The number of major Indian companies with a presence in Australia would be in the order of 75-100.2

Some of Australia’s biggest companies have a presence in India, including banks and financial institutions and insurance companies. These include the Commonwealth and Westpac banks, ANZ, NAB, Macquarie Group, AMP Capital and IAG. In the resources sector BHP Billiton and Rio Tinto have a presence; in building and construction Leightons and SMEC are active; in medical technologies Cochlear and Resmed have operations in India, and in transport and logistics Linfox is a major player. But getting smaller companies to enter the Indian market is also vital if the long-term economic relationship is to bloom.

In the years 2002 to 2008 India’s GDP grew at over eight per cent per annum, with the focus on increased exports and inward foreign investment. The Global Financial Crisis slowed growth in the late 2000s and it has not picked up in recent years due to depressed global growth and a slackening in the pace of economic reform. It is to be hoped that the reforms announced in late 2012 will revive growth, but the latest numbers (GDP of 5.2 % in 2012, and at best 6.1 % in 2013) are discouraging. With an election due in 2014 further actual reform will be difficult to achieve.

To sustain the growth rates of the last decade, India must continue to open its economy, reduce regulation, and tighten governance. But the overriding concern for India’s prosperity over the next twenty years will be ensuring that energy supplies, skills development and infrastructure grow sustainably. Without the ability to educate its population, provide adequate, reasonably priced energy and upgrade its urban and industrial infrastructure, India will struggle to meet its goals, including its primary goal of reducing poverty. Some of the solutions to these difficult issues could be provided by Australian innovation and expertise.

1 Australian Bureau of Statistics, ‘Characteristics of Australian Exporters 2011-12’, http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5368.0.55.0062011-12?[accessed 18 July 2013].2 This is an estimate from the Australia India Business Council.

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Rivals to Partners: Australia’s role in India’s GrowthAt the political level, as on the cricket pitch, Australia and India have more often been rivals than partners. But in 1991, the collapse of the Soviet Union and the commencement of rapid liberalisation of India’s economy opened a new chapter in India’s relations with the world, including Australia. Political obstacles have, until recently, continued to complicate what should always have been a more constructive and supportive relationship between two great democracies. Until 2011, the Australian Labor Party’s opposition to selling uranium to India hindered closer ties. However, with Labor dropping its ban and the Opposition Liberal-National Party Coalition already in support of such sales, the path towards a new era in relations has been cleared.

The main challenge in the economic relationship is to diversify and synergise the many complementarities that exist between our nations, and re-imagine Australia as a solution provider for India’s great project of modernisation. Australia must position itself as a nation whose skills and resources can facilitate India’s growth. Instead of hitting each other for six on the cricket field, Australia and India should team up to hit India’s growth obstacles and development challenges out of the oval.

Opportunities exist in six important areas of the trade and investment relationship. These are:

•Energy

•EducationandSkills

•Urbaninfrastructure

•Population

•Water

•Food

Energy India’s energy consumption is estimated to increase by six per cent per annum, based on a GDP growth rate of eight per cent through 2017.3 Oil, natural gas and coal will continue to be the main fuels for electricity generation, and the proportion provided by imports of all three forms of energy will increase. Imports overall will account for 38% of total energy requirements.4 But these figures, based on Planning Commission forecasts, seem optimistic given the recent Asian Development Bank (ADB) Economic Outlook, which suggests GDP growth of six and six-point-five per cent in 2013 and 2014 respectively, much lower than the Planning Commission’s base5. There is likely to be a continuing need for India to import thermal coal, natural gas and LNG. While uranium will increase as an energy source, it is unlikely to provide more than five per cent of India’s power needs over the next twenty years.

3 Indian Planning Commission, 12th Five Year Plan, New Delhi, Government of India, 2012, Vol 1, section 1:160.4 Indian Planning Commission, 12th Five Year Plan, New Delhi, Government of India, 2012. Vol 2, Table 14.5, p. 135.5 ADB, ‘Economic Outlook 2013’, 2013. http://www.adb.org/sites/default/fils/pub/2013/ado-2-13.pdf [accessed 29 April 2013].fearless

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Australia has the potential to be a significant supplier of LNG, thermal coal and uranium over the next twenty years. However India has considerable choice in where it purchases such commodities. It already buys thermal coal from Indonesia, South Africa, Mozambique and Australia. Gas imports may come from Qatar, Central Asia, Iran, Russia and Australia. Price will be a significant factor in its choice of provider, not necessarily assurance of supply. India also has significant domestic gas reserves, and exploration has increased these reserves in recent years. Bangladesh and Myanmar are also potential sources of natural gas. Australian resources companies Santos and Dart Energy have invested in gas-related activities in recent times, and there is an agreement between Exxon Mobil and Petronet to sell LNG from the Gorgon project in Western Australia.

India’s 12th Five Year Plan projects that 88,000 megawatts of new power generation capacity will be constructed in the next five years. This represents almost a 50 per cent increase over the current capacity of 200,000 megawatts. Most of the increased output will come from thermal power stations, and an increase in nuclear power capacity of 33 per cent. Renewables other than hydroelectricity are a small part of the overall mix. With coal continuing to be the main source of energy, emissions of CO2 will not be containable in the medium term. India will face difficult policy choices if it decides to reduce carbon emissions. Indian investments in the Australian coal industry have expanded in recent years, with major developments planned or underway by GVK and the Adani Group. NRE Gujarat has been a producer of coal from the Wollongong area for a number of years. Investment into the Indian coal industry by foreign companies is not very welcome, but service providers such as Thiess India (a subsidiary of Leightons) work on a contract basis in coal mining.

The Planning Commission’s projected increase in power supply may not, of course, be achievable unless key business and regulatory issues are dealt with. These include the length of time taken to obtain business, environmental and operating permits; affordable fuel prices; the impact on business profitability of any price regulation measures; and whether land can be acquired and clearances for power plant construction can be obtained in a timely manner. A recent McKinsey report notes that it takes about 5 to 6 years to build a new thermal power plant in India at an average cost of US$500-600 million dollars.6 In the absence of effective action by government to streamline these processes, the Planning Commission’s projections are unlikely to be met. However, they are a useful reminder that India needs to increase its energy supply capacity urgently.

Exports of energy commodities from Australia to India will increase, especially coal, and eventually uranium. Volumes will be even greater if India’s efforts to develop its own extensive resources stall. Long-term sales of natural gas may buck the growth trend, given India’s opportunity to diversify its supply.

6 McKinsey and Co., Powering India: the Road to 2017, New Delhi, June 2008.

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Education and SkillsThe Australian government’s Australia in the Asian Century White Paper recognises that India is an important trade and investment partner in education. It notes that:

India has recognised the need to make substantial investments in skills and infrastructure to better equip India’s future workforce and improve its competitiveness7

India currently lacks the capacity to educate and train the estimated 150 million young people in need of tuition by 2022.8 There are simply insufficient places in the current education system to support such a training load. Either India quickly develops this capacity, or Indian students will continue to go offshore in search of education opportunities. Those who can’t afford to travel abroad will struggle to find satisfying, well paid work.

Australia is the third-ranked destination for Indian students undertaking tertiary education abroad after the USA and UK. It is likely to stay that way for some time to come – the next most important destination is New Zealand, with only 30 per cent of the student numbers who choose to be educated in Australia9.

On skills it is different matter. Skills training should be delivered in India, due to the large number and variety of skills required. Much of this training will be delivered on the job or in areas where employment prospects exist. The sectors most in need of skilled workers include construction, engineering, trades, and consumer/retail. The National Skill Development Corporation (NSDC) is the Government of India entity responsible for policy in this area. They have several programs to support both government and private sector initiatives for training, but there is little funding for such initiatives. The basic model for foreign collaborations for VET delivery in India currently involves partnerships between Indian service providers and overseas institutions such as colleges or TAFEs with expertise in skills, curricula, training, assessment and qualification. Most such collaborations tend to be with private-sector enterprises servicing the training needs of Indian companies experiencing difficulty in attracting skilled workers.

The two main issues for potential Australian skills providers are finding the right partner, and having a sustainable business model. The right partner in the short-term is likely to be found in the corporate sector, where training can be done either in the work place or at facilities funded by the firm. There are training institutions, both public and private, which are potential partners, but there needs to be considerable due diligence to determine whether small-to-medium providers are actually able to deliver quality services. The location of these potential service providers needs to be closely examined as well. This is not so difficult as it may appear, since the states where the needs will be greatest, and where a viable service model could operate, are few.

7 Commonwealth of Australia, Australia in the Asian Century, Canberra, 2012, p. 42.8 ‘NSDC Skills Gap Analysis Reports’. 2013. www.nsdcindia.org/knowledge-bank/index.aspx [accessed 18 July 2013].9 ‘India’s Students Overseas’, 2010, www.iie.org [accessed 1 April 2013].

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Developing a sustainable business model is perhaps an even greater challenge. The question of who pays, and how much they are able to pay for skills training in India suggests a far lower return on investment per student than Australian VET providers are accustomed to receiving. Someone needs to pay the tuition fees, and these fees need to be accessible to the overseas provider. Scholarships for Indian students wishing to upscale their skills are limited in number.

Several models are under consideration by Australian skills training providers. Some are based on guaranteed payment by the corporate entity that benefits from the skills increase. A more comprehensive approach is suggested in a recent paper by Prasenjit Kundu, which calls for the establishment of a Centre of Excellence to facilitate partnerships between Australian skills providers and their counterparts in India.10 The existing network of Australian Trade Commission offices in India already provides some support for institutions seeking tie-ups. Foreign VET providers need to be absolutely sure that the qualifications they offer will be recognised in India. In some cases, particularly in the private sector, the formal qualification is less important than acquiring actual skills that help the trainee obtain and keep a job. However, ultimately, most students will want to have a qualification that is accepted in other sectors or States.

Provided there is no recurrence of the student safety issues of 2009-10, the education of Indian students in Australia will continue to be a major contributor to the relationship. The real question is whether Australian TAFEs and private Registered Training Operators (RTOs) can also deliver vocational training and skills in India. Australia’s special expertise in curriculum development, train-the-trainer programs, and assessment and accreditation could add value to schools and training institutions in India which could, in turn, supply infrastructure and students. Distance and online education will also become very important to smaller, more remote cities and towns. The ability to provide skills training via the Internet will give RTOs a competitive edge.

Urban InfrastructureIndia’s cities are growing in size and population at an unsustainable rate. Within 20 years, New Delhi and Mumbai will both have populations of more than 30 million people. Some 70 other cities will have populations of over one million inhabitants, and McKinsey estimates that a further 32 cities will be approaching one million inhabitants.11 These cities currently have very limited infrastructure in such fundamental areas as roads, electricity, visitor accommodation, transportation and Internet connectivity. Most of them would not be near an airport.

10 Kundu, P, ‘Skills Challenge: Australia and India’s Skills Training Needs’, Australia India Institute, Melbourne, 2013.11 McKinsey and Co., ‘Indian Urban Awakening: Building Inclusive Cities, Sustaining Economic Growth, World Cities Summit’, July 2012. Cited as http://worldcitiessummit.com.sg/sites/sites2.globalsignin.com.2.wcs-2014/files/Mr_Sirish.pdf [accessed3 July 2013].

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The urban administrations and State Governments of these communities will not have sufficient funding to build the necessary infrastructure without significant investment by the Government of India or the private sector. In some emerging cities where business opportunities exist, the private sector is helping to bridge the gap. But in others, public sector investment will be needed to build roads and provide new electricity and sewerage connections, clean water and public transport. Community facilities such as parks, recreational areas, and health centres will also be needed.

A recent report by a panel chaired by Isher Judge Ahluwalia has highlighted the needs of the infrastructure sector.12 The report suggests that India’s urban population will build to 600 million people in 2031, from 350 million in 2010. It recommends that roughly US$ 700 billion be spent on urban infrastructure through to 2031. The main areas of expenditure include roads, transport, urban renewal and redevelopment, water supply and sewerage. The estimate does not include electricity distribution, adding further to the enormous investment needed.

Funding options for the government include the Jawaharlal Nehru National Urban Renewal Program, but other funding sources will be needed to reach the level of development aspired to. A recent report by the Federation of Indian Chambers of Commerce and Industry (FICCI) stated that ‘until there is a major augmentation in the resource base of the ULBs (Urban Local Bodies), little or no meaningful improvement in the quality of urban infrastructure and services is possible’.13 One suggestion of the FICCI study is to authorise municipal authorities to issue infrastructure bonds, providing them with access to long-term investment funding.

Public-private partnerships (PPPs) have been the cornerstone of private sector participation in infrastructure projects in India. The majority of these have been developed for the roads sector, but they are also being developed for power, ports, airports, and other infrastructure. The effectiveness of PPPs to deliver adequate infrastructure is still a matter for debate. Risk balance, timeliness of decision-making, land acquisition, and payment (particularly if this is through a user-pays system) are still concerns for the private sector. The high level of sovereign risk accepted by companies is also a major issue. The use of PPPs in the urban space is still limited, but must increase if new infrastructure is to proceed. However the current PPP mechanism and risk sharing requires attention if it is to be attractive to long term investors.

Australian companies are already active in this space, including architects and town planners (Jackson Architecture), in urban conservation (AusHeritage), and construction companies such as Leightons. The Sweett Group, GHD and others offer consultancy services to the sector.

12 Ahluwalia, I.J, Report on Indian Urban Infrastructure and Services, New Delhi, Government of India, 2011.13 Roy, M, FICCI Report on Urban Infrastructure in India, New Delhi, FICCI, 2011.

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PopulationIndia’s population growth is its greatest strength and its greatest challenge. A young and vibrant population provides people power to drive industry and national growth. Fifty per cent of India’s population is below the age of 25. Most of the population is currently employed in agriculture, followed by manufacturing, trade, and construction. A recent Credit Rating Information Services of India Limited (CRISIL) report highlights the key issues facing the growth in the potential workforce including:

•Lackofadequateskillsduetoinadequateeducationandvocationaltraining

•Mismatchbetweenemploymentneedandskillsavailability

• Rebalancing of employment between agriculture, industry and services with the movement of population into the cities from towns and villages.

This could lead to a situation where:

Although India will have the world’s largest pool of working-age people by 2030, if the current trend in labour participation continues, only 539 million out of 962 million people of working age would be working by 2030.14

Meanwhile, India also has a massive and growing population of elderly people. This has implications for the nation’s healthcare system and other needs of the non-working elderly population who, to date, have had limited pension and retirement income safety net options compared to many Western, and a growing number of Asian countries.

By 2030 around 22% of India’s population, or about 300 million of its people, will be over 50. According to the UN by 2050 the proportion could reach 54%, or about 587 million people. Changes in lifestyles in India increase the challenges posed by the need to care for these people. These include:

•Migrationofyoungworkerstothecities,leavingtheelderly in rural villages vulnerable

•Lackofincomesecurityfortheelderlythroughlackofpensionsandsocialamenities

• Declining fertility and therefore smaller families and reduced ability to support the elderly

•Inadequate health care leading to an increase in the sick

The financial burden imposed by such factors could place enormous strain on government services, especially at the State level. Any future lack of medical services will be felt most in the poorer parts of cities and in rural areas. Specialised care services such as nursing, aged care facilities and medical clinics need to be developed over the next ten to twenty years. As in the case of the urban landscape, the costs will be high. One suggestion is that health care will cost the Indian Government 3.2 trillion rupees (US$ 70 Billion) by 2025 or 11 % of GDP.15

14 CRISIL, Skilling India The Billion People Challenge, New Delhi, CRISIL, 2010, p. 9. www.crisil.com/pdf/corporate/skilling-india_nov10.pdf-India [accessed 15 April 2013].15 Accenture, ‘Delivering Public Service for the Future, Navigating the Shifts’, Economic Times, New Delhi, 5 November 2012. http://m.economictimes.com/news/economy/finance/public-services-to-cost-govt-rs-3-2-tn-by-2-25/articleshow/17101368.cms> [accessed 18 July 2013].

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WaterIndia has the potential to be severely affected by climate change in the next 50 years. It is caught in a double bind as far as water is concerned. It relies mainly on the seasonal monsoon and snowmelt from the Himalaya for most of its water. Monsoon rains have been irregular in recent years, resulting in less than average falls in parts of the country, while other parts have experienced severe flooding. It is unclear from the evidence what effect climate change will have on the critically important monsoonal weather patterns. In general terms, however, it is expected to bring higher pre-monsoon temperatures and an increase in heavy localised rainfall followed by little or no rain.16 The two most recent monsoons in the North of India may be a sign of things to come.

Snowmelt in the Himalaya and its foothills provides water from spring to summer, filling the Indus basin, and the Brahmaputra and Ganges water systems. The effects of lower run-off from the Himalaya will impact directly on human populations downstream. Loss of forests, reduced biodiversity and changing water flows (which could, in some cases, damage cultivated lands) are areas of concern.

As water flows become erratic - a phenomenon already seen in recent major floods in Pakistan — the ability of farmers and villagers to support themselves along these river systems may become tenuous. India’s major rivers traverse some of the most heavily inhabited areas on earth. In some cases their sources are in neighbouring countries, in other cases, they flow on into countries downstream. This creates the potential for conflicts over water with such nations as China, Pakistan and Bangladesh.

These issues are the subject of considerable research by universities, NGOs, aid and funding agencies, and governments. Coordinated government policies are needed to ensure there is a sustainable response to the key issues surrounding water use and management. Without an adequate response now, India could face severe water shortages, loss of farmland, the spread of infectious diseases due to contaminated water, and an increase mosquito-borne diseases including malaria. Better water management, water use and health services will help to mitigate these challenges. Australia’s experience in water management is already recognised in India for its potential to support India’s water needs. Most recently eWater signed an agreement with IIT Delhi regarding water modelling.17 Other companies involved in water technologies and services include Rubicon (irrigation equipment), SMEC, and Solahart.

16 15 Bajaj, V, ‘Q and A : Climate Change and the Monsoon’, 2012. http://nytimes.com/green.blogs/4september2012 [accessed 30 November 2012].17 www.ewater.com.au/news/media/?news=249, [accessed 10 July 2013].

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Food India may have to rely on imports of essential food commodities in the next five to 10 years due to climate change, population growth, and inefficiencies in food production and distribution. Falling crop yields, erratic monsoons, inefficient agricultural technologies, and poor logistics and handling are in part to blame. A lack of skilled farm workers is also exacerbating the situation. Large-scale migration of people to the cities in search of work as well as Indian government employment schemes, have reduced the potential paid workforce for farming.18

A recent Indian Council for Research on International Economic Relations (ICRIER) report on demand and supply trends for food production in India showed a growing supply–demand gap for all basic commodities, including cereals, pulses, edible oil and sugar. The author referred to the gap as ‘alarming’. The paper argues that total demand is increasing due mainly to population and per capita income growth. As far as supply is concerned, food production is constrained by low growth in yields.19 Without improved yields, which can be effected by new technologies in farm production, India will become import dependent for food commodities in which it is currently self-sufficient.

One solution to these problems would be greater mechanisation of farming. This is already occurring in sugar cane, dairy, and horticulture. Utilising better farming techniques could provide a buffer for the expanding needs of the population. Better use of fertilisers and water management technologies and techniques can increase yields, as can improved grain genetics. Such innovations have the potential to change the way agriculture is performed in India, with possible benefits for the country’s 300 million subsistence farmers, most of whom currently rely on the government for support.

Distribution, marketing, and sale of food are other areas in which new ways of doing business must occur. It is estimated that the organised food sector, which includes supermarkets, will grow by 30% per annum through 2016. Currently worth US$ 9 billion, it accounts for only five per cent of retail trade, the rest consisting of local markets and small stores.

Australia is a significant supplier of pulses and lentils to India (in 2012, worth A$414 million), and in recent years has provided dairy products, wine and lamb, mainly to the food service sector. Apart from a few retail products such as biscuits, fruit juice and cereals, Australian processed food producers have not successfully penetrated the Indian supermarket sector. Distribution has often been the main difficulty in achieving long-term sales.

18 ‘Over 2,000 fewer farmers every day’, in The Hindu, http://www.thehindu.com/opinion/columns/sainath/over-2000-fewer-farmers-every-day/article4674190.ece [accessed 10 July 2013].19 Mittal, S, Working Paper No 209: Demand-Supply Trends and Projections of Food in India, 2008.

The Central Government already allows 100% Foreign Direct Investment (FDI) in single brand retail firms, and now has parliamentary support to allow up to 51% FDI in multi-brand retail. This will lead to more investment by large food and hypermart chains, which will enhance the potential for more international food and beverage brands to be sold in the organised sector. With these changes in retailing, better distribution, logistics and storage facilities will need to be built and operated. New refrigerated food chains are needed. Individual retailers might control these, or there might be a consolidated approach in the major cities. Foreign investment in multi-retail will have to be agreed by State Governments, some of which have so far shown no inclination to do so. Others such as Gujarat are likely to be early supporters.

If India’s agricultural sector can re-focus on productivity gains, Australian exporters of seed, equipment and services could find new market opportunities.

Re-imagining the Economic RelationshipFor Australian companies, India’s needs represent large and important opportunities. In mining and energy, food, education and skills training, and financial services, they are well placed to make a major contribution to helping India realise its goals, and in the process, expand their customer base.

The challenges outlined here require a new set of outputs from Australian business. India’s urban infrastructure crisis will create huge amounts of work for architects, urban planners, project management specialists and construction companies. Innovative infrastructure funding mechanisms, such as new PPP programs, and a host of new financial services products will be needed. Increased skill requirements will create more demand for training institutes, and by extension, Australian expertise in building and operating technical colleges. India’s ageing population will need health insurance, health care facilities, hospitals and staff. Delivery of medical services via the Internet will become more common. There will be a need to establish effective pension schemes to give older workers income security in their retirement years, and to build retirement villages for urban workers who won’t necessarily have the support of close family.

These opportunities will provide greater potential for investment between Australia and India. As Australia moves to provide more services to India there will be a need for companies to have a presence in the country. Similarly Indian companies will find more opportunities to develop a base in Australia to capitalise on energy and mineral markets.

Australian governments, as well as businesses, owe it to themselves and the people they serve to ensure they don’t overlook the opportunity represented by the rise of India in the 21st Century. The potential benefits to both nations of closer ties and teamwork are obvious. The only question is whether, as two great democracies, we can rise above the day-to-day exigencies of politics, and seize the future that beckons us towards partnership for prosperity.

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BibliographyAccenture, ‘Delivering Public Service for the Future, Navigating the Shifts’. Economic Times, New Delhi, 5 November 2012.

ADB, ‘Economic Outlook 2013’. 2013. <http://www.adb.org/sites/default/fils/pub/2013/ado-2-13.pdf>.

Ahulwalia, I.J, Report on Indian Urban Infrastructure and Services. New Delhi, Government of India, 2011.

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AcknowledgementsThe author wishes to thank the Australian Trade Commission for their support. Thanks in particular to David Landers, Matthew Durban and the Austrade staff in India, Rakesh Ranjan from India’s Planning Commission and the Director and staff of the Australia India Institute. Except where specifically referenced, the views expressed in this paper are the author’s own.

About the AuthorMichael Moignard spent 35 years as an Australian public servant working in trade and resources policy, and trade promotion. He holds a Masters in Science (Chemistry) from the University of Melbourne, a B.A (Hons) in History and Economics from ANU, and a Diploma of Education from La Trobe University. Michael spent over six years in India, as Senior Trade Commissioner for South Asia with the Australian High Commission (Austrade) in New Delhi. He first served in New Delhi from 1998 to 2000, and again from 2004 to 2008. Michael was involved with many trade missions to and from India and has spent considerable time in analysing the results of Government’s role in enhancing trade and investment. He has worked closely with business organisations such as the Australia–India Business Council, and the Indian Confederation of Industry to support Australian businesses in India. Michael’s career in the Commonwealth Government, from which he retired in 2011, included stints in the Patents Office, Trade and Resources policy departments, and the Australian Trade Commission. He served with Austrade in New York, Santiago de Chile, Manila, Singapore and New Delhi.

 

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