The Hindu Business Line : Australia-India partnership

Energy and resources are the drivers of the India-Australia relationship, with India importing billions of dollars worth of gold and coal, apart from diamonds and food items. A number of parallels can also be drawn between the public policy debate in India on the best way to develop its energy and mineral resources, and that faced by Australia a generation ago, says John McCarthy, highlighting various other areas in which India can be a business partner of considerable strategic importan ce.

INDIA is important to Australia. You are estimated to become the third largest economy in the world by 2050. Hence, economically and strategically, you matter for that alone. Within East and Southeast Asia, the principal region of Australia's diplomatic focus, India is increasingly prominent. And India has moved up to become Australia's sixth largest export market.

India's record since opening up its economy in the early 1990s is one in which you can take pride. India's achievements in the knowledge economy, including information technology and biotechnology, are best-practice. Telecommunications and civil aviation are success stories and promise more. The prowess of Indian entrepreneurs in the global market is becoming legendary.

And Australian companies are picking up on these opportunities.

Many of you will have heard of Australia as an education destination. With about 26,000 Indian students in our universities and colleges, Australia is nudging the UK as India's second largest foreign higher-education provider. Australia has an international reputation as a high-quality food producer and distributor. Our construction and engineering companies are working all over India in high-profile projects — including on deep-sea wells off the coast of Andhra Pradesh; on the Delhi metro project; and in hydro-electric projects in the Himalayas. Two-way tourism is growing by over 25 per cent a year — not only because of the release of Salaam Namaste.

But it is energy and resources that are the drivers of the relationship. For example: gold is now Australia's main export to India at a value of well over $2.1 billion. Australia now supplies 25 per cent of India's gold market; Australian coking coal, worth US$1.2 billion, is used in more than 50 per cent of steel produced in India; and Indian companies have purchased two copper mines and three coal mines in Australia over the past year or so.

Our bilateral trade figures are also somewhat understated because of transhipment. For example, Australia exports some US$800 million in diamonds to India. These employ, according to Indian figures, some 100,000 Gujarat-based jewellery workers. But these figures appear in Belgium's trade statistics, as the diamonds are transhipped through Antwerp. Even without the inclusion of these diamonds, however, the growth of Indo-Australian bilateral trade last year exceeded that of India's trade with countries such as the UK, the US and Japan. In short, the resource sector is one of natural complementarity.

Policy parallels

A number of parallels can be drawn between the public policy debate in India on the best way to develop its energy and mineral resources, and that faced by Australia a generation ago. Australia clearly had, and continues to have, a very different demographic and development profile to India, so these comments are offered with appropriate caveats.

Australia opted for a modern mining industry that welcomed foreign direct investment. Instead of the government developing the resources, Australia concentrated on building a robust legal and regulatory framework to ensure that the industry was developed responsibly, and that the benefits were shared.

Not only has our mining sector underpinned our overall prosperity, exploration and mining have contributed to the development and well-being of many local communities that may otherwise have been left out of the growth story. "Captive-lease" policies, advocated by some Indian States, were not adopted by Australia. These policies lead to small-scale operations and sub-optimal development of resources. India must of course determine its own development path, but Australia's experience may be instructive. Our experience is that a liberal and internationally competitive mining regime operating under clear and transparent regulation works for the host country. It can be a huge stimulant to national prosperity. But it is up to you.

Burgeoning resource needs

India's projected energy and resources requirements are enormous. India's mining sector contributes only a small percentage of GDP at present. It has great potential, but needs further investment.

On the energy side, India is the world's sixth largest energy consumer and its energy needs are growing exponentially in both oil and gas. Even coal imports are increasing. The Prime Minister, Dr Manmohan Singh, put energy security high on the policy agenda when he said recently that energy security was to India today what food security had been in earlier decades.

Opportunities and constraints

Bilateral trade opportunities abound, and developing these opportunities will be high on the agenda when the Australian Prime Minister, Mr John Howard, visits India with a senior trade delegation later this year.

Australia is collaborating with India in its world-class science and technology sector. Two-way exchanges are increasing with Australian Nobel Laureate Peter Doherty visiting in March to highlight Australian expertise in medical biotechnology. When the Commonwealth Games travel from Melbourne in 2006 to New Delhi in 2010, Australia will be well-placed to share expertise developed in event management, construction and sports technology products and services.

Next month, 70 senior Australian corporate and official representatives will converge on New Delhi for an Indo-Australian Coal and Mining Forum with their Indian counterparts to put in place mechanisms to further deepen commercial and technical linkages. LNG, a relatively new commodity for India, has the potential to be another resources lynchpin in our longer-term commercial relations. At present, however, while Australian LNG has been provided to India through spot sales, longer-term contracts have yet to be negotiated. Much of Australia's LNG has already been committed, and market prices have risen sharply. It is a tough market at present.

On the investment side, recent inward investments from Australia include the US$100-million Bluescope Steel joint venture with Tata to develop a steel coating and building business in India. Pune-based Indian Seamless Metal Tubes has just announced an investment of US$300 million to set up a steel mill in Australia. Representing India's high-tech sector, companies such as Tata consulting, Wipro, Infosys, Polaris, and Pentasoft continue to invest in Australia.

All that said, I should address some continuing constraints. As you all know, foreign direct investment, while growing strongly, is still less that three quarters of one per cent of GDP. It is more than 3 per cent in Brazil and more than 4 per cent in China.

Specifically within the mining sector, issues that we have raised with India's Investment Commission and the government as inhibiting factors include lack of certainty when converting an exploration lease to a mining lease. In Australia, this lease conversion is guaranteed for responsible miners as a means of encouraging long-term investment. The legal and regulatory framework for mining in India needs to be rationalised.

Establishing a mining project in India currently requires multiple approvals from different layers of government. The process is cumbersome and slow. Forest and environmental clearance procedures could include more effective public consultation to better ensure local communities are involved in mining projects. Infrastructure shortfalls are another significant inhibitor to development of the mining industry.

India is currently working on these issues, through bodies such as the Planning Commission's Hoda Review into India's national minerals policy, and there is real interest in the industry about its prospects.

Defining the relationship

The content of Australia's great international economic relationships with Asia over the past half-century has been wide-ranging.

But it has been underpinned by our resources: the export of our resources; our capacity to invest in resources projects abroad; and our preparedness for others to do the same in our country. It is in this way, and with similar results, that we would like to work with India. Let us both give it a try.

(Excerpts from an address to the Confederation of Indian Industry Partnership Summit 2006, on January 18 in Kolkata.)

(The author is Australian High Commissioner to India.)