Australia and India – Getting Down to Business
Speech by HE Harinder Sidhu, Australian High Commissioner to India,
Kolkata, 12 May 2016
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I am delighted to be in Kolkata for my first visit since assuming my role as High Commissioner.
It’s a great city to be in. Kolkata has, of course, the reputation of being India’s intellectual and cultural capital and I’ve greatly enjoyed some stimulating discussions already in the time I’ve been here.
As a major trading port, Kolkata’s relationship with Australia goes back a long way – to the very early days of European settlement in Australia. In 1798, Scottish-born Robert Campbell, who had a trading business in Kolkata, arrived in Sydney with a cargo from Kolkata. This was the start of a successful enterprise involving the importation of goods from India to Australia.
Our business engagement has come a long way from those early times. Trade and investment between Australia and India spans a wide range of industries, products and services – from mineral and energy commodities, to sophisticated manufactured goods; from large-scale business services and skills training, to niche products in many different sectors.
In West Bengal, Australian companies are a significant supplier of equipment, technology and services to the mining industry, which I know is strongly represented in this room.
And, in the other direction, there are Kolkata-based companies such as Tega Industries and Global Reach, which have established a presence in Australia, in these cases in the mining and education sectors, respectively.
It’s wonderful there are these – and many more – examples of business between Australia and India, benefiting producers and consumers in both countries.
This is part of a deepening and broadening of the relationship. We are sharing closer strategic links. And expanding people-to-people connections are creating important new and very positive dynamics.
I can give you many figures to demonstrate these increasing linkages. Almost half a million – out of a total Australian population of 24 million – are of Indian origin. There are 53,000 Indian students studying in Australia. 233,000 Indians visited Australia in 2015, our eighth largest source of visitors.
India and Australia have an important future together.
But I have to say– returning to our economic relationship – there is a lot of unfulfilled potential too.
One comparison that a number of observers have made is that, while Australia’s two-way trade with India is at A$18 billion, it is barely more than one-tenth of our two way trade with China, which stands at A$150 billion.
And investment, too – in both directions – is well below what it could, and perhaps should, be.
Both our Prime Ministers have recognised the mutual benefits of deeper economic engagement between Australia and India.
In a recent speech on foreign relations, the Australian Prime Minister, Mr Malcolm Turnbull, noted the role Australia has played in the economic development of China and Japan, and suggested that a growing India might offer comparable opportunities. He concluded by saying ‘trade with India has not looked this promising for hundreds of years’.
And Prime Minister Modi, in a speech to the Australian Parliament during his visit in November 2014, said: “I see Australia as a major partner in every area of our national priority … Australia has immense opportunities to participate in India’s progress.”
The potential that both our Prime Ministers recognise for strengthening trade and investment activity between Australia and India leads me to a central theme I wish to highlight this evening. And that is the critical role that trade has in economic growth and, with this, in enhancing our economic well-being.
This is perhaps more self-evident for a population like Australia’s. Exposure to the wider world has been essential in providing a large market for our products and as a source of consumer goods and producer inputs. These would be costly, and in some cases prohibitively so, if supplied domestically.
In keeping with the idea of comparative advantage, Australia has fared best when we have allocated our productive resources to the things we do best.
India, of course, has a very much larger population. And there is a view in some quarters that this means India can satisfy its growth requirements through its large domestic market.
But I think India would be selling itself well short were it to take this stance. We can look at China, a country of similar dimensions to India, to see an example of the enormous contribution that international trade can make to national economic growth.
To return to Australia’s experience: we were a highly protected economy for much of the twentieth century – from the 1920s to the 1960s.
This did have the intended effect of increasing the size of our manufacturing sector. But it resulted in low productivity, fostered by an uncompetitive economy. From the 1970s, no longer shielded by high commodity prices, we were dropping down the per capita income ranks of OECD countries.
This was something of a wake-up call. And the later decades of the twentieth century saw Australia move from being an inward-looking economy to embracing the rigours and the benefits of globalisation, as we carried out a sustained program of trade liberalisation and structural reforms.
Trade barriers fell dramatically. From the early-1970s to 2000, industry protection, mainly delivered through tariffs, fell from 35 per cent to 5 per cent.
These changes have served Australia well. They have produced a more competitive and more resilient economy, which has now delivered twenty-five years of uninterrupted growth.
And what about India’s experience? You know your history better than I do, but I’ll just survey some pertinent facts.
India is an emerging economic giant. Measured by nominal GDP, it is the status of seventh largest economy in the world. If you measure on purchasing power parity basis, it is the third largest.
But it wasn’t always so. For a long time, India was almost on the periphery of the global economy.
Barriers to trade, combined with other uncompetitive economic policies, came at a very real cost. Up to the 1980s, India’s GDP grew on average only by around 3.5 per cent a year, while per capita income growth averaged around 1.25 per cent.
Since the 1990s, India has, of course, undertaken substantial economic reform. The economy has become more market-oriented, including easier access for foreign investment and reductions in tariffs – albeit to still high average levels.
India has reaped substantial benefits from its reforms. GDP growth has risen to an average of around 6.5 per cent since the 1990s.
The Indian government continues to press ahead with its program to improve the workings of the economy. These include important areas such as tax reform, bankruptcy legislation and cutting red tape. Australia welcomes these efforts.
It will be equally important to achieve reform on the trade policy front. Not just because of the benefits that flow from trade liberalisation directly, but also because experience shows that reform contributes most powerfully to national growth when it is an integral part of economic policy.
The benefits of trade reform are such that such reform is sometimes undertaken unilaterally. Both Australia and India have done this at various times. And others too. The World Bank has estimated that developing countries unilaterally lowered their average tariffs by around 14 percentage points between 1983 and 2003.
That said, the fact is that trade liberalisation often occurs through negotiated trade agreements – be they multilateral, regional or bilateral. In addition to the benefits accruing to the economy of a trade liberalising country itself, countries will often look to supplement these with gains from greater access to trading partners’ markets.
Just a few quick observations about trade agreements –
Modern trade agreements are not just about getting tariffs down. They are much more than that. They usually cover services and investment as well as goods.
They are as much about removing barriers behind the border as at the border.
Trade agreements also deliver that most valuable commodity to business – confidence about the operating environment. They provide certainty that the rules won’t change on them in an arbitrary manner.
Trade agreements should be comprehensive if the full benefits are to be delivered.
And they are not about balancing bilateral trade flows between the partner countries. In a multi-country world, and one where imports from one source are often the inputs for exports to another destination, it makes no sense to try and ‘even up’ the exports and imports between individual countries.
When they work well, trade agreements provide an opportunity for a stronger economic partnership between participants.
They allow business to get on with the job of supplying goods, services and investment more effectively – to the mutual benefit of the partners.
Australia and India are both engaged in negotiating two free trade agreements: a bilateral Comprehensive Economic Cooperation Agreement (“CECA”) and also the Regional Comprehensive Economic Partnership (“RCEP”).
I think these negotiations are exciting developments. We should see these things in the broader sweep of history.
It is true that the best way forward – in principle, at least – would be to achieve a substantive outcome in the World Trade Organization.
This is a view shared by India and Australia.
However, this doesn’t seem to be an achievement within our immediate grasp.
But the benefits from a more economically integrated international environment still stand.
Our bilateral FTA and the regionally-based RCEP are critical ways of taking things forward. Of testing ourselves on what we can do to open our economies. Of learning how we can achieve gains.
These may be smaller steps than a major outcome in the WTO. And they are not easy steps either – these are complex negotiations with many parts and many interests to consider.
But they take us in the right direction.
We can think of them as planks in a bridge that is constructed over time to achieve a world with lower barriers to international economic activity. We can also think of the important benefits this will deliver – globally, and especially for developing countries.
I started this address by referring to the broadening of economic engagement between Australia and India over time. I very much look forward to seeing further growth in our economic relationship, and pursuing the opportunities to make this happen.