CEO & Partner John W.H. Denton participated in a round table discussion focused on the opportunities for greater engagement between Australian and India.
Hosted by Observer Research Foundation and the Lowy Institute for International Policy, and chaired by Rory Medcalf of the Institute, the session focussed on bilateral engagement.
I've been asked to speak briefly about the Australian economy and opportunities for greater engagement with Asia and India in particular. and while I'm discussing these matters, I'd like to talk a little bit about the Australian Government's recently released White Paper Australia in the Asian Century.
This White Paper makes quite clear that the Australian economy right now is doing pretty well. The Asian Century has thus far been very good to us. We've got one of the strongest economies in the world. Unemployment is low. Inflation is contained. the terms of trade are high. While commodity prices appear to have passed their record peak, considerable minerals and energy investment is still to come and large-scale production and exports are yet to flow.
We've also got a lot of assets to build on. Our public finances are among the strongest in the world. Government debt is low. Our financial institutions are sound and we have the highest possible sovereign credit rating. We have a strong services sector, and legal and regulatory frameworks that will allow us to make the most of our opportunities. And we have a multicultural, highly skilled and creative population that has demonstrated capabilities in innovation and complex problem solving.
But the White Paper is less about what Australia is doing now, and more about what Australia can do. It's about what we need to do now and in the future to make ourselves stronger and more productive, be more economically successful, build more capabilities and Asian links for our people, and become a more integrated part of a vibrant Asia.
Across all of these areas, India will be critical. This is partly due to the fact that our economies complement each other well. Despite a blip this year 1 as the gold price fell and we received less Indian students, our economic relationship has grown steadily in recent years.
And our economic relationship seems highly likely to keep growing – our strengths in exporting primary products, particularly minerals and fuels as well as services like education, will hopefully continue to make us a supplier of choice for India.
Today I'd like to talk about three specific areas — all priorities in the White Paper — that i see us able to work on yet more together. I think we can improve our investment climates and greatly lift our two-way investment. I think we can do a lot of work together on infrastructure. And I think we need to continue our excellent progress at bringing people together to conduct, disseminate and commercialise research.
Increasing investment remains a goal for both our governments. Recent news from India has made clear the Singh Government's determination to further liberalise foreign investment 2. And, as the recommendations of the Asian Century White Paper show, it is a major priority of our government too.
A focus on investment in the forthcoming negotiations for a comprehensive economic cooperation agreement (CECA) between Australia and India 3 will be essential. While our trade relations have boomed — two-way trade has grown in value from $3.3 billion in 2000 to over $20 billion in 2011 — we have far less investment in each other's economies.
I raise this not to ignore the importance of dropping trade barriers. in spite of recent reforms, there are still major barriers to trade between our two nations. The IMF has assessed Indian tariff rates as being far higher than they should be. And I believe that we should work together to try and abolish a number of duties, such as safeguard and anti-dumping duties, and non-tariff restrictions such as import bans and standards or certification agreements.
But a focus on trade — which has been a real success story — ignores the longer term pattern of our nations not investing in each other. Australia tends to trade heavily and invest scarcely in Asia, the region we live in. Recent estimates have it that 50% of our trade is with Asia, but only 5% of our investment is. And while Indian investment in Australia has had a sharp recent upturn, 4 there's much more that can be done.
We need to be clear on this: we welcome investment. Economic investment is good for us. It creates jobs. It boosts our tax base. And it lets us engage and interact with other countries, allowing us to form far greater bonds with overseas partners. This was one of the really crucial messages of the white paper.
Another crucial message from the White Paper was the importance of improving infrastructure. and this is an area in which i think we can work closely together. India has recognized clearly that despite the great strides taken in reform, significant challenges remain, and improving infrastructure is amongst the most critical of these needs.
The statistics on these infrastructure needs are staggering. A report at the most recent Asian development bank meeting outlined that India was expected to need to spend $us 1 trillion in the next 5 years,5 half of which would need to come from private sector investment. And this comes after India was ranked 86th for basic infrastructure in the global competitiveness report, in spite of spending nearly half a trillion us dollars on infrastructure in the last 5 years.
Australia has all the tools necessary to help with this next wave of infrastructure. Australian business has vast experience with infrastructure funding, with infrastructure building and with the many services that go with both of these activities. And we're currently launching a number of national initiatives to further improve our ability to provide infrastructure. 6
The final focus of the White Paper was ensuring that we do not look at economic opportunities as being limited to what Australia can supply Asia. Asia will become an increasingly significant source of new ideas, technologies and leading-edge science for Australia. We want there to be more opportunities for Australia to use deeper connections with Asia to broaden the flow of ideas. And we see India as a major partner in this.
Making joint science and technology initiatives, and creating new ideas, for example, could be a boon to both of our economies and societies. There's already a lot going on: the Australia-India strategic research fund 7 for example is Australia's largest bilateral science program with any country. 8 The Australian government has committed $64m to support the participation of Australian researchers in joint projects, and the government of India meets all of its teams' costs, making the joint project also one of India's largest project.
Initiatives such as this represent ideal 'win-win' scenarios. not only do we both get access to double the amount of research output for our public funds, but we both reap the benefits of having some of our brightest minds working together, creating new ideas and forming lifelong bonds, friendships and networks.
The networks and new ideas formed by working together are vital. They bring major productivity gains — a recent report by our Bureau of Statistics noted that Australian businesses that innovate are twice as likely to report increased productivity as businesses that do not innovate. And businesses that innovate are also 40 per cent more likely to report increased profitability
But working together isn't just about productivity increases, it's also about making networks that bring many, often-unanticipated benefits with them. Today's students, tourists, labmates and friends are tomorrow's colleagues, investors and business partners. As the white paper makes very clear from the Australian side, being enmeshed in Asia requires us to be enmeshed through people. And I think Australia and India are two countries that have a terrific base on which to build this sort of engagement.
Footnotes
1 Trade this year has been much weaker than last year -- total exports from Australia to India have fallen by 17.5 per cent from A$18.2 billion in 2010-11 to A$15.0 billion in 2011-12, and goods exports are down 16.8 per cent to A$13.1 billion
2 Increasing investment is currently very topical in India due to the delay in monsoon conditions and possible fall in consumer confidence. Treasury/DFAT projections have it that the late arrival of monsoon conditions and a lack of investment (due mainly to a drop in consumer confidence) will account for a fall in GDP of around 1.5% this year (from 6.5% to around 5%), although the economy is expected to recover. The Singh government has promised to use this to boost investment.
3 Agreed in May this year by Minister Emerson and Indian Minister for Commerce and Industry Anand Sharma
4 There isn't much data on this, but there was a big $2bn coal deal last year, and that alone will qualify for a 'sharp upturn'. Most of the rest of recent investment has been by individuals, and this will probably grow should the Specialised Investor Visa program get up.
5 India measures these spending needs based on their 5 year plans. The current 5YP time period is 2012-2017.
6 Such as the recently-launched National Infrastructure Construction Schedule. This brings information on all major infrastructure projects together. A portal also provides the private sector with more information for linking with major government infrastructure projects in Australia. Taken from the Asian Century White Paper
7 The joint program 'brings together leading scientists in both countries and helps Australian researchers and institutions to form links with an emerging global science power'. To date, it has supported more than 80 research projects to date, including food security.
8 Equivalent with China is $9m over three years
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