Asia-Pacific Perspective: fool’s gold in India?

" In the Australia-India trading partnership much that glitters is fool’s gold."
Tony Walker, Author & Editor

While Prime Minister Malcolm Turnbull did his best on his recent visit to the subcontinent to burnish economic ties, the reality is Australia’s business relationship with India is disappointing.

This is notwithstanding current focus on proposals for the giant Adani coal mine in Queensland’s Galilee Basin as a yardstick by which to measure the development of a business partnership.

The go-ahead for the Adani mine – partly dependent as it is, on a loan from the Northern Australia Infrastructure Facility - is by no means guaranteed against well organised opposition from environmentalists, indigenous communities and elements of the media.

The growing pushback globally against coal more generally is not helping.

This brings us back to the importance of gold to the trading partnership.

In 2009, Australian gold exports to India peaked at $A6.7 billion and accounted for about half exports to that country. However, largely due to Indian government regulatory restrictions on imports shipments have fallen back sharply.

In 2015-16, gold exports had dropped to $A686 million, or down more than $6billion on the peak. Two-way trade (including services) has been bumping along at more or less the same level for the past decade at around $20 billion.

This is a poor result given India remains among the world’s fastest-growing economies.

In the latest period Australia ranked 14th as a source of Indian imports and 21st as a destination for exports.

Clearly, there is much scope for improvement.

GOLD COMPONENT

Not too much should be made necessarily of gold as a component in the Australian trading relationship but the fickleness of Indian government policy in turning on and off the gold tap is part of a wider story.

Circumventing India’s regulatory environment despite Prime Minister Narendra Modi’s efforts to loosen bureaucratic constraints remains a huge challenge for those proposing to do business there.

If we contrast the numbers illustrating Australia’s trading relationship with China and India, the fact doing business on the subcontinent is challenging becomes even clearer.

Mark Thirlwell underlines this contrast on his Austrade economics blog where he notes despite soft commodity prices, exports to China rebounded in 2015-16, making it one of the stronger performers among Australia’s top 15 exports market.

By contrast merchandise exports to Indian were down offset by a relatively strong performance in services, largely due to educated-related travel.

Foreign direct investment numbers are similarly disappointing with Australian FDI in India at around $1.5 billion and Indian investment in Australia at less than a billion.

It is clear expanding the Australia-India trading relationship is hard work.

As Thirlwell noted in an April 2016 blogpost – Australia-India economic ties: Room to Grow –the “degree of intensity’’ in Australia’s trading relationship with India had declined in recent years and was “a fair bit lower than the intensity of our China export relationship.’’

This might be regarded as something of an understatement.

Raw numbers underscore the vast gap in Australia’s business partnership with the neighboring Asian behemoths with similar populations but at markedly different stages of development.

China ranks first as a destination for Australian merchandise exports, first as a source of imports and first for two way trade at $136 billion. Chinese direct investment in Australia stands at $35 billion and Australian investment in China is $14 billion.

Two-way trade in services to China now exceeds $12 billion, the bulk of it education-related.

These are big numbers and should presage greater opportunities for trade relations with India, now at an earlier stage of its development.

Contrasting the relative sluggishness of Australia’s trading partnership with India and with China makes the point.

Since 2005-06 China was the destination for less than 11 per cent of Australian exports by value: by 2015-16 that share had increased by more than 16 percentage points to exceed 27 per cent (not including Hong Kong).

It was against this background Malcolm Turnbull went to India earlier this month to bolster ties with an important Indo-Pacific ally.

Here it is important to note Australian officials now speak increasingly of the “Indo-Pacific”, as opposed to the “Asia-Pacific’’, both in recognition of the importance of the Indian Ocean and its littoral to Australia’s security, and more specifically to India’s role as an emerging superpower.

All that said, the impression lingers Turnbull’s visit to India was less productive than might have been hoped, leaving aside what appears to have been a bonding with his Indian counterpart.

At the outset of his four-day visit the Prime Minister felt obliged to douse expectations of early progress towards an Australia-India free trade agreement (titled the Comprehensive Economic Cooperation Agreement), thus dampening prospects of India’s fulsome cooperation in various regional trade initiatives preoccupying regional leaders.

This includes principally the Regional Comprehensive Economic Partnership which is assuming greater significance now the Trans Pacific Partnership is in abeyance following a Trump administration decision to withdraw.

STUMBLING BLOCK

A stumbling block to closer Australia-India economic ties, apart from an opaque Indian bureaucracy, remains agreement on visas for Indian workers under the 457 visa program and other such programs. Particularly now Turnbull has scotched that program.

Agreement on tariff reductions is a major impediment with India super-sensitive about access for competitive Australian agricultural products to an Indian market serviced by a vast army of small and economically vulnerable farmers.

At the outset of his Indian visit Turnbull felt obliged to distance himself from his predecessor, Tony Abbott, who predicted in 2014 a trade agreement with Indian would be concluded within a year following on such agreements with Japan, China and South Korea.

In 2014, then Trade Minister Andrew Robb made four visits to India to advance the process. But those efforts have clearly flagged in the realisation achieving understandings with a slow-moving Indian bureaucracy is much more difficult than anticipated.

This is how Turnbull put it on his arrival in New Delhi.

“It is a process that will take some time. India has a long tradition of protection, particularly for agriculture. We are a huge agricultural exporter, so we want to have open markets for everything, but in  particular for agriculture, so it will take time,” he said. “But the important thing is to persevere.

“…There’s no point setting a target for an agreement without having regard to the quality. You know you can sign an agreement any time, it’s a question of whether it has got the provisions that make it valuable and worthwhile from Australia’s point of view.”

From an Australian perspective and despite Turnbull’s and Modi’s insistence on the need for an urgent “stocktake’’ of where the trade negotiations are at and where they might be heading, a more productive avenue for the time being would seem to reside in the push to bring to fruition of the RCEP as an antidote to the stalled TPP.

America’s decision to pull out of TPP for the time being has robbed the initiative of its momentum.

The RCEP involves the ten ASEAN states plus China, India, Japan, South Korea, New Zealand and Australia. China sees the RCEP as a useful vehicle to push back against populist trade policies that would constrain its continued economic expansion.

But back to gold as a glimmering component of the respective Indian and Chinese markets for the Australian product.

In 2015-16, China’s imports exceeded A$3.5 million five times India, notwithstanding China’s status as the world’s biggest gold producer.

As we said earlier, all that glitters in the Indian market is not gold.

Tony Walker is an author and former Washington correspondent, international editor, Middle East editor and senior political editor at The Australian Financial Review and The Financial Times.