On 12 July 2018, the Australian Government commissioned Report, An India Economic Strategy to 2035: Navigating from Potential to Delivery (“Report”), was released to the public. The landmark Report looks to provide a roadmap for unlocking the opportunities that will help India and Australia grow together, and cement India as a priority economic partner.

Prepared by one of Australia’s most distinguished strategic foreign affairs experts, Mr Peter N Varghese AO (formerly Secretary of the Department of Foreign Affairs and Trade, High Commissioner to India and currently the Chancellor of The University of Queensland), the Report is a significant investment in developing a considered strategy for Australia’s approach to India. Over 230 consultations and stakeholder discussions were held with key stakeholders from both Australia and India in government, private sector, non-profit organisations, industry groups and diaspora with economic modelling provided by consultants McKinsey & Company. A comparative analysis was also undertaken against other countries’ strategies and approaches to India, inducing against Singapore, Japan, Germany, United Kingdom, United States and Canada.

Spread across 500 pages, the Report contains 90 detailed recommendations, prioritised accordingly, along with commentary and suggestions on how Australian businesses and governments can leverage the burgeoning opportunities in India.

Central to the Report are judgements about why India matters to Australia. India is the fastest growing large economy in the world and it will have the world’s largest population well before 2035. Australia and India also share a heritage, as both are members of the Commonwealth. Beyond scale and complementary interests, India also offers Australia an opportunity to spread its trade and investment risk in Asia.

A key theme of the Report is that it is imperative Australia builds its momentum in engaging with India to ensure that Australia does not fall behind other countries. Despite many complementary interests between the two countries, the Report notes that Australia’s substance has often lagged its enthusiasm. To seek to enhance the substance of Australia’s engagement with India, the Report sets out opportunities and practical recommendations. While not all of the recommendations can be implemented immediately, taken together the recommendations form a list of practical steps to which governments and business can use to direct their future energy, focus and resources in building their momentum with India.

The core economic strategy set out in the Report is that of ‘sectors and states’. This strategy recognises the fact that India (as a federation of states not dissimilar to Australia) has a diverse economy with each state of India having distinct economic and social strengths and priorities. The report identifies 10 key sectors in India where Australia has a competitive advantage, and suggests 10 key states of particular interest and opportunity for Australian businesses. Our takeaways in this regard are below.

Top 10 Sectors

Sector

Findings

Flagship Sector

Education

According to the Report, there is no sector with greater promise for Australia in India than education. India cannot simply meet its own demand for education.

As a world-class education provider, Australia is well placed to partner with India across secondary, university and vocational sectors.

Australia’s strengths will be to attract and train the ‘best and brightest’ Indian students. Already, Australia is the second most popular destination for Indian students behind the Unites States, with attractive migration options and world class tertiary institutions. Australia should look to increase the number of high calibre Indian students at its universities and deepen two way research links while continuing to welcome Indian students who seek an Australian education primarily for a migration outcome.

Australia’s vocational system is highly regarded in India and providers can benefit from this reputation if they can adjust their business model to reflect India’s low-cost, high-volume environment, while still maintaining high academic standards.

The Report also notes that the Australian Government should continue to prioritise increasing the recognition in India of Australian qualifications.

Lead Sectors

Agribusiness

While India’s agricultural sector is politically sensitive, with a protectionist sentiment that is unlikely to fade, Australian agricultural producer have an opportunity in fulfilling three key objectives for the Indian Government: (i) food security, (ii) food self-sufficiency and (iii) income support for farmers.

Despite India’s focus on domestic production, Australia’s agribusiness sector has an opportunity to fill India’s gap between demand and supply and maintain its food security. Growth opportunities exist in areas where India has a shortfall in production (such as pulses, grains, horticulture and oilseeds) along with luxury food items for India’s growing middle class (such as wines and processed foods). Towards 2035, Australia should seek to pair exports of raw commodities with exports of value-added products to fulfil Indian demand.

An opportunity also exists for Australian agribusinesses to help India spread its risk from fluctuations in the volume of its local production, import demand and policy changes.

Australia can also work with India to (i) export services to work with India on productivity improvements (such as agricultural technology); and (ii) assist India’s agricultural reforms, and land and water management priorities, with the ultimate effect of increasing farmer incomes.

Resources

 

The combination of urbanisation, rising household incomes and industrial activity in India will drive demand for resource commodities through to 2035.

This increase in demand presents opportunities for Australian engagement, although the Report notes that the major resources play in India for Australia will remain export based.

Given the prevalence of state-owned enterprises in this sector, the Report recommends that the Australian government engage in a Ministerial-level dialogue to promote improvements to the business environment and keep Australia at the forefront of the sector. This status could be bolstered by targeted funding to joint activities.

The Report identifies India as a key market for Australia’s Mining Equipment, Technology and Services Sector.

Tourism

 

By 2035, it is expected that India will become Australia’s fourth largest tourism market with tourists to Australia set to quadruple to 1.2 million.

The Report notes that attracting a greater share of travellers, specifically high-value travellers, from India will be crucial to sustaining the size and profile of the Australian tourism sector, and that tourism can be used to build broader bilateral economic relationships.

The Report recommends that, despite the private-led nature of the sector, the Australian Government should play a greater role in increasing engagement with the Indian market. This includes by encouraging more direct air services, increasing funding to Tourism Australia for directed marketing activity in India, developing ‘India ready’ tourism training programs and providing incentives for “Bollywood” productions to be made in Australia.

Promising Sectors

Energy

Energy is fundamental to India’s development ambitions and will entail continued reliance on energy imports, especially fossil fuels, and associated technologies that improve energy efficiency.

The Report notes that Australia should continue to be a strong and stable supplier of commodities to India, and seek to become one of India’s inner circle of reliable energy partners.

The Report identifies regulatory convergence and supporting India’s participation in international energy organisations as key areas for Australia to focus on. It notes that optimisation of regulatory frameworks and incentivising energy sector research will improve Australian competitiveness.

The Report recommends that Australian and Indian agencies should engage in knowledge sharing, and Australian commercial entities should establish partnerships and training programs with their Indian counterparts.

Bilateral investment in the energy sector is also identified as important, particularly Indian investment in Australian renewable energy projects.

Health

The sector is expected to experience massive growth through to 2035 with greater government spending and availability of medical infrastructure. Australia is in a strong position to complement India’s needs and the objectives of its “National Health Mission”.

The Report recommends that in the short term, Australia should have sustained Ministerial-led government engagement at both the federal and state levels to strengthen political, academic and industry ties. This will provide a basis for greater trade, investment and market interoperability. Continued partnership to bring India into global and regional regimes on health security issues is also seen as important.

The Report encourages work, information and regulatory sharing between Australian and Indian agencies and government departments. Technical support could come in the form of secondments and exchanges.

The Report also recommends increasing domestic research funding and commercialisation of that research, and exploring co-investment opportunities in developing countries.

Infrastructure

According to the Report, the urban development and transport infrastructure sectors present the best opportunities for Australia. These opportunities would be in financing and other service areas.

The Report highlights Australia’s ability to provide expertise in niche services for smart cities development, including urban planning, transport management, road safety, water and sanitation and waste management.

The Report recommends leveraging Australia’s previous government-to-government experience on urban water management by supporting partnerships between Australian and Indian water research and planning organisations. It also suggests fielding proposals from the private sector to clean up the Ganges River system. Another focus area is road safety, and promoting safety, driver education and emergency training in several target states.

The Report also identifies port and seaborne trade development as an opportunity to partner with India and utilise Australian research expertise. Australian capabilities may also be paired with the capacity of countries like Japan, Singapore and France to deliver large projects.

Sport

The Report identifies sport as a sector in which Australia already serves as a model for India, and in which it can further entrench positive relationships with government and business.

The Report recommends that the Australian Government take an active role in supporting India’s sporting agenda. This includes opening up Australian sporting programs to Indian participants, assisting with physical literacy and grassroots sporting programs and hosting teams at the Australian Institute of Sport. It also suggests that the Australian Government should support and contribute to the development of an Indian National Sports University.

Science and innovation

India is emerging as a global hub for research and development, and it requires scientific output to advance productivity and maintain economic growth.

The Report notes that India has had success with frugal innovation and that pairing this with Australia’s research and development base could produce a strong partnership. Australia can support the sector by scaling up funding through the Australia India Strategic Research Fund, early stage commercialisation and multinational research partnerships.

The Report recommends promoting engagement between Australian and Indian start-up networks and supporting knowledge sharing, along with fostering people-to-people links in the STEM field. These have an important soft-diplomacy role and strengthen Australia’s credentials as a quality education provider.

The Report also recommends that Australian governments fund a cooperative research centre to grow and apply knowledge on soil health and its impact on the environment. Outcomes of this research could then be potentially commercialised.

Financial Services

India’s financial services sector will grow rapidly and become more globally connected out to 2035. Australia is well positioned to partner with firms in the sector that align with competitive strengths and that provide niche opportunities in economically advanced parts of India or in segments not dominated by state-owned enterprises.

Technological change will have a transformational effect on the sector, and greater regulatory clarity is needed. The Report recommends expanding ASIC’s international network of fin-tech cooperation agreements to India, supporting Australian fin-tech start-ups establishing themselves in India and using fin-tech to provide cooperative solutions to developmental issues in developing countries. It also recommends establishing a referral system for navigating each country’s financial regulatory system and leveraging Australia’s expertise in international block-chain standards to establish consistent standards.

Regulators like the Australian Prudential Regulatory Authority may also assist with developing regulatory standards.

Top 10 Indian States

Indian State

Findings

Maharashtra

Maharashtra is India’s second most populous state and most economically advanced. Its capital Mumbai is the country’s commercial and film hub and home to all major banks and financial institutions in India. The Report notes that it has a business-friendly environment that can be used as a launching pad to the rest of the country.

It has a service dominated economy, with industry and agriculture following behind. There is a large disparity between urban and rural areas, and the state has water, urban and transport infrastructure constraints, making attracting foreign infrastructure investment a high priority.

The Report presents opportunities across several sectors, primarily in:

  • infrastructure and urban development space - there is development potential for a metro rail, townships, ports and water front and waste water management;

  • education - focussing on training and skill development, and research collaboration and commercialisation;

  • agribusiness - food and beverage products, dairy technology and services; and

  • financial services.

Gujarat

Gujarat is India’s fifth largest state economy, and has been an attractive destination for foreign investment in major projects. It is a heavy-industrial state, and the Report suggests that Australia may need to shift its focus from taking on large projects to education, skilling and services related to these projects in order to be successful.

The State has particularly strong regulatory processes and regularly ranks at the top of the World Bank’s ease of doing business survey. It is also a major landing port for Australian commodities and coal.

The Report lists the following as sectoral opportunities for Australia:

  • education, training and skill development;

  • solar technologies;

  • waste water treatment and water technologies;

  • renewable energy and bioenergy (waste to energy, landfill gas);

  • food processing and logistics;

  • agriculture commodities, horticulture, agriculture business technology and services, dairy technology; and

  • roads, ports, urban infrastructure, energy, architecture and design services.

Karnataka

Karnataka is home to Bengaluru, the world’s fourth-largest and second-fastest growing technology cluster. The city is the epicentre of India’s information technology, pharmaceutical, biotechnology, space program, and start-up sectors.

The State possesses significant mineral resources (gold, iron ore, limestone, manganese ore, bauxite, granite and felsite) and there are opportunities for industrial investment in the food processing and resources space. However, it faces considerable sustainability challenges, especially with water resources.

Opportunities for Australia exist across almost all sectors:

  • innovation – nanotech, ICT, healthcare and start-ups;

  • tourism – direct flights between Bengaluru and Australia would be beneficial for tourism and education, and assist with developing a range of business and investment opportunities;

  • energy and resources – mineral extraction, mineral processing, mining technology and renewable energy;

  • infrastructure and urban development – road safety expertise, road and transport infrastructure investment opportunities;

  • agriculture – opportunities to apply niche Australian agribusiness technologies; and

  • education – research collaboration including in biomedical research, skill development.

Tamil Nadu

Tamil Nadu has India’s second largest economy and is a leading industrialised state.

The State has solid road, rail, port and airport infrastructure with a focus on agricultural trade (particularly cotton and seafood) and is a leading solar and wind energy producer, with the largest solar plant in the world. It also has significant tourism potential with five UNESCO Heritage sites.

The Report presents opportunities for Australia across several sectors:

  • energy and resources – development of LNG import terminals in Tamil Nadu, world class wind and solar energy potential, complemented by a growing gas pipeline network and high capacity power transmission corridors;

  • infrastructure and urban development – roads, ports, architecture and design services, brownfield road projects – the State has a track record of toll projects with good collection history;

  • education – training and skill development, research partnerships;

  • agriculture – focus on agricultural technology as well as fisheries and aquaculture; and

  • manufacturing – automotive technology and aftermarket products.

Andhra Pradesh

Andhra Pradesh is one of India’s fastest growing states, and was considered India’s best state (tied with Telangana) in 2016 for ease of doing business.

The State has a large focus on innovation and technology, with India’s highest installed solar capacity, a moratorium on new thermal power plants until 2022 and the roll out of a fibre-optic broadband network. It also has significant resource deposits, with the world’s largest deposit of baryte, and India’s largest bauxite deposit and offshore gas field.

The Report identifies several sectoral opportunities for Australia:

  • energy and resources – there is the potential for mineral processing and renewable energy technology development;

  • infrastructure and urban development – short term greenfield road investment opportunities and the ability to assist with road safety and transport technology; and

  • innovation – Australia can also capitalise on its fin-tech expertise by assisting with the development of Visakhapatnam, the state’s largest city, as a fin-tech hub.

Telangana

Telangana is one of India’s fastest growing states and ranked equal first (with Andhra Pradesh) in 2016 on ease of doing business.

Hyderabad, the State’s capital, has established itself as a centre for IT-enabled services, business process outsourcing and financial services. It is also a key pharmaceutical and biotechnology hub, producing a third of India’s pharmaceuticals. The Report notes that the State is India’s largest generator of solar energy and has a formal innovation policy.

Sectoral opportunities of note include:

  • innovation – alliances to commercialise Australian biotechnology research and development;

  • energy and resources – mining, mineral processing and METS and renewable energy technology, given the strong potential in solar and wind; and

  • education – skill development at the vocational level.

West Bengal

West Bengal is India’s fourth most populous state and a centre for mining and METS. There is an increasing focus on attracting foreign investment, and the state is the main entry point for Australian coking coal and pulses exports to India.

Its economy is primarily dependent on agriculture and mid-sized industry, with strong growth higher than the national average, and capacity for mineral production. The capital of Kolkata is also a significant healthcare hub for eastern India and Bangladesh, with a large number of super speciality hospitals and diagnostic centres.

Sectoral opportunities for Australia include:

  • energy and resources – mining operations and mining technology;

  • agriculture – food processing services, and other specialised services related to precision farming, post-harvest solutions, logistics, seed treatment, soil health and fisheries;

  • education – skills development in mining and project management, leveraging Kolkata as a regional hub, hospitality training for students from the north-east who comprise a substantial proportion of the national hospitality industry; and

  • healthcare – hospital systems, maintenance of electro-medical instruments and high-level skills.

Punjab

Punjab is one of India’s most prosperous states but remains a mostly agriculture economy, with little diversification. Overuse and over-irrigation has also led to falling water tables and poor soil quality.

It is a major producer of wheat, rice, barley, cotton, sugarcane and fruit and dairy. Cities such as Ludhiana are also industrial hubs, with strengths in textiles and engineering and large importers of Australian wool. The State is also home to the Netaji Subhas National Institute of Sports.

The following sectors pose potential opportunities for Australia:

  • agriculture – conservation agriculture, food processing, dairy, logistics and warehousing, farming equipment, farm management, irrigation, post-harvest and technological applications;

  • resources – ability to apply expertise given groundwater quality issues and irrigation network;

  • education – partnership opportunities for Australian VET providers, including healthcare education; and

  • sports – sports science consulting training and development of physical literacy in schools, in light of the state’s forward-thinking stance on sports (particularly in boxing and wrestling).

National Capital Region of Delhi (“NCR”)

The NCR is a planning region that is a common base for Australian business in India, and allows for great proximity to the seat of Central Government and policy-making in New Delhi.

The NCR is home to leading education, research and scientific institutions, and its economy is driven primarily by New Delhi’s services sectors (communications, transport, construction, real estate, financial services, insurance and tourism) and automotive manufacturing. The Report notes that despite advancements in physical infrastructure and the road network, congestion, air pollution and water and power shortages remain prevalent.

The Report highlights opportunities for Australia across almost all sectors, including:

  • infrastructure and urban development – roads, urban infrastructure, energy transmission, architecture and design, green building technology and water management;

  • education – training and skill development;

  • healthcare – hospitals (including consultancy and fit-outs);

  • innovation – ICT and IT-enabled services consulting; and

  • agriculture – horticulture and dairy.

Uttar Pradesh

Uttar Pradesh is the most populous state in India and has the country’s third largest economy. Largely driven by agriculture, it remains one of India’s less developed states and inter-class/inter-religious tensions persist.

Economic development has been hampered by infrastructure gaps, energy deficits and skill shortages. The Report notes, however, that the state has a vast population, untapped consumer markets and an emerging IT and business process outsourcing hub.

Key opportunities for Australia lie in several sectors.

  • education – there is significant demand for vocational skilling;

  • infrastructure and urban development –, increasing tourism necessitates investment in short term brownfield road projects; and

  • agriculture – Australian capabilities and expertise in food processing, bovine genetics, cold chain logistics, post-harvest solutions, logistics, seed treatment and soil health can be utilised.