Rise of India demands ‘new economic strategy’

Turnbull government warned about the risk of ignoring India’s transformation. ‘Either coalmining is allowed or it isn’t.’

Peter Varghese says Australia cannot afford to ignore the economic transformation under way in India.

A report recommending a new national economic strategy towards India, written by former Department of Foreign Affairs and Trade head Peter Varghese, will be handed to the Turnbull government in March.

Mr Varghese will argue that Australia cannot afford to ignore the economic transformation under way in India.

He will offer three compelling rationales for this, the first being the sheer scale of the Indian economic transformation.

Measured by purchasing power parity, India is the world’s third largest economy. Over the past 20 years, the share of its economy devoted to international trade has risen from 13 per cent to 40 per cent. Over a similar ­period, it has seen nearly a 20 per cent increase in foreign direct ­investment each year. Hundreds of millions of Indians are about to urbanise.

The second reason, Mr Varghese will argue, is that so much of the Australian economy is complementary to India’s economy, which needs to provide technical training in coming ­decades to 400 million people.

And the third reason for embracing the Indian economy is the need for Australia to diversify its risk. Two nations, China and Japan, currently account for 40 per cent of our exports.

Rajiv Kumar, the vice-chairman of Indian government think tank NITI, has been part of the economics reference group providing Indian input into the ­Varghese study.

Mr Kumar, who has cabinet rank in the Indian government, told The Australian he had recommended that Australia adopt a national strategy centred on five key Indian states.

However, it is likely that the Varghese strategy will recommend a focus on double that number of Indian states.

It will also recommend a ­strategic emphasis on sectors where Australia is naturally placed to do well in India, such as education, agribusiness, resources and ­energy, and tourism.

The Varghese strategy will argue that India’s economic transformation is driven by huge structural factors such as urbanisation, the move from an informal economy to a formal economy, the demographics of a young population, and the investment in infrastructure, among others.

Although the Varghese strategy document will be a report to government, rather than a report by government, it was commissioned by Malcolm Turnbull and senior cabinet ministers are believed to be highly favourable to engaging the proposed new ­Indian strategy.

Mr Kumar, in a lengthy interview in his New Delhi office, nominated increasing two-way investment as a key to moving the economic relationship forward.

While he is very pro-­Australian and believes New Delhi and Canberra should make the relationship a high priority, Mr Kumar has one serious criticism to make of Australian policy, concerning the treatment of the proposed Adani coalmine in Queensland.

“Some of the stuff I’ve seen happening to Adani is not very pretty,” Mr Kumar said.

“The rules of the road should be clear in advance: either coalmining is allowed or it isn’t.”

Mr Kumar called for a high ­degree of transparency in Australian rules around such investments, and said they “should be visibly non-discriminatory towards India vis-a-vis Chinese or Japanese companies”.

“When Chinese companies want to come in, the government arranges a quiet reception,” he said.

Mr Kumar also acknowledged the shortcomings of India’s own investment regulations and said he supported his own government reviewing these.