Opinion: Canberra's wishful thinking
India is currently unable to meet the demands placed on it by such nations as Australia, who are still engaged in a political game of one-upmanship with China, says Girish Linganna
FollowCanberra maintained a stoic stance when Beijing imposed sanctions in 2020 and gradually imposed several trade sanctions on Australia. Sanctions were imposed on a wide range of Australian products, including beef, lamb, lobsters, barley, cotton, timber and wine. The economic sanctions were part of the punishment for Canberra's criticism of Beijing blocking investigations into the origin of the Covid-19 pandemic and restrictions on Huawei Technologies.
But concerns about the economic consequences prompted Prime Minister Anthony Albanese to explore alternative trade opportunities on his recent India visit seeking a potential failover option for Australia’s economic ties with China that stood in jeopardy.
However, drawing a comparison between China and India is inappropriate as they are fundamentally different, except for their population size of over a billion. The United States is prompting its allies, including Australia, to make substantial investments in India as part of the gradual process of breaking away from Chinese investments.
Australia and other countries consider India, a valuable partner in countering China's economic and military clout. To achieve this goal, they propose to increase foreign direct investment (FDI) in India, which would facilitate a gradual shift of businesses from China to India.
According to the 2023 Index of Economic Freedom, India is ranked 131st globally and 27th out of 39 economies in the Asia-Pacific (A-Pac) region. The Indian government has set limits on foreign capital in certain sectors of the economy. The government's FDI policy circular states that, in those sectors, foreign ownership beyond the imposed cap is allowed only if the entity is owned or held by resident Indian citizens or Indian companies controlled by resident Indian citizens.
Additionally, ambiguities in the tax code have led such companies as Cairn Energy, GE Capital and Vodafone to find themselves in the gun sight of the tax authorities, putting a question mark on India’s maturity as an FDI hub.
Between 2019 and 2021, India's share of global FDI inflows dipped from 3.4 per cent to 2.8 per cent, while China's share rose from 14.5 per cent to 20.3 per cent. In the past few years, some major companies, such as Harley-Davidson, Royal Bank of Scotland, and Metro AG, either downsized their India operations or withdrew from India.
In terms of economic size, China's nominal gross domestic product (GDP) for 2021 was $17.7 trillion (US) -- significantly higher than India’s $3.2 trillion (US). India's investment in its GDP is only 30 per cent, whereas China invests 50 per cent. Additionally, India's manufacturing sector contributes only 20 per cent to its economy, while China’s manufacturing sector contributes a staggering 30 per cent.
China's efficient transportation system, comprising domestic roads, airports, seaports and railway lines, along with simplified FDI regulations, makes it an attractive investment destination. Besides, the country’s world-class infrastructure has revolutionized the urban areas of old and new cities.
India's large cities still have a significant poverty problem despite the country’s rapid economic advancement. Former Reserve Bank of India governor Raghuram Rajan commented on the rivalry between India and China, stating that it was too early to assume that India would surpass China, as India's economy, at this juncture, is smaller.
Regrettably, India is currently unable to meet the demands placed on it by such nations as Australia, who are still engaged in a political game of one-upmanship with China. The objectives of China and India differ significantly. China aims at becoming a tech-oriented economy, surpassing the US in potential. On the other hand, India seeks to establish itself as a market-focussed economy, leveraging its vast population to serve as a production hub of cheap labour to compete with China.
Current discussions seem to lack the necessary emphasis on the need for comprehensive preparation to address challenges and minimize risks when engaging in business in such an environment. In 2021, India was ranked sixth as Australia's trading partner in terms of goods and services, valued at A$34.4 billion (US $22.9 billion), while it was fourth in terms of the goods and services export market, valued at A$19.3 billion, representing 4.2 per cent of Australia’s total exports.
Australia’s biggest trading partner is currently China, with a total trade value of A$267 billion, accounting for 32.2 per cent of Australia's overall trade. In 2020-2021, goods and services worth A$178 billion were transported to China. Australia aims to increase its bilateral trade with India to A$100 billion.
If someone in Canberra thinks India can replace China as a viable option, they are disconnected from reality. Such wishful geopolitical decisions may put the export industries of the country in a risky position. It is essential to consider the ground realities before making such decisions.
The author is a defence and aerospace analyst and is the Director of ADD Engineering Components (India) Pvt Ltd, a subsidiary of ADD Engineering GmbH, Germany with manufacturing units in Russia. Views expressed here are personal
