Australia Cosies up to India to Balance China, but is the Relationship Overrated?

The Quad partners ended a 10-year deadlock to seal a trade deal and are getting closer, bound by a mutual interest in countering Beijing’s influence

· India’s desire for strategic autonomy means it won’t support the US in a conflict with China

· “Australia had never been in the first rank of India’s international priorities”, said Peter Varghese, Canberra’s former ambassador to Delhi and the architect of its key Indian economic strategy

· Indian Prime Minister Narendra Modi is still expected to continue with his planned bilateral visit to Australia.

· Modi will not only engage in talks with Albanese but also meet an estimated 20,000 members of the Indian diaspora at the Sydney Olympic Park.

· To sell consumer and manufactured goods in India, Australian entrepreneurs would need to consider localising all their production to keep costs down, otherwise they should stick to selling resources and education.

· Coal makes up 70 per cent of Australia’s exports to India, and fully half of their A$46.5 billion (US$31 billion) in two-way trade. No other goods and services traded come close. But Albanese failed to promote coal while in India, sparking criticism.

· The reforms now put Indian tax rates on par with Asean countries.

· In his 2018 report, Varghese had urged Canberra to lift India into its top three export markets by 2035. India is currently in sixth spot.

· Last year, 13 senior scholars resigned en masse from the Australia India Institute, a research centre set up to drive academic discussions about the two countries’ bilateral relationship.

· They claimed the Modi government interfered in the institute through the local embassy over politically unfavourable research. The academics said they had no choice but to quit because years of complaints had been ignored.

· Sweden-based research institute V-Dem demoted India to an “electoral autocracy” a few years ago and this year it said there had been “substantial declines” in academic freedoms in the South Asian nation.

But their economies are not ‘especially compatible’, and India’s desire for strategic autonomy means it won’t support the US in a conflict with China

As India’s regional security role grows against a backdrop of heightened US-China rivalry, it’s moving closer to fellow Quad member Australia – bound by a common desire to counter Beijing’s influence.

The boost in relations helped end Canberra’s decade-long deadlock with New Delhi, notorious for its protectionism, over the terms of their first free-trade agreement, which Australian Prime Minister Anthony Albanese’s government speedily sealed last year.

For a long time, “Australia had never been in the first rank of India’s international priorities”, said Peter Varghese, Canberra’s former ambassador to Delhi and the architect of its key Indian economic strategy, in a report published in 2018. The strategic and economic interests of the two countries “rarely intersected”, he added.

While next week’s Quad summit in Sydney has been cancelled due to US President Joe Biden prioritising domestic debt limit negotiations, Indian Prime Minister Narendra Modi is still expected to continue with his planned bilateral visit to Australia.

During the visit, Modi will not only engage in talks with Albanese but also meet an estimated 20,000 members of the Indian diaspora at the Sydney Olympic Park, echoing a similar event that took place in 2014.

While these engagements and the Australia-India Economic Cooperation Trade Agreement is a sign of deepening ties between the two, experts and business insiders say it remains to be seen whether there will be a rush of Indian firms coming Australia’s way.

Indian-Australian business consultant Suresh Iyer said many Australian investors would be exposed to heavy price competition for the first time.

“Many don’t really have the balance sheet to be in a place like India, which is highly competitive and practises cutthroat pricing. For Indian companies, the main battle is pricing,” said Iyer, who runs Bijam Corporate Advisors.

To sell consumer and manufactured goods in India, Australian entrepreneurs would need to consider localising all their production to keep costs down, otherwise they should stick to selling resources and education, Iyer added.

Raj Khanna, an India-born events organiser in Australia, said doing business with India could be risky, especially if “you step on the toes of someone powerful”.

“It is not as rosy as it looks – you may have to add a percentage cost to grease officials,” he said.

A run-in Khanna’s brother had with Indian authorities has put him on guard. The brother, an events organiser based in Bangalore, was jailed and later released after he was mistakenly caught up in a drugs crackdown that targeted both users and party organisers.

Others in industries such as liquefied natural gas (LNG) speak of difficulties negotiating fair terms with Indian buyers.

One trader, who did not want to be named, told This Week in Asia that as India had multiple sources of LNG from suppliers closer to its shores, Indian traders demanded heavily discounted prices which could not be met by Australian suppliers.

The trader added that Indian buyers had also openly – with the support of the government – renegotiated long-term LNG contracts when prices changed and were no longer in India’s favour, making trade untenable.

Opportunities, costs

Albanese has made it clear he is serious about doing business with India, not just in terms of trade but also with mutual investments.

In March, he led a four-day trip to India that he called “the most serious business delegation to leave Australian shores” , and said both countries should cooperate on tourism, education, resources and clean energy, among other areas. Business aside, he and Modi also reaffirmed their growing political ties, amid much pageantry that included a parade through a Ahmedabad cricket stadium in a modified golf cart.

During the visit, Albanese said an Indian company had expressed interest in investing “billions of dollars” in Australian solar panel manufacturing.

Ritesh Kumar Singh, a Bangalore-based economist, expects the resources sector to be the area where bilateral trade flourishes.

Singh forecast more trade in resources such as copper and rare earths given India’s booming economy, but conceded that coal exports would dominate for a while.

Coal makes up 70 per cent of Australia’s exports to India, and fully half of their A$46.5 billion (US$31 billion) in two-way trade. No other goods and services traded come close. But Albanese failed to promote coal while in India, sparking criticism.

“Something is very wrong when our prime minister cannot even mention the product that makes up 70 per cent of exports to India … even if you think that coal demand will fall to zero soon, that itself would deserve a mention,” Matt Canavan, an Australian senator, said in an opinion piece in March.

There is also a certain amount of reluctance among Australian businesses to invest in emerging markets such as India’s, said Nick Bisley, a professor of international relations at La Trobe University.

“The two economies are not especially compatible,” Bisley said. “There are some potential areas for growth in health and services. However, it remains the case that Australian investors are very wary of taking risks and India remains a difficult place to do business.”

Statistics reflect this. There is barely any foreign direct investment between Australia and India, according to the Australian trade ministry.

But Australians would be encouraged by India’s recent tax reforms including slashing the corporate tax rate and abolishing the dividend distribution tax, said Iyer, the Indian business consultant.

“Before 2016, it was difficult for Australians to walk up to India. Since then the Indian government has ushered in major tax reforms,” Iyer said. “The reforms now put Indian tax rates on par with Asean countries … this will help a lot of Australian companies now to come to India and set up shop.”

Canberra’s aspirations to ride the Indian economic wave are not without merit. Despite its shortcomings, India’s growth is on the rise, as is its economic transformation, ex-diplomat Varghese said.

In his 2018 report, Varghese had urged Canberra to lift India into its top three export markets by 2035. India is currently in sixth spot.

“If you look at the balance sheet between economic opportunity and economic risks, the thing about India is that its balance sheet is moving more and more decisively into the opportunity column,” he said.

“This is not to say that India is a breeze to do business in and that everyone should rush there and start,” Varghese said. “It’s to recognise that what’s happening in India on the economic front is of genuine significance. There’s a lot of hype about India, but when you look behind the hype, you still have a real story.”

Last year, India posted growth of 6.8 per cent, one of the best results in the region.

The International Monetary Fund projects India’s gross domestic product to grow 5.9 per cent this year, exceeding China’s 5.2 per cent.

So while Australia cannot risk overselling India, it cannot risk underselling it either, Varghese said.

Would India be a true ally?

Even while Australia is seeing a growing “measure of geopolitical convergence with India”, it must understand there are limits to how far the South Asian nation will go to balance China, Varghese said.

The same caution towards the United States applied to Australia, he said. While India was not keen on an uncontested China, it would not want an Indo-Pacific region controlled mainly by the US, nor would it be prepared to support Washington militarily should it decide to go to war over Taiwan, for instance, Varghese said.

“I think India is very focused on its own interests but it’s not Robinson Crusoe. It’s something that most countries are focused on,” he said.

“It would be a big mistake to assume that India’s willingness to deepen its relationship with countries like the US and Japan and Australia will take it to an alliance-type relationship, or a quasi-alliance relationship,” Varghese added.

“The one very clear feature of Indian strategic thinking is that it is firmly wedded to strategic autonomy. And it won’t allow any collective balancing of China to impede or erode its quest for strategic autonomy.”

Varghese referenced in his remarks the comments made about the US-India relationship by Ashley Tellis, a senior fellow at the Carnegie Endowment for International Peace.

In an analysis earlier this month, Tellis wrote that Delhi’s deepening defence ties with Washington should not be interpreted as being “driven by either strong support for the liberal international order or the desire to participate in collective defence against Chinese aggression”.

It is a means to an end – that end being a boost to its own defence capabilities, Tellis said.

“As the Biden administration proceeds to expand its investment in India, it should base its policies on a realistic assessment of Indian strategy and not on any delusions of New Delhi becoming a comrade-in-arms during some future crisis with Beijing,” he wrote.

Others in the Australia’s diplomatic circles agreed, saying a key concern was whether it was “deep enough in the consciousness” of the US and Australia to realise that India would never be an ally.

Some are concerned that Australia’s expectations of India as a strategic partner may be overblown: while India is in the Quad, it is also the current chair of the Shanghai Cooperation Organisation, the eight-member China-founded intergovernmental organisation.

When it comes to values, India is unlike its democratic counterparts, Varghese said. Delhi does not see its relationship with China as an existential battle between autocracy and democracy, nor does it want to “export democracy”.

Swedish research group V-Dem Institute labelled India an electoral autocracy and in its democracy report this year, titled “Defiance in the Face of Autocratisation”, called Delhi “one of the worst autocratisers in the last 10 years”.

Following this, senior international-politics lecturer Priya Chacko and doctoral student Janhavi Rajiv Pande of the University of Adelaide expressed concerns about Canberra’s optimism to stop Delhi’s slide towards authoritarianism.

“Recent events suggest this is wishful thinking,” they wrote in an analysis in March. “It’s important Australia bases its relationship with India on a realistic estimation of the latter’s political and economic credentials, rather than being driven almost entirely by the strategic urgency to create a regional counterweight to China.”

When Australian foreign minister Penny Wong was asked about her government’s silence on India’s alleged human rights abuse of its Muslim minorities in March, I called multiple Indian academics for their opinion.

Several responses surprised me.

“No, there is no human rights abuse in India. You’re mistaken,” one said.

The academic also peddled the greatness of India and called whatever I had heard about Hindu nationalism and Prime Minister Narendra Modi’s alleged role in the Gujarat riots that killed many Muslims – a figment of my imagination – in a non-stop speech that lasted 10 minutes.

The conversation happened at the same time India blocked the airing of a BBC documentary on the anti-Muslim violence and raided the broadcaster’s offices in Mumbai and New Delhi.

Similar things have, of course, happened in other countries such as China and Myanmar where authorities, academics and powerful people have denied and ignored allegations of human rights abuse.

There is a good reason to believe the latter two, being authoritarian regimes, have either muzzled their subjects or strong-armed them into denial or blatant spruiking on their behalf.

Last year, 13 senior scholars resigned en masse from the Australia India Institute, a research centre set up to drive academic discussions about the two countries’ bilateral relationship.

They claimed the Modi government interfered in the institute through the local embassy over politically unfavourable research. The academics said they had no choice but to quit because years of complaints had been ignored.

They alleged the institute has devolved into a government-supported “think tank” and had not protected academic freedom on contentious material such as India’s class and caste problems.

The “tone or format of some events and activities on India have carried the flavour of propaganda”, they added.

One said in turning a blind eye, the institute and its host the University of Melbourne “effectively endorsed the dangerous Hindu fundamentalist underpinnings of the Modi government”.

“What’s the point if I can’t critique my birth or adopted country?” another said asking for anonymity for fear of reprisals against her family in India.

This is reminiscent of many overseas Chinese who are afraid to speak up against China’s Communist Party for fear of retaliation.

Some insiders claimed the academics might have read too much into the actions of the institute while the university maintained it continues “to advance its Australia-India engagement with university partners, key stakeholders, government and alumni … to develop meaningful outcomes which are mutually beneficial across both societies”.

Either way, that’s smoke to a potential fire that should alarm Australia – India’s “democracy” is not all it’s cracked up to be, though I suspect Canberra knows.

Sweden-based research institute V-Dem demoted India to an “electoral autocracy” a few years ago and this year it said there had been “substantial declines” in academic freedoms in the South Asian nation, prompting New Delhi to denounce the rankings.

Billionaire George Soros copped a public berating and was labelled “dangerous” after he commented that Indian tycoon Gautam Adani’s business troubles might revive the country’s democracy.

Adani himself made a speech extolling the virtues of India at last year’s Forbes conference in Singapore, putting a spin on the label “electoral autocracy” with “noisy democracy”.

Modi’s marketing muscle helps him with the art of deflection though that’s the same for every other politician and government.

The growing rivalry between the US and China has also set up the classic schoolyard gang scenario where countries are increasingly drawn into one side or the other.

But things are more grey than they are black and white and just because a country has been labelled “a democracy” does not mean it is one.

While there may be diplomatic reasons Australia has not openly called out India’s human rights abuse despite “being in the same gang”, not doing so is starting to make Canberra look bad, even hypocritical.

Surely, there should be no exceptions when it comes to democratic values.

In a haste to take sides with “like-minded” countries, and in Australia’s case, to diversify away from China economically, running headlong into the arms of New Delhi hook, line and sinker may not be so prudent.