Australia sees India as safety valve for trade ties with China

Australia would like more opportunity to be able to offer banking and investment advisory services in India as a component of a wider relationship in the service sector, according to Professor Ian Harper, Director, Access Economics Pty Ltd.

This would also counter Australia's dependence on primary sector trade with China, said the head of the Melbourne-based organisation, which is Australia's premier economic consultancy firm.

Australia has a reasonably open system in financial and educational services and is not too concerned about importing these services. While the RBI keeps a fairly tight rein on financial services in India, which is not a bad thing, the licensing arrangements are a ‘bit difficult to negotiate'. There are also State-by-State regulations that are a problem.

Australia, like India, has a well-managed financial system, and both had weathered the global financial crisis due to this management. It would like easier access to India's market for banking and investment advisory services, Prof Harper said, addressing a group of journalists on a tour organised by the Department of Foreign Affairs and Trade, Government of Australia.

“Burnt-out hulk”

Closer links between the two would benefit India in terms of Australia's technology and expertise in service sector including agricultural services. Such a relationship is also crucial to Australia's economy which is skewed by its trade with China, even if it is beneficial in the short term. Australia's export of resources to China supports Australia's ‘first world' standards of living but does not bode well in the long term, a sentiment shared by many at the level of policy makers, says Prof Harper. But “Australia could be a burnt-out hulk” in the years to come.

Also, the boom in commodity exports ‘hollows out the rest of the economy'. It makes life difficult for the exporter of services and manufacturing with overvalued exchange rate. The fair value of the Australian Dollar on purchasing power parity is about (US$) 75 cents but is now around $1 and can stay overvalued for 30 years. Exchange rate intervention would not work as it has in the past because of the duration of upswing anticipated.

“Australia could be staring down the barrel of half a century of economic development of China and India as they emerge and over 50 years the Australian economy could be hollowed out,” he said.

Ties with India

Strengthening ties with India would give it better balanced and sustainable development. As the Indian middle-class grows it is going be interested in higher quality services, retail, medical and education. The main point is that Australia has a lot riding on its economic relationship with India primarily because it can help to neutralise the potential tension inherent in economic relation with China.

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