Australia cosies up to India to balance China, but is the relationship overrated?

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.

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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.

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.

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.

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."

This article originally appeared on the South China Morning Post (SCMP).

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