Geoff Hiscock. Abbott on the friendship trail with Modi

Economy, Politics, World Affairs

Geoff Hiscock. Abbott on the friendship trail with Modi

Oct 8, 2014

China rightly dominates most discussions of Australia’s economic outlook, but Tony Abbott has made it plain he also wants to be good friends with the other emerging Asian heavyweight, India.

A tangible example came during his visit there early last month (September), when he handed over two ancient Hindu statues that allegedly were stolen from temples in Tamil Nadu and subsequently acquired by Australian art galleries.

It was a gesture that prompted Indian Prime Minister Narendra Modi to express his gratitude and to say Abbott had shown “enormous respect” for India’s cultural heritage.

Next month, the two leaders will have another opportunity to get closer. As well as attending the G20 summit in Brisbane, Modi has accepted Abbott’s invitation to make a bilateral visit to Australia — the first such trip by an Indian prime minister since Rajiv Gandhi in 1986.

As a pro-business leader, Modi’s priority is domestic economic development, including in the manufacturing sector – hence his mantra of “Make in India.” To speed up the process, he needs funding from abroad, which is why he is courting big potential investors in Japan, China, the United States, and to a lesser extent, Australia.

In his first four months in office, Modi has made a string of overseas visits and played host to some key leaders. Under his “neighbourhood first” approach, Bhutan was Modi’s first destination in June, followed by Brazil in July and Nepal in August. In the last month, he has visited Japan to meet the man he describes as a “dear friend,” Prime Minister Shinzo Abe, and has just caught up with US President Barack Obama in Washington. At home, he welcomed Abbott in early-September and then hosted Chinese President Xi Jinping in mid-September. During his visit, Xi committed China to investing a further US$20 billion in India over the next five years.

That suits the pragmatic Modi, who made some valuable Chinese contacts when he was drumming up business as Gujarat’s chief minister. China, of course, is the object of as much attention in India as it is in Australia. India wants a lot more Chinese investment, but the border issue continues to weigh on overall ties.

In a September 19 joint statement in New Delhi, Modi and Xi agreed that pending a final resolution of their disputed boundary, the two sides would continue to make an effort to maintain “peace and tranquillity” in the border areas.

India’s relationship with Beijing is nowhere near as comfortable as the one Modi has with Abe’s Japan. “India considers Japan among its closest and most reliable partners,” Modi told an approving audience during his visit to Tokyo, adding that as “two peace-loving and democratic nations,” India and Japan could “play an influential role in shaping the future of Asia and the world.” Abe has committed Japan to doubling its Indian investment and financing to US$35 billion, also over the next five years.

Modi’s other big bilateral challenge is the relationship with the United States, where business ties have not developed as rapidly as both sides might have liked. Issues such as civilian nuclear power liability, intellectual property rights, foreign investment regulations and delayed financial reforms remain impediments to the fivefold increase in trade that Obama and Modi envision in their September 30 joint statement. Two-way trade in goods and services now stands at just under US$100 billion a year. The leaders also committed to a joint investment initiative on infrastructure. But in agricultural trade, India’s recent action to block a World Trade Organisation deal on food security upset Washington, despite Modi arguing that India had to retain the unfettered right to make food available to its poorest people.

Like the US, Abbott wants to quickly grow Australia’s two-way trade with India from the current modest figure of $17 billion. He would also like to have some more big-ticket Australian investors entering India. “We are not as close as we should be,” Abbott said in New Delhi on September 5. “My visit to India reflects Australia’s desire for India to be in the first rank of Australia’s relations.”

The on-the-ground reality is that India is not the easiest place to do business. Plenty of big international investors have burnt time and money trying to make headway there: Wal-Mart and Carrefour in modern retail, for instance, or Posco and ArcelorMittal in steel. Bureaucratic inertia, domestic opposition from vested interests, entrenched corruption in the police, judiciary and government layers, and an ongoing Maoist insurgency in parts of the country, combined with poor infrastructure, difficult labour laws and poor levels of skills and education all make for a testing investment environment.

That said, with 1.25 billion people and a growing middle class of several hundred million, there is no denying India’s promise. Energy demand is rising rapidly, gross domestic product is approaching $2 trillion (still well behind China’s $10 trillion), economic growth this year should finish above 5 per cent and comfortably pass 6 per cent next year, and there is a big push for more and better food, and more consumer comforts in general. All of that plays to Australia’s strengths in energy, agribusiness and technology.

Abbott’s focus in recent weeks has been on security at home and abroad, but his long-term economic agenda is unchanged: how best to maintain and expand the prosperity Australia has enjoyed virtually without interruption for the past 23 years. China, Japan, the United States and India are all crucial to that effort (as are South Korea and Indonesia). So far, Abbott has established good relations with their various leaders, but is the first to acknowledge that ties with India in the past have been under-done because of Australia’s fascination with China. November’s visit by Modi will be a good pointer as to how quickly that situation might change.

Geoff Hiscock writes on international business and is the author of Earth Wars: The Battle for Global Resources, India’s Global Wealth Club, and India’s Store Wars, all published by Wiley.