The Hon. Warren Truss, MP
The Hon. Warren Truss, MP
FORMER MINISTER FOR TRADE

Speech to the Australia India Business Council

Practical Relations: The New Terms of Australia-India Trade

Friday, 1 December 2006, Brisbane

Introduction

Distinguished Guests

Ladies and Gentlemen:

I wanted to speak here tonight about the strengthening bonds between Australia and India.

Many of you here are of course quite familiar with this story.

Here’s another Federal Minister who’s going to talk about the traditional things we share in common!

You might even be quietly thinking—he’s going mention the traditional things that we share; we share a Colonial heritage; we are both democracies; we have a common law tradition; we both speak English and we both love cricket.

The fact remains that without these shared values, Australia-India relations would not have grown to be in the great shape they are in today.

But this evening, I’d like to talk about the new dynamism of Australia India relations.

We are seeing more high level political exchanges; our Prime Minister went to India in March this year and the number of ministerial visits between our countries are rising.

Australia and India both have a seat at the East Asia Summit and we are co-operating more than ever in defence and counter-terrorism.

We’re working with India through the Asia-Pacific Partnership on Clean Development and Climate Change. 

In education, over 30,000 Indian students will choose to study at Australian universities this year, the largest number on record. And our research institutions are deepening their links with Indian bodies to our mutual benefit.

Australia’s interaction with India is now far broader and more intense than just a few years ago. And there is an increasingly practical substance thanks to our trade and investment links.

Practical relations

Many of you who have worked over the years to improve relations with India know that historically, practical matters rarely topped the agenda.

Indeed, when Prime Minister Howard spoke to the AIBC in September, he repeated the remark made by his Indian counterpart Manmohan Singh, who said, “Australia and India have so much in common but so little to do with each other.”

Dr Singh made that remark two years ago. And I think it’s fair to say that it summed up the decades of warm-hearted detachment that characterised relations in the past.

But since Dr Singh made those remarks, things have dramatically changed. And I’ll start with a simple example.

In May last year, my predecessor as Trade Minister, Mark Vaile, and his Indian counterpart agreed to set a target to lift the value of two-way trade to $8 billion within two years. At the time, many people thought this was an ambitious goal.

But I’m pleased to say that two-way trade in goods and services has this year already grown to more than $10 billion. This is a great achievement.

Indeed, I think the past year has been a watershed, when India rose in importance as an Australian trading partner.

I think this demonstrates the momentum building up in our trade relationship.

Another thing that’s changed in our relationship is that when both Governments meet, practical matters such as commerce are now firmly on the agenda.

When Prime Minister Howard visited India in March he was joined by a high-level delegation of 20 Australian business people. The visit resulted in the signing of six bilateral agreements, including a new

Trade and Economic Framework.

The aim of the Trade and Economic Framework is to give a structure for both governments to promote economic development. Structures are necessary because sometimes, in the excitement of blossoming relations, countries risk losing their focus.

So Australia and India have identified a number of key sectors for development.

These sectors include: energy and mining, infrastructure development, information and communications technology, services, agriculture and biotechnology.

This list is comprehensive and it reflects a mutual agreement that the Trade and Economic Framework should be broad-ranging enough to reflect the scale of our increasingly practical relationship.

Mining

Let me start first with the mining sector.

Now, I understand that in India, auspicious dates have been settled for the upcoming wedding season.

As you know, Indian consumers prize gold jewellery as a gift to mark special events such as weddings.

This is good for Australia because gold remains our single largest export to India and is currently worth $2.7 billion. That’s nearly equivalent to the value of all the beer, wine and spirits that we export to the world.

Just five years ago, the value of our gold exports to India were negligible. But a multi-billion dollar trade developed because the Indian government lifted gold import restrictions in 1999.

That reform was good for Australia and good for thousands of Indian jewellers who now re-export exquisite gold jewellery.

It is a model example of how cutting trade barriers boosts wealth for all. I know there are tariffs on many other goods, such as wine, that we would like to see lowered further.

Another product of Australia’s mining sector that is prized in India is coal.

I’m interested in this because my home state of Queensland is the source of more than three-quarters of Australia’s coal exports to India.

These exports, mostly coking coal used for steel making, are worth around $2.5 billion. More than half the steel produced in India uses Australian coking coal.

This is helping to fuel India’s remarkable economic expansion. So in a direct way, Australia is contributing to the growth of Indian cities, manufacturing, housing and infrastructure.

An expansion of Indian steel manufacturing, alongside rising demand for electricity generation and Indian investment in Australian coal mines, suggests trade in coal is likely to grow even larger.

As for India’s mining sector in general, Australian companies are already providing niche services to Indian mining companies like mining software and advanced imaging technology.

This trade has great potential for expansion if India opens its mining sector to more foreign investment—a reform we would encourage.

My colleague, Ian Macfarlane, was recently in India promoting Australia’s resources and energy industry. He opened the International Mining and Minerals Exhibition in Kolkata where 40 Australian mining technology, services and education showed their expertise.

This is just another example of the focus on this sector and the momentum being generated by high level ministerial visits.

Energy

I’d like to turn next to energy—an area with huge potential for growth in trade.

Energy has a critical place in the Trade and Economic Framework because India is the world’s sixth largest energy consumer and its energy needs are growing. Australia, meanwhile, is a net energy exporter. So a neat fit is emerging.

One of the brightest prospects in energy trade is in liquid natural gas (LNG). Indeed, the first LNG cargo supplied to India’s new Hazira terminal in Gujarat came from Australia.

Our current LNG trade has been carried out mainly through spot sales but India has shown a strong interest in Australia as a potential long term LNG supplier.

We have many years to go before India becomes a substantial market for Australian LNG. But I believe we would be mistaken if we fail to capitalise on this potential.

But as bright as the prospects are in India’s energy sector, there are a few hurdles. One big hurdle is lingering price regulation that I believe curbs the growth of a competitive gas market in India.

Energy security is a high priority for India. I believe that the best way to achieve energy security is to let price signals operate in an efficient open market.

This approach has worked well for the development of Australia’s resources sector. It has promoted investment and has given the best incentives for exploration and development of energy resources.

I appreciate that the Indian Government understands the power of efficient markets. Like the rest of the word, I’d like to see India’s economic reform process maintained so markets can drive development.

There’s already proof that market dynamics work. And there’s probably no better example than the eye-opening growth of India’s information technology services sector.

Information Technology

India’s IT sector has benefited enormously from the revolution in high speed telecommunications technology.

India is today the world’s largest exporter of outsourcing services for business.

This is turning economics textbooks upside down because services are now becoming commodities that can be traded.

One of the effects for Australia is that Indian IT companies are writing new software to fill in the gaps for Australian companies in the mining, media and banking sectors.

This is improving the efficiency of sectors where Australian companies are recognised world leaders. And dozens of Indian IT companies have invested in Australia to provide IT services to local businesses.

This has created numerous jobs for Australians. 

Let me give you the example of Satyam, one of India’s top software development companies.

Satyam’s Melbourne operation houses its largest development centre outside of India and is a major base for the company's Asia Pacific operations. 

Satyam has entered into a venture with Victoria University to take around ten VU students each year for a software development internship.

Once these interns finish training, they will be deployed to projects either in Melbourne or one of Satyam’s other 46 locations around the world. 

There are many more examples of this kind of emerging, mutually beneficial, trade in services between India and Australia – a trade which has already produced huge growth, for example, in Australian education exports to India.

And I’ll flag here tonight the forthcoming release early next year of a report about India’s services sector by DFAT’s Economic Analytical Unit.

Without revealing what the report finds, I know that it raises a big question: what are the implications for Australian business if India’s services sector can successfully drive the country’s economic development in the way that export-oriented manufacturing has in China and ASEAN countries? 

You’ll have to read the report when it’s released to explore the issue in more detail. What I can say is that India’s rapid growth and increasingly outward-looking economy is helping to make the best use of the country’s resources, especially in knowledge-based services.

And the potential for Australian services providers to participate in India’s development extends well beyond the eye-catching growth of its IT sector.

Australia and India will use forums such as the Joint Ministerial Commission, which I hope will be convened in India early next year, to review many aspects of our bilateral trade, including the implementation of the Trade and Economic Framework.

One other point I want to make about our growing commercial links is the essential role of Australian small and medium sized enterprises—the backbone of the Australia-India trade relationship.

There is active business being done in many sectors from wine; food and beverages; hospitality; logistics and infrastructure to sports.

Indeed, the 2010 Commonwealth Games in Delhi offers a great opportunity to for Australian SME’s to share expertise in sports education, sports administration, venue design, marketing, and major event management. 

Already, several Australian companies are working, as joint ventures, on projects such as the games village design and construction.

Of course, we’ll keep the secrets of how to win gold medals to ourselves!

Conclusion

I’ve spoken here tonight about the practical terms of Australia-India trade and the structures that Governments from both countries are building to make it easier to do business. 

I’d like to finish by reminding Australian businesses who want to develop opportunities in the Indian market that they don’t have do it all alone.

Austrade services are available as a conduit to arrange interviews and help Australian companies find the right partners and make those essential connections.

In the last financial year, Austrade helped 304 companies achieve export success in India – compared with 176 the previous financial year.  Sixty nine of these exporters were new or irregular exporters.

The total of all deals achieved with Austrade support was worth around $1.1 billion.

As Austrade people on the ground say, in India you can’t just wander in and look people up in the Yellow Pages.

Contacts must be personal. And contacts won’t respond to calls or emails as readily if they don’t know who they’re dealing with.

This advice should not be mistaken for saying that building trust between business partners is any different in India than elsewhere.

On the contrary, the hard-nosed commercial culture in India and Australia is very similar.

What I think this illustrates is that Australian companies need to be clear- sighted about doing business in India.

As one India observer has joked: “In India, things are never as good or as bad as they seem.”

Patience pays off. Over the years, scores of foreign companies have built up profitable operations in the Indian market.

The excitement surrounding the solid growth of India’s economy points to many more opportunities coming up in future.

But I know that sometimes, seizing an export opportunity is hard if you don’t have access to working capital, especially if you are a small and medium enterprise.

The Export Finance and Insurance Corporation, or EFIC, has recently launched a new working capital product for SME exporters called “EFIC Headway”.

This can increase by 20 per cent the amount of working capital that SME exporters can obtain from their bank.

Of course, there’s only so much that Governments can do. We are building the structures to increase the flow of trade with India.

But it is up to business to decide whether to dip your toes in the market or plunge in.

Business decisions will be guided by optimism, or to use the phrase coined by John Maynard Keynes, “animal spirits.”

Now, Keynes may be out of fashion these days for his views on big Government taxation and spending.

But I think his insight about business optimism remains true today. He went on to say—and I quote—“enterprise which depends on hopes stretching into the future benefits the community as a whole.”

Your success doing business with India benefits Australia and reflects the increasingly practical relationship between our countries.

I wish you well in your endeavours. 

Thank you.

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