Choreographing a wallaby–elephant pas de deux
2 May 2018|

In January, Greg Sheridan wrote about a forthcoming report to the government by former foreign secretary Peter Varghese on how to elevate relations with India. Peter, who served also as high commissioner to India, gives three reasons why India’s economic turnaround is transformational for Australia: its sheer scale, the complementarity between the Australian and Indian economies, and the need for Australia to diversify the risk to its trade-dependent economy.

India’s economy is being transformed because of urbanisation; the shift away from an informal to a formal economy; the youth-based demographic dividend of workers and consumers; and the substantial upgrade of infrastructure. Australia, Peter will recommend, should give strategic priority to education, agribusiness, resources and energy, and tourism as the sectors in which it can do especially well in embracing India, to reciprocal benefits.

Peter’s choreography for the wallaby–elephant pas de deux dovetails neatly with the analysis of the bilateral relationship that Ashok Sharma and I offer in an article just published in Strategic Analysis, India’s premier journal on strategic affairs. The context for the strengthening Australia–India relationship is the broad structural shifts underway in global order. While there is turbulence elsewhere as well, the region experiencing a complete reconfiguration of the existing order is the Indo-Pacific.

There are three trend-lines behind this (with cross-linkages between them): the relative waning of US power and influence; the sustained rise of China as a comprehensive national power; and the simultaneous rise of India, even if a dozen or so years behind China.

The frame increasingly used in Australia, including in the 2017 Foreign Policy White Paper, to define the strategic arc connecting the Indian and Pacific Oceans through Southeast Asia is ‘Indo-Pacific’. Where the previously preferred term ‘Asia–Pacific’ excluded India, ‘Indo-Pacific’ connects India not just to Australia across the Indian Ocean, but also to Southeast and East Asia.

Our analysis has a twofold argument. First, the main driver of the deepening Australia–India engagement is the changing regional geopolitical equation. But in addition, secondly, economic engagement, people movements and shared political values provide ballast and texture to the security underpinnings.

In the foreseeable future, India isn’t going to surpass China, Japan or the US as Australia’s most critical bilateral partner on any single dimension such as trade, investment or security. Indeed, India is unlikely to come even close to the security importance of the US, the economic importance of China or the critical relevance of Indonesia to Australia. Nor will India emerge as Australia’s single most important bilateral partner on any composite index.

Rather, for the foreseeable future, owing both to India’s scale and the low base from which the relationship starts, India could emerge as the single most critical Indo-Pacific country for Australia in the rate of growth in the breadth and depth in most dimensions of the relationship. In turn, the deepening and consolidation of Australia–India economic, security, diplomatic and cultural relations could prove a game changer in the balance of power around the Indo-Pacific.

In a major foreign policy speech on 18 October 2017, the since-fired Secretary of State Rex Tillerson became the first senior US official to switch to the ‘Indo-Pacific’ strategic frame. He added that the US and India ‘must serve as the eastern and western beacons of the Indo-Pacific’. The following month a senior White House official explicitly justified the change of terminology by saying that the term ‘Indo-Pacific’ ‘captures the importance of India’s rise’. Also in November, the Quadrilateral Security Dialogue among Australia, India, Japan and the US was revived on the sidelines of the ASEAN summit in Manila, attended by the leaders of the four democratic nations, to China’s chagrin.

More recently the four Quad members were also said to be exploring the creation of a joint regional infrastructure project as an alternative to China’s Belt and Road Initiative. Nevertheless the Indian policy elite remains suspicious of Australia’s reliability, given how Kevin Rudd suddenly cancelled participation in 2008 for fear of offending China. Today India is reluctant to offend China for the sake of a flip-flopping fourth partner and it refused to invite Australia to the 2018 Malabar naval exercises with Japan and the US.

All this said, some scepticism is warranted about India’s commitment to economic reforms, without which its growth trajectory will stall, the demographic dividend of a young population will turn into a public policy nightmare of mass youth unemployment leading to a deadly winter of discontent, and the world will again lose interest. India has a unique capacity to look every opportunity firmly in the eye, turn around and walk resolutely in the opposite direction. The Modi government came in on the promise of decisive action on pro-growth policies, but its tenure has been marked more by political calculations than by long-term economic strategy.

Demonetisation, whereby the two highest denomination currency notes (Rs 500 and 1,000) were withdrawn overnight as legal tender, was shock therapy rooted in quack economics. It caused massive disruption and lasting damage for very dubious structural economic benefits, but proved politically popular. Worse, it was incontestable proof of statism born of contempt for private property rights. As an old Indian joke has it, the economy grows mainly in the night when the government is asleep.

And the exemption given to political parties, which provided a clear pathway for black money to be laundered into white in bartered exchange for crony capitalism or other political favours, showed just how cynical the government is in deploying a fight against corruption as its political battle cry.

The introduction of a countrywide goods and services tax, by contrast, was a major structural reform that was totally botched in implementation, with up to six tax bands and loads of exemptions. The complexity and potential for arbitrariness increased the discretionary power of officialdom and thereby maximised the scope for bribery and extortion by tax officials instead of cutting it back. And the main reason for Australia being a major education destination for Indian students is the wide and growing gap between demand and supply for quality education in India, which the Modi government has also failed to acknowledge and address.

In other words, considerable promise but also still a few nagging doubts as policy action falls well short of the inflated rhetoric.