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India Country brief - April 2009

Political Overview

System of Government

The Republic of India is a constitutional democracy made up of 28 states and seven union and national territories. The Constitution came into force on 26 January 1950 and lists the powers of the Federal Government (known as 'the Centre' or 'Union Government'), those of the states, and those which are shared responsibilities. The President of India is obliged to act on the advice of the Council of Ministers, chosen by the Prime Minister.

Parliament is bicameral, comprising the 543-member Lok Sabha ('people's' or lower house) and the 245-member Rajya Sabha ('states' or upper house). Lok Sabha members are elected by universal adult suffrage every five years (except for two nominated Anglo-Indian members) using the 'first past the post' voting system. The Rajya Sabha is not subject to dissolution; one-third of its members retire every second year.

Recent Political Developments

National elections were held in stages throughout April and May 2004. The Indian National Congress-led United Progressive Alliance (UPA) defeated the incumbent National Democratic Alliance (NDA) led by the Bharatiya Janata Party (BJP). The UPA Government is headed by Prime Minister Dr Manmohan Singh, who is generally regarded as one of the main architects of India's economic reform program which began in the early 1990s.

The UPA did not win enough seats in its own right to hold a majority and, until  recently, governed with the support of a number of left-wing parties. Their influence was evident in the drafting of the Government's guiding policy document, the 'Common Minimum Program'.

Following the withdrawal of support for the coalition Government from the left-wing parties, Indian Prime Minister Manmohan Singh called a vote of confidence on
21 July 2008. The Government won the vote of confidence with the support of several small parties and independent MPs and will continue to govern until the next elections.

On 2 March 2009 the Indian Chief Election Commissioner announced the dates for the upcoming Lok Sabha (lower-house) national election. The election will be held from 16 April to 13 May in five phases: voting will take place on 16, 23 and 30 April and 7 and 13 May 2009. Results will be announced on 16 May. It is expected that the inaugural session of the next Indian Parliament will be held by 2 June 2009.

The Lok Sabha is not dissolved when the election is called and as such there is no formal caretaker period. The Government continues to serve and only resigns when/if it becomes clear the Government has lost the election. Subject to the provisions of the Election Code of Conduct (which came into effect once the election was announced), all Government ministers retain their positions and responsibilities through the election period. 

Elections for the Rajya Sabha (upper-house) are not held concurrently with Lok Sabha elections. One-third of Rajya Sabha members are elected every two years by the legislative assemblies of the Indian states.      

Foreign Relations

The basic parameters of India's foreign policy have traditionally reflected a broad national consensus on security and foreign relations. Since independence in 1947, India has sought to position itself as a major international player. It has been at the forefront of developing country activism and was a founding member of the Non-Aligned Movement (NAM). India has also been an active member of the United Nations and the Commonwealth and has recently sought to expand its cooperation with East Asia, including Association of South East Asian Nations (ASEAN) countries.

As its economic power develops, India is seeking to consolidate further its international role and to increase its focus on 'economic diplomacy', particularly to secure energy supplies. In terms of its international role, India is lobbying for a permanent seat on the United Nations Security Council (a claim which Australia supports) and taking a more prominent role in fora such as the World Trade Organization.

India is the major power in South Asia and its relations with its neighbours govern the tenor of foreign relations in the region. India's major strategic focus has traditionally been on its neighbourhood although more recently it has sought to broaden this focus, notably towards East Asia.

'Look East' Policy

Like Australia, India is pursuing a combined multilateral, regional and bilateral approach to trade policy through its 'Look East' policy with Asia. A Free Trade Agreement (FTA) with Sri Lanka has been operational since 2002, and India and Singapore signed a Comprehensive Economic Cooperation Agreement in June 2005. The first phase of an India-Thailand FTA came into effect in September 2004, although there has been no further implementation of this FTA. It is expected that an India-Association of South East Asian Nations (ASEAN) FTA will be signed in 2009.

In late 1995, India was granted full dialogue partner status with ASEAN and was admitted as a member of the ASEAN Regional Forum in July 1996. India, together with Australia and New Zealand, is also a member of the East Asian Summit.

Relations with the United States

The development of the India-United States relationship in recent years has been driven by increasing recognition, in both India and the United States, of each country's strategic and economic importance to the other. The importance of India to the United States was underscored in October 2008 with the signing of a bilateral nuclear agreement enabling civil nuclear trade between the two countries. The United States and India have also been expanding cooperation in a range of other areas, including through a CEO Forum, cooperation in agricultural infrastructure and supply-chain management, and partnerships in public health.

Relations with China

India has extensive land borders with China, strong memories of the short border war with China in 1962, and is conscious of China's links with Burma and Pakistan. Despite this, in recent years India has sought to develop friendly and pragmatic relations with China. Mainland China is now India's second largest trading partner and may soon become the largest. The two countries have also made progress in recent years in addressing border disputes, although the issue remains sensitive, particularly in relation to the north eastern Indian State of Arunachal Pradesh.

Relations with Pakistan

India's relationship with Pakistan has been problematic since the time of partition at the end of British rule in 1947. Their ongoing territorial dispute over Kashmir, in India's north west, is the most serious obstacle to normal relations between the two neighbours.

Following the then Prime Minister Vajpayee's 'hand of friendship' overture to Pakistan in April 2003, both countries normalised diplomatic relations, implemented a ceasefire along the Line of Control (LOC), and re-established some transport links. (The LOC is the military control line between the Indian and Pakistani-controlled parts of the former princely state of Jammu and Kashmir.) In February 2004, the two sides agreed on a process for discussions to resolve key issues, called the Composite Dialogue, which has been continued by the current UPA Government.

Following this 2004 agreement, there have been several successful bilateral meetings designed to build confidence and make progress on negotiations. Despite the peace process, however, violence continues in Kashmir.

India’s relations with Pakistan were again put under strain following the 27 November 2008 Mumbai attacks in which 160 were killed, including two Australians.

Economic Overview

The Indian economy comprises a wide spectrum of activity, ranging from high technology to subsistence agriculture. After decades of failing to realise its full economic potential, India has been one of the world's fastest growing large economies since 1994. Indian economic engagement with the rest of the world has increased, particularly in the services sector.

While selective economic reform was attempted from as early as 1960, the reform process began in earnest in 1991 due to a balance of payments and foreign currency reserve crisis. This reform process has focused on liberalising the economy through increased openness to financial and technology transfers, reform of the financial sector, trade liberalisation and reduced government administrative controls. The structure of the economy has changed over the past decade, with services playing an increasingly important role. This demonstrates the difference between India's services-led economic growth and the manufacturing-led development model followed in much of East Asia, including China. However, the Indian Government recognises that India will have to generate stronger manufacturing growth to continue its current levels of economic performance.

Despite recent progress, significant challenges remain, including addressing the fiscal deficit, high inflation rates and government debt and improving infrastructure. Another challenge is to ensure that the benefits of economic growth are experienced more widely. Despite the fact that tens of millions have been lifted out of poverty during the 1990s, average incomes and literacy levels remain low and India is one of the largest recipients of World Bank lending. India's score in the United Nations Human Development Index has increased marginally over recent decades, but it is still very low, at 132nd in 2008.

The UPA Government's Common Minimum Program indicates that it is committed to economic reform 'with a human face' to stimulate growth, investment and employment while maintaining support for social programs.

While the impact of the global financial crisis on India was initially less than others, India is now increasingly being affected by falls in global trade volumes.

Key Economic Indicators

Official economic data points to Indian economic growth moderating from recent highs. The Central Statistical Organisation (CSO) has announced an advance growth estimate for GDP growth of 7.1 per cent in 2008-09. The current account deficit is expected to increase from 1.5 per cent of GDP in 2007-08 to 2 per cent in 2008-09, and the fiscal deficit to rise to 6 per cent of GDP for 2008-09 from 5.7 per cent in 2007-08.

The current financial uncertainty is likely to reduce India's growth rate even further.  The IMF predicts that India’s growth in financial year 2008-09 (which will end in May) will be 6.3 per cent, falling to 5.3 per cent in financial year 2009-10.

Bilateral Relationship

Australia is committed to taking its relationship with India to a higher level and engaging with India on a long-term, strategic basis. Cooperation between India and Australia spans a range of areas. Notable agreements include Memoranda of Understanding (MoUs) on Defence Cooperation, Customs, Information and Communications Technology, Combating International Terrorism, a bilateral Air Services Agreement, and the Australia-India Strategic Research Fund. A MoU on intellectual property was signed in May 2008, and a MoU on science and technology cooperation was signed between CSIRO and its Indian counterpart in July 2008.

Another area of shared strategic interest is maintaining stability in and around the Indian Ocean, given the large percentage of Australian trade transported by sea.

A central element of India's foreign affairs agenda is 'energy diplomacy', which relates to the need to secure energy supplies to meet rapidly growing industrial and consumer demand. Australia is well positioned to partner India in this regard, through exports of minerals and fuels, energy investment opportunities in Australia and collaboration on areas of joint interest, such as new mining technologies. The Joint Working Group on Energy and Minerals was established in 1999. Regular meetings have generated several initiatives designed to deepen the bilateral energy and resources relationship.

Education is an area of increasing importance to the bilateral relationship. In recent years, Australia has emerged as a major destination for Indian students studying abroad, who recognise the high quality and cost competitiveness of Australian education services. Enrolments of Indian students in Australia have increased at an average annual rate of around 41 per cent since 2002. There were over 97,035 Indian enrolments in Australia in 2008.

Australia is also committed to strengthening links between Australian and Indian educational institutions. This commitment was underlined by the establishment of an education exchange program and the renewal of a MoU with India on cooperation in science and technology, both in 2003. Science and technology collaboration was consolidated in October 2004 when Australia's and India's two peak biotechnology industry bodies - AusBiotech and the Association of Biotechnology Led Enterprises (ABLE), respectively - formalised institutional linkages through the signing of a MoU. The Australia-India Strategic Research Fund, which was established in 2006, will provide $20 million over five years to support a range of high quality joint projects and workshops.

On 23 June 2008 the Minister for Foreign Affairs, Stephen Smith, hosted the fifth Australia-India Foreign Ministers' Framework Dialogue in Canberra with his counterpart, Indian Minister of External Affairs Pranab Mukherjee. Both Governments recognise there is significant potential for further cooperation across a broad range of areas. The Ministers issued a joint statement which outlined a number of new initiatives including:

Following the Foreign Ministers’ Framework Dialogue, Mr Smith visited India between 8 -12 September 2008. During this visit Mr Smith met Indian Prime Minister Singh and renewed his acquaintance with External Affairs Minister Mukherjee. In a joint statement, Mr Smith and Mr Mukherjee recognised the importance of close and mutually beneficial relations between Australia and India and, importantly, agreed to take the level of Australia-India relations to that of a 'strategic partnership'. This term is used by the Indian Government to refer to a select group of high priority bilateral relationships.

Australia-India Council

The Australia-India Council (AIC) was established in 1992 by the Australian Government to broaden the bilateral relationship through increasing levels of knowledge and understanding between the peoples and institutions of Australia and India. The AIC comprises a board of members with interests in the Australia-India relationship, drawn from a cross-section of the Australian community. The AIC is serviced by a secretariat located in the Department of Foreign Affairs and Trade in Canberra. The Australian High Commission in New Delhi manages the AIC's activities in India with an in-country manager and support staff.

In 1995, the Indian Government established a counterpart to the AIC, the India-Australia Council (IAC). The IAC is serviced by a secretariat located in the Confederation of Indian Industry (CII) based in Delhi. The AIC and IAC meet periodically to coordinate programs.

Community Presence in Australia

According to the 2006 census, the Indian community in Australia was the ninth largest minority group in Australia, with a population of 234,720. The Indian community is also growing quickly, with 70,000 new arrivals in the period 1996-2006.

Bilateral Economic and Trade Relationship

The Minister for Trade, Simon Crean, co-chaired the annual Australia-India Joint Ministerial Commission with India's Minister for Commerce and Industry Kamal Nath in May 2008. Discussion covered the WTO Doha Round, as well as key regional and bilateral trade issues. Ministers underlined the growing importance of the bilateral economic relationship for both countries. The Ministers also witnessed the signing of a MoU on intellectual property cooperation and welcomed new bilateral dialogues and exchanges on economic policy, water management and competition policy.

The Australia-India economic relationship has grown steadily in recent years and has the potential to increase considerably as India's economic expansion continues. Australia's strength in exporting primary products, particularly minerals and fuels, positions us well to supply growing Indian industrial and consumer demand.

Two-way trade in goods totalled over $15.3 billion in 2008, with India as Australia's 9th largest merchandise trading partner. Australian merchandise exports to India reached $13.5 billion in 2008, which represents 6.1 per cent of Australia's total merchandise exports. India was our 4th largest merchandise export market in 2008. 

Major Australian exports

20008 (A$m)

Major Australian imports

 2007-08 (A$m)

Coal

5,441

Rotating electric plant

187

Non-monetary gold

5,006

Pearls & gems

108

Copper ores

941

Made up textile articles

65

Fertilisers

426

Jewellery

63

The trade relationship is dominated by merchandise trade, although the role of services is growing; Australia exported $2,524 million worth of services to India in 2007-08. New prospects continue to emerge in sectors such as ICT, biotechnology, education, tourism, health, film and insurance. Education exports to India in 2007-08 totalled more than $2.0 billion, with Australia now the second most popular destination for Indian students seeking an overseas education. Imports of Indian services totalled $488 million in 2007-08.

Australian foreign direct investment in India was worth $471 million in 2007. This investment covers manufacturing, telecommunications, hotels, minerals processing, food processing, oil and gas, and the automotive sector. An example is the recent joint venture between BlueScope Steel and Tata Steel which took ownership of rollforming and pre-engineered building manufacturing facilities at a cost of A$100 million.

The top Indian software firms - Tata Consultancy Services, Satyam, Infosys, Pentasoft and HCL - are represented in Australia and have a small but growing market presence.

Australia-India FTA Feasibility Study 

In August 2007, Australia and India agreed to undertake a joint feasibility study on the merits of a FTA between the two countries.

The Joint Study Group has met three times (April, May and August 2008). The study is examining the potential impact on Australia and India of an FTA, including implications for economic growth, trade in goods and services, and investment, as well as for other commercial linkages.

The study is expected to be completed in 2009.

For further information about the Australia-India FTA Feasibility Study, please contact the Australia-India FTA Feasibility Study team:

Email: india.ftastudy@dfat.gov.au

Australia-India FTA Feasibility Study
Department of Foreign Affairs and Trade
RG Casey Building
John McEwen Crescent
Barton ACT 0221
Tel: +612 6261 9693

Bilateral and Regional FTAs

India has signed FTAs or similar bilateral agreements with a number of countries including Sri Lanka, Singapore and Chile, as well as the Mercosur countries (Argentina, Paraguay, Uruguay and Brazil) and the South Asian Association for Regional Cooperation (SAARC). India has also been actively pursuing a program of bilateral FTA negotiations and studies, including with China, Japan, South Korea, the European Union, ASEAN (expected to be signed in December 2008), Malaysia, Indonesia, Thailand, New Zealand and the Gulf Cooperation Council.

Bilateral Market Access Issues

There are still major barriers to trade with India, despite recent reforms. The International Monetary Fund (IMF) highlighted the importance of continued tariff reduction and the lowering of administrative barriers to trade. Indian tariff rates and trade barriers more generally remain among the highest in the world. In addition to tariffs, India imposes various duties, such as safeguard and anti-dumping duties, and non-tariff restrictions such as import bans and standards or certification agreements.

India announced on 19 February 2009 that it would re-open its dairy market to Australian products, following the approval of a new health certificate developed by the Australian Quarantine and Inspection Servicebased on Australia’s existing food safety and animal health systems. Prior to the closure of the Indian market, Australian dairy exports to India were worth $6 million annually in 2003. Trade is expected to grow to at least similar levels once exports re-commence.

In a press note issued on 30 April 2007, the Indian Government notified that preference shares that are not fully convertible would now be treated as foreign debt. This constrains financing options, including for service sector companies.

India has gazetted Australia as a reciprocating territory under its Arbitration and Conciliation Act. As a result, arbitral awards made in Australia will now be recognised by the Indian legal system.

Australian Trade and Investment Strategies

Institutional Structures for Trade Promotion

Australia-India Joint Ministerial Commissions (JMC) are held regularly, enabling interaction at a government and business level on a range of issues. The JMC is held concurrently with a joint meeting of the India-Australia Business Council and the Australia-India Business Council (AIBC). The AIBC is a key Australian body for promoting business links between Australia and India. There are also working groups in specific areas, such as the Joint Working Group (JWG) on Energy and Minerals, and JWGs on Science and Technology, Education, and Tourism.

Export Opportunities

Prospects for trade with India continue to improve as trade liberalisation progresses. The IMF, in its annual Article IV consultation on India in 2006, noted recent reductions in tariff rates and encouraged the Indian Government to accelerate the timeline for reducing tariffs to ASEAN levels ahead of 2009.

Trade Successes

In February 2007 Santos International Operations Pty Ltd, a wholly owned subsidiary of Australian oil and gas major Santos Ltd, was awarded two offshore deepwater exploration licenses in the Northern Bay of Bengal by the Indian Government, with a commitment to a five-year US$70 million (A$90 million) work program.

Woolworths Ltd has established a joint venture with India's Tata Group to operate a number of electronic stores in India under the brand name 'Croma'. The first store was opened in Mumbai in October 2006 and a second retail store launched in Mumbai in February 2007.

In October 2006, ACONEX, an Australian company specialising in online information management for construction and engineering projects, secured a major gas field development project with the British Gas Exploration and Production India Ltd (BGEPIL). This project was part of a US$500 million expansion and development of the Mid Tapti gas field situated 160 km north-west of Mumbai.

Steriline Racing, located in the Adelaide Hills, is the world's leading manufacturer of starting gates, as well as a wide range of equipment for the horse racing industry. In late 2006, Steriline Racing successfully entered the India market with the sale of running rails to the Hyderabad Racecourse and is exploring new opportunities in other Indian states.

The Leighton Group has three separate divisions in India: Oil and Gas (based in Mumbai); Building (based in Chennai and Mumbai); and Infrastructure and Mining (based in New Delhi). Leighton has been successful in winning a number of projects in the offshore oil and gas sector, infrastructure and telecommunications projects, and projects for the construction of buildings, including manufacturing facilities for Nokia, Flexitronics and, more recently, Motorola.

Woolmark has been in India, marketing Australian wool exclusively, for a number of years. Through their office in New Delhi Woolmark collaborates with textile processors, designers and retailers in both the apparel and interior textile sectors to provide quality certification. This is done through licensing and branding, expertise in textile innovation, technical research and development, and quality control and inspection. Woolmark has very well developed links with leading Indian woollen mills and all other stakeholders in the Indian wool trade.

Agricultural genetics company, AllStock WA has been working with Asad Farms Pvt Ltd in South East India since October 2005 on an embryo transfer project using frozen Dorper sheep embryos. This is first of its kind in India.

IBA Health Limited, Australia's largest ASX-listed e-Health company, has installed virtual electronic healthcare systems at medical institutes in Bangalore and in Puttaparthi, Andhra Pradesh, and has a new purpose-built research and development centre in Bangalore. IBA Health's systems have transformed the operations of the Bangalore Institute's pathology department and provided tangible efficiencies and benefits to patients, nurses and doctors.

Callidan Instruments is a Queensland-based company which manufactures and exports cutting-edge microwave technology. Callidan produces low-cost on-line microwave moisture analysers. The company made its first sale to leading Indian steel company, Tata Steel, and has recently set up distributors in India.

The Australian Sandalwood Oil Company based in Albany, Western Australia, has a multi-million dollar business exporting sandalwood resin to India, where it is used in incense sticks and other products.

For further information on commercial opportunities and a range of market profiles and business briefs on India, contact the Austrade Export and Investment Hotline on 13 28 78 or the Austrade website. Austrade, in addition to having offices in New Delhi, Mumbai and Chennai, maintains representation in Kolkata, Hyderabad and Bangalore. Austrade can track regional developments and help exporters to tap into specific opportunities.