Editorial Board

A Refereed Monthly International Journal of Management

An Analysis of Trade and Foreign Direct Investment between India and Australia 

Prof. Krishn A. Goyal,

Department of Business Finance & Economics,

Faculty of Commerce and Management Studies,

& Director, Institute of Evening Studies Old campus,

Jai Narain Vyas University, Jodhpur, India.

Email: kag.bfe@jnvu.edu.in

Teena Mertiya,

Corresponding Author

Assistant Professor, 

Department of Economic Administraion

and Financial Management,

Government, Bangur Postgraduate College,Pali,

Jai Narain Vyas University, Jodhpur,India.

Email:teenamertiya97@gmail.com

Abstract

Existing theoretical and analytical investigation shave acknowledged India's rising influence to the Australian economy, even though revealed that FDI and trade patterns have largely remained unexplored. Therefore, this paper is an attempt towards analyzing trade and foreign direct investment (FDI) trends between India and Australia.Secondary data has been used for analyzing over the period of past ten years from 2012to2022. According to findings, both FDI and trade have been expanding over the previous ten years. Further, results indicating a trade deficit for India since exports were erratically less than imports. Nevertheless, the relative trends produce a positive picture since export growth has outpaced import growth eight out of ten occasions.  In addition, India clearly prefers to encourage FDI inflows instead of making outward investments in Australia. The relative trends indicating inbound FDI has outpaced outbound FDI seven out of ten occasions. Lastly, it’s not just India that is going to be benefitted but it will have a reciprocal effect. Australia's vulnerability to global risk will be minimized if India would be one of its top 3 export destinations, and can generate greater two-way investment, to diversify and protect from uncertainty.

Keywords: Trade, Foreign Direct Investment

Introduction

India–Australia relations are the diplomatic cooperation between the Commonwealth of Australia and the Republic of India known as the "Comprehensive Strategic Partnership”. India and Australia indeed were wedge of the British Monarchy before their independence. Both being Commonwealth of Nations appendage share political, economic, defense, linguistic, and sporting associations. The bilateral naval exercise between Australia and India is an example of their military collaboration.  Cricket, just like the English dialect has arisen as a clear ethnicity between both countries through a legacy of Colonization.

Slowly but gradually, India and Australia have forged a strong sense of confidence over the decades. From the time when a ‘Consulate General of India’ was established as a Trade office in Sydney in 1941, later appointment of Lieutenant-General Iven Mackay as Australia's first High Commissioner to India in 1944 till Barry O' Farrellinin 2020. Although the bilateral relations hit pathetically when the Government of Australia protested India's nuclear testing in 1998. Ever since, the relationship has incubated when Australia signed a uranium supply agreement with India in2014, the first of its kind with a non-signatory to the Nuclear Non-Proliferation Treaty, in acknowledgment of India's faultless non-proliferation record, it became obvious what kind of relationship Australia desired with India.

On December 29, 2022, Australia and India signed the Economic Cooperation and Trade Agreement (ECTA).Also the exciting news is that, in September 2021,both prime ministers decided to take upa Comprehensive Economic Cooperation Agreement (CECA), negotiationagain which would give exporters wider access to markets(Sharma, 2016). These pictures promise in the direction of improving the trade and economic relations between both countries. Each side issued details of products and services. The CECA's assertion might well enlarge the trading platform, eliminate non-tariff restrictions, stimulate investment and resolve trade frontier constraints. The negotiation process is active since 2011.

To encourage trade and FDI, decision-makers should create the mechanism smoother and it is critical to find the right incentives (Goyal and Khicha, 1997). A great deal of research has been done on the relationship between the variables so that policymakers may use these factors to figure outthe size and trajectory offlows. Perhaps this is the time to think about how the two sides can strengthen reciprocal trade and investment connections. 

In such a circumstance, this research paper would be a pragmatic endeavor to identify the historical trade and investment interactions, as well as to propose directions to bridge the economic gap between the two sides. Thus, the present researchbrings relevant action plans on the road to upturn the trade and economic rapport between both nations.

Literature review:-

There is still no basic explanation that can comprehensively justify the nature of overseas investment since an individual company can have a wide range of motivations to invest. Post World War II, as the waves of globalization, began to spread, the reasoning of International exchange began. According to the literature both trade and FDI are expected to grow as a result of liberalization, (Rugman, 1990). Observantly after the advent of economic reforms in the 1980s and 1990sIndian manufacturing sector has seen steady growth in all metrics. Labor productivity and value-added job opportunities have improved considerablyand trade balance too strengthened during this same time, as a result of this. Regrettably, labor-intensive textile and footwear industriesthreaten to be a flaw in the growth trend(Sen, 2008).India was also able to draw decent FDIs than the advanced countries despite the adverse times. FDIallowed Indiato attain a certain level of financial stability, prosperity, and development to contend on a global arena via technology diffusion, job creation, and universal exposure to managerial skills& logistics source, subsequently leading towards stimulated economic growth(Azharand Marimuthu, 2012).

Bilateral transactions between Australia and India

Bilateral trade between Australia and India has progressed from concept to realityespecially in recent years.The valuation of bilateral products and services trade has increased from $A6.8 billion in FY2003-04 to $A14.8 billion in FY2013-14. Furthermore, energy, high-tech, telecommunications, and finance industries are where Australian corporations are most evident in India; spent A$ 6.57 billion in 2013, 13.7 percent up from A$ 5.78 billion in 2012(Sharma, 2016). Economic affairs experts however appear to be mystified by Australia-India ties. Since Australia is still unable to build a solid relationship despite the apparent implications of closer relations(Gurry, 2011;Hall,2022).As it has in building relations with Japan, China, and Indonesia and it has approached every episode of the encounter as fresh engagement, has gone through many stages beginning with a fleeting period of warmth in the years following frosty decades of the Cold War and India's independence ending with a fragile relationship due to issues like not to export uranium to India(Mayer and Jain, 2010).

Australia and India differ on several fronts.

India has repeatedly rejected the Western-liberal hegemonic culture and pursuing polycentric rule by criticizing international forces. It keeps on resisting nuclear non-proliferation treaties moreover building selective multilateral alliances. In contrast, Australia is active in defending the liberal model dominated by the United States(Chacko and Davis, 2017).

      Australian authorities have used Nuclear Non-Proliferation Treaty (NPT) to disagree with India's constant mandates for uranium. Therefore, (Roy,2011)explores India's cleavage to the strategy also mulls over how long Australia might uphold its stance in the wake of an ever-changing climate, economic development, and rising bilateral cooperation among two nations with mutual interests. If we take a clue from previous Australian investmentsANZ manufacturing companiesuse wholly-owned subsidiaryoperating frameworksmoreover market-seekingandefficiency-seekingforeign direct investment where there is a quite wide market opportunity yet low cultural gap.Reduced exchange rate volatility improves the likelihood(Tahir and Weijing,2011)

The popularity of free trade agreements (FTAs) has grown over the years as these measures lessen trade barriers(Timsinaand Culas,2020)revealed that China, Korea, the United States, and Japan have significantly larger trade creation implications in the agriculture sectorfor Australians. The greatest impact on sugar and wine exchange among the goods studied. All in all, the FTAs culminated in more trade creation than an export diversion.  

According to a feasibility report undertaken recently by India and Australia, a Free Trade Agreement (FTA) will be beneficial to both nations(Chanda et al., 2012)argues that an FTA mightexpand the trade deficit in the Australianfavor firstly, but it will be advantageous to India in the long run not only in form of higher trade but by acquiring a better understanding about primary industries can reap significant exposure to eastern markets that have previously been underserved. The clothing industry is a good example. China, Australia's biggest exporter, and India's closest rival have a massive 77 percent market share, while India has just 2.34 percent.

Research Methodology:-

Research gap - A considerable amount of literature has been documented to examine Australia's potential relationship with India as a whole, but somehow the shreds of evidence are ambiguous based on the time frame and approach adopted. To the best of my knowledge, there is limited research concerning avenues of trade and FDI in India vis-à-vis that of Australia.There is a need to put together a systematic study of past trends of trade and FDI flows in between India – Australiato increase their current stream. Therefore, this research aims to put in fruitful contribution on the topic of economic alliance among the two most influential economies of the world.

Objectives–

• To analyze India's past trends of trade and foreigndirectinvestment relationship with Australia.
• Toexploremutual benefits through trade and foreigndirectinvestment cooperation in particular and overall economic relation in general, between India and Australia.

 The period and data source–This research is exploratory and descriptive. Secondary data have been processed for this purpose for the past tenyears from 2012 to 2022.The study uses the annual data depicting FDIflows, the volume of exports, and imports between India – Australia.The data source is the Reserve Bank of India, Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, DFAT, Australia Bureau of Statisticsdatabase. The trends of bilateral economic relations have been analyzed by the absolute volume oftradeand FDI with relative rate of growth.

Trade relationship betweenIndia and Australia:-

During the last couple of decades, the bilateral trading relationship with Australia has strengthened significantly. Indian economy's increased openness coupled with high demand for Australian productshas resulted in the growth in two-way trade. Till july2023 India’s merchandise exports to Australiawere $ 5,282 million while imports were$13746 million.Thoughthe tariff scheme in India is bit high; MFN applied simple average tariff in 2022 was 18.1% weigh against to Australia’s 2.4%. Accordingly, Australia and India signed the Economic Cooperation and Trade Agreement (ECTA). As deliberation by ECTA up to 90% of Australian product shipments to India andup to 100% of Indian imports will be duty-free by 2026.

In 2022, India was 6th largesttwo-way goods and services trade market for Australia, and 4th-largestexport market,and5 years-trend indicates 7.7% growtha huge possibility of an emergent trade relationship.However, India's economic agenda to stimulate investment and productivity have fuelled overall import demand, which has done well for Australia directly.Even then India accounts for a tinyshare of 4.4% intwo-way merchandise trade with a value of A$46,530million in 2021-22.Australiaruns a sizeable trade surplus with India – total exports to India were A$33,340million while imports were A$13,190millionover the same period.

Table1India’strade relationship with Australia (Values in US$ Million)

Source: DGCI&S,Department Of Commerce, Ministry of Commerce andIndustry, Government of India.

It is evident fromtable 1, that India has been experiencing a fluctuating tendency in the annual trade relations with Australia, though mostly depicting upward inclination. Yet exports have always been lower than imports that point towards a trade deficit. Exports for Indiaranges from US$2,349million to US$8,283 millionduring the period oftenyears i.e.2012-2013 to 2021-2022, whereasimports rangefrom US$13,086million to the US$16,756million over the same period.Nevertheless, the relative trends in Figure 1 produce a positive picture since export growth has outpaced import growtheightout often occasions. Product bifurcation suggests that coal account for half of the overall importsfor India then places copper ores & concentrates,natural gas,non-ferrous waste &it exportsrefined petroleum,medicaments, pearls & gems, jewelry.Servicestrade cover information and telecommunications, education, and tourism.Australia’s International Business Survey states that India is just behind China, has the second-highest number of foreign enrolments in higher education in Australia.

China represents roughly 29 % of Australia’s trade, a major bidirectional ally in goods and services.After Australia backed a proposal for an investigation regarding China's medication of Covid-19eroded their economic relations since China decided to impose a set of restrictions on Australian imports with retrospective effect, including fresh tariffs and suspensions on barley, wood, gas, cotton, wine, and lobster.Therefore, India could come forward as the next biggest trade marketplace for Australian exporters.

Figure 1India’strade annual growth trendwith Australia

Source: DGCI&S,Department Of Commerce, Ministry of Commerce and Industry,Government of India.

Investment relationship betweenIndia and Australia:-

Australianinvestment in Asia has rapidly increased in pasteight yearsthough bilateral investment between India and Australia is indeedin its early iterations. India may be a tempting destinationfor Australian investors who wish to diversify their portfolios' regional and resource classification coverage employing profound analysis of the sectors in which their fellow entities invested (Figure 2).

Figure 2 Australian Capex in India by sectors (Jan 2003 – Sept2017)

Source: India Economic Strategy 2035 report.

Rather direct investment taking off from a minimal concentration. Table 2 showsthat India has been able to engage decently bilateral foreign direct investment relationshipwith Australia.About the fact that India's preference has been to draw inflows rather than make outbound investments in Australia. Australiainvested a total of$ 1,539million on the other endIndia’sinvestmentin Australia was $551millionin 2022.India has received cumulative inward FDI during the past tenyears spanning 2012 to 2022,$15,653million; with the highest amount of $1,907million in 2019but unfortunately, thenext few years has registered the lowest figure among all.Whereas India’s outboundFDIis pretty much half of inbound FDImaneuveringapproximately around$$627million which cumulates$6,265millionover the same period.In addition, figure 3 reveals that inflows are less inconsistent than outflows.

Table 2: India’sForeignDirectInvestment Flow with Australia(Valuesin US$ Million)

Source:Australian Bureau of Statistics. (2022). International Investment Position, Australia: Supplementary Statistics. ABS. https://www.abs.gov.au/statistics/economy/international-trade/international-investment-position-australia-supplementary-statistics/latest-release.

*average since data available

The relative trendsproduce a constructive picture since inbound FDIgrowth has outpaced outbound growthsevenout often occasions.

Figure 3India’sForeignDirectInvestment Annual Growth Trendwith Australia

Source:Australian Bureau of Statistics. (2022). International Investment Position, Australia: Supplementary Statistics. ABS. https://www.abs.gov.au/statistics/economy/international-trade/international-investment-position-australia-supplementary-statistics/latest-release.

Mutual Benefits to both Economies with the Rise in Trade and Investment:-

China's confrontational foreign policies and America's fragile art of war have put the rule of law in global governance under threat, and now the COVID-19 crisis with its ensuing economic turmoilhas exacerbated the situation of aeons.  In such a state of affairs, regional partnerships do have a pivotalrole to play. Thus, Indo–Pacific continent will be at the forefront of public debate against China.All aspects of the game of control in the Indo–Pacific are becomingsignificant.India and Australia,two greatest maritime forces among the Indian Ocean's littoral hence their role isextremely important (although Japan will always have its name on top of the list). Accentuate by thefactthat India and Australiaseek todeepen rapportwith the significance of their strategic alliance as well as promising demographic prospects.

         From a historic point, the political and commercial environment in itself was rather encouraging to shape stronger links following the Cold War conclusion. Australia-India relations initiated to flare up long before China surfaced as a geopolitical threat for countries. Since the two sides have proliferated strategicalliances together with economic cooperation(Grare, 2014).Even though suspect India's strength still Australia acknowledges its commonalities with India in facilitating the vulnerabilities in the region principally with China's rising dominance and assertiveness, prevalent worries about its intentions and capacities have overshadowed Canberra's skepticism over the determination of the Indian Government to liberalize the economy and enhance bilateral trade and investment. Similarly, India too interacting closely with a nation it never acknowledged as a peer(Hall,2022). Henceforth, regional peace and salvation are at risk, two realms cannot afford to ostracize one another.

The reason for this is exceptionalperformance, innovation, and competencies by Australian brands. Therefore, collusion with Australian businesses can assist Indian enterprises to increase the worth of their firms and provide themselves a significant lead. Alongside unrestricted access to the new products and processes, professional expertise in the industry, smart solutions, and resource sharing. Australian multinationals will be wonderful business associates. As foodservice; automobile; security; aviation, mines and mineral wealth; renewable energy; infrastructure, engineering, and design; green architecture; agro-industries;  information and communications technology; health; biotech; hospitality;   education are a few of those sectors in which Australia can beat single-handed to any competitor in the world.

About the fact that it’s not just India that is unilaterally going to be benefitted but it will have a reciprocal effect. Australia's vulnerability to global risk will be minimized if India would be one of its top 3 export destinations, and can generate greater two-way investment, to diversify andprotect from uncertainty. This is critical for a nation where nearly half of exports go to mere two nations, both of which have aging demographics. India, with its vast young populous, brings balance to Australia's economic relationships and spreads risk. A research and engineering collaboration with India will also help boost domestic competitiveness and build employment in Australia's key industries. Australia’s economic stability is bolstered by a close economic alliance with India byensuring its position in the prosperous economies of the world. As Australia is competent enough to pull million of Indians out of poverty and reduce inequalities, therefore, must provide welfare services, if feasible in remote regions. Assist in increasing productivity of both primary and secondary sector; should alsocollaborate on education and training programs, affordable healthcare, and social infrastructure.  Indeed, the strongest component of our long-term economic engagement with Australia is expected to be the service sector. Hence, indulging with Indian policy formations and regulatory settings will help Australia in successfully aligning to global supply chains. There is an obvious rationale to take account of India as the Australian economy is dependent on exports and foreign investment to sustain a growing living standard.    

Conclusion:-

India and Australia do have a healthy and fruitful bilateral relationship. The depth of Australia's engagement with India has grown in tandem with India's steady economic and diplomatic annexation, supported by trade and investment. Both exports and imports are steadily increasing; India has now become Australia's 6 th largest export market, highlighting India's significance as a potential export and business market for Australia. Merchandise exports to India increased 13.43percent from US$2,349 million to US$8,283 million during the period of ten years i.e. 2012-2013 to2021-2022, whereas India imports increased 2.50percentfrom US$13,086million to the US $16,756 million over the same period.  Coal, copper ore, gold, pearls & gems, jewelry, and other commodities are among the top merchandise trade. Moreover, the flow of inward FDI has also enticed during the last eight years. India has received cumulative inward FDIfrom Australia during the past ten years,$15,653million. Whereas India’s outboundFDIis pretty much half of inbound FDImaneuveringapproximately around$627million which cumulates  $6,265millionover the same period.. This happened as a result of progressive liberalization of trade and investment, as well as endeavors to attract foreign investment. Amongst the remarkable adjustments are easing the most draconian provisions of the Foreign Exchange Regulation Act,concedes raising foreign ownership caps in a multitude of sectors and tax amelioration so on. Australia often considered being an attractive source because of its sheer predominance in industries such as mining and defense, finance, information, and technology as well as petroleum.

      Furthermore, if we look at the global arena countries with similar idealsnowadays are concentrating their efforts on creating supply chains that are stable andhighly reliable because of unexpectedglobal incidents. Theyare encountering an unprecedented effect in terms of supply chain failures worldwide owing to a variety of reasons. Similarlyto challenge China's tyranny of the Indo-Pacific distribution network, India, Australia, and Japan too officiallyunveiled the Supply Chain Resilience Initiative (SCRI). This will also have a reinforcing effect on Australia-India relations.

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principally with China's rising dominance and assertiveness Prevalent worries about its intentions and capacities have overshadowed Canberra's skepticism at the determination of the Modi Government to liberalize the economy and enhance bilateral trade and investment. Similarly, India too interacting closely with a nation it never acknowledged as a peer. and henceforth, regional peace and salvation are at risk, two realms cannot afford to ostracize one another.

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