INDIAN ECONOMY

CIA-1

Submitted by
Anji reddy
2130910
6HEP

Submitted to
Dr. Satyanarayana turangi

History, Economics, and Political Science

Department of International Studies and History,
School of Social Sciences
January 2024
COMPARISON OF INDIA AND AUSTRALIA ECONOMY

The Australian economy has experienced continuous growth and features low unemployment,
contained inflation, very low public debt, and a strong and stable financial system. By 2012,
Australia had experienced more than 20 years of continued economic growth, averaging 3.5% a
year. Demand for resources and energy from Asia and especially China has grown rapidly,
creating a channel for resources investments and growth in commodity exports. The high
Australian dollar has hurt the manufacturing sector, while the services sector is the largest part
of the Australian economy, accounting for about 70% of GDP and 75% of jobs. Australia was
comparatively unaffected by the global financial crisis as the banking system has remained
strong and inflation is under control. Australia has benefited from a dramatic surge in its terms of
trade in recent years, stemming from rising global commodity prices. Australia is a significant
exporter of natural resources, energy, and food. Australia's abundant and diverse natural
resources attract high levels of foreign investment and include extensive reserves of coal, iron,
copper, gold, natural gas, uranium, and renewable energy sources. A series of major
investments, such as the US$40 billion Gorgon Liquid Natural Gas project, will significantly
expand the resources sector. Australia is an open market with minimal restrictions on imports of
goods and services. The process of opening up has increased productivity, stimulated growth,
and made the economy more flexible and dynamic. Australia plays an active role in the World
Trade Organization, APEC, the G20, and other trade forums. Australia has bilateral free trade
agreements (FTAs) with Chile, Malaysia, New Zealand, Singapore, Thailand, and the US, has a
regional FTA with ASEAN and New Zealand, is negotiating agreements with China, India,
Indonesia, Japan, and the Republic of Korea, as well as with its Pacific neighbors and the Gulf
Cooperation Council countries, and is also working on the Trans-Pacific Partnership Agreement
with Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the
US, and Vietnam.

India is developing into an open-market economy, yet traces of its past autarkic policies remain.
Economic liberalization measures, including industrial deregulation, privatization of state-owned
enterprises, and reduced controls on foreign trade and investment, began in the early 1990s
and have served to accelerate the country's growth, which averaged under 7% per year since
1997. India's diverse economy encompasses traditional village farming, modern agriculture,
handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than
half of the work force is in agriculture, but services are the major source ofeconomic growth,
accounting for nearly two-thirds of India's output, with less than one-third of its labor force. India
has capitalized on its large educated English-speaking population to become a major exporter
of information technology services, business outsourcing services, and software workers. In
2010, the Indian economy rebounded robustly from the global financial crisis - in large part
because of strong domestic demand - and growth exceeded 8% year-on-year in real terms.
However, India's economic growth began slowing in 2011 because of a slowdown in
government spending and a decline in investment, caused by investor pessimism about the
government's commitment to further economic reforms and about the global situation. High
international crude prices have exacerbated the government's fuel subsidy expenditures,
contributing to a higher fiscal deficit and a worsening current account deficit. In late 2012, the
Indian Government announced additional reforms and deficit reduction measures to reverse
India's slowdown, including allowing higher levels of foreign participation in direct investment in
the economy. The outlook for India's medium-term growth is positive due to a young population
and corresponding low dependency ratio, healthy savings and investment rates, and increasing
integration into the global economy. India has many long-term challenges that it has yet to fully
address, including poverty, corruption, violence and discrimination against women and girls, an
inefficient power generation and distribution system, ineffective enforcement of intellectual
property rights, decades-long civil litigation dockets, inadequate transport and agricultural
infrastructure, limited non-agricultural employment opportunities, inadequate availability of
quality basic and higher education, and accommodating rural-to-urban migration.

STRATEGY TO 2035
EXECUTIVE SUMMARY & OVERVIEW

WHY INDIA AND WHY NOW?

Australian business has long put India in the 'too hard' basket. There are three overriding
reasons why this must change: scale, complementary economies and spreading risk.

For Australian companies with a global focus the key question is whether they can afford not to
be in what is the fastest growing large economy in the world.

India's scale is extraordinary. By 2025, one-fifth of the world's working age population will be
Indian. By 2030 there will be over 850 million internet users in India. By 2035 India's five largest
cities will have economies of comparable size to middle income countries today.

There is no market over the next 20 years which offers more growth opportunities for Australian
business than India. The targets set out in this report would see Australian exports to India grow
from $14.9 billion in 2017 to around $45 billion measured in today's dollars, and outward
Australian investment to India rise from $10.3 billion to over the $100 billion mark, reflecting a
transformational expansion of the relationship. That is the size of the opportunity and the key
lesson for Australia of India's scale, the momentum which is already built into its growth
trajectory and the underlying complementarity between our two economies.

The opportunities however will not fall into our lap. They require a sharper national focus on
India by government, an unambiguous commitment by Australian business and a deeper
understanding by both government and business of the magnitude of what is unfolding in an
Indian market place which will only get more crowded. They will also require an approach to the
investment relationship with India that markedly differs from the trajectory of Australian
investment in most other Asian markets.
This report has a simple message. The transformation of the Indian economy is underway. Its
progress will be uneven but the direction is clear and irreversible. To realise the opportunities
this opens up, we need as a country to make a strategic investment in India which is backed up
with an ambitious, long term and multidimensional Australian strategy driven at the highest
levels of the Australian Government.

Australia should set itself the goal by 2035 to lift India into its top three export markets, to make
it the third largest destination in Asia for Australian outward investment, and to bring it into the
inner circle of Australia's strategic partnerships and with people to people ties as close as any in
Asia.

THE LONG VIEW: PATIENCE, PERSPECTIVE AND PREPARATION

What follows is a deliberately long term perspective about Australia and India: out to 2035.

A strategy with this time horizon has to try and capture not just how India will change over the
next 20 years but also shifts in the Australian economy. We are today poised globally at the
edge of a revolution in technology. Artificial intelligence, big data, machine learning and other
innovations will likely change the nature of work and the productivity of both the Australian and
Indian economies. So looking out to 2035 means plotting the points of intersection of two
moving parts.

A long view is important for any strategy. For India it is essential. India is a market which
requires patience, perspective and preparation. Change in India is often invisible to the naked
eye. That is one reason why perceptions of India in the Australian business community are
caught in a time warp: largely unaware of the significant positive changes taking place in India
and shaped by a 'once bitten twice shy' perspective.

The opening up of the Indian economy is a good example. Australian business still tends to
think of the Indian economy as relatively closed. Yet the Indian economy of today is very
different to the days of the license raj. And the Indian economy of 2035 will be different again.

India's average applied tariff is today one-tenth what it was in 1990. In 1990, total trade as a
proportion of Indian gross domestic product (GDP) was around 13 per cent. Today it is 40 per
cent. India's two way foreign direct investment (FDI) to GDP ratio at just under 20 per cent is still
low by global averages. But the stock of inward FDI has grown by 19 per cent a year over each
of the last 20 years.

None of this is to suggest that doing business in and with India will not have its challenges. India
is too complicated for its growth story to be linear. Its economic progress will be uneven and
incremental, constrained by the political compromises demanded by a diverse democratic
federation, held back by thinly resourced institutions, burdened by a bureaucracy too
susceptible to arbitrary interference, dented by endemic corruption and shaped by a political
tradition which puts much greater faith in government intervention than the efficiency of markets.
There is no point lamenting these constraints. They are wired into the Indian experience. We
need to understand them but also acknowledge that they are changing and look beyond them to
grasp the significance of the opportunities created by a growing Indian economy.

INDIA MARCHES TO ITS OWN TUNE – IT IS NOT THE NEXT CHINA

India needs to be understood on its own terms. It will always march to its own tune. It is the only
country with the scale to match China but it will not be the next China. Indeed comparisons with
China only get in the way of understanding the nature of the opportunities in the Indian market.

No Indian Government will be able to direct the economy in the way China does. Nor will it ever
have the control over the allocation of resources which has been intrinsic to China's economic
success. China has a discipline to its economic planning which flows from its one party political
system and the competence of its state institutions. Also for all its diversity, China has a strong
Han Chinese core which has no counterpart in the linguistic and cultural diversity of India.

India's economy will be big but not as big as China's (which is currently five times its size).
China's economy would have to crash and India's grow at over 10 per cent a year for several
decades for India to catch up. Neither is likely.

Nor will India's economic model mirror that of East Asia's. Its growth will be driven by
consumption and services, not exports. It has demographics on its side, a long entrepreneurial
tradition, an expanding consumer class, significant headroom for productivity improvements and
the confidence that comes from a strong sense of its civilisational pedigree and destiny.

The drivers of Indian growth are deeply structural which suggests they are also sustainable.
They include the urbanisation of the world's largest rural population, the gradual movement of
the informal economy, currently comprising 90 per cent of India's workers, into the formal
economy, a young demographic with a mean age of 27, considerable investment in
infrastructure, and the beginnings of an ambitious program to upskill 400 million Indians.

These structural drivers will likely keep India on a relatively strong growth path. I have
deliberately taken a moderate view of the rate of growth out to 2035, assuming that it will be in
the order of 6–8 per cent each year over the next 20 years. This assumes incremental rather
than radical structural reforms. But for what is already the world's fastest growing large economy
to grow by 6–8 per cent each year for the next two decades will still be transformative for India
itself, its region and its economic partners.

Most of all India has scale. It will by 2035 overtake China as the world's most populous country.
This means a deep domestic market which will likely make India the world's third largest
economy by 2035 after China and the United States measured by market exchange rates. It is
already the third largest economy measured by purchasing power parity.

Scale encourages ambition but it is the structural complementarity between the Indian and
Australian economies which is the key to translating ambition into opportunities. Put simply, a
growing Indian economy will need more of the things Australia is well placed to provide from
education services to resources and energy; from food to health care; from tourist destinations
to expertise in water and environmental management. Indeed services are likely to be the
fastest growing segment of our future economic relationship with India.

Beyond scale and complementary economies there is a third important reason to bring India into
the first tier of our economic relationships: spreading risk.

Exports and attracting foreign investment are key elements in the strength of the Australian
economy and our ability to maintain a rising standard of living. In a global economy, it pays to
hedge against volatility by diversifying. If we can count India in our top three export destinations
and if we can tap more two way investment between our countries, Australia's exposure to
global risk is reduced. A strong economic relationship with India strengthens Australia's
economic resilience. That is important for a country where 40 per cent of our exports currently
go to just two markets with ageing populations. India – a large and young population – adds
balance and spreads risk in Australia's economic relationships. A partnership with India in
science and innovation can also help drive domestic productivity and create Australian jobs in
sectors we are yet to imagine.

A THREE PILLAR STRATEGY: ECONOMICS, GEOPOLITICS AND PEOPLE

The focus of this report is on building a sustainable long term India economic strategy. But an
economic strategy works best within a much broader and deeper relationship with India.

economic strategy should be seen as one of three pillars on which the bilateral relationship
should rest, the other two being geopolitical congruence and people to people ties.

Geopolitical convergence
geopolitical congruence flows from three core factors.

First, as partners in the Indo-Pacific we are each grappling with the implications of the fading of
US strategic predominance and the sharpening ambition of China to become the predominant
power in the region.

Second, both Australia and India support a rules based international order. That order, the
product of decades of United States-led investment in global institutions and public goods, is
under increasing threat. Its defenders are shrinking and its challengers growing. Since Australia
can neither buy nor bully its way in the world, a system based on rules not might is important.

Third, India is a partner in seeking to forge regional institutions in the Indo-Pacific which are
inclusive, promote further economic integration and can help at the margins to manage the
tensions which inevitably flow as economic growth across the region shifts strategic weight and
relativities. That is why India should be brought into the Asia-Pacific Economic Cooperation
(APEC). Moreover, both Australia and India see China as an important part of inclusive regional
institutions, especially the East Asia Summit (EAS). And both countries attach a high priority to
our relations with the Association of Southeast Asian Nations (ASEAN) and the individual
countries of Southeast Asia.

So while India will always march to its own strategic tune and cherish its strategic autonomy, the
scope for us to work together on the broader challenges of the Indo-Pacific is growing as is
India's willingness to work with the United States, Japan and Australia in ways which capture
the growing strategic convergence of these four democracies.

From Australia's perspective it is India's liberal democratic and secular character which provides
a foundation for this evolving strategic congruence. Some worry that this defining and tested
feature of India is under strain. That seems an exaggerated fear at this time. But anything which
materially weakens India's democratic credentials or its commitment to a secular liberal society
would not only be a tragedy for India but also call into question the very basis of our strategic
partnership.

People to people ties

The third pillar of the relationship – our growing people to people links – may over time prove to
be the most significant asset of all.

India is currently our largest source of skilled migrants, our second largest source of
international students and a substantial proportion of those who come to Australia under
temporary visas to fill skilled positions that Australians cannot.

In the last decade we have seen a very large increase in the size of the Indian diaspora in
Australia, now 700,000 strong and the fastest growing large diaspora in Australia. To reach this
size in a little over a decade is remarkable.

This diaspora will have a big role to play in the partnership of the future. They can go into the
nooks and crannies of a relationship where governments cannot. They can shape perceptions in
a way governments cannot. And they create personal links, in business, the arts, education, and
civil society which can help anchor the relationship.

a detailed analysis of the Indian diaspora in Australia and its potential role in building the
business relationship with India. It points to the likely growing political influence of the Indian
diaspora, something which is already evident in state politics. As they have in Canada, the
Indian diaspora may prove over the next two decades to be the most politically active of any
migrant group in Australian history since the Irish. This will have implications for the priority our
political leaders will place on the relationship with India