India and Australia: A Trading Partnership Deepens

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For most of the twentieth century India and Australia were two Commonwealth countries that traded surprisingly little with one another. They shared a legal system, a parliamentary tradition and an obsession with cricket, but their economies pointed elsewhere: Australia towards Japan and later China, India inwards behind high tariffs and import licensing. The relationship that exists today is recent, deliberate and built on three pillars that have almost nothing to do with each other: minerals and energy, education, and people. Understanding how those pillars fit together explains both why the partnership has grown quickly and why it remains narrower than the headline numbers suggest.

The turning point on the Indian side was the balance of payments crisis of 1991, when a near exhaustion of foreign exchange reserves forced the government of P. V. Narasimha Rao, with Manmohan Singh as finance minister, to dismantle the industrial licensing system and open the economy to imports and foreign investment. On the Australian side the turning point was slower and demographic. The dismantling of the White Australia policy, completed under the Whitlam government in 1973, eventually made large scale Indian migration possible, and the expansion of full fee international education from the late 1980s gave Indian students a reason to come. By the 2021 Census, India had become the second most common country of birth among Australians born overseas, after England.

What actually crosses the ocean

Australian exports to India are dominated by resources and by services. Coking coal for Indian steel mills is the single largest item by value in most years, which produces the awkward position of a country pledging emissions reductions while selling the raw material for a rapidly industrialising economy. Beyond coal come gold, copper ore, wool for Indian textile mills, and agricultural products including lentils and chickpeas, the latter subject to sudden Indian tariff decisions in 2017 and 2018 that reminded Australian growers how quickly the terms of that trade can change. India sends back refined petroleum products, pharmaceuticals and generic medicines, textiles and apparel, gems and jewellery, and increasingly information technology services delivered by Indian firms with offices in Sydney, Melbourne and Bengaluru.

Education is the quiet giant. International education is consistently among Australia largest services exports, and Indian students have for years been the second largest national group after Chinese students, concentrated in business, information technology, nursing, accounting and hospitality courses. That trade is politically sensitive in both countries. In Australia it is entangled with debates about housing, migration numbers and the quality of some private colleges. In India it raises the question of why so many capable students must leave, and what happens when they do not return. The two governments signed a mutual recognition arrangement for qualifications in 2023, an unglamorous document that matters enormously to anyone who has tried to have an Indian degree assessed in Australia or the reverse.

The architecture of agreements

The formal machinery arrived late. Negotiations for a comprehensive trade agreement began in 2011, stalled, and were revived in narrower form. The Australia India Economic Cooperation and Trade Agreement, signed on 2 April 2022 and in force from 29 December 2022, is an interim deal: it removed Australian tariffs on the large majority of Indian goods immediately and secured Indian tariff cuts on Australian wine, wool, sheepmeat, coal and some horticulture, while carefully avoiding the subjects India refuses to negotiate, above all dairy, wheat and other protected agricultural sectors. Talks on a fuller Comprehensive Economic Cooperation Agreement have continued since, and the sticking points are the same ones that have blocked every Indian trade negotiation for two decades.

Strategy sits underneath all of it. The Quadrilateral Security Dialogue, which brings together Australia, India, Japan and the United States, lapsed after 2008 and was revived in 2017, then elevated to leaders level meetings from 2021. Australia and India signed a Mutual Logistics Support Arrangement in 2020 allowing each other access to military bases for refuelling and resupply, and Australia rejoined the Malabar naval exercises that year. None of this is a formal alliance, and India remains deliberately non aligned in a way that periodically frustrates Canberra, most visibly over its continued defence relationship with Russia. But the shared calculation about Chinese power in the Indian Ocean is the reason ministers now visit each other with a frequency that would have astonished their predecessors.

The limits and the argument

It is worth being blunt about scale. Despite the growth, India is nowhere near Australia most important trading partner: China alone accounts for a far larger share of Australian exports than India, Japan and Korea have deeper industrial links, and Australian direct investment in India remains modest relative to the rhetoric. The 2018 India Economic Strategy to 2035, commissioned by the Australian government and written by Peter Varghese, a former secretary of the Department of Foreign Affairs and Trade and himself of Indian origin, made this point directly: it argued for concentrating effort on a small number of sectors and states rather than pursuing the whole subcontinent, and warned against expecting India to become a substitute for China.

What may change the calculation is not trade policy but people and technology. Critical minerals, in which Australia has reserves of lithium, cobalt and rare earths and India has manufacturing ambitions and a domestic solar and battery programme, is the most plausible growth area, and the two governments have signed investment arrangements aimed at it. Green hydrogen, space cooperation and defence manufacturing all appear in ministerial communiques with varying degrees of substance behind them. Meanwhile the diaspora keeps doing what diasporas do: sending money, moving business, carrying knowledge in both directions. The most durable part of this partnership may turn out to be the least negotiated part of it.

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