Australia and India: Building a Partnership

The Deakin Lecture by Mr Peter Varghese AO, Chancellor of The University of Queensland, New Delhi, 21 December 2016.

Let me also congratulate the AII for naming this lecture series after Alfred Deakin, the second prime minister of Australia.

Deakin was an unusual political leader. He was something of a polymath: widely read, a spiritualist, a journalist, an author, an expert on irrigation systems among other things. He had a particular connection to India and wrote two books on India: one on its irrigation system and the other “Temple and Tomb” exploring Hinduism and Indian temples. There has been no Australian political leader since with as deep a knowledge of India as Deakin.

Tonight I wish to talk about the relationship between Australia and India: where it has been, where it is going, and why it makes sense for us to think about the relationship as an evolving partnership.

I have deliberately avoided attaching adjectives to the partnership, such as strategic and comprehensive, not because I think they are inaccurate, but because they have become somewhat devalued in their application. And also because partnerships are organic, not static. They grow and change with time and circumstance.

That has certainly been the case with the partnership between Australia and India. It has gone through many phases.

The first was geological when the Australian and Indian land masses were joined at the hip before continental drift separated us.

The next was anthropological where a reasonable case can be made, but by no means proven, that the Australian aboriginals originated from the tribal communities in the south of India.

As nations, or at least as colonies, our partnership began with empire. We were of course very different colonies. India was colonised and Australia, or at least the Australia after European settlement, was a colonial outpost. And it was as outposts of empire that we first established close links. So close that for the first several decades of European settlement, India was arguably Australia’s largest trading partner with the Sydney-Calcutta sea route a vital life line for a struggling Australian penal colony. And it was not just trade which linked colonial Australia with India. It was also a movement of people, although very few of them were Indian because this was a Raj to colony link.

The bonds of empire were important but not central. And when the empire ended, we entered yet another phase of the partnership, which went from Indian independence in 1947 to the early nineties when India began to open up its economy.

This period was a low ebb in the relationship. But seen from a state perspective, the stunted nature of the Australia-India relationship from the late forties to the early nineties should not surprise us. For the first four decades after India’s independence we inhabited different worlds. Our hard interests, strategic and economic, rarely intersected.

What shifted this desultory dynamic, although few recognised it at the time, was India’s 1992 decision, led by Narashima Rao and crafted by Manmohan Singh, to open its economy: a move which will be judged by history as every bit as significant as Deng Xiao Ping’s move to open the Chinese economy.

The opening of the Indian economy did what decades of diplomatic endeavour could not: it put India on a glide path which would see it redefine its economic and strategic interests and in the process create a convergence of interests between our two countries which has a long way to run.

This is the partnership on which I wish to focus.

Enduring partnerships are based on common interests, and of the many interests which can bring countries together, none are more consequential than shared strategic and economic interests.

An economic partnership

India is today the fastest growing large economy in the world. The question, ever since India began its economic reforms, is can it put in place the right policies to see sustained high economic growth over many decades? Can India and potential ever be delinked?

The problem has never been in identifying the policies India must pursue to realise its potential. India needs to move in the direction of less regulation, more labour market flexibility, land reform, better infrastructure and a more skilled workforce. It is the politics of reform which has always been the hard bit.

The election of the Modi government marked a profound shift from the politics of welfare to the politics of aspiration. Combined with a more energetic leadership, a willingness to allow more space for state governments to initiate economic reform, and a concerted effort to lift business confidence and foreign investment, the Modi government has placed a high priority on economic growth.

Not everyone is satisfied at the pace of economic reform in India but that criticism needs to be tempered with the reality that Indian politics is always going to favour the path of incrementalism over radical reform. Economic reforms in a democracy as large, diverse and argumentative as India’s, are always going to be hard yards.

Moreover, India will find its own path to economic growth. It will not be moulded by a Washington consensus. The instincts for state intervention in the economy runs deep. So there will always be an element of exceptionalism in India’s economic policies.

Certainly, India’s economic path will look quite different to the East Asian model. It is anchored in domestic consumption. Its closest historical parallel is probably the US in its industrialising phase, except that the US capital markets were deeper. Indeed the broader similarities between India today and the US in its industrialising

phase are quite interesting. Both are societies where entrepreneurship, religion and a sense of manifest destiny come together in the national psyche.

“Make in India” is not primarily designed to make for export. It is intended to take advantage of a large domestic market. But over time it will also enhance India’s export performance and provide a larger market for those who wish to export into the Indian market.

For Australia, the opportunities will lie across many areas, including in education, food processing, niche agriculture, and especially the resources and services sectors, although services will take time to play out. A key area for Australia will be energy resources, especially coal and gas. India has significant domestic energy reserves but the politics of land access and tribal occupancy will restrict the pace at which these resources can be exploited.

Agriculture will be a hard ask in terms of expanded access. The politics of agriculture is such that India will likely hasten slowly in this area. But here too, as the Indian economy grows and as consumption patterns change, there will be niche opportunities for Australian exporters because with growing wealth comes shifts in consumption patterns.

Australian business should take heart from these broader trends which will bring our two economies closer together. But we should also be realistic about the difficulties inherent in operating in the Indian market. India ranks low in terms of ease of doing business. The Modi government is keen to change this but it will take time and structural reforms.

So anyone interested in doing business with India, and especially anyone interested in doing business in India, needs large wellsprings of patience because India punishes impatience.

An FTA with India will help in terms of better market access and an easier path to investment. But the absence of an FTA is not the largest obstacle in the path of a stronger trade and investment relationship. Making it easier to do business in India requires better infrastructure, less and more consistently applied regulation, addressing corruption and giving Indian courts the resources to deal with its huge backlog of cases.

A strategic partnership

India’s geopolitical repositioning has gone much further than I expected when I concluded my term as High Commissioner at the end of 2012. I thought then that we would see faster progress on the bilateral economic front than on security cooperation. It has turned out to be the reverse as the Modi government has shown a willingness to move more quickly in pushing India out of its old non-aligned mind set and establishing strategic partnerships with the US, Japan, Australia and others.

None of this however should be seen as a step away from strategic autonomy which, in my view, will remain the fundamental axis around which Indian strategic policy will turn. India is not about to become an ally of the US. But the Modi government does see much more space to expand its strategic relationships with the west while hanging on to its strategic freedom of manoeuvre.

India’s primary strategic frame of reference will remain China and this will create opportunities for India to do more with the US, Japan, Australia and the larger ASEANs such as Indonesia and Vietnam. For the most part this will be an organic process rather than any grand balancing coalition against China.

The India-China relationship will have elements of both economic cooperation and strategic competition, not unlike the way in which those two elements thread their way through China’s relationships with the US and Japan.

India will want to maximise its economic relationship with China. But it will also be opposed to any move by China to become the predominant power in the Indo Pacific. And it will be particularly concerned to ensure that China’s expanding interest in the Indian Ocean is not given free reign.

Australia and India approach China from both different and common perspectives. Australia is an ally of the United States. China is by far our largest trading partner. We have in Australia a large Chinese diaspora. And we have no border dispute with China and nor have we ever gone to war with China, unless you count the participation of Australians in putting down the Boxer rebellion.

China is a country and a civilisation which understands power and its sense of place has been shaped by the many centuries in which it was the Middle Kingdom. That pull of history is likely to play an important role in the way in which China relates to regional states.

China’s leaders are acutely conscious of the many challenges they face. They are currently at the start of a profound transition in their economic model towards more market based and consumption driven growth with less emphasis on exports and fixed investment.

The challenges posed by this transition are huge and we underestimate them at our peril. It is a high wire act which seeks both to preserve the monopoly of power of the Chinese communist party while simultaneously allowing the market to determine the allocation of resources. There is no certainty about how this will end.

We all however have a stake in the success of that transition. Abrupt shifts in China’s strategic policies, especially flowing from an economic crisis, would be highly destabilising. No one gains if China fails.

China will ultimately define its own strategic settling point. It will not be forced into someone else’s view of what it should do or become. Nor is it realistic to expect that the US and China can negotiate some grand bargain to share power in Asia. The process of adjusting to shifting power balances in a multipolar Asia will be incremental and organic.

China’s behaviour is likely to be a mix of many elements. It will be a responsible stakeholder where its interests are served. It will not be a classic revisionist power because China has been too much a beneficiary of the existing system to want to completely overturn it. But it will also look to play a greater role in existing institutions and to craft new institutions and arrangements which place it at the centre in a pattern perhaps reminiscent of the Middle Kingdom.

I had always thought that the tensions between an economy which was opening up and a polity which was tightly controlled could be managed in the Chinese context for a very long time. That may well remain the case but it seems to me that it is becoming harder to achieve.

Much has been said of the challenges Australia will face as it manages its relationship with China and the US respectively. I do not subscribe to the view that Australia will have to make a binary choice between the US and China. But as strategic competition between the US and China sharpens, and if China continues to be dismissive of its international legal obligations in the South China Sea, it will inevitably become harder for Australia simultaneously to pursue our economic interests with China and our strategic interests with the US and in a rules based international system.

Australia has next to no capacity to influence the direction of Chinese politics. We must continue to pursue policies designed to avoid invidious choices. But we also need to have a clear eyed understanding of our core interests, both economic and strategic. We want to see China succeed in its economic reforms and to play a constructive role in the region and the world. But we also want to see a strategic system in the Indo Pacific which is anchored in the rule of law and which recognises the stability which US strategic engagement brings to the region.

We will not know for some time whether these objectives can be achieved and it would be foolhardy to conclude now that they cannot. In the meantime we need to continue to build a close and comprehensive partnership with China which will not quickly lose its position as Australia’s largest trading partner.

So far I have focussed on points of congruence and difference in the way in which Australia and India see regional issues. Let me now move beyond the region to three other features of India’s likely foreign policy in the medium term.

First, India is likely to continue to support a liberal international order, although that will not extend to support for US exceptionalism. This matters because that order is likely to come under increased pressure, not least because we do not yet know whether the architect of the liberal international order – the United States - under a President Trump still believes in it.

Mr Trump appears to be a bundle of strong instincts but what we do not yet know is if he is also a man of strong policy views which, taken together, form a coherent view of America’s place in the world. And if he is such a man, how open will he be in office to changing his view? There is a lot which hang off the answers to these two questions.

Many have rushed to give us the answers in the short period since Mr Trump’s election but the reality is we will simply have to wait to find out. We can easily scare ourselves in the meantime but that does not achieve much. What a Trump presidency will mean for all of us is likely to be revealed step by step and will have to be dealt with accordingly.

Returning to the drivers of Indian strategic thinking, the second additional driver to which I wish to draw attention is India’s commitment to increase significantly its defence capability to buttress its strategic autonomy. This will add to India’s strategic weight and influence.

And third, India is likely to be cautious about pressing a human rights agenda in its bilateral relations and nor is it much interested in an international policy of promoting democracy. Moreover it will hold to this caution while also holding firm to its own domestic commitment to human rights and democracy.

All of this, I would suggest, creates space for Australia and India to cooperate on a shared strategic agenda. And none of the likely drivers of India’s strategic trajectory that I have outlined creates a serious problem or obstacle to such a shared agenda.

The extent to which Australia recognises a growing strategic convergence with India is best reflected in the way our own strategic focus has shifted from the Asia Pacific to the Indo Pacific.

It is not often that a country changes the geographic definition of its primary strategic environment. But that is precisely what Australia has done in recent years by replacing the Asia Pacific with the Indo Pacific.

The Asia Pacific, with north east Asia at its centre, has been the conceptual foundation of Australian strategic thinking for most of the post war period. The Asia Pacific was seen as a coherent strategic system bringing in the major powers and also reflecting a long period of trade and investment integration.

Australia saw this economic integration as giving the Asia Pacific added coherence. The Asia Pacific construct provided a framework for thinking about the management of major power relationships anchored in US strategic primacy. It was also our frame of reference for charting the strategic impact of shifting economic weight, especially the rise of the Chinese economy.

In more recent years, however, we have moved from Asia Pacific to Indo Pacific to describe the crucible of our strategic environment. And a large part of that shift is driven by how we see India.

I should concede at the outset that the concept of the Indo Pacific as a single strategic system is a work in progress. It is both an act of imagination and a recognition of an emerging structural shift in our strategic environment.

At its heart the Indo Pacific reflects two propositions.

First, that the maritime environment is likely to be the primary focus of strategic planning and strategic competition over the next several decades.

Secondly, that India’s strategic focus will over this period shift well beyond India’s immediate neighbourhood and embed India in the strategic dynamics of the Asia Pacific in a way it has not in the post war period.

These two propositions do not, in themselves, create a coherent Indo Pacific strategic system which is far from a fully formed concept. But it does suggest that the idea of the Asia Pacific needs to adapt to accommodate these two propositions.

In this sense, the idea of the Indo Pacific is best understood as an evolution of Australia’s Asia Pacific bearings, not a rejection of the Asia Pacific.

It is also important to understand what the Indo Pacific is NOT.

It does not, for example, treat the Indian and Pacific oceans as a single strategic system. Not does it seek to bring all of South Asia into the old Asia Pacific strategic system.

For now the Indo side of the Indo Pacific is really just India and it is more about bringing India to the Asia Pacific than stretching the footprint of Australia’s primary strategic focus all the way to the western reaches of the Indian Ocean.

Over time, more structure and integration may evolve in the Indian Ocean such that it might become a coherent strategic system akin to its counterpart in the western Pacific. But that is a long way off, so for the foreseeable future when we think about the Indo Pacific we are thinking of an Asia Pacific which finds room to accommodate India as a strategic player, and an India whose strategic and economic interests will increasingly draw her into acting as such a player.

A partnership of people

The final element of partnership I wish to discuss is our people-to-people links.

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, probably the fastest growing diaspora in Australia, already just short of half a million in a population of 23 million and trending larger quickly.

This diaspora will have a big role to play in the partnership of the future. The diaspora 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 structural links, in business, the arts, education, and civil society which can help anchor the relationship.

The diaspora adds depth and texture to the relationship. It opens business doors. It raises the understanding of India in Australia and over time it will also positively influence India’s understanding of Australia.

The truth is – that at a community level – neither of us know much about the other.

The Indian elite has traditionally not looked to Australia. That is beginning to change, but only slowly. And for the broader Indian community, images of Australia tend to be sketchy, shaped by cricket, historical connections and sporadic coverage in the Indian media.

Similarly, in Australia, there is very little understanding of contemporary India in the wider community. Australians, for the most part, have only a partial glimpse of India’s diversity and of the scale of its prospects.

Both of our communities are caught in a time warp in terms of our perceptions of each other. If our partnership is to reach its full potential we must modernise our perceptions of each other.

It is in our interests to do away with misconceived notions of what the other stands for.

What we achieve together in coming decades will have little to do with a shared imperial past. It will have not much to do with the English language, although that will help. And it will have to be a tighter bond than anything forged on a cricket field. Rather, it will have to do with gaining a real understanding of each other, of where we differ but also what brings us together including shared interests and the strength of our diversity.

Conclusion

Let me conclude with these observations.

The Australia India relationship has had many false starts and the biggest risk to the relationship is to believe that this will continue to be the case. From diplomats to business people the stories of unfulfilled expectations are legion. We have a great capacity to disappoint each other.

Yet I remain a long term optimist because the logic of mutual interest must eventually prevail. History teaches us to be patient but patience without ambition is a recipe for plodding progress. It plays to those who can only see the frustrations of the past, not the opportunities of the future.

This is a relationship which cannot afford to lose momentum. A deep partnership will not happen without commitment and effort from both sides. Nor can a partnership be sustained if there is a large asymmetry of ambition.

In this Australia finds itself in the company of many others: eager to flesh out a stronger relationship but held back by an Indian system which is not built to support the demands on a great power. I am confident that, as this changes - as it inevitably will - and when India finds the institutional horsepower of a great power, then the prospects for the Australia-India partnership will be bright indeed.