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India Country brief

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

The 2009 Indian national election for the Lok Sabha (lower house) was held from 16 April to 13 May in five phases. The Congress Party-led United Progressive Alliance (UPA) received a decisive majority and formed the new government. The Congress Party won 206 seats, up from 153 in the 2004 national election. A majority of 272 seats is required to form government in the 543-member Lok Sabha. The main opposition party, the Hindu nationalist Bharatiya Janata Party (BJP), won 116 seats. The Congress Party was also the majority member of the UPA coalition government from 2004 until the 2009 national election. Dr Manmohan Singh, Prime Minister from 2004-2009, was reappointed Prime Minister on 20 May 2009. Dr Singh is the first Indian Prime Minister to be re-elected after serving a full first term of five years since Prime Minister Jawaharlal Nehru in 1961. Parliament reconvened on 1 June 2009.

Six million officials and security personnel protected voters, and close to one-and-a-half million electronic voting machines were used. Over 400 million Indians, almost 60 per cent of eligible voters, cast their votes, out of an estimated electorate of 714 million. 14 million young voters participated for the first time (25 per cent of India's electorate is aged under 25). This was the biggest electoral exercise in the history of the democratic world.

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

India's foreign policy has 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 expanded 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. An India-Association of South East Asian Nations (ASEAN) FTA was 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 largest trading partner. 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 northwest, has been 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 November 2008 Mumbai attacks in which over 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 134th in 2009.

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 point to Indian economic growth moderating from recent highs in the aftermath of the global financial crisis. The Central Statistical Organisation (CSO) has announced a revised growth estimate for GDP growth of 6.7 per cent in 2008-09. The current account deficit is expected to decrease from 2.9 per cent of GDP in 2008 to 1.2 per cent in 2009. The fiscal deficit is forecast to rise to 6.8 per cent of GDP for 2009-10 from 6.0 per cent in 2008-09.

The current financial uncertainty is likely to reduce India's growth rate further before it begins to recover, but India is likely to return to higher long-term trend growth. The IMF predicts that India's growth in financial 2009 will be 5.4 per cent, rising to 6.5 per cent in 2010.

Bilateral Relationship

Australia has placed India in the front rank of its international partnerships and is engaging with India on a long-term, strategic basis. Both Governments recognise there is significant potential for further cooperation across a broad range of areas.

The Prime Minister visited India from 11-13 November 2009. He and Indian Prime Minister, Manhoman Singh, issued a joint statement   that included agreement to upgrade relations between the two countries to the level of a "Strategic Partnership." As part of the Strategic Partnership, Australia and India issued a Joint Declaration on Security Cooperation that will see the two countries intensify their efforts to maintain peace, stability and prosperity and put in place mechanisms to ensure closer and more regular collaboration in security areas. The Prime Minister also unveiled a major increase in the diplomatic resources Australia devotes to the India relationship, including new positions in Delhi, new DFAT positions in Mumbai and Chennai, and new Austrade offices across Indian regional cities.

The Prime Minister also announced a major boost in funding over five years for joint science and technology research projects. This includes $50 million that will be matched by India for the Australia-India Strategic Research Fund to support joint research in some of the grand challenges facing the two countries, like energy, food & water security, and the environment, and $20 million for the Australian Centre for International Agricultural Research (ACIAR) to undertake joint research in dry-land agriculture in India. The Australian Government will also provide $1 million to support a joint solar cooling and mini-grids project being undertaken by India's The Energy and Resources Institute (TERI) and Australia's Commonwealth Scientific and Industrial Research Organisation (CSIRO).

On 13 October 2009 the Minister for Foreign Affairs, Stephen Smith, attended the sixth Australia-India Foreign Ministers' Framework Dialogue in New Delhi hosted by his counterpart, Indian Minister of External Affairs SM Krishna. The Ministers issued a joint statement which underlined the enduring shared interests which bind India and Australia together. During the visit Mr Smith renewed his acquaintance with Finance Minister Mukherjee and discussed issues of common interest with Home Affairs Minister Chidambaram, National Security Advisor Narayanam, and Environment Minister Ramesh.

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, Water Resource Management, and a bilateral Air Services Agreement. An MoU on intellectual property was signed in May 2008, and an MoU on science and technology cooperation was signed between CSIRO and its Indian counterpart in July 2008.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 with 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.

Minister Ferguson and senior officials of the Department of Resources, Energy and Tourism (RET) visited India in November 2008. During that visit, RET officials signed five Action Plans with the Indian Ministries of: Coal; Mines; New and Renewable Energy; Petroleum and Natural Gas; and Power. The Action Plans are designed to underpin our bilateral engagement and technical cooperation on minerals and energy including trade and investment facilitation. At the sixth meeting of the Joint Working Group on Energy and Metals held in March 2009 in New Delhi, a three-year work program was finalised and signed under each Action Plan.

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.

The Australian and Indian Governments have stepped up their joint efforts to address issues affecting the 100,000 Indian students in Australia. During her visit to New Delhi from 31 August to 3 September 2009, Deputy Prime Minister Julia Gillard announced an annual ministerial exchange between the two countries on education issues that will be attended by ministers, representatives of each nation's universities and representatives of each nation's industry and business community. Joint Working Groups on Education and Student Mobility met for the first time on 6 and 7 October, agreeing on a number of concrete measures to increase cooperation and collaboration in education and training, including in areas impacting on student welfare and safety.

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 an 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 an MoU.

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 an 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 $17.5 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

2008-09 (A$m)

Major Australian imports

 2008-09 (A$m)

Coal

6,686

Rotating electric plant

368

Non-monetary gold

5,690

Pearls & gems

109

Copper ores

754

Medicaments (including Veterinary)

73

Fertilisers

439

Jewellery

65

The trade relationship is dominated by merchandise trade, although the role of services is growing; Australia exported $2,968 million worth of services to India in 2008. New prospects continue to emerge in sectors such as ICT, biotechnology, education, tourism, health, film and insurance. Education exports to India in 2008 totalled more than $2.3 billion, with Australia now the second most popular destination for Indian students seeking an overseas education. Imports of Indian services totalled $619 million in 2008.

Australian foreign direct investment in India was worth $535 million in 2008. This investment covers manufacturing, telecommunications, hotels, minerals processing, food processing, oil and gas, and the automotive sector.

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 four times (April, May, August 2008 and September 2009). 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, South Korea and Chile, as well as the Mercosur countries (Argentina, Paraguay, Uruguay and Brazil), ASEAN 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, the European Union, , 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 Service based 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

Cochlear is the innovator and manufacturer of a unique hearing implant system designed to give customized hearing solutions. Cochlear first came to India in early 1990s. With Austrade assistance, Cochlear has now entered into marketing agreements in Bangalore and New Delhi.

FAT Systems is involved in the blending of Ethanol with Diesel. The company has established an office in Bangalore - India. FAT Systems has recently been awarded a CDM (Clean Development Mechanism)1 from the United Nations Framework for Climate Change. This is the first BioFuels project in the world to be awarded a Clean Development Mechanism.

GHD is a global Engineering Services company established in 1928 and is ranked in the world's top 30 engineering and architecture companies. GHD serves the global markets in the Infrastructure, Mining & Industry, Defence, Property & Buildings and the Environment sectors. GHD operates in 14 countries and has an integrated network of offices throughout Australia, New Zealand, the Middle East and the Americas. The India office was set up in January 2009 in Hyderabad as the South Asia HQ. This office markets its services to industry and government.

Leighton set up an office in Mumbai in 2004 and is having considerable success in winning offshore oil and gas projects. Leighton constructed a Nokia factory worth in excess of $200m and a Flextronics plant worth over $150m and are currently building a Motorola plant. Leighton opened new offices in New Delhi and Chennai during the former Prime Minister's visit in March 2006. Its most recent success is an offshore oil pipeline project in Vizag for the Hindustan Petroleum Corporation Limited (commenced April 2009 to be completed March 2010).

Macquarie set up an office in Mumbai in mid 2005 to report on the local equity scene for their overseas clients, and has already hired around fifty local specialists. Macquarie officially opened their Mumbai office during the former Prime Minister's visit in March 2006. A property division was set up in 2008 and Macquarie is currently setting up an infrastructure fund in collaboration with the State Bank of India. In 2009 the company opened an office in New Delhi to support their operations.

ResMed is a leading manufacturer of sleep apnoea equipment. It has been marketing its range of sleep apnoea equipment through a distributor and has had an office in India since 2005. In 2009, ResMed concluded a strategic acquisition of a local medical sales distribution network to focus on sales while ResMed focuses on marketing and promotions.

Woolworths has established a joint venture with the Tata Group to operate a number of electronics stores in India under the brand name 'Croma', along the Dick Smith retail outlets model. The first store was opened by Roger Corbett, then Managing Director, Woolworths and Ratan Tata, Executive Chairman, Tata Group in Mumbai in October 2006. There are now 8 stores across India.

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 visit the Austrade website. Austrade, in addition to having offices in New Delhi, Mumbai and Chennai, maintains representation in Kolkata, Hyderabad and Bangalore.

Last updated: 17 November 2009