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India: New Economy Old Economy, the latest report by the Economic Analytical Unit, Department of Foreign Affairs and Trade

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Media Release

Media release from the Australian Department of Foreign Affairs and Trade

The Minister for Foreign Affairs, Alexander Downer, will make a major policy
statement on Australia's relations with India when he launches the latest
report by the Economic Analytical Unit, Department of Foreign Affairs and
Trade, India: New Economy Old Economy, in Melbourne on 3 December

The report highlights how, after a decade of reforms, India's
large and diverse economy has become one of the fastest growing
emerging markets in the world. India is now Australia's twelfth
largest export market, up from between twentieth and twenty fifth a
decade ago and Australia's foreign direct investment in India also
has risen significantly. While India's medium to long term growth
depends largely on the speed and extent of ongoing reforms, its
current growth outlook overshadows that of most other Asian markets,
which face slow growth or contraction in the next year or so.

The report highlights developments in several fast growing
sectors and states which provide increasing opportunities for
Australian traders and investors. In particular, several 'new
economy' service sectors like information technology, IT,
telecommunications and finance are growing rapidly, though
opportunities also are emerging in 'old economy' sectors like
mining and advanced technology manufacturing. Also, a group of four
more outward oriented states in the south and west of the country,
Gujarat, Karnataka, Maharashtra and Tamil Nadu, where new service
industries are concentrated, are performing more strongly than the
rest of India and attracting the bulk of new investment.

The report details case studies of over 30 companies from around
Australia which are trading and investing successfully in many
Indian sectors and states.

Media representatives are invited to attend, as guests of the
EAU, this major India policy statement in Melbourne at a breakfast
launch at the Park Hyatt Hotel on 3 December. The report also will
be launched in Sydney, Perth, Canberra and Brisbane on 4, 5, 6 and
11 December.

For briefings, and free electronic or express delivered
embargoed copies of the report contact:

Michael Growder
A/g Director
Telephone: 02 6261 1101

Frances Perkins
Executive Director
Telephone: 02 6261 2237

James Hyndes
Deputy Director
Telephone: 02 6261 3440


India: New Economy Old Economy


  • India has grown robustly since its early 1990s reforms and in
    early 2001, the Government announced further fiscal, labour
    market, trade, foreign investment, privatisation and government
    administration reforms; if implemented, these could return India
    to previous real GDP growth peaks of 7 to 8 per cent per year.
  • However, since the mid 1990s, governments of India's large
    decentralised democracy have found it difficult to achieve
    consensus for further rapid reform.
  • A more likely scenario is continuing incremental reform;
    together with past reforms and on going trade liberalisation
    commitments, this should ensure India maintains 5 to 6 per cent
    growth over the medium term.
  • However, at a time when much of Asia outside China faces slow
    growth or contraction, India's growth prospects look
    relatively robust.
  • Due to reforms, India's 'middle class' is expanding
    rapidly; about 60 million people now live in households with
    income over A$6 000 per year, compared to only about 25 million
    in 1994-95.


  • Since the early 1990s, Australian exports to India have grown
    50 per cent more rapidly than our total exports. Bulk resource
    and agricultural commodities dominate Australia's exports to
  • The report includes case studies of successful commodity
    exporters including BHP Billiton, MIM, AWB Limited (formerly the
    Australian Wheat Board), Colly Cotton and Scanlan Wools.
  • Service exports like education and tourism also are growing
    strongly, while IT, environmental, health and media services
    show promise. Competitively priced higher technology
    manufactures also are finding markets.
  • Case studies in the report include Monash University, RMIT
    University, Central College (which all enrol large numbers of
    Indian students) Australian Tourist Commission, Runge Mining
    (mining software) Australian Hospital Design Group (hospital
    design, planning and training), Cutting Edge Post (film editing
    services), Greenspan Technology (environmental instruments) and
    the International Centre for Application of Solar Energy
    (alternative energy technologies).
  • Australia's direct investment stock in India increased
    strongly during the 1990s, though at about A$1billion it is
    still under 1 per cent of Australia's total foreign direct
    investment, FDI, stock. Fast growing service sectors, including
    IT, media and finance, mining and niche manufacturing are the
    main areas attracting recent Australian investor interest. (See
    case studies under new and old economy sections, below).


  • Despite growing trade and investment, foreign companies in
    India consider it a challenging business environment. Major
    problems include infrastructure shortages and expense; red tape
    and transparency issues, intellectual property protection and
    the backlog in the court system.
  • Three key messages emerging from the Australian firm case
    studies are:
    • the crucial nature of business partner choices
    • the need for patience and perseverance in dealing with the
    • the good potential for sales growth and profits if
      businesses succeed on these first two issues and have a well
      priced or unique product or service.


  • Since the early 1990s, trade reform has been India's most
    substantial and successful area of economic reform; trade now
    represents about 30 per cent of India's GDP, up from only 15
    per cent before reforms. Despite on going trade reforms, India
    still imposes many restrictions and its average tariffs remain
    high by regional standards. Nevertheless, Australian exporters
    are finding new opportunities as import barriers fall in
    previously protected markets.
  • Interesting case studies of Australian firms which have
    recently penetrated new Indian markets include Australia-India
    Fresh Food Alliance and Berri Ltd.


  • India's gradual economic liberalisation, growing incomes,
    generally low labour costs and the widespread use of English are
    some major attractors for foreign investors. Key sectors of
    manufacturing, mining, infrastructure and software now permit
    100 per cent FDI, though many sectors still impose foreign
    ownership limits below 100 per cent.
  • However, with new FDI under US$2.5 billion in 2000, India
    still receives low per capita FDI inflows by emerging economy
    standards. The challenging business environment and remaining
    policy restrictions constrain sustained inflows into agriculture
    and, to a lesser extent, infrastructure, manufacturing and
  • Increasingly, fast growing 'new economy' services sectors,
    particularly the export oriented information technology, IT,
    sector and several high performing states, are attracting the
    majority of foreign investment approvals.


  • IN addition to IT, finance, telecommunications, health, education,
    environmental services, biotechnology, media and entertainment also
    can offer attractive direct investment opportunities. The report found
    that since the 1990s reforms, only the service sector has grown more
    considerably strongly than in the 1980s; manufacturing growth has improved
    only marginally, while infrastructure and mining have grown more slowly.
  • With total revenue expected to reach about US$11.4 billion in 2000-01,
    India's IT sector is flourishing; this is due the country's huge pool
    of skilled, relatively low cost IT engineers and strongly supportive
    government policy. The software sector is the fastest growing major
    component of the IT industry; its US dollar measured revenue expanded
    46 per cent per year for the past 7 years to reach US$7.4 billion in
    2000-01. It now employs about 340 000 people and exported about 70 per
    cent of its output last year. Although India trains between 35 000
    and 50 000 new software engineers each year, with the sector's rapid
    growth, demand is outstripping supply and skilled staff shortages have
    pushed up IT engineer salaries by around 20 per cent per year since
    the late 1990s. This situation will prove a challenge to the longer-term
    viability of the sector in India, although the Indian government is
    responding encouragingly to this challenge.
  • Another 70 000 Indian workers now are employed in the even faster
    growing IT enabled sector (call centres, back office support, data entry,
    etc); its revenue more than tripled over the last two years. This sector
    should face less labour shortages, as it has a much larger pool of potential
    employees to draw from, so may have even stronger growth prospects than
  • Case studies of Australian firms successfully developing software
    in India include ANZ IT and Lumley Technology; representatives of these
    firms will speak at the Melbourne and Sydney launches (respectively).
  • The financial sector increasingly is open to foreign investment and
    is growing strongly. While banking has been constrained by a strong
    public presence, overstaffing and non-performing assets, the Government
    is working to address these issues. Investors may find the best opportunities
    lie in partnering recent private Indian financial sector entrants.
  • The report includes a case study of AMP's recent infrastructure fund
    and insurance joint ventures. AMP's new Indian insurance venture partner
    and an AMP representative will speak at the Sydney launch.
  • The telecommunications sector also is growing strongly; recent reforms
    promise opportunities for private companies to compete more effectively
    with public incumbents and provide services and equipment to this sector;
    foreign investor interest in this sector is increasing again.
  • Health, education, biotechnology, environmental services, media and
    entertainment are other fast growing 'new economy' sectors where recent
    liberalisation and stronger market growth should allow Australian firms
    with strong capabilities in these sectors to invest profitably.
  • Several Australian educational institutions and other companies already
    are involved in these sectors. The report includes case studies of Baltec
    Systems, which has established an Indian office to provide environmental
    technologies to Indian firms; and the joint venture between Deakin University
    and the Association of Professional Engineers, Scientists and Managers
    Australia, to offer advanced degrees in IT in India.


  • Among the 'old economy' sectors of manufacturing, mining,
    infrastructure and agriculture, mining, advanced technology
    manufacturing and niche infrastructure currently are the most
  • Recent mining reforms are encouraging. India's fiscal regime
    for mining now approaches international competitiveness, while
    oil and gas offer medium term potential. Recently, several
    progressive states issued more mineral prospecting leases,
    significantly increasing Australian miners' interest in India.
  • Case studies of Australian miners investing in India include
    BHP Billiton and mining juniors Grenfell Resources (base metals)
    and Mineral Deposits Ltd (mineral sand mining).
  • While manufacturing sectors increasingly are opening to
    foreign direct investment, some remaining ownership caps,
    infrastructure shortages and government regulation have kept
    foreign investment to modest levels. Nevertheless, several
    Australian firms are succeeding in the manufacturing sector,
    usually by bringing high technology processes, skills and
    products to India.
  • Case studies of Australian manufactures operating successfully
    in India include Fosters Group (brewing), Ulco Medical (medical
    equipment), Clipsal (switches) and Cactus Imaging (high tech
  • The Indian Government allows 100 per cent foreign investment
    in many infrastructure sectors, but private ports and aid funded
    road projects are the most prospective infrastructure sectors
    for investors and goods and service exporters. Slowly advancing
    regulatory reform and protracted negotiations inhibit foreign
    investment in other sectors.
  • The report includes case studies of P&O Ports, based in
    Sydney, the largest foreign port developer in India and
    infrastructure consulting firm SMEC International, which
    operates one of the largest foreign construction consulting
    services businesses in India.


  • The report finds Australian businesses can benefit from
    focusing their export and investment efforts in the high
    performing states, whose higher incomes, faster growth and
    better business environments offer investors and traders more
  • Since the reforms started, four southern and western states,
    Gujarat, Karnataka, Maharashtra and Tamil Nadu, have achieved
    significantly stronger real GDP and per capita income growth
    than other major Indian states. While they have only 28 per cent
    of India's population, these states produce 40 per cent of its
    output and attract 55 per cent of its local and foreign
  • These four high performing states excel because India's
    economic reforms most benefit industry and services in which
    they specialise; these states also are more export oriented and
    in most cases have better infrastructure than other states. A
    strong historical focus on education and business and some state
    policy reforms also helps their performance.
  • A second tier of states, Andhra Pradesh, Kerala, Rajasthan and
    West Bengal are performing better than the remaining states and
    could become high achievers over the next decade.


  • India's reforms are creating interesting trade and
    investment opportunities for Australian firms in a rangeof fast
    growing 'new economy' sectors and high performing states; as
    well, higher incomes and trade liberalisation are boosting
    Australian commodity, niche manufactures and services exports to
  • Further comprehensive reforms would consolidate growth and
    expand these opportunities. In the short term, Australian
    businesses operating in India can expect incremental reforms to
    continue; more comprehensive reform is unlikely given political
    constraints the central government faces. Major changes to the
    business environment also are unlikely in the short to medium
    term, though some states gradually are reducing red tape and
    increasing labour market flexibility. Infrastructure shortages
    are likely to remain acute for some time.
  • As India's reforms deepen, its growth potential is huge.
    Already Australian businesses are accessing promising trade and
    investment opportunities and prospects for expanding commercial
    relations are strong.
Last Updated: 19 September 2014
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