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Without a doubt, at first glance, Australia’s long-term focused trade relationship with China has largely been mutually beneficial; however, recent renewed antagonism and aggression by the rising superpower has cast this into doubt, and as we now shift our economic focus and our bet towards India, concerns have been raised about the prudence of such a push and its long-term benefits for Australia.
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India has been widely identified as the last great hope of the post-Second World War geopolitical and economic order as it seeks to balance the increasing power and ambitions of Beijing and its growing web of partner nations committed to bringing about the end of the US-led world order.
For Australia, this approach to “strategic hedging” is part of the nation’s status quo for strategic planning, beginning with the British Empire, Australia’s relationship with the global power paradigm, then dominated by the imperial powers of Europe made sense, as the young colony sought the safety of the world’s superpower.
Following the disastrous collapse and routing of imperial British power in the Indo-Pacific at Singapore in 1942, Australia began to look for a new great power strategic benefactor. Looking out across the vast expanse of the Pacific, Australia turned to what would become the world’s “indispensable nation”, the US. Emerging from its period of self-imposed isolationism in the aftermath of the devastating attack on Pearl Harbor in late 1941 to become the world’s pre-eminent industrial, political, and strategic power at war’s end and the cornerstone of Australia’s strategic outlook.
While the British would continue to play an important role in Australia’s future strategic planning, the withdrawal of British forces East of Suez in the early 1970s effectively heralded the end of Britain’s pivotal role in Australia’s military planning, the US continued to entrench itself as the nation’s premier strategic partner.
As the world adapted following the collapse of the Soviet Union, Australia, like many nations, began to embrace the optimism and hope represented by theories about the “End of History” and the peace dividend, leaving the US as the world’s sole and unquestioned superpower.
However, as we now know, this new paradigm was far from the promised “End of History” as Russia limped away, licking its wounds, and China began its rapid ascendency to rival the post-Second World War order. China isn’t alone in its position of ascendency, nor is it alone in having its own ambitions and designs for the post-Western world order we now appear to be stumbling towards in light of the domestic and international decline of both the US and European powers.
India, like China, is one of antiquity’s other ancient powers, has emerged to become one of the world’s pre-eminent economic, political, and strategic powers, now the fifth-largest economy in the world, according to the International Monetary Fund, when measured on nominal gross domestic product, with GDP per capita still lagging dramatically, with the rising power ranked 139th globally.
Meanwhile, the world’s largest “democracy” is also positioning itself as a central player in the BRICS (Brazil, Russia, India, China, and South Africa) economic and political bloc, which is itself rapidly evolving into an anti-post-Second World War order bloc, actively engaging in the undermining of the US-dollar-centric international order and the Shanghai Cooperation Organisation (SCO).
For Australia, India’s immense economic promise by virtue of its large population (now the largest in the world) adds further sweetener to the burgeoning strategic partnership with the ancient power, something that has been at the forefront of the Albanese government’s economic and foreign policy agenda, with major progress made in recent months.
Yet for Princeton University’s visiting professor of international economic policy, Ashoka Mody, India’s economic promise and the assumptions being made around this could be a little optimistic, prompting pause for thought amongst Australia’s policymakers.
Professor Mody explained: “While China, with its deep well of human capital and greater gender equality, stands poised at the frontiers of both the old and the new economies, Indian leaders and their international counterparts tout an ahistorical ability to leapfrog over a fragile human foundation with shiny digital and physical infrastructure. China has a plausible path through its current muddle. India, by contrast, risks falling into blind alleys of unfounded optimism.”
Building a comprehensive partnership and challenges to long-term success
At the centre of Australia’s economic pivot to India are the COVID-19-era trade disputes and pressures, which revealed the startling level of Australian vulnerability to a small measure of economic warfare at the hands of Beijing following the former government’s support for an independent investigation into the origins of the COVID-19 pandemic.
For Anthony Albanese’s government, the recent official visit by Indian Prime Minister Narendra Modi emphasised this push toward strengthening the relationship between the two nations through a number of models, namely the Comprehensive Economic Cooperation Agreement and the Australia-India Migration and Mobility Partnership Arrangement, respectively.
This was further strengthened during the first Australia-India Annual Summit in March of 2023, during which the two leaders agreed to a number of economic, trade and investment partnerships to boost the prosperity of both nations, including the formalisation of the India-Australia Economic Cooperation and Trade Agreement (ECTA), India-Australia Double Taxation Avoidance Agreement (DTAA) among others, all designed to support the closer economic and trade ties and opportunities for the two nations.
Prime Minister Modi highlighted this growing economic partnership in a press conference in Sydney in May, stating: “We will look forward to greater Australian investment in India. India will soon become the third-largest economy in the world. We are creating a favourable ecosystem for attracting more investment in India, in fields such as electronics, defence and other sectors, and I think that there is huge potential for further cooperation between India and Australia, between our private sectors. The CEO forum organised during your visit recently to India was also a very positive development. In the Indo-Pacific, we can work together, to make a free, open, rules-based and prosperous Indo-Pacific. Once again, I thank you for the warm welcome and reception extended to me and my delegation.”
The particular emphasis on people-to-people connections feeds into the central thesis of Professor Mody, particularly in relation to India’s capacity to emerge as a true economic superpower in the vein of China or the US, which has long been a contentious issue and area of relevant comparison particularly between China and India.
Professor Mody explained: “To be sure, market liberalisation greatly helped Chinese and Indian growth. But China built its successful development strategy on the twin pillars of human capital and gender equality, areas in which India has lagged far behind. Even after it became more market-oriented, China invested impressively in its people, outpacing India in raising education and health standards to levels necessary for an internationally competitive workforce. The World Bank’s 2020 Human Capital Index – which measures countries’ education and health outcomes on a scale of 0 to 1 – gave India a score of 0.49, below Nepal and Kenya, both poorer countries. China scored 0.65, similar to the much richer (in per capita terms) Chile and Slovakia.”
Unpacking this further, Professor Mody added: “Together, superior human capital and greater gender equality have enabled much higher Chinese total factor productivity growth, the most comprehensive measure of resource-use efficiency. Assuming that the two economies were equally productive in 1953 (roughly when they embarked on their modernisation efforts), China became over 50 per cent more productive by the late 1980s. Today, China’s productivity is nearly double that of India. While 45 per cent of Indian workers are still in the highly unproductive agriculture sector, China has graduated even from simple, labour-intensive manufacturing to emerge, for example, as a dominant force in global car markets, especially in electric vehicles.”
These concerns are similar to those established by former Australian ambassador to the US, Japan, and Indonesia and high commissioner to India, John McCarthy, who explained: “In the past few years, India’s attraction for the West has increased because of its size and wealth. It is now the most populous nation globally, and in purchasing power parity terms has the world’s third-highest GDP. Its attraction has grown as concerns about China have multiplied.”
Despite this optimism, McCarthy, citing Harvard academic Graham Allison, warned that many nations, especially Australia with its history of lionising great powers, need to be far more realistic about the trajectory of India’s economy and ambitions for the increasingly multipolar world.
“Allison, inter alia, suggested that we need to reflect on several ‘inconvenient truths’:
- We have been wrong in the past about the pace of the rise of India – namely in the early 1990s and the middle of the first decade of this century.
- India’s economy is much smaller than China’s – and the gap has increased, not decreased. In the early 2000s, China’s GDP was two to three times as large as India’s. It is now roughly five times as large.
- India has been falling behind in the development of science and technology to power economic growth. China spends 2 per cent of [its] GDP on research and development, compared with India’s 0.7 per cent. On artificial intelligence, the figures are startling. For example, China holds 65 per cent of AI patents, while India holds just 3 per cent.
- China’s workforce is more productive than India’s. The quality of their respective workforces is affected by poverty and nutrition levels. As one example, according to the 2022 UN State of Food Security and Nutrition in the World report, 16.3 per cent of India’s population was undernourished in 2019–21 compared with less than 2.5 per cent of China’s population.”
India still has a long way to go, so does Australia
Unpacking these realities further, Professor Mody highlights that in comparison to China, India has a long way to go in order to truly be considered an economic competitor, particularly in terms of the individual human level, with Professor Mody adding: “Chinese scientists have made significant strides in boosting the quantity and quality of their research, particularly in fields such as chemistry, engineering and materials science, and could soon take the lead in artificial intelligence.”
This is equally important when one considers the Modi government’s “Make in India, Make for the World” policy, which, as Ashley Tellis, Tata chair for strategic affairs and senior fellow at the Carnegie Endowment for International Peace, explained that the program depends heavily on critical technology and intellectual property transfers from the West, particularly the US. “Although the Biden administration seems inclined to be more liberal on this compared with its predecessors, only time will tell whether the initiative delivers on India’s aspirations for greater access to advanced US technology in support of Modi’s ‘Make in India, Make for World’ drive, which aims to transform India into a major global manufacturing hub that could one day compete with, if not supplant, China as the workshop of the world,” Tellis said.
In the Australian context, despite repeated domestic efforts and emphasis on building competitive sovereign industries, across defence, space, aviation, critical resources refining and a myriad of others, runs the risk of leaving Australia no better off than we are today, that is a farm and mine for other nations to perform truly value adding labour despite the domestic attempts to “reshore” and reindustrialise post-COVID-19.
Given the duality of the challenges facing both Australia and India, is it smart of Australia to double down our economic bet on India as opposed to truly diversifying our economic and industrial opportunities beyond falling into our tried and true methodology of putting all of our chips on one bet until the chickens come home to roost?
Final thoughts
It is increasingly clear that Australia needs to embrace its own attitude and variation of “transactional realism”, one where our policymakers view the world as it is, rather than as we would like it to be, based on a thorough understanding of the historic, cultural, and societal differences between the emerging and established powers of the Indo-Pacific.
After all, we can see nations across the Indo-Pacific, and indeed, more broadly on the global stage beginning to make decisions in their own self-interest, particularly in the aftermath of the COVID-19 pandemic and the impact on “just in time” global supply chains.
As the old saying goes, failing to learn from history leaves you doomed to repeat it. This is particularly important as Australia’s primary strategic benefactor, the US, continues to stagnate in comparison to the world’s emerging great powers like China and India, while other regional powers like Indonesia, the Philippines, Vietnam, and the like, continue to grow and exert their own influence and ambitions for the region.
This is not to say that Australia should go it alone. Our alliances have always allowed us to punch above our weight; we do, however, require a radically new approach to engaging with others, preparing ourselves for future challenges and clearly articulating and protecting our values and interests at home and abroad.
Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch
Stephen Kuper
Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.
