A ‘literacy’ problem

Financial Express, July 24, 2023

By Pradeep S Mehta & Amit Dasgupta

The recent strengthening of India-Australia relations will see another booster this year—the signing of the Comprehensive Economic Cooperation Agreement (CECA). ECTA or the Economic Cooperation and Trade Agreement has already come into force on December 29 last year.

The aspiration is to reach $100 billion in two-way trade, from $25 billion, over a five-year period. The two-way trade has been valued in 2022 at $46.5 billion and may well reach the $100-billion mark much ahead of schedule, and perhaps, even exceed it.
While this is an exciting development, its continued success depends entirely on how the business community from both countries take advantage of the Agreement. Historically, disinterest and apathy have been defining characteristics of how Indian and Australian industry has approached each other’s markets.

For the Australian business community, for instance, India has never really been on the radar. India was perceived as a complicated country with unfriendly business rules aimed at deterring foreign investors. Corruption, bureaucracy, delays in the legal system, a lack of infrastructure, supply chain issues, entry and exit policies, fuzziness on repatriation of profits, GST, a puzzling federal system, to name a few, were among the key disincentives that no one wished to navigate. Coupled with this was the resistance from Indian business itself and its aversion towards foreign competition. For the Australian investor, entering the Indian market was overwhelming and fraught with risk.

There was another factor—China, Australia’s largest trading partner with annual two-way trade amounting to $250 billion, with an astonishing 35% year-on-year growth. According to a report, co-authored by KPMG, in 2022, Chinese investments in Australia stood at $1.4 billion.

Significant Chinese investments in property, education, and luxury goods helped boost Australia’s growth. Every major Australian city has a Chinatown, and several upmarket precincts are dominated by Chinese residents. Universities, including the Group of Eight, relied predominantly on Chinese students for their revenue stream. For Australian business, there really was no appetite to look for alternative markets. When they looked at India, they found it falling short.

However, over the past few years, the Australia-China relationship has soured. Chinese interference in Australia’s domestic affairs, including attempts at influencing electoral results, concerns related to intellectual property theft, China’s role in the spread of Covid-19, aggressive Chinese policies in the South China Seas, Hong Kong, Taiwan, and in the Indo Pacific, to name a few, have led to anti-China sentiments.

China’s threatening rise and its aspirations to replace existing power equations have caused widespread dismay. Canberra has reached out to make new friends, while aligning with Washington to talk tough with Beijing. The business community has been pressured to diversify its trading partners and diminish its lopsided dependence on China. Thus, India has emerged as the perfect choice.

It is relevant to point out that Indian businesses, like their counterparts in Australia, suffer from a pronounced reticence to engage with the Australian market. Over several years, delegations led by India’s apex chambers had only superficial interest in exploring diversified product exports to Australia. Most argued, with little knowledge, that a 20-million population was unattractive.

Distance, stringent quality assurance requirements, and technical standards were cited as barriers. None of the chambers studied the Australian market and were driven by risk averse conservatism. Their comfort zone was rooted in the support they lobbied from government and, indeed, received on protection from external competition.

This is set to change because both Canberra and New Delhi are committed to trade emerging as a defining pillar in the expanding bilateral relationship. To succeed rapidly and in line with stated milestones would require a transformative shift in mindset for the business community of both countries. Australian business needs to rethink its singular dependence on China. This will have challenges if it is presumed that India will seamlessly and quickly become a substitute for China.

Indian business needs to reimagine how it can seek out global markets and invigorate trade. They need to recognise that Australia has a cost of living that is almost 60% more than India. Standards and quality assurance are integral to the Australian system. The argument about physical distance is a flawed one.

The change is mindsets is critical to the success of CECA. The current driving narrative of business from both countries is limited knowledge about each other’s markets and of ingrained misperceptions. Added to this is the lack of knowledge about business and company law, the diverse social system, and ways of doing business. This ‘the literacy gap’ that needs to be urgently addressed.

Years ago, in preparation for the WTO Doha Round and beyond, a tripod of stakeholders had been put together drawn from government, business, and think tanks in the form of the National Advisory Committee on International Trade (of which Mehta was a member). This helped craft informed interventions that ensured that, unlike earlier years, the Global South led by India were able to protect their national interests. A similar intervention is once again required to bridge the literacy gap and help business do business effectively and efficiently. The urgency of achieving this cannot be overemphasised.

Writers are respectively, secretary general of CUTS International, and distinguished fellow, CUTS International and the Australia India Institute.

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