India’s large and young population coupled with a strong growth trajectory present significant opportunities for Australian business. Real GDP has expanded by an average 7.7% p.a. and per capita incomes have increased by 115% over the past 10 years to surpass US$1,600 in 2015. However, despite recent progress, per capita income and the business climate significantly lag regional peers.
India’s growth is expected to rise to its medium-term growth potential of about 7.5% once recently approved investment projects are implemented and global growth improves. The OECD project a pick up in private consumption driven by an expected large increases in public wages and declining inflation. Investment will pick up gradually as excess capacity fades, deleveraging continues for corporations and banks, and infrastructure projects mature.
Per capita income has risen from around US$750 to almost US$1600 over the past decade. But India is still well below the regional average and gains have been unequally distributed. India’s current per capita income ranks it only 142th in the world — behind Djibouti, Solomon Islands and Laos.
India enjoys an investment grade credit rating and an OECD country credit grade of 3. This suggests a relatively low likelihood that it will be unable or unwilling to meet its external debt obligations in a systemic sense (though, needless to say, individual debtors can and do default).
The World Bank’s ease of doing business gauge — which measures regulation and red tape relevant to a domestic small to mid-sized firm — ranks the Indian business climate 130th out of 189 economies, a minor improvement from 2013 where it ranked 134th. Enforcing contracts, paying taxes, starting a business, and gaining construction permits are particularly difficult. India’s business climate lags its BRIC peers — Brazil 116th, Russia 51st and China 84th — and the regional average on most indicators.
The World Bank ranks India in the second bottom quartile for three dimensions of governance: control of corruption, regulatory quality, and government effectiveness. India scores in the lowest quartile for political stability and absence of violence.
India is currently our 5th largest export partner. Australian exports to India were worth A$12.7b in the 2015 financial year, up 21% from a year earlier. Minerals and fuels (majority of which are coal and gold) still account for over 70% of Australia's merchandise exports to India. But agricultural exports are starting to become increasingly significant driven by exports of fresh vegetables, fruit & nuts. Imports from India were worth A$5.3b in the 2015 financial year and were predominantly comprised of refined petroelum and medicines.
Service exports to India totalled A$2.9b in 2014-2015. India is our second largest source of student’s after China, accounting 11% of foreign enrolments in 2015—90% of Indian students are either enrolled in higher education or VET sectors.
India is also an important source of tourists. There were 219,000 visitors from India in 2015, up 21% from a year earlier.
The stock of Australian investment in India is relatively small — A$10b in 2015 or 0.5% of total Australian investment abroad. But this rose 8.4% in 2015. Nevertheless, the US ($594b) and UK ($353b) remain the leading destinations for Australia’s foreign investment. The stock of Indian investment in Australia is also small — around $11.6b in 2015, or 0.4% of total.