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Can Australia get smart in India?

By Trevor Cook - posted Wednesday, 9 March 2005


Wayne Swan, Labor’s Shadow Treasurer charged with restoring his party’s economic credibility, told a Fabian Society seminar in Sydney last week that Australia was “in danger of becoming the lucky country again, led by ... growth in countries such as China (that) will let us recline once more and simply export more minerals and energy to pay for imports”.

Australia has been both blessed and cursed by its natural resources. For the past few decades, we have relied on growth and industrialisation in Japan, Korea, China, and just recently, India to pay for our high-value imports.

Without those big mineral resource deposits - particularly coal and iron ore - our per capita standard of living would be more like New Zealand’s. On the other hand, our over-reliance on commodities has been partly responsible for our average incomes falling behind those in many other developed countries in Europe and North America.

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Given our strong historical ties and cultural affinities with it, India would seem to offer Australia its best chance yet to move beyond commodity supplier into a genuinely broad-based integration with an emerging economic powerhouse: Something that might finally break the pattern of our economic past.

Currently, China is Australia's No.3 trading partner, No.2 export market and No.3 source of imports. India is our 6th largest merchandise export market and 13th largest trading partner. To keep it all in perspective, Japan's imports from Australia are still worth double that bought annually by China.

India may not exceed the growth rates recorded by China in recent years but India is likely to experience higher growth in the next 20 years while China will struggle to maintain its high growth rates.

Between 1980 and 2003, China's economy grew at an average rate of 9.5 per cent a year, against 5.7 per cent in India. China's real GDP per head (in constant domestic prices) rose faster than that of any other economy, while India's was ninth-fastest. At common international prices, China's real income per head rose by 300 per cent over this period, while India's increased by 125 per cent.

One major constraint facing China is its workforce which, due to the one-child policy, will start to diminish and age while India’s workforce will expand and retain a younger profile, as well as overtaking the Chinese population in sheer size. Currently, over half of India's population is under 25.

According to the UN's latest World Population Prospects, there will be 1,395 million people in India in 2025 and 1,593 million in 2050. In China the population will grow to 1,441 million by 2025, before dropping to 1,392 million in 2050.

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India's well-entrenched democratic institutions may also help it assimilate the aspirations of a growing middle-class far more readily than China, which is yet to show that it can make a successful transition from communism. An India Times editorial in February put it neatly: “It is almost certain that India's economic numbers will catch up with China's soon. It is far less certain whether China will ever catch up with our open society.” Finally, India is already a world leader in some knowledge-intensive industries like information technology and its pattern of development will be very different to China’s.

So far, however, our trade with India seems to be replicating our experiences with other Asian growth miracles.

Australian exports to India grew by 62 per cent in 2004 (and over 400 per cent in the past decade), reaching A$5.42 billion. Much of this growth, however, has come from India's demand for raw materials, such as gold, coal, copper, wool, and more recently, fresh fruit and vegetables.

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About the Author

Trevor Cook is currently a Phd student in politics at the University of Sydney. He blogs at Trevor Cook.

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