The Struggle to Maintain Momentum in the Australia-India Partnership

In late November 2014, in the flurry of foreign visits that marked his early months in power, Narendra Modi became the first Indian prime minister in almost thirty years to make an official trip to Australia, and only the third in history.¹ Over four days, he attended the G20 summit in Brisbane, addressed a joint session of parliament in Canberra, and engaged with large gatherings of the Indian diaspora in both Melbourne and Sydney. It was a whirlwind tour and remarkably successful. Australian politicians, businesspeople, and the media met Modi with a mix of curiosity and enthusiasm, despite his checkered history. The diaspora, for its part, greeted Modi rapturously. In Sydney, where he gave a characteristically expansive speech lasting fully ninety minutes, a capacity crowd of 16,000 expatriate Indians chanted his name when he appeared on stage and cheered throughout his address.²

In his remarks to the Australian parliament, Modi was also effusive, if more concise. He waxed lyrical on the evolving “natural partnership” between Australia and India, as well as on the shared histories and sporting enthusiasms of both countries. For New Delhi today, he observed, Australia was no longer a “distant land on the southern edge of the world.” Rightly, the country is now perceived as a key part of India’s region and a “vital partner in India’s quest for progress and prosperity.” In many areas of priority, from education and skills to healthcare and infrastructure to energy and agriculture, Modi argued, Australia can play and is playing a major part in India’s social and economic development. He called on the two to work more closely on regional security as well and to coordinate their diplomatic agendas in regional and global institutions like the EAS and G20. From now on, Modi concluded, “Australia will not be at the periphery of our vision, but at the center of our thought [sic].”³

For the most part, these claims rang true. When Modi came to office he inherited an Australia-India “strategic partnership” that had been painstakingly constructed, practically from scratch, over the previous decade. Prompted initially by the need to work together more effectively on counterterrorism, back in the early years of the fight against al Qaeda, the partnership soon broadened into other areas. In a relatively few years, Canberra and New Delhi conjured into being a complex web of high-level bilateral dialogues, inter-agency meetings, memoranda of understanding, and framework agreements facilitating intelligence sharing, defense industrial collaboration, and joint exercises. Both sides also worked hard – though to less effect – to encourage trade and investment, to open Australian universities and colleges to Indian students, and to build research collaborations. And in so doing, the two countries overcame several decades of drift, mutual neglect, and periodic misunderstanding in their relations, and set aside a number of contentious issues.⁴

The Modi effect?⁵

Modi’s first six months in power saw two significant steps in strengthening this partnership still further – and promised a third. In September 2014, Tony Abbott travelled to New Delhi to meet the new Indian leader and sign a civil nuclear agreement that would facilitate sales of uranium. Two months later, during Modi’s visit to Australia, the two sides inked a wide-ranging Framework for Security Cooperation that rationalized and extended a series of earlier defense and security deals.⁶ Among other things, this new framework committed Australia and India to annual prime ministerial summits and a series of other regular high-level dialogues. Finally, while still in Canberra, Modi promised to ensure that negotiations for a free trade deal – the so-called Comprehensive Economic Cooperation Agreement (CECA) – would be concluded by the end of 2015.⁷

The CECA was not concluded. After nine rounds of talks, in September 2015 the decision was taken to suspend negotiations, with the two sides apparently far from a mutually satisfactory agreement. More broadly, as the excitement of Modi’s visit faded, progress in building the bilateral partnership slowed, despite the Indian prime minister’s new, more pragmatic approach to international relations and despite a convergence of strategic interests brought about by an increasingly assertive China.⁸

By the time the CECA negotiations were suspended, it was clear that momentum had been lost in at least some parts of the strategic partnership, and that both sides were struggling to restore it. And although subsequent major statements of policy, such as Australia’s 2016 Defence White Paper, voiced official enthusiasm about the relationship and its potential, they lacked a clear sense of how best to push the relationship forward, beyond adding more military exercises and ministerial summits into an already crowded calendar.⁹ After Modi’s visit, Australia and India did enter into some significant arrangements – notably, agreeing to hold annual foreign and defense minister 2+2s and reviving the so-called “Quad” mini-lateral in late 2017 along with Japan and the United States – but in retrospect it is clear that, in the years since, some of the steam had come out of the partnership.

Several factors account for this loss of energy – and, I argue, continue to hold things back. The first is the apparent inability of both to advance the economic relationship to where many think it ought to be. Despite significant growth in bilateral trade and investment during the 2000s, both lag far behind what is possible, leaving the relationship without what some Australian analysts consider necessary “ballast.”¹⁰ The second is institutional and to some extent generic, or not specific to this particular bilateral relationship. It relates to the size and foci of Australia and India’s respective foreign policy and national security bureaucracies, and their (in)ability to concentrate sufficient attention and expertise on each other’s concerns and interests. The third concerns the nature of the Modi government, which while much more stable in terms of peak leadership than Australia’s recent administrations, is centralized to a degree arguably unprecedented in India’s modern history, with both positive and negative consequences. The fourth is the persistent messiness of Australian domestic politics and the lack of a bilateral consensus on aspects of the partnership. Since 2007, Canberra has seen six different prime ministers, five foreign ministers, seven defense ministers, and six trade ministers, and all of the disruption to policymaking and implementation that accompanies such political churn. The last is the persistence in both Australia and India of misperceptions of the other’s intentions and capabilities, especially regarding China’s challenge to regional order.

Economic ballast

Efforts to try to stimulate economic interaction between Australia and India date back at least to the mid-1970s, when a trade agreement was concluded between the governments of Malcolm Fraser and Indira Gandhi.¹¹ That deal, however, set something of a pattern, raising hopes – especially on the Australian side, particularly after it began to open up its economy in the early to mid-1980s – and then disappointing expectations.¹² India’s significant barriers to trade and investment have long deterred Australian businesses and financiers, while the persistent imbalance in the economic relationship, with Australia exporting more to India than India does in return, irritates New Delhi.

The other patterns to emerge during the 1980s and persist thereafter were an imbalance in political and diplomatic commitment to build the economic relationship, and a perception on Australia’s part that for all the work it was doing, it was receiving scant reward. From Bob Hawke onwards, all Australian prime ministers have spoken of the “potential” for strong trade and investment ties – as Hawke did during Rajiv Gandhi’s visit in 1986 – and all have introduced initiatives to try to realize it, but none have seen their plans come to fruition in the way they had hoped.¹³ In some sections of Australia’s political and business elites, this has generated what Hawke’s industry minister, John Button, once frankly described as a “sense of hopelessness and frustration” at how hard doing business can be in India.¹⁴

Of course, progress has been made in the past twenty years in growing bilateral trade and investment. Australian businesses and investors were slow to capitalize on the opportunities created by the sweeping economic reforms put in place by P. V. Narasimha Rao’s government in the early 1990s, but in the following decade, things began to change.¹⁵ Between 2000 and 2009, the value of two-way trade in goods and services grew from 3.3 to 20.9 billion Australian dollars.¹⁶ Thereafter, however, it plateaued. In 2016, bilateral trade stood at A$21 billion, only a fraction higher than where it was seven years earlier. That figure did tick up to A$27.5 billion in 2017, due mainly to a substantial increase in Australian exports, but India still remains outside Australia’s top five trading partners, despite being a top five economy in global terms. India is ranked only 9th, behind the top three in bilateral trade of China (A$155.6), the United States (A$64.3), and Japan (A$61 billion).¹⁷ Overall, India accounted for only 3.6% of Australia’s trade in goods and services, compared with China’s 24%.¹⁸

Despite considerable effort to change such views by both the federal and state governments in Australia, the widespread perception that India is a difficult place to do business is reinforced by such figures, and by easy comparisons made with the Chinese or other East Asian markets.   And these problems are compounded by the view that New Delhi – and Indians more widely – do not take Australian complaints about the difficulties they encounter, or about the tariff and regulatory barriers they face, sufficiently seriously. Among some Indian officials and businesspeople, the argument is sometimes expressed that Australian businesspeople simply do not try hard enough to understand local ways of doing things, and that if they cannot, a fast-growing, increasingly rich India will attract traders and investors from elsewhere who can.¹⁹ More substantively, the Indian side remains concerned that the economic relationship with Australia is imbalanced, to India’s disadvantage, and could become more so, under mooted bilateral or multilateral free trade agreements, whether that be the CECA or indeed the ASEAN-centered Regional Comprehensive Economic Partnership (RCEP). Above all, New Delhi fears competition from Australia’s agricultural sector, whose scale and efficiency contrasts starkly with that of India’s staunchly protected and highly vulnerable primary producers.

For all these persistent difficulties and disappointments, however, there are signs that Australia is becoming more realistic and deliberate in this dimension of the bilateral relationship. In May 2017, conscious that the CECA process had stalled, Canberra commissioned Peter Varghese, the former High Commissioner and secretary of the Department of Foreign Affairs and Trade (DFAT), to produce a substantive report that might be used as the basis for what became known as an “India Economic Strategy to 2035.” Varghese more than fulfilled his brief, delivering a 500-page tome detailing all aspects of the economic relationship and potential future opportunities.²⁰ The report was frank: it noted that there was a lack of complementarity in a number of sectors of the two economies, and that Australia was not well positioned to deliver in key areas New Delhi has identified as priorities for investment or development. It stated quite baldly that India was not the “next China” and should not be considered as such. It provided a fine-grained sector-by-sector analysis of what government and businesses might do to try to boost trade and investment even in the absence of a free trade deal. And just as importantly, it signaled loudly and clearly to India that Australia is serious about the economic side of the strategic partnership and is prepared to put in the work to develop it.

Whether the Varghese report succeeds in building economic ballast in the relationship is yet to be seen. After an odd, fumbled launch – late on a Wednesday evening, without an accompanying press conference, which led to suggestions that it might be shelved – it has been pushed hard by Australia’s missions in India and drawn upon in the reconstruction of both federal and state-level plans for economic engagement.²¹ It has also gained the support not just of the current government, but also of the Labor Party, which will likely win the upcoming general election. However, advancing bilateral trade and investment continues to depend to a large degree on the openness of the Indian market and the desire of New Delhi to bring about further reform.

Institutional limits

India has one of the smallest and most stretched foreign and security bureaucracies in the world.²² Despite recent efforts to bolster the Indian Foreign Service (IFS), it consists of only about 3000 staff, of which around 900 are in the elite cadre from which senior Ministry of External Affairs (MEA) officials and diplomats are drawn. By comparison, DFAT, representing a country of around 25 million compared to India’s 1.3 billion, employs about 6000 staff in Canberra and overseas.²³ For bilateral relationships beyond the truly major ones – in India’s case, with China, Pakistan, Russia, and the United States; in Australia’s, China, Japan, the United States, the Pacific states, especially Papua New Guinea, and Southeast Asia – this issue of institutional size matters. The MEA has very limited resources that it can devote to managing ties with Australia. Its Southern Division, which oversees those ties, also handles India’s relations with fourteen other states in Southeast Asia and the Pacific, including important partners like Singapore and Vietnam, and does so with only a handful of dedicated officers.²⁴ As a result, and for entirely understandable reasons, Australia’s representatives in New Delhi have long found it hard to seize and hold the attention of those parts of the MEA that are their primary points of contact with the Indian state.

To make matters more complicated, there are also institutional problems on the Australian side. Canberra has for some time appointed very senior and highly respected high commissioners – as ambassadors are known within the Commonwealth – to New Delhi. Peter Varghese, Australia’s envoy from 2009 to 2012, is the classic example: prior to going to New Delhi he was the director of the peak intelligence agency, the Office of National Assessments, and when he left the job, he became Secretary of DFAT, its highest-ranking public servant. Canberra has also been assiduous in arranging regular visits to India by senior politicians, from the prime minister down. Since 2000, there have been no fewer than six prime ministerial visits and many more by leading ministers and other high-level delegations.²⁵ But within its own ranks, DFAT has struggled to build India expertise beyond a few highly experienced and talented officers. Despite Australia’s great push, from the 1990s onwards, for what is awkwardly titled “Asia literacy,” comparatively few of its diplomats have a deep interest in India and knowledge of at least one of its languages. The number with experience of China, Japan, or Southeast Asia matched with relevant language skills is far greater.²⁶ This problem is sometimes explained away with the observation that most Indian politicians and officials, at least at the national level, are proficient in English.²⁷ But this situation is changing – and under the present Hindu nationalist-led government it has already changed quite substantially – as preferences for India’s various vernacular languages are institutionalized, and leaders emerge whose English is weaker than that of earlier generations.²⁸

Modi’s methods

Modi came to power saying little about foreign policy beyond attacking his principal opponent, then-prime minister Manmohan Singh, for travelling too little, missing too many major summits, and – above all – failing to defend India’s national interests with sufficient vigor. Under Singh’s government, Modi’s allies claimed, “New Delhi punched substantively below its weight in pushing through its foreign policy objectives,” appearing “side-lined in the international arena.”²⁹ The new prime minister’s globetrotting in the first eighteen months of his administration was intended to restore India’s image and to work on neglected relationships, including those with the United States and its partners and allies, like Australia.

For a while, this worked, to an extent. But in parallel, Modi also concentrated foreign and security policy-making in a small inner circle in the prime minister’s office – a group that included the national security advisor Ajit Doval and, especially when S. Jaishankar held the post, the foreign secretary, the head of the MEA.³⁰ Many analysts observe that his foreign and defense ministers were relegated to playing lesser roles than they have in earlier governments, as major international initiatives and summits were handled by the prime minister, supported by his office.³¹ Critics argue that the norms of cabinet government have been ignored under Modi, as major decisions – such as the reversal of position on a multilateral trade facilitation arrangement in November 2014, the controversial move to buy 36 French Rafale jets in April 2015, or the sudden commitment to sign a military communication treaty with the United States in November 2018 – are made by the prime minister more or less alone, with little reference to other ministers or their advisors.

This highly centralized form of government has its advantages. It has allowed Modi to remove some logjams, especially concerning relations with the United States.³² But for lesser powers like Australia, already struggling to pin down the relevant officers in the MEA, it makes managing bilateral ties challenging. To be sure, Australia does have more opportunities than many states to engage with Modi and his ministers, as it is a member of the G20 and regional bodies like the EAS. Since 2017, it also has the 2+2 meetings of foreign and defense ministers, and in the background, a series of high-level officials’ meetings both bilateral and mini-lateral, including the annual Australia-India-Japan trilateral, running since 2015, which involves the heads of foreign ministries. But given that all major decisions in Modi’s government are made by Modi and his close advisors, there are limits on what can achieved by such means.

Canberra’s chaos

Since well before Modi took office in May 2014, the bilateral relationship, like many others, has also been shaped by the tediously frequent upheavals that characterize Australian domestic politics and disrupt foreign policy. Since John Howard lost the 2007 general election, Australia has had six prime ministers in barely twelve years and will likely have another by the middle of 2019. In two cases a new leader emerged from the result of an election: Kevin Rudd led the Labor Party to victory in 2007 and Tony Abbott steered the Liberal-National Party coalition to a win over Labor in 2013. The other four changes came about because of internal party coups, as embattled prime ministers were undermined and overthrown by rivals on their own side of politics. Julia Gillard replaced Rudd in that way in 2010, only to be pushed aside in 2013 for Rudd’s brief return to the job; Malcolm Turnbull replaced Tony Abbott in 2015, only to fall victim to another internal coup in 2018, from which Scott Morrison emerged as leader. Each of these transitions of power was accompanied by changes in foreign, defense, and trade ministers, and their principal advisors, as well as key public servants managing those areas.

Predictably, all of this instability has led to disruption in policymaking and implementation, including in some cases reversals of earlier positions taken by Canberra. Over this period, moreover, bipartisanship on the big issues of foreign policy – always a polite fiction – has been stretched thin, if not actually to the breaking point, within and between the major parties.

The Australia-India relationship has fallen victim to some of the effects of this churn, generating the perception in some quarters in New Delhi that Canberra is not a wholly reliable partner. Two episodes stand out: the volte-face over Australia’s participation in the Quadrilateral Security Dialogue, as it was in 2007-08, and the sharp shifts in policy concerning the ban on selling uranium to India between 2007 and late 2011, when it was finally lifted. Of the two, the Quad debacle was arguably the more damaging. In May 2007, in the dying days of John Howard’s Liberal-National coalition government, Australian officials attending the EAS in Manila joined American, Indian, and Japanese counterparts for a mini-lateral meeting on its sidelines. The meeting had no formal agenda, but despite that (or perhaps because of that), speculation ran wild that the Quad was discussing means of constraining or even containing China. Either way, Beijing issued formal protests to Canberra, New Delhi, Tokyo, and Washington, and the meeting generated much angst amongst politicians, academics, and analysts, who worried it was unduly provocative. The fact that it was followed by a quadrilateral naval drill – an expansion of the annual US-India Malabar exercise – reinforced that perception for some.³³

The Quad began to fall apart after Shinzo Abe’s loss in the September 2007 general election, the Japanese leader being one of its strongest proponents. But it was Rudd government’s decision to rule out further meetings that put an end to the initiative. In February 2008, with his Chinese counterpart Yang Jiechi at his side, Rudd’s foreign minister Stephen Smith told a press conference that Australia would not attend the Quad again. This move was not unexpected – Rudd and his colleagues had earlier publicly criticized the mini-lateral – but it was done apparently without internal review or consultation with the other participants.³⁴ All of this – and the poor optics of the announcement, made with a senior Chinese official present – irked New Delhi. Partly as a result, the Australian navy has not been invited to subsequent iterations of Malabar.³⁵ And more broadly, Canberra’s pullout generated the impression that Australia was both a fickle partner and one beholden to Beijing, because of the scale of its exports to China.

The second episode conveyed the same impression to some in New Delhi. In August 2007, Howard’s government agreed to lift the long-standing ban on uranium sales to India, imposed because New Delhi refuses to sign the Nuclear Non-Proliferation Treaty. After Rudd came to power, however, this deal was in principle set aside, as the Labor Party tried to reassert its internationalist credentials. New Delhi was not at all pleased by this development.³⁶ It had long argued that it was hypocritical of Australia to sell uranium to authoritarian China, which some allege has a questionable record on nonproliferation, but not to democratic India, which has never been accused of exporting sensitive nuclear or missile technologies to other states.³⁷

The uranium ban was finally dropped in late 2011, after Rudd’s political defenestration by Gillard. Most observers agree that its removal was crucial to advancing the strategic partnership, but like the issue of the Quad, it left the impression that Canberra could be fickle, that elements of the Australian political elite did not take India as seriously as they should, and that there was in some quarters an ingrained preference for satisfying Chinese interests over those of other partners. Reports of close ties between parts of the Australian Labor Party and prominent ethnic Chinese businesspeople have reinforced the latter impression.³⁸

Mutual misperceptions

To each other and to the wider region, Canberra and New Delhi now regularly affirm their “common values” and shared vision of an “open and inclusive Indo-Pacific.”³⁹ There is no question, moreover, that the two understand each other better now than they did a decade ago. But at the same time, misperceptions and misplaced anxieties about the other persist in both countries and undercut attempts to strengthen the strategic partnership.

Ironically, given that China’s assertiveness has been one of the main factors leading to a convergence of Australian and Indian strategic interests, many of these issues concern it and the relationships each country has with it, filtered through long-established ways of seeing the world. On the Indian side, the anxiety lingers that Australia’s economic ties to China may prevent it from taking stronger stands towards China, should they be needed. This view, which stems in part from deep-seated beliefs about economic dependence and political independence running back to the nineteenth century, and in part from a reading of more recent events, like the Rudd government’s abandonment of the Quad, underpins the argument that New Delhi ought to be wary about aligning itself too closely with Australia.⁴⁰ These views, combined with the perception that Australia does not have the size, status, or clout to merit too much Indian diplomatic investment, unlike – say – Japan or the United States, remain widespread in some quarters.

On the Australian side, equally problematic beliefs live on in parts of the government, academia, and the media. One is that for all the work that has been done to construct strategic partnerships with Australia, Japan, and the United States, if pushed by Beijing, New Delhi is too weak to stand up to China in meaningful ways or simply unwilling to bear the potential costs.⁴¹

Conclusion

It is possible that Modi’s party and its allies will win the upcoming election in India and that the new government will embark on a round of economic reforms that open up the country’s markets and restart negotiations on a raft of free trade deals, including CECA. It is not, however, very likely, given the populist and protectionist policies that Modi’s administration has implemented for most of its time in office. As a result, broadening the Australia-India strategic partnership beyond where it is now, with its relatively robust and improving political and security ties set against a lack of economic ballast, and regaining some momentum in strengthening bilateral ties, will remain difficult. The Varghese report recognizes these challenges, and the incremental, realistic approach that it lays out is the most sensible approach Australia can take under the circumstances. But whether it generates sufficient enthusiasm on the Indian side, among the political elite and the business community, is not yet obvious.