India’s rise an answer to WA’s diversification challenge

11 Mar 2020
India’s rise an answer to WA’s diversification challenge
It is a great achievement for WA that international trade now contributes to half of the State’s economy, and our world-leading export industries create hundreds of thousands of jobs for Western Australians. Crucially, WA’s largest trading relationships are in Asia and across the Indo-Pacific region, the world’s most dynamic economic zone.
 
However, it is also an economic risk that half of WA’s trade is in one commodity, and half of the State’s exports go to one country. This risk is increasingly evident in an uncertain global environment, where trade and technology disputes, the impacts of climate change and the outbreak of communicable diseases can quickly disrupt the markets and supply chains WA relies on.
 
While minerals and energy production will continue to lead the State’s economic activity for decades to come, broadening the base of WA’s industrial activity remains the State’s essential economic task. This diversification priority has been appropriately articulated by the business community, the major political parties, and is a principal objective of the WA State Government.
 
In the current global environment, economic diversification for a trading State must increasingly mean market diversification just as much as it means sector diversification. The growth and dynamism of India, Indonesia and Vietnam is significant in this context, as these countries are predicted to contribute more to global growth over coming years than the US, the EU and Japan.
 
The challenge for WA in diversifying its trading partners involves answering not just the question of ‘with who?’, but also the question of ‘how?’. Because the major emerging economies in the Indo-Pacific do not necessarily need WA’s iron ore, or yet want in significant supply WA’s LNG, other sectors where WA has world class capacity must play a greater role.
 
This includes in the labour-intensive sectors of international education and tourism - where every four international students contributes one WA job, and spending by tourists in WA employs as many people as the mining sector.
 
This brings into focus the sheer opportunities generated by India, the world’s fastest growing major economy, and one predicted to match the size of China today by the end of this decade.  With minimal fanfare, India is now WA’s largest source of international students, and visitor numbers from India are growing well above broader growth rates.
 
The capacity of WA’s private and public sectors to work together to strengthen the WA-India economic relationship is evident – WA’s university engagement in the subcontinent is at a high-water mark, and inaugural investments marketing WA in India are delivering returns. As Australia’s only Indian Ocean-facing State, the rise of India provides WA with an answer to its economic diversification question.
 
There is a still a way to go to strengthen the WA-India relationship. Over the last ten years, as India’s economy has more than doubled in size, the value of WA’s merchandise trade with India has more than halved. And while India’s incremental reforms have improved its ‘Ease of Doing Business’ ranking by 67 places in the last three years, challenges remain for WA businesses seeking to invest in or export to India.
 
Notwithstanding last year’s dip, India’s high rate of growth is structurally-driven, and recent developments influencing the WA-India relationship are positive. The Federal Government’s implementation of the landmark India Economic Strategy is ongoing, and the Indian Central Government’s equivalent Australia Economic Strategy is scheduled for an early 2020 release.
 
Significantly, the WA State Government’s economic diversification strategies identify not only India at large, but in specific sectors also prioritised in the India Economic Strategy. A WA Parliamentary Inquiry is further investigating these opportunities, and there are indications the upcoming Australia Economic Strategy will recognise WA for its critical minerals, LNG and direct flight prospects.
 
Soon, 1 in 25 Australians will be of Indian origin. This includes skilled Indians who migrated to WA during the mining construction boom, and students currently in WA seeking new skills. Encouraged by this rich diaspora, WA will not ignore the soon-to-be world’s biggest country. However, the key for WA in strengthening the relationship is appreciating that overwhelmingly WA must go to India to be noticed, and not expect India to come to WA. The State has successfully developed major economic relationships from the ground up before - the onus is on WA to do it again.

Hugo Seymour is a Research Analyst at the Perth USAsia Centre.
 
This article recently appeared in The West Australian on 5 March 2020.
 
Its analysis is drawn from Hugo’s February 2020 publication Western Australia and India: The Need for a State Strategy to Recover and Grow the Economic Relationship
 

Authors

Hugo Seymour
Hugo Seymour
Research Analyst
Hugo Seymour is the Research Analyst at the Perth USAsia Centre. He develops content and publishes on Western Australia and Australia's engagement in the Indo-Pacific region.
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