Statistics provided by the Directorate General of Commercial Intelligence and Statistics (DGCIS) in India support this expectation. The latest country-wise trade data giving information until the first three quarters of the financial year 2009-10 shows Australia as India’s eighth largest goods trade partner. With bilateral trade amounting to $9.7 billion for the period, Australia accounted for about 3 per cent of India’s total goods trade. India’s trade with Australia, however, is much less than its trade with its top three partners; China ($29.9 billion), UAE ($28.4 billion) and the US ($25.1 billion). During 2008-09 Australia’s share in India’s total trade was 2.6 per cent.
The balance in bilateral goods trade is in Australia’s favour.
Almost 90 per cent of India’s bilateral trade comprises of imports from Australia. Switzerland is the only other country among India’s top ten trade partners with which India’s trade shows a greater proportion of imports (95.7 per cent). In this respect, imports dominate India’s trade with Australia and Switzerland much more than with China.
The imbalance in India-Australia trade is hardly surprising. It reflects India’s dependence on Australia as a vital source of energy and mineral resources. Coal accounts for more than 45 per cent of India’s total imports from Australia. Semi-manufactured non-monetary gold is another vital import. Taken together, coal and gold comprise more than 85 per cent of India’s annual imports from Australia. Gold and coal trading between Australia and India have a long history, with the first Australian ship carrying coal hitting Indian shores more than two centuries ago.
What is the future for India’s trading relationship with China and Australia?
India’s trade deficits with China and Australia are unlikely to reduce in the foreseeable future. Imported components from China will continue to remain an efficient source of intermediates for Indian manufacturing. As Indian manufacturing picks up momentum in the coming months, imports of machinery and equipment from China are expected to see a corresponding increase. Similarly, import of coal from Australia is going to increase as Indian industry continues to grow. Increased industrial activity will increase demand for electricity. With most of India’s electricity plants being coal-fired thermal units, coal will be in heavy demand. Initial estimates indicate that coal imports might increase to 50 million tonnes (mt) in the financial year 2010-11 from 28 mt in 2009-10.
It is ironic that, despite having the world’s fourth largest coal reserves, India’s power plants rely heavily on imported coal. Supply of domestic coal is affected by Maoist activities in India’s coal-rich states of Orissa, Chattisgarh, Jharkhand and Madhya Pradesh. Most private power producers are finding imported coal an easier option instead of sourcing it domestically. The public sector giant Coal India Limited’s domestic procurement has also run into difficulties, thereby affecting the outputs of state-owned power corporations.
And as for gold, it is unlikely imports of gold will decline, given India’s insatiable domestic demand. Going by the Sterlite Industries’ acquisition of a Queensland gold mine and copper mines in Tasmania, Australia may be a happy hunting ground for India’s gold and mineral prospectors.
It is important to understand that trade is a two-way street. In a globalised world, producers will resort to imports on price and quality grounds as long as such options are available. India’s industrial producers are not an exception. India’s trade imbalances with Australia and China are outcomes of rational responses. Such imbalances will continue until India can offer its industrial producers home-grown alternatives of the same quality at competitive prices.
Amitendu Palit is a visiting senior research fellow at the Institute of South Asian Studies (ISAS) in the National University of Singapore (NUS).