Australia would like more opportunity to offer banking and investment advisory services in India as a component of a wider relationship in the service sector, according to Prof Ian Harper, Director, Access Economics Pty Ltd.

This would also counter Australia's dependence on primary sector trade with China, said the head of the Melbourne-based organisation, which is Australia's premier economic consultancy firm.

Regulation

Australia has a reasonably open system in financial and educational services and is not too concerned about importing these services.

While the RBI keeps a fairly tight rein on financial services in India, which is not a bad thing, the licensing arrangements are a ‘bit difficult to negotiate.' There are also State-by-State regulations that are a problem.

Australia, like India, has a well-managed financial system, and both had weathered the global financial crisis due to this management.

It would like easier access to India's market for banking and investment advisory services, Prof Harper said in an address to journalists on tour which was organised by the Department of Foreign Affairs and Trade, Government of Australia.

Benefits

Closer links between the two would benefit India given Australia's technology and expertise in service sector including agricultural services.

Such a relationship is also crucial to Australia's economy which is skewed by its trade with China, even if it is beneficial in the short term. Australia's export of resources to China supports Australia's ‘first world' standards of living but does not bode well in the long term, a sentiment shared by many policy makers, says Prof Harper. But “Australia could be a burnt out hulk” in the years to come.

Over-valued exchange rate

Also, the boom in commodity exports ‘hollows out the rest of the economy.'

It makes life difficult for the exporter of services and manufacturing with the over-valued exchange rate.

Fair value of the Australian Dollar on purchasing power parity is about (US$) 75 cents but is now around $1 and can stay over valued for 30 years.

Exchange rate intervention would not work as it has in the past because of the duration of upswing anticipated.

“Australia could be staring down the barrel of half a century of economic development of China and India as they emerge and over 50 years the Australian economy could be hollowed out,” he said.

Strengthening ties with India would give it better balanced and sustainable development.

As the Indian middle class grows they are going be interested in higher quality services, retail, medical and education.

The main point is that Australia has a lot, riding on its economic relationship with India primarily because it can help neutralise the potential tension inherent in economic relation with China.

Related Topics