Foreign Minister Julie Bishop with senior BJP member Arun Jaitley in New Delhi, 18 November 2013.
The largest peacetime operation in world history is underway, with 815 million Indian voters heading to the polls between 7 April and 12 May in a nine-phase general election. Opinion polls are overwhelmingly tipping the Bharatiya Janata Party (BJP) to return to power after ten years in opposition.
Global media coverage of the race has centered on the BJP's candidate for prime minister, Narendra Modi, and his controversial association with Hindu nationalism. As the campaign rhetoric flies, international commentators have increasingly branded the election a verdict on the future of Indian secularism. But what impact, if any, will the BJP's predicted return to power have on India's relationship with Australia? While the world's media focuses on the colour and controversy of the race, officials in Canberra will be asking more prosaic questions. One particular concern, especially taking a shorter term outlook, is whether the next Indian government can address India's sluggish rate of economic growth and other nagging economic issues.
In the economic context, Canberra will probably welcome the BJP's strong showing in the polls.
The BJP's first stint in office saw the start of a booming trade relationship between India and Australia, with the value of two-way trade increasing from $3.3 billion in 2000 to $17.4 billion in 2012. India's high energy demands, driven by the expansion of manufacturing, meant that bilateral trade also progressed on very favorable terms of trade for Australia. While much of this Indian economic expansion came as a result of an extensive economic reform process that began in 1991 under a Congress-led government (and engineered to a large degree by the future Congress prime minister Manmohan Singh) the BJP is currently seen as the more reform-minded of the two parties.
The need for further liberalising reforms to the Indian economy has been at the centre of international reporting on India's economy in the last two years, as the Congress-led United Progressive Alliance (UPA) has struggled to keep India's economic rise on track. [fold]
The UPA has been criticised repeatedly during the campaign for having falles back on socialist-style measures such as subsidies and handouts to cope with rising prices. Food prices, in particular, have been a significant issue for Indian voters, and, along with slow employment growth, are responsible for much of the swing toward the BJP.
Officials in Canberra and Washington alike will be hoping that in the event of a change of government, the economic reform process will gain some much needed political momentum.
The Obama Administration, for example, has indicated that whoever wins the election this year must be proactive on the economic front to restore India's attractiveness as a site for international investment. Nisha Biswal, the US Assistant Secretary of State for South and Central Asia, recently highlighted excessive regulations, the slowing of India's economic growth and ongoing infrastructure problems as a deterrent to investors . This maintains Washington's line on the need for India to cut back on investment regulations, reduce trade protection, and improve transparency. Notwithstanding the fact that there has been a growing amount of Australian investment in India of late (a major deal was signed just last month between the Aditya Burla Group and Australian investment fund Hastings) Canberra's sentiments are most likely in line with Washington's: hoping for less regulation and more transparency.
The slow rate of Indian economic growth is also vexing issue for Canberra, since this reduces demand for Australian exports. India's annual growth has fallen by half in the last two years and is predicted hit a decade low of 4.9% in 2013-14. While international agencies are playing up India's chances of improved growth, most analysts agree that a return to 9% or more is unlikely, with around 6% a more realistic goal in the near term. Inflation has been a significant problem, hovering between 9% and 11%. This is despite the economic slowdown, which should have seen inflation fall as well. Canberra will he hoping that whoever gets into power can bring inflation under control and restore Indian growth, a complex task that may require the Indian government to do some deft politicking with India's powerful states and make some difficult trade offs between its economic objectives.
Australia will also be watching for signs that whoever forms the next Indian government makes a firm commitment to infrastructure development, both as a spur to demand for Australian exports and in terms of potentially lucrative contracts for Australian firms. Two years ago, the Indian government estimated that India's infrastructure required around US$1 trillion of investment to keep India competitive. International observers will be looking at the pace of infrastructure investment, and the soundness of Modi's infrastructure planning, as a guide to India's prospects for improving growth over a longer term.
Finally, officials in Canberra may be casting a thought towards the negotiations on a bilateral free trade agreement with India, which began three years ago and will not doubt take some years yet to conclude. Here, the BJP might not be so favourable. While high profile members of the party have endorsed the idea of exposing sectors like agriculture to more market forces, and even international investment, the BJP has historically been a vocal opponent of free tract pacts. Political issues, as always, add further uncertainty to India's economic trajectory.
Image courtesy of the Department of Foreign Affairs and Trade.
