Jacinta Allan’s first international trip as the Premier of Victoria comes at a crucial time, with the state seeking to strengthen its economic ties with India, one of the world’s fastest-growing economies. As China, Victoria’s largest trading partner, faces economic turbulence, Allan’s visit, starting this weekend, offers a timely opportunity to diversify the state’s trade relationships. She is expected to visit key cities like New Delhi, where she will inaugurate the University of Melbourne’s new ‘Delhi Global Centre.’ Her mission to India aims to tap into this rapidly growing global player as Victoria contends with economic challenges at home, including the federal government’s international student cap.
India: The Emerging Economic Powerhouse
India is essential to Victoria’s future. India is already Australia’s sixth-largest trading partner, with two-way trade in goods and services reaching $46.5 billion in 2022, according to the Department of Foreign Affairs and Trade. While China remains Australia’s largest partner, India’s rapid economic growth, youthful population, and diversified economy present a critical opportunity for states like Victoria to spread their trade relationships more broadly.
In FY 2022-23, Victoria’s trade with India was valued at $2.9 billion, with $719 million of that in exports. Although this is a fraction of Australia’s total trade with India, it highlights the state’s growing relationship with the country, particularly in sectors like food and fibre, education, and digital innovation. India is also the largest source of international students for Victoria, making education a vital part of this bilateral relationship.
Education at the Heart of Allan’s Mission
Education is the focal point of Jacinta Allan’s trip to India, especially as Victoria navigates the federal government’s cap on international students. Prior to the pandemic, international education was Victoria’s largest services export, generating around $13.7 billion annually, with Indian students playing a major role in this sector. Allan’s visit aims to reassure Indian students and their families that Victoria remains a welcoming and accessible destination for education, despite the new federal policies.
University leaders, such as Michael Wesley, the deputy vice-chancellor at the University of Melbourne, have expressed hope that Allan’s visit will send a positive message to India amid concerns over the potential fallout from the federal student cap. Maintaining a steady flow of Indian students is crucial not only for universities but for the broader Victorian economy, as these students contribute to various industries, including housing, hospitality, and retail.
China, Australia’s largest trading partner, is now facing a balance sheet recession, as described by economist Richard Koo. A balance sheet recession occurs when businesses and households, burdened with high levels of debt, focus on repaying that debt rather than spending or investing, even as interest rates remain low
Australia-India Economic Cooperation and Trade Agreement (AI-ECTA)
The Australia-India Economic Cooperation and Trade Agreement (AI-ECTA), which came into force in December 2022, marks a milestone in deepening bilateral trade between the two countries. Under AI-ECTA, over 85% of Australian goods exports to India are now tariff-free, with that number rising to 90% within six years. This agreement also eliminates tariffs on 96% of Indian imports to Australia, promoting smoother and more cost-effective trade.
For Victoria, AI-ECTA provides a crucial opportunity to expand its exports to India in key sectors such as technology, agriculture, and renewable energy. As China’s demand for commodities and services weakens, Victoria must capitalise on the growing Indian market, which is set to become the world’s third-largest economy by 2030.
China’s Balance Sheet Recession: A Global Challenge
China, Australia’s largest trading partner, is now facing a balance sheet recession, as described by economist Richard Koo. A balance sheet recession occurs when businesses and households, burdened with high levels of debt, focus on repaying that debt rather than spending or investing, even as interest rates remain low. This leads to stagnation in key economic sectors like construction and real estate, which have been central to China’s growth. Koo warns that China’s slowdown could be prolonged, similar to Japan’s two-decade-long stagnation in the 1990s.
For Australia, which relies heavily on exports to China, particularly in commodities, education, and tourism, this slowdown poses significant risks. Victoria, in particular, has enjoyed substantial benefits from Chinese demand in recent years, but with China’s economic challenges, the state must look for alternatives to secure its future economic growth.
With India’s emerging middle class, its role as Victoria’s largest source of international students, and the opportunities unlocked by AI-ECTA, India is poised to become an essential partner in building a more resilient and diversified Victorian economy
Strengthening Strategic Ties
Beyond trade and education, Jacinta Allan’s trip is part of a broader strategy to diversify Victoria’s economic partnerships and reduce its reliance on China. The Victorian Government has long recognised the importance of India as a key partner, establishing trade offices in Bangalore and Mumbai. These offices play a vital role in facilitating trade, investment, and cultural exchanges between the two regions.
India’s potential for Victoria extends beyond education. With a population of 1.4 billion and a rapidly growing middle class, India offers opportunities for Victorian businesses in areas such as urban design, technology, ICT, and life sciences. Allan’s visit is aimed at strengthening these existing ties while exploring new avenues for collaboration that can help Victoria mitigate the economic risks posed by China’s slowdown.
A Critical Juncture for Victoria
As China’s balance sheet recession casts uncertainty over the global economy, Victoria’s need to diversify its trade relationships has never been more urgent. Jacinta Allan’s trip to India is a timely and vital move to bolster Victoria’s economic future by tapping into one of the world’s fastest-growing economies.
With India’s emerging middle class, its role as Victoria’s largest source of international students, and the opportunities unlocked by AI-ECTA, India is poised to become an essential partner in building a more resilient and diversified Victorian economy. While China remains important, Victoria’s future prosperity may increasingly hinge on how effectively it can deepen its ties with India.
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