Sitting in one of India’s seemingly endless traffic jams, breathing its often choking air, it’s difficult to see how this nation of 1.3 billion will solve its own problems, let alone present an alternative to China as a global economic powerhouse.

But it’s this crush of humanity, and the ambition it instils in its youthful population, that makes India such a compelling economic partner. As the world’s biggest democracy, India also has a strong commitment to the global rules-based order, making it an ideal strategic partner for Western nations as authoritarian China flexes its muscles.

Scale and shared values are India’s great advantages, and at the heart of Scott Morrison’s push towards closer ties with New Delhi.

In a major foreign policy speech last month, the Prime Minister described India as “a great success story of our region”, and “a natural partner for Australia”.

Morrison will seek to turbocharge this relationship in January when he travels to India at the invitation of his charismatic and politically savvy counterpart, Narendra Modi.

Preparations for the visit have been under way for months, with Australia hoping to secure economic and strategic agreements, which will begin the long process of lessening the nation’s economic dependency on China, and strengthening the West’s response to Beijing’s technological and military posturing.

The next China?

Morrison will not present engagement with India and China as a “binary choice” that Australia must make, in the same way he argues Australia doesn’t need to choose between the US and the People’s Republic of China.

But Tony Abbott, with all the frankness of a former prime minister, suggested during a visit to India last week that’s what Australia should aim for. Abbott declared in New Delhi that India “could be the next China” and urged Morrison to help create a new democratic global superpower less politically overbearing than the communist giant.

He said policymakers had neg­lected engagement with India by putting “too many eggs into the China basket”, arguing it would be easier to develop a “deep commitment” across the board with India.

Former Department of Foreign Affairs and Trade secretary Peter Varghese says in his landmark 2018 India Economic Strategy that there is “no market over the next 20 years which offers more growth opportunities for Australian business than India”.

Varghese says Australia’s flagship education sector, together with agribusiness, resources and tourism, will be at the forefront of a new economic partnership with India. Energy, infrastructure, fin­ancial services and innovation also offer promising opportunities, he says.

By 2035, India will overtake China as the most populous nation and is likely to become the third largest economy, after China and the US.

Varghese predicts India’s economy will continue to grow at 6 per cent to 8 per cent a year for the next 20 years. But he also cautions against India “boosterism”, and disagrees with Abbott’s “next China” analysis.

“No Indian government will be able to direct the economy in the way China does,” he says. “Nor will it ever have the control over the allocation of resources, which has been intrinsic to China’s economic success.

“We need to navigate between the hype that India is the next China and the outdated pessimism that India is just too hard.”

Australian exports to China last year were worth $118bn — more than 10 times the value of Australian goods and services purchased by India, at $16.7bn.

Australian companies and fin­ancial institutions had more than $75bn invested in the Chinese economy last year, but only $15.5bn invested in India.

The stark economic numbers suggest that for Australia there will be no Donald Trump-style “decoupling” from China in favour of India.

Untapped opportunity

But there is no doubt that India — fastest growing large economy — presents an enormous and largely untapped opportunity that Australia can no longer ignore. Its potential as a security partner in the increasingly contested Indo-Pacific also is energising the Australian government, together with policymakers in Washington and Tokyo.

A decade after Kevin Rudd withdrew Australia from the Quadrilateral Security Dialogue to appease Beijing, the informal security grouping bringing together the US, Japan, Australia and India is back on track.

Former Labor foreign minister Stephen Smith announced in 2008 that Australia would quit the Quad, admitting it had “caused China concern”, and Australia “would not be proposing to have a dialogue of that nature” again.

The decision hobbled the nascent security dialogue, conceived by Japanese Prime Minister Shinzo Abe as an “Asian arc of democracy”, and left Indian strategists questioning Australia’s reliability.

The Quad was revived and elevated in September with its first ministerial meeting, on the sidelines of the UN General Assembly, after years of official-level talks.

Foreign Minister Marise Payne said she and her US, Japanese and Indian counterparts discussed “efforts to maintain and promote an open, prosperous and inclusive Indo-Pacific” — code for countering bad behaviour by China.

Scott Morrison with Indian Prime Minister Narendra Modi in Osaka, Japan, in June. Picture: AAP

In April, Australian and Indian ships conducted a third bilateral naval exercise, AUSINDEX, in the Bay of Bengal, focusing on anti-submarine warfare.

Australia contributed the landing helicopter dock HMAS Canberra, two frigates and a Collins-class submarine, its largest contingent for an exercise in those waters.

The Australian government will be hoping to ramp up such military co-operation, including possible participation in Operation Malabar exercises with the US and Indian navies.

Morrison also is determined to use his upcoming trip to strike new strategic agreements on the development of critical technologies — artificial intelligence, quantum computing and 5G — and critical minerals such as rare earths and lithium.

Initial talks have occurred between Australian and Indian officials on a plan to combine Australian research expertise with India’s ability to apply new technologies on a colossal scale.

It’s hoped the collaboration will enable Western nations, rather than China, to set the technical standards around the technologies that will underpin economic and military development for decades to come.

The 2019 Global Innovation Index, co-published by Cornell University, INSEAD business school and the World Intellectual Property Organisation, placed India in 51st place in its global league table of the most innovative nations. Australia came in at 22, China at 14 and the US third, after Switzerland and Sweden.

Tech hub

But India is undeniably a hub of technology expertise, particularly in the IT services sector.

Companies such as Tata Consultancy Services, Infosys and Wipro have combined India’s strengths — cheap, English-speaking labour and quality technical education — to help companies around the world improve their business processes with AI and machine learning and armies of coders.

The Australian recently toured Infosys’s Bangalore technology hub — a vast Google-like campus that runs 24 hours a day supporting some of the world’s biggest companies. Employees use company bicycles to get around, eat wholesome food, and play tennis during their breaks.

The $40bn company, whose founders started in 1981 with a $US250 loan from their spouses, entered the Australian market in 1999. Now its Australian operation has about 5000 employees and pulls in about $1.47bn in revenue.

The Bangalore campus of Indian IT services company Infosys. Picture: Cameron Laird

“India missed the manufacturing revolution but was able to take advantage of the services revolution,” company chief operating officer Pravin Rao says.

But capacity constraints continue to crimp the country’s potential. The county’s renowned Indian Institutes of Technology are harder to gain entry to than Oxford. This year one million students applied for an IIT position but only 9784 gained entry.

Grasping growth story

Although China has presented a difficult business environment for Australian investors through the years — particularly for companies forced to hand over their intellectual property — Australian companies have grown used to doing business in the Chinese market.

India is an altogether different prospect. While it has a strong and familiar legal framework, it has been a prodigious generator of investor red tape. India’s bureaucracy is famously stultifying, and its polluted cities are clogged with traffic. In the World Bank’s latest “ease of doing business” ranking, released last month, India took 63rd position — up 14 places. China came in at 31 and Australia at 14. But with an average age of 27 — a decade younger than China’s — India is young and hungry.

Varghese lamented at a recent forum in New Delhi that Australia’s “big end of town” had yet to grasp India’s growth potential, saying there would be significant benefits for those who got in early.

“There is less of an appreciation of what is happening in India in the Australian corporate sector, and less of an understanding of what these long-term trends in the Indian economy add up to,” he says.

However, some Australian investors are beginning to see value in India’s growth story, with the nation’s biggest retirement fund, AustralianSuper, sinking up to $1.47bn into the Mumbai-based National Investment and Infrastructure Fund.

Macquarie Group also is betting big on India, winning a $2.2bn contract to operate 680km of the country’s national highways for the next 30 years.

Energy demand

India won’t reach its development potential without access to more energy, providing a significant opportunity for Australia.

India’s electricity demand has tripled since 2000 and is expected to rise by at least 5 per cent a year to 2035 and beyond. About 280 million Indians have no access to reliable electricity, which contributes to the nation’s staggeringly low average per capita energy use of about 800 kilowatt hours a year. The world average is 3600kWh, while Australian consumers use about 10,000kWh a year.

The International Energy Agency predicts India’s thermal coal consumption will continue to grow and soon will overtake China as the biggest coal importer.

And while Adani’s Carmichael coalmine, in central Queensland, became a lightning rod for environmental protesters, few realise the Indian firm is also on its way to becoming one of the world’s biggest renewable energy companies.

It has nearly 5000 megawatts of installed or under-construction renewables, and plans to expand its solar and wind capacity to 20,000MW by 2025.

Adani family scion Karan Adani says new coal and renewables plants need to be rolled out in tandem across the country to ensure network reliability.

“The underlying stable network of the country can only rely on non-renewable sources,” he says. “And for us the cheapest source is coal.”

Varghese says Indian demand for Australian coking coal also will surge when the country’s steel production ramps up.

Australia was disappointed when India opted to remain out of the Regional Comprehensive Economic Partnership — a proposed 16-nation trade deal that would have covered 3.4 billion people with a combined gross domestic product of $US49.5 trillion ($72.8 trillion).

But Modi’s decision to stay out of RCEP was driven by domestic politics, amid fears the deal would expose the nation’s farmers and small businesses to cheap imports.

Former Indian diplomat Anil Wadhwa, who is writing the Indian government’s response to the Varghese report, says India’s decision to stay out of RCEP offers “a great opportunity” for a fresh look at a bilateral trade deal with Australia.

Australia and India began neg­otiations on an economic co-operation agreement in 2011, but the talks stalled in 2015 amid difficulties over agriculture and services market access.

Wadhwa says freer access to Australia for skilled Indian workers will be one of India’s top priorities when considering closer economic ties, suggesting Indian doctors, nurses, infrastructure specialists and security guards could “fill the gaps” in the Australian labour market.

Wadhwa’s draft report identifies acquisition of Australian agri­tech companies, cotton farms and food companies as key investment opportunities for India, and says India can benefit from Australian expertise in renewable energy and electricity grid technology.

The report, scheduled for release during Morrison’s visit, says it is “imperative” that India focus on Australia to meet its future minerals needs, and that a new port on the country’s east coast offers opportunities to boost imports of Australian liquefied natural gas.

Billionaire Anand Mahindra, the head of one of India’s most successful companies, says the Australia-India relationship inevitably will grow amid rising international concerns over China’s behaviour in the world.

The Mahindra Group executive chairman says the long-running unrest in Hong Kong illustrates “starkly what the differences are” between India and China.

“We may not look the same but the fact is that as far as what we feel about freedom, and about democracy and its principles, are identical. I think that is the bedrock of trust,” he says.