Will 2022 see continued “hard diplomacy” or can we embrace “smart” and “soft” diplomacy?

INTO INDIA wishes you all a peaceful, prosperous, safe and healthy new year for 2022. This is our last post for this year.

The question for next year is how will we all get on better than we did in 2021?

I hope we will see “smart diplomacy” dominate next year – this is the kind of diplomacy that works with cultural and cross border differences. It is not insulting and does not force the other country into an aggressive response. It takes into account major global shared challenges such as climate change, Industry 4 and the continuing pandemic.

It is “smart” to talk to other countries in a way which allows them to make their own positive contribution to the debate – does not corner them into hostility.

Australia has done some “smart” diplomacy things this year – such as using former Prime Minister Abbott as a special envoy, a move well received in Asia.

Hoping countries will all be a lot smarter in 2022.

It would make it a good year for all of us.

How the QUAD can help Australia in trade talks with India

At last night’s meeting in Melbourne of the Australian Institute of International Affairs, Trade Minister Dan Tehan MP made reference to how the QUAD could be useful for future trade agreements.

The QUAD includes Australia, India, Japan and the USA. It focuses on supply chains and “independent and free region” – that is, a buffer to China.

But it might be a big help on trade.

India wants to use the QUAD as it steps up global trade relations.

And Australia already has FTA deals with the other two QUAD parties – Japan and USA.

The Quad is a diplomatic network of four countries committed to supporting an open, inclusive and resilient region. It complements our other bilateral, regional and multilateral cooperation, including with ASEAN.

The Quad aims to respond to the defining challenges of our time, including COVID-19 vaccines, critical and emerging technology, cyber security, climate change, infrastructure, maritime security, countering disinformation, counter-terrorism, and humanitarian assistance and disaster relief.

Use “smart power” advises leading Australian diplomat

With great clarity and logic, John McCarthy AO, former Australian diplomat, has outlined the three choices for Australian diplomacy – hard, soft or smart power.

McCarthy is concerned that Australia in recent times has used “hard” power and this can bring reputational damage.

https://asialink.unimelb.edu.au/insights/its-time-for-australia-to-be-a-smart-power-country

He describes how “soft” power is often mistakenly seen as just culture or cricket.

And he concludes by describing the “smart power” option.

Brilliant article.

I am sure most of our diplomats and think tanks would agree – but can the politicians wake up to the harm they are doing to Australia’s international reputation?

Will India and Australia achieve “early harvest” trade deals and lay groundwork for a CECA?

Former PM Tony Abbott was instrumental in getting trade talks going again

INTO INDIA believes the two big issues facing Australia are allowing greater people movement from India to Australia, and directing more of our massive A$ 2.3 trillion pension fund sector that could be a regular source of investments in the Indian infrastructure and disinvestment story.

The key for Australia is to see India as more than a “quick sale” – Indian negotiators will be looking to push the two countries to become partners, adopting policies that streamline physical movement, including, on-arrival visas, multiple entry long term business visas, etc.

From India’s perspective, it will want to ensure that trade deficits in the post agreement period do not widen. And two, non-tariff barriers and differences in standards or recognition of qualifications do not offset higher access through the trade deal. As an Indian report recently wrote: “This is the crux of the matter.”

In the larger CECA agreement, investments from Australia will play a big role in the growth of bilateral trade between the two countries, because the growth trajectory of India will create new opportunities for Australian companies, including in areas like water management and up in future, for which Australia can be a long term reliable supplier.

In the early harvest agreement, Australia wants services included with goods – an area where India has not performed well in earlier trade deals such as with ASEAN.

Australia however just needs to accept the sensitivity of the agribusiness sector in India – the deal will fall over if Australia demands substantially lower tariffs across the board for fruits, dairy, agriculture and processed food items.

INTO INDIA RECOMMENDS Australia narrow its ambitions down to selected niche items in the agriculture sector. Finding ways that Australian expertise, technology innovation and scale can actually transform Indian agriculture sector towards value addition would give Australia a big advantage.

Finally, you can expect India could show flexibility in tariff lines related to commodities and minerals, which are needed for its growing economy and the e-mobility program. In turn, Australia could be accommodative in tariff lines related to refined petroleum, medicaments, railway vehicles, gems and jewellery, auto components and made up textile items, which it imports in any case from countries around the world, in addition to India.

Thanks to Confederation of Indian Industry (CII), in collaboration with KPMG and led by Amb Anil Wadhwa, who is Former Secretary (East), Ministry of External Affairs, Government of India.

Australia told to be partners, not adversaries, with China

Prime Minister Lee Hsien Loong of Singapore and PM Scott Morrison of Australia

Prime Minister Lee Hsien Loong of Singapore gives advice to Australia on China

“China is one of the biggest policy questions for every major power in the world. You need to work with the country. It is going to be there, it is going to be a substantial presence. You don’t have to become like them, neither can you hope to make them become like you. You have to be able to work on that basis, that this is a big world in which there are different countries, and work with others who are not completely like minded but with whom you have many issues, where your interests do align. There will be rough spots … and you have to deal with that. But deal with them as issues in a partnership which you want to keep going and not issues, which add up to an adversary which you are trying to suppress. That is speaking in very general terms, but I think that’s from Singapore’s point of view how you have the best chance of developing a constructive relationship and avoiding very bad outcomes.”

INTO INDIA has long campaigned for Australia to just calm down and deal with the massive regional opportunity (and challenge) that we face.

Such common sense. Calm, rational and accepting of reality.

Can Australia follow this advice?

9 weird things about Australians

CAUTION – these are generalisations that are meant to be helpful, but you will find exceptions.

  1. Aussie Modesty

Australians admire humility and authenticity. They loath boasting or pretentiousness. Even if their company is number one in its sector, they will often just say “we’re not too bad”, preferring understatement to boasting.

Informality and humour are always present in Australia – the Prime Minister would be greeted on a first name basis by people he or she had never met.

An unusual part of Australian humour is to make comments about someone that seem to be critical – but this is actually a sign of friendship. If I am given a project to do, an Australian might say “you will find some way to mess this one up” and this is meant as humorous and friendly.

People from countries where “face” is highly valued will find some of this humour difficult. But it is never meant to be offensive.

Because Aussies are laid back and informal, they think you will automatically like them, even though they might be giving offense with their humour.

An Australian with a PhD will not like you using the title – “just call me Steve” is their usual response to being called Dr Jones.

These characteristics can be a challenge for people from cultures which place high value on formality, titles, achievements and so on.

2. “Mates” in Australian Relationships

“Mate” is the Australian word for close friend. Once you become a mate, you will stay that way because Australians put mateship and loyalty together.

“Mates” can cross financial and social barriers – a rich person could be “best mates” with their gardener, and so on.  

This is part of the overall friendliness and openness.

3. Tall Poppy Syndrome

Australians like everyone to be in the middle – so if you are poor, you will get welfare, if you are rich, be wary of flaunting your wealth because they will try to bring you down to earth. Anyone claiming to be the best, or boasting about some valid achievement is fair game for tall poppy syndrome.

“Chopping off tall poppies” is almost a national sport.

4. A Multi-Cultural Society

Australia is a very multicultural society with a strong mix of indigenous groups, individuals with historical European roots, and a diverse mix of immigrant populations – lately this has been dominated by India and China. Approximately 25% of Australian citizens were born overseas and almost half the population had at least one parent who was born overseas.

The indigenous groups, made up of Aboriginal and Torres Strait Islanders, share rich, ancient cultures and histories.

Post-World War II Australian attracted immigrants to boost the population and work force, mainly from Europe, (especially from Greece, Italy, Germany, the Netherlands and Yugoslavia), Lebanon and Turkey.

Large numbers came from Northern Europe in the 1950s, Southern Europe in the 1960s and Vietnam (as a consequence of war) in the 1970s.

Such diversity has changed how Aussies see themselves – as a multi-cultural and multi-faith society rather than the homogenous, white, Anglo- Saxon, Protestant nation of old.

5. Meeting Etiquette

Australian culture is not very formal, so greetings are typically casual and relaxed. A handshake, smile and a simple ‘hello, how are you’ should suffice.

While an Australian may say, ‘G’day’ or ‘G’day, mate’, this is meant to be a warm and friendly greeting, but this may sound a bit off-handed to foreigners.

Aussies prefer to use first names, even at the initial meeting.  As such, avoid using titles when you first meet someone and, instead, introduce yourself with your first name only.

6. Gift Giving Etiquette

Small gifts are commonly exchanged with family members, close friends, and neighbours to mark special events such as birthdays, births, engagements or Christmas.

Trades people and service people such as cleaners, may be given a bottle of wine or a six-pack of beer!

If you are invited to someone’s home for dinner or a lunch time barbeque, it is polite to bring a box of chocolates, bottle of wine or flowers to your hosts.

Australians are relatively big meat eaters and can sometimes be insensitive to vegetarian diets – so it is important to let a future host know that you are a vegetarian.

In a culture that values humility and equality, it’s important that gifts are modest and not too expensive.

Although it’s acceptable to give high value gifts to those you’re close to, giving high value gifts to others may cause embarrassment and you may be perceived as flaunting your wealth.

Gifts are typically opened when received.

7. The Aussie “barbie” (BBQ)

The Aussie ‘barbie’ is an important part of Australian social culture.

Guests typically bring wine or beer as gifts for the host. In some cases, very informal barbecues may suggest that you bring your own meat!

As a vegetarian or someone who does not drink alcohol, let your host know these things before the event – they will adapt, and it saves embarrassment.

People tend to dress very casually at BBQs. For dinner, you can check the dress code beforehand.

In Australian culture, being overdressed can sometimes be more embarrassing than being underdressed!

You can contact the hosts ahead of time to see if they would like you to bring a dish.

Offering to help the hosts with the preparation or clearing up after a meal is well received.

How to indicate you have finished eating – lay your knife and fork parallel on your plate with the handles facing to the right.

8. Business Meeting Etiquette

Appointments are necessary and relatively easy to schedule. They should be made with as much lead time as possible. Many CEO’s will have an appointment diary covering two or three years and they like to stick to what is in the diary – meaning if you want to see them, make a request well in advance of the proposed day.

Punctuality is important in business situations. It is better to arrive a few minutes early than to keep someone waiting.

Meetings are generally relaxed; however, they are serious events.

Australians can be very direct in communication – if an Australian takes exception to something that you say, they will tell you so. It might seem offensive, but Aussies are straight shooters and expect that you can “take it” – that is, you will not get upset.

If you make a presentation, avoid hype, making exaggerated claims, or “bells and whistles”.

Australians get down to business quickly with a minimum amount of small talk.

They are quite direct and expect the same in return. They appreciate brevity and are not impressed by too much detail.

Negotiations proceed quickly. Bargaining is not customary.

They will expect your initial proposal to have only a small margin for negotiation.

They do not like high-pressure techniques.

9. Business Dress in Australia

Business dress is conservative in Melbourne and Sydney, but in recent years it is acceptable to be a little more informal – going to work in a suit but not wearing a tie has become fine. Men should wear a dark coloured, conservative business suit. Women should wear a smart dress or a business suit.  

Thanks to Commisceo Global for much of the above content.

8 things we need to know about India

Confident young Indians like these are driving new entrepreneurial spirit

CAUTION – generalisations are just that, and you will almost always encounter those who do not fit in this list. This is offered to assist those visiting India for business, education or tourism.

1. Successful and confident

Economic success has restored Indian confidence. Indian entrepreneurs are now recognized around the world and there is a national expectation that the next Bill Gates will be an Indian. This entrepreneurial spirit permeates the nation (most dream of becoming entrepreneurs) which is now confident.

2. Never forget rural people

Indian business and political leaders may live the urban lifestyles, but they do not forget the small towns and villages at the centre of rural life – and it’s not just the politicians with an eye for votes, with major corporates such as Infosys pouring resources and funding into village developments.

3. Avoid pointing the finger

Indians become instantly passionate when challenged on subjects like their high tariffs, especially if the challenge comes from the west. The message is, point the finger at India and you can expect a robust response.

4. Oceans of patience

Indians have oceans of patience which can drive westerners crazy, but it gives them a special strength in negotiations. This patience is derived from deeply held spiritual views such as impermanence – Indians are constantly reminded of the impermanence of this life, everything changes, and they can wait when often we cannot. Who has the advantage in this situation?

5. Not just an IT miracle

Do not be fooled with the view that the Indian economic miracle is just driven by call centres and IT. Important as these are, look also at insurance, energy, retail, clean technology, manufacturing, pharmaceuticals and even agriculture as areas where efficiency is producing startling results.

6. Not especially “Asian”

While India feels great about the success of “Asia”, in many ways it does not feel particularly “Asian”. First and foremost, Indians feel Indian, and to them that is vastly more relevant than being geographically part of Asia.

7. Remember the “Father of the Nation”

Whether dealing with the young or the old, in India never forget the “Father of the Nation”, Mahatma Gandhi.

8. Equity up there with democracy

Partly because of Gandhi, Indian leaders are more concerned with equity than with spreading democracy around the world – and cannot understand the enthusiasm of the USA and its allies to champion democracy in unlikely locations.

How is India travelling? Some developments for investors and exporters

Some developments for investors and exporters

  • One billion vaccines: The cumulative coronavirus (Covid-19) vaccine doses administered across the country surpassed the 1-billion milestone, today. Over 700 million people have been administered the first dose of Covid-19 vaccine, while 290 million have been fully vaccinated, according to the government’s CoWin website. The government has set a target to vaccinate all adults by the end of 2021.
  • Moody’s banking rating: Moody’s Investors Service has upgraded the outlook for the Indian banking system to ‘stable’ from ‘negative’. It believes that the deterioration of asset quality since the onset of Covid-19 pandemic has been moderate and an improving operating environment will support asset quality. Moody’s expects asset quality to further improve, leading to decline in credit costs, as economic activity normalises. The rating agency has projected India’s real GDP growth for 2021-22 at 9.3 per cent.
  • Tax targets overshoot: The Centre is likely to exceed the budgeted tax collection target of Rs.22.2 trillion for the current fiscal year by Rs.2.5 trillion, according to experts. This is driven by better indirect tax mop-up, compliance measures and recovery in most sectors following the second wave of the pandemic. Personal income and corporate tax collections grew by 74 per cent to Rs.5.7 trillion in the first half of the current financial year, mainly due to advance tax and tax deduction at source (TDS) payments.
  • Power deficit: The power shortage situation in the country is improving as per the data released by the Central Electricity Authority. Power shortage came down to 1,456 MW on 17 October 2021 from 2,714 MW a week back. Peak power shortage stood at a massive 11,626 MW on 7 October 2021. According to power sector experts, demand has moderated due to the onset of autumn and heavy rains in many parts of the country. Moreover, an improvement in coal supplies would further bring down the power deficit.
  • Data consumption: India has the highest mobile data consumption in the world which is about 11 to 12 GB per user a month. The country is adding as much as 25 million new smartphone users every quarter making it a flourishing ground to launch digital initiatives, Ram Sewak Sharma, chief executive of the National Health Authority of India said. By 2025, India’s data consumption is likely to be doubled to nearly 25 GB per person a month, driven by affordable mobile broadband services and changing video viewing habits, Swedish gear maker Ericsson said.
  • E-Commerce sales: The share of e-commerce in the overall sales pie has touched new highs in the first fortnight of October 2021, according to market trackers and companies. Several categories, including smartphones, consumer electronics, apparel and daily necessities are growing faster than last year. The share of smartphone sales online surged to around 60 per cent in the first fortnight of Navratri-Dussehra from around 55 per cent, early estimates by market tracker Counterpoint Research showed. Televisions grew to 40 per cent from 31 per cent in the same period last year, while refrigerators, air-conditioners, washing machines and kitchen appliances rose to 9-10 per cent from 6-8 per cent. Market research firm RedSeer Consulting said the overall online shopper base has grown by around 20 per cent this festive season compared to last year, with tier II markets contributing to almost 61 per cent of all shoppers
  • Foreign investment: India witnessed net foreign investment inflows of USD 8.3 billion in August 2021, as compared to net inflows of USD 649 million in the preceding month. Net inflows of foreign direct investment (FDI) rose to USD 5 billion from nearly USD 3 billion in July 2021. Net inflows of foreign portfolio investment (FPI) worth USD 3.3 billion were seen in August 2021, after witnessing net outflows of USD 1.6 billion in July 2021.

Thanks to ASK Capital Management Pte Ltd for the above information.

Don’t get too excited about the new India and Australia talks on CECA

The relationship between these two might hold the key to the current CECA talks

INTO INDIA is optimistic that some deals will emerge from the current round of talks on the Australia-India Comprehensive Economic Cooperation Agreement (CECA) – spearheaded by Australian Trade, Tourism and Investment Minister Dan Tehan and, Commerce and Industry Minister Piyush Goyal.

But a look at Australia’s stance and recent Indian trade policy actions is not reassuring.

India withdrew from the negotiations for the Regional Comprehensive Economic Partnership (RCEP); it renegotiated a number of its free trade agreements; it terminated most of its bilateral investment agreements; and it has failed to agree a mini-economic deal with the United States. Not to mention India’s stance in the World Trade Organisation which has been unchanged.

At the domestic level, India has imposed prohibitive tariffs in several sectors and introduced a range of incentives to attract reshoring and investment.

How does Australia’s record stack up? Eager to send more resources and agriculture to India, Australia has been reluctant to allow great services access and people movement from India. This is a thorny issue.

So our word is CAUTION – don’t get your hopes up too high – there has been little progress to show after ten years of negotiations.

So, why be optimistic now?

First, Australian professional trade negotiations have loosened up on what was a cornerstone article of faith for them – preferring the “single undertaking” negotiating model – in which nothing is agreed until everything is agreed. Now even they are talking about “early harvest” deals. But can they change their spots? The Morrison government, desperate for a trade win, hopes they can.

Second, India has direct concerns about China and is nervous about the US-China rivalry. It has sensibly decided to build up strategic and economic partnerships as a hedge. There is much talk in India about potentially good trade outcomes arising from China’s “trade war” on Australia.

But the stalemate is always market access.

Australia wants agriculture access – India is hesitant because this sector employs 40% of India’s population. India wants liberalisation of the services “mode 4”, specifically the short-term entry of business persons. India has argued that Australia’s short term business visitor regime constitutes a barrier to India’s services exports. Australia has pushed back on these demands, reflecting concerns at the potential impact on the labour market. In a nutshell – one big stalemate!

Overall, India is not a fan of Free Trade Agreements, seeing most of them widening its trade deficit. That is, India feels the other party benefits most. It has negotiated on five FTA’s over the last 11 years and only one has been signed.

True, India is looking eager, having revived trade talks with the European Union, United Kingdom, United States and Australia. But is it all just a lot of talk?

Remember, India is primarily after foreign investment, exports, making domestic industries competitive and incentivise other countries to manufacture in India. Can Australia play a role in any of this?

The key for Australia and India is to somehow align Australia’s export goals with India’s investment and new exports priorities.

Australia could partner India on technology, innovation and R&D.

Australian companies could boost investment into India – and there are good economic and government subsidy reasons to do so.

Australia has one big advantage here – critical minerals. India has high sustainable energy and e-mobility goals and will need these minerals.

Add to that, Australia has growing expertise in the hydrogen industry, while India has a National Hydrogen Mission. There are good R&D opportunities for both.

While India is the “pharmacy of the world”, Australia is a leader in biotech R&D. Biotech in dairy, marine and more could provide trade deal motivation.

But finally, there is the big blockage.

India wants to increase skill migration to Australia. Australia has opposed it. Most of the talks in the last decade have faltered at this point.

What has changed?

Border closures have left Australian businesses struggling to fill roles. Australia needs an ‘early harvest deal’ to attract skilled professionals from India.

So, despite the gloom of the past, there are reasons to have some optimism for these talks on CECA.

Watch this space.

India now chasing trade deals – having resisted for decades

Indian PM Narendra Modi meets recently on trade with former Australian PM Tony Abbott

What has changed for India? It seems that having resisted trade deals for years, it now plans by the end of March 2022, to complete multiple quick-fire bilateral trade agreements.

Something has not changed however – the Indian government, distrustful of full scale FTA’s, is prioritizing “early harvest” pacts over comprehensive free trade agreements.

What has changed is the pandemic and the rise of China.

Therefore, the Indian government is focusing on strengthening the trade with G-7 nations with strong Indo-Pacific strategies and those with growing influence in central Asia such as the United Arab Emirates.

Australia, at a key position in the Indo-Pacific, is a high priority. As a fellow member of the QUAD, India and Australia have never been so close strategically and are keen to add trade now.

In large part, this is India’s push to do well as supply chain realignments take place – there is only a narrow window of opportunity to get these deals done.

How big is this? The government is negotiating bilateral trade agreements with 20 countries and expects to complete half a dozen deals, including those with Australia and Britain by this December and March 2022. 

India is ambitious – Mr. Piyush Goyal has set kept a target of US$ 400 billion for annual merchandise exports – almost 38% higher than US$ 290 billion achieved in last year and plans to achieve US$ 2 trillion annual merchandise exports by the end of this decade.

Outcome? Lots of deals that will not be quite world class Free Trade Agreement (FTA) but which will have some wriggle room.