India already means more to many Australians than tourism, cricket and Bollywood movies.
It has emerged as the fastest growing market for our exports at the moment.
The rupee has reflected that with a sharp rise against the dollar this year (up more than 10%) on surging inflows of capital into the economy and stockmarket.
India is of the so-called BRICs, Brazil, Russia, India and China: the big four of emerging or developing economies
All four are well known, but India's appeal is now only moving beyond tourism and cultural interests (food and Bollywood movies). Russia is perhaps more problematic, given the domestic political situation and a strong anti-west attitude at times.
For Australia India is already one of our most attractive markets for exporters: we shipped more than $10 billion worth of good there in 2006-07 and more will be sent this year, from food to coking coal, copper, lots of gold and of course tourism. It's one of our top five export markets.
Offshoring/outsourcing is a major activity with negative PR but a positive business outcome, especially for India.
Companies can either use it to lower operating costs (phone centres) or do complex work more effectively at a lower cost (software development by the ANZ Bank at Bangalore).
And while the cost of offshoring for our companies is a transfer out of Australia, the benefits remain here and emerge slowly in lower operating costs and higher earnings.
Some would argue that offshoring is wrong, but the companies that undertake it and handle the Australian end sensitively quite often expand employment by redeploying staff into higher margin areas. And in our tight labour market, there are more jobs than job seekers in many industries.
For that reason India is attracting more and more attention from investors large and small. Some started looking for 'the new China'. Other, more subtle investors have realised that India is a story in its own right. It is not a new anything.
Some of the world's major companies are now Indian or have strong Indian control. Arcelor Mittal is the world's biggest steel group. Infosys is a major IT and back office group. Ranbaxy and Dr Reddy are major generic pharmaceutical groups, with emerging involvement in patented drugs, and interest in Australia.
Lehman Brothers is one of the major investment banks on Wall Street. And it's spreading its wings into Asia. It has already bought Grange Securities in Australia and is looking to grow in China and other emerging Asian economies.
Here's a summary of recent lengthy report, the first major piece of research on India from the Wall Street firm.
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Impressive though its economic transition has been, we judge that India could grow sustainably even faster than at present, and faster than most other studies have suggested, i.e. at 10% or so per annum over the coming decade.
Previous growth accounting studies have suggested that India's long-run potential economic growth rate has generally risen over time, with most recent estimates ranging between 7% and 9%.
But our two-pronged approach strongly suggests that even the upper end of this range likely underestimates the reality, such that growth of 10% is, in principle at least, attainable.
This judgement is contingent on India continuing to actively pursue structural economic reforms.
Naturally, a sharp global economic downturn is a risk to India's near-term economic growth. While India is one of the least vulnerable economies, it is not immune.
Conversely, a period of demand running ahead of supply cannot be ruled out, raising risks of short-term overheating.
But more important than the ups and downs of the economic cycle are the structural changes behind India's growth acceleration, contributing to capital deepening and rising productivity.
They include the development of the financial system, trade and capital account liberalisation, and more prudent macro management.
Conventional static "growth accounting" analysis gauges the contributions of labour, capital and multi-factor productivity to GDP growth. We believe that this approach fails to take adequate account of dynamic interactions in an economy, especially a developing one which has reached "take-off".
That is the basic reason why our estimate of India's potential rate of growth is higher than that of other studies.
We find clear evidence that India's rapid economic development, high growth and reforms have started to interact positively with each other – the economy appears to be taking on many of the characteristics exhibited by other large Asian economies during the early stages of economic take-off.
While business continues to prove impressively adept at working round systemic and structural challenges, sustaining higher growth in the medium term will require continuing structural reform.
For example, we estimate that further financial sector reforms could add 1 to 1½ percentage points to India's long-term GDP growth. Even larger economic gains could flow from removing constraints such as weak (soft and hard) infrastructure, bureaucracy, and labour market rigidities.
Breaking down these barriers is key to enabling business to achieve increasing returns to scale by capitalizing on its global comparative advantages in labour-intensive manufactured and agricultural exports. We estimate that India's trade-to-GDP ratio could double over the coming decade, also adding 1½ points to GDP growth.
However, pushing through structural reform will remain a political challenge in the face of headwinds from vested interest and coalition politics.
That said, there should be a new window for reform after the next general election due in 2009.
Given the powerful trends of demography a
