Melbourne: After China, it is India that Australian businesses are looking to head to cash in on the immense opportunities that its phenomenal growth is expected to present over the next few decades.

Assuming the Indian government continues to set growth-supporting policy, there is ongoing reform and no major adverse shocks, India's economy could rival the size of the largest European countries by 2020 and outstrip Japan by 2032, according to an Australian government report released by Trade Minister Warren Truss.

This would make it the world's third largest economy after the United States and China.

The report - 'India's Services Sector: Unlocking Opportunity' highlights the possibilities for Australian business in India's services-led economic growth.

According to investment bank Goldman SachsJBWere in the report, by 2050 the Indian and Chinese economies will respectively be around 80 and 125 per cent of the size of the US economy.

"India's economy is currently in a phase of significant growth, largely induced by the expansion of the IT and other leading-edge services sectors," the report said adding "Australian service providers are well positioned to capitalise on emerging market opportunities in India."

Education services and professional services already are major exports for Australia and can only be expected to increase, the report said.

"But Australia also has significant expertise in many other areas, highlighting the opportunities that could be expected to arise if India continues along its current growth trajectory," the minister said.

Broad-based economic development in India also implies the ongoing reform and modernisation of a number of crucial sectors.

These include telecommunications, finance, infrastructure, retail, logistics, construction and transport, as well the application of services to manufacturing, agricultural production and distribution, and mining.

India already is Australia's fastest-growing merchandise export market, growing at a trend rate of over 31 per cent over the past five years.

Merchandise exports were valued at USD 7.4 billion in 2005-06, making India seventh-largest export market for Australia with 4.9 per cent of total exports.

Coal and gold accounted for 83 per cent of the total growth in exports over the 2000-01 to 2005-06 period, reflecting the demand for resources to fuel India's economic expansion and an increase in its jewellery production following a relaxation in regulations governing gold imports.

But the report further warned that businesses entering the Indian market need to be patient and set their expectations carefully.

It said while reforms to date have been impressive, there remain some major hurdles in India's business environment.

Chief among them are continuing power and transport infrastructure constraints, significant amounts of regulation in many sectors and the need to adapt to challenging business practices.

Australian businesses need to invest time and effort in understanding the business environment in India and its challenges, it said.

"(Businesses need) to be willing to do the hard yards required to adapt; to accept that establishing a business presence will be time consuming and possibly frustrating; and to take a long-term strategic view of their prospects, if they are to be successful," it added.