When Australian foreign minister Stephen Smith visited India earlier this month, topping the agenda was not nuclear co-operation, joint counter-terrorism efforts or trade ties, but healing a sharp rift between the two countries that opened up last summer. The reason: a spate of attacks on Indians in Australia (Asia Sentinel, Jan. 4, 2010) , many of them students, that has pushed Indo-Australian ties to possibly their lowest point ever.

According to press reports, about 130 Indians in Australia, 30 of them students, have been attacked in recent years. The Federation of Indian Students in Australia estimates that these attacks claimed 33 lives between 2004 and 2009. Of these, six people were killed last year alone. In January this year, an assailant knifed to death Nitin Garg, a 21-year-old accountant in Melbourne.

The attacks have predictably sparked widespread outrage in India. Indian students have blocked traffic and held noisy protests in Melbourne and Sydney, and last summer demonstrators in New Delhi burnt Australian Prime Minister Kevin Rudd in effigy outside the Australian high commission. Addressing parliament, Prime Minister Manmohan Singh declared himself "appalled by the senseless violence and crime.”

Meanwhile, a politician from the Shiv Sena – a xenophobic ultra-nationalist party with strong roots in India's commercial capital, Mumbai – warned Australians, including cricketers due to visit the country for the third season of the high profile Indian Premier League (IPL), that they could face retaliatory attacks unless their country ended violence against Indians. In another reflection of the country's mood, an iconic Bollywood star, Amitabh Bachchan, turned down an honorary doctorate from an Australian university.

No single factor explains the sudden strain between two liberal democracies that share a common past as British colonies. The relatively recent influx of large numbers of Indians into Australia, a country that as late as 1975 pursued a racially exclusivist immigration policy known as "White Australia”, has likely contributed to Australian resentment toward the strangers in their midst. The Indian government estimates that the Indian diaspora in Australia numbers about 450,000 in a nation of 25 million.

Over the past decade or so, spurred by aggressive recruiting by Australian universities and vocational schools, relatively low fees (compared to the US and the UK), and the prospect of permanent residency, droves of Indian students have made their way to Australia. Since 2002, the enrolment of Indian students in the country has increased by 40 percent per year on average. Last year there were 120,000 Indian students in the country, nearly half of them concentrated in the southeastern state of Victoria, of which Melbourne is the capital. Many work late night shifts in high risk occupations such as taxi-driving. Others are forced to commute to work late at night from the high crime neighborhoods where they live.

Somewhat paradoxically, a shared passion for cricket in both countries also has its downside. On the one hand it has ensured that apart from the US, which occupies a special place in the Indian imagination, Australia is probably the Western country middle class Indians are most familiar with. Australian cricketers are household names in India; some earn millions of dollars from advertising deals and money-spinning tournaments such as the IPL.

At the same time, however, the rivalry between the two cricketing giants – last year India dethroned Australia to become the number one test match team in the world – can often turn ugly. In an infamous incident two years ago, Australians were outraged after an Indian player called an Australian of Caribbean-ancestry a "monkey.”

The emergence in India of a 24-hour TV news cycle complicates matters further. Spurred by rating wars that encourage sensationalism, and by the Indian middle class's fascination with the country's diaspora in the West, the Indian media has latched onto the Australia story. A recent cover story in the popular news weekly Outlook summed up the tone: "Why the Aussies hate us," screamed the headline. The saturation coverage also highlights the uncomfortable co-existence of India's new self image as an emerging major power, and the reality reflected by the attacks: of being a poor country, a large number of whose citizens continue to seek a better life on foreign shores.

Finally, Australians haven't helped matters by being slow to respond to the attacks and, at times, needlessly insensitive. For example, in comments reported by the Indian media, the Victoria police chief advised Indian students to "look poor" to avoid attacks.

Eager not to poison an important relationship, the Indian government has underplayed the likely role of racism in the attacks. Nonetheless, in January it issued an advisory to Indian students in Australia asking them to take precautions. For their part the Australians have embarked upon a flurry of bridge-building exercises. The Vindaloo against Violence campaign, which encouraged Australians to show solidarity with the Indian community by patronizing Indian restaurants, was widely publicized by the Indian media. At the same time, Australia has clamped down on fly-by-night educational institutions and on granting visas to Indian students who they perceive as less interested in an education than in permanent residency.

The government has increased to A$18,000 per year the amount that international students must prove they have to support themselves before they can obtain a visa. It has also established a national regulator for vocational education and training and for higher education.

Nonetheless, the implications of the controversy for India-Australia ties are already becoming apparent. There was a nearly 50 percent drop in Indians applying for student visas for Australia from July to Oct 31 2009 compared to the same period a year earlier. It will likely take years for Australia to shed its negative image among a large chunk of India's middle class.

Moreover, bilateral ties had already cooled since the 2007 election of the Labor Party's Kevin Rudd. Indians see Rudd, a fluent Mandarin speaker who served in China, as overly sensitive to Beijing's concerns. Last year, Canberra helped Beijing block a loan to India that included funding for projects in a northeastern Indian state claimed by China. Taking a hard line on India's long-standing refusal to sign the nuclear non-proliferation treaty (NPT), Rudd also reversed his predecessor John Howard's decision to sell uranium to India after last year's landmark civil nuclear agreement between India and the US. On the brighter side, however, trade ties continue to boom. The Australian government estimates that within a few years India – with its vast appetite for natural resources – is likely to become Australia's third largest export market behind China and Japan.

The India-Australia spat also has wider implications for the region and the world. For one it shows how, in the age of the 24-hour news cycle and the Internet, managing public perceptions can be a key component of diplomacy. For India, it influences the question of whether the country will emerge as a natural ally of fellow English-speaking democracies, or as a country with a somewhat adversarial relationship with the West. Only a few years ago, diplomats in Washington were touting a natural alliance between the region's democracies, foremost among them India, Japan and Australia. But events in Australia over the past year show that such hopes may well be premature.

Sadanand Dhume is a New Delhi and Washington, DC based journalist and the author of "My Friend the Fanatic: Travels with a Radical Islamist,” which was reviewed by Asia Sentinelon June 15, 2008. Reprinted with permission from YaleGlobal Online, the flagship publication of the Yale Center for the Study of Globalization