India, which is now looking to the Association of Southeast Asian Nations region in its trade policy, might be the next "big story" in economic growth, Australian Reserve Bank Governor I J Macfarlane has said.

"China is currently the big story, just as India will probably be the next," he said while delivering the 10th Annual Sir Edward "Weary" Dunlop Asialink Lecture in Melbourne on Thursday.

Speaking on the role of Asia in the future of Australia's economy, Macfarlane said, "Of course, the global economy does not stand still and we do not know how the recent trends within Asia will develop."

"The story of the rise of China seems likely to have some way yet to run. But I doubt that the rise in importance of China, and its impact on Australia, will turn out to be the end of the story for Asia because the next chapter will probably contain a greater role for India."

"It is noteworthy too that India is now looking to the Asean region in its trade policy, recently concluding an agreement with Asean to eliminate most tariffs within eight years, at the same time as Asean is eliminating internal tariff barriers and concluding free trade agreements with China and Japan," he said.

"If India emerges as a second Asian engine of growth, Australia will face new opportunities and challenges," the RBA governor said, adding, "We are well placed to respond to its increasing demands for imports of food, materials and intermediate goods."

"As with Korea, Australia has had a rising share over the past five years of India's imports of materials," he added.

He said, "No one should be surprised to find that over the past 20 years Asia's share of world output has risen noticeably, or that the share of the developed OECD countries has fallen. While much of the rise in the share of Asia is due to China, the rest of Asia's share still rises from 7.8 per cent to 12.2 per cent over the two decades."

More than half of Australia's exports go to Asia, and the proportion has not greatly altered over the past two decades, he said.

According to the IMF World Economic Outlook database, which shows share of Asian output excluding Japan in the world output, during 2002 China had 12.67 per cent share and India 4.77 per cent.

In the year to May 2003, India contributed 2.2 per cent and China 1.9 per cent of the total Australian share of merchandise imports.