By Matthias Williams and Devidutta Tripathy
NEW DELHI (Reuters) - The Australian and Indian prime ministers held talks on Wednesday that could pave the way for Australia to sell uranium to energy-hungry India, after Canberra lifted a long-standing export ban that had strained bilateral relations.
Australian Prime Minister Julia Gillard met Indian counterpart Manmohan Singh in New Delhi on her first official visit to the country. The talks set the stage for negotiations to begin on a set of safeguards needed before uranium trade can start. Both sides played down the prospect of a quick deal.
India needs the uranium for its expanding civil nuclear power programme. The world's most populous democracy, which also has nuclear weapons, suffers chronic electricity shortages that hobble its economic growth, raise business costs and leave hundreds of millions of its people without daily power.
For Australia, which has 40 percent of the world's known uranium reserves but supplies only 20 percent of demand, it opens up a new market at a time when the global nuclear industry is still recovering from the fallout of the Fukushima nuclear reactor disaster in Japan last year.
Last December, Gillard's Labor Party voted to overturn its policy on uranium exports to India, which is only just emerging from years of diplomatic isolation over its nuclear weapons programme.
"As you are aware, under Prime Minister Gillard, the Australian Labor Party has articulated a new policy on uranium sales to India," Singh told reporters after their meeting. "This is recognition of India's energy needs as well as of our record and credentials."
"We have agreed to begin negotiations for an agreement on civil nuclear energy cooperation which will precede actual cooperation," he said.
While major economies including France, Japan and Germany have promised to slash dependence on nuclear power, India hopes to add nearly 30 new reactors over the next two decades, although construction has been hampered by violent protests.
Uranium exports would boost a commercial relationship that has seen bilateral trade grow at 13 percent annually in the past five years. Australia is already the biggest supplier of coal to India, which relies on the fuel for just over half its total power generation.
Gillard's party changed its policy against nuclear trade with India after assessing that it had become a responsible nuclear power that would not proliferate atomic weapons.
The 46-nation Nuclear Suppliers Group, which includes Australia and the United States, waived a three-decade ban on exports to India in 2008 after agreeing assurances that New Delhi would not put any such nuclear trade to military use.
The decision was controversial because India has never signed the Non-Proliferation Treaty (NPT) and sparked a global outcry over its nuclear weapons tests in 1974 and 1998.
(Additional reporting by Arup Roychoudhury; Editing by Mark Heinrich)