Australia learnt this the hard way in 2009 and 2010 when a series of attacks on Indian students received blanket media coverage on the subcontinent.

The crisis damaged Australia's standing in India, strained relations between Delhi and Canberra, and plunged Australia's education system into turmoil.

A major restructuring of the international education program followed. But the lingering sensitivity was underscored when two Chinese students were bashed on a Sydney train in April, sparking fears of another ''Indian situation''. Officials went into damage control when Chinese media started reporting the incident.

One-fifth of all international students are from China and with a large resident community in Australia, the potential for disaster was huge. If the negative messages spiralled out of control, it could have dwarfed the diplomatic, cultural and economic rift between Australia and India.

Most Australians don't comprehend how much the attacks on students dominated public discussion in India from mid-2009 to early 2010.

''You had to live in India to see what a big deal it was,'' says John McCarthy, who was Australia's high commissioner in New Delhi when the crisis flared.

''I don't think it's ever quite sunk in for people back here in Australia how much this issue caught the public imagination.''

Young Indians - a crucial market for Australia's international education sector - have voted with their feet.

The number of Indians seeking an Australian education plummeted from a peak of 120,000 in 2009 to 37,000 in the first quarter of this year.

A report by the Australia India Institute, Beyond the Lost Decade, says the root cause of the problem was a shift towards seeing international education ''as a cash cow for universities, colleges and government'', rather than an important dimension of Australia's engagement with Asia that brought secondary financial benefits.

''The crisis has cost Australia billions of dollars and thousands of jobs in associated industries,'' the report says.

Australia's reputation in India is improving. Polling for the Beyond the Lost Decade report found Indians now rank Australia eighth among 38 countries in terms of overall favourability, which is up from 35th in 2010.

A former Indian high commissioner to Australia and co-author of the report, Gopalaswami Parthasarathy, says relations between Australia and India might benefit from the student crisis because ''we understand each other better now''.

But the report warns swift action is needed to protect and build on the gains, including a rating system to improve delivery of international education services by the states and changes to immigration rules for foreign students.

Radhika Ghumare, a 26-year-old from Nagpur, hasn't been scared off by the bad publicity and has taken advantage of the security services offered in the hostel accommodation where she lives as a student at the University of Technology, Sydney. She arrived from India in 2006 to do a double degree at Macquarie University and has just received her results for her master of professional accounting from UTS.

''There are many precautions one has to take working in the city,'' she says. ''For example, it's always busy and crowded, and [there are] drunken people around usually at the weekend.

''But as a student I don't see much of a security concern. If a student is staying in a hostel, they would be well protected because the university will make sure that there is security guards in the hostel at all times.''

Like many institutions, UTS beefed up security for students to move safely between campus and residences. But for those who are not in campus accommodation, getting home to far-flung suburbs after studying, working or socialising late can be a dangerous affair, and the NSW and Victorian governments have been pushed to extend travel concessions for domestic students to their international peers. The student crisis was not just about safety but also discontent with the poor standards of some institutions offering vocational training and teaching English.

The Gillard government has taken steps to crack down on dubious education businesses trying to cash in on the lucrative market in the vocational training sector. The new president of the Council of International Students Australia, Aleem Nizari, says reforms were needed but they have created uncertainty.

''Students feel less secure about choosing Australia as a destination because [of] the frequent changes,'' he says.

The head of international engagement and business development at TAFE Directors Australia, Peter Holden, says a broader approach to education for TAFE has included providing offshore sites - he says three times as many people studied at Australian campuses overseas than here - developing leadership programs and fostering better ties with businesses, particularly from India, Indonesia and China.

''We're developing a much more mature attitude in relation to other countries in the region,'' Holden says. ''For too long the focus has been on international students to the exclusion of things like student and teacher exchanges and joint research and initiatives around capacity building.

''Those countries recognise that Australia has a very well-developed vocational education system and are very keen to learn from our experiences.''

Many students come to Australia hoping to stay and one of the institute report authors, Christopher Kremmer, says residency shouldn't be off the table.

''Immigration outcomes are a part of student choices and those choices all have their role,'' he says. ''It's nothing unusual. It's one of the factors that they consider when they choose where they're going to go, along with the strength of the dollar, along with the quality of education.''

Residency is certainly an aim for Ghumare, who is looking for work after learning on Thursday her temporary residency had been approved.

''My parents and [I], we've invested a lot in an education here and we definitely need to reap the benefits before I leave the country,'' she says.

This was the sticking point that led to some of her friends returning home, rather than safety fears.

Despite the recent turmoil, Indian demand for Australia's education services is likely to grow.

''Higher education offers a huge opportunity given India's growth,'' says the director of the Australia India Institute, Professor Amitabh Mattoo.

''You need at least 500 to 1000 new universities in the next 10 years.

''That cannot happen easily. The plan's to have 100 more universities but the options of quality students from India coming to places like Australia are great.''