Trade Minister Andrew Robb warns "lawfare" by activist environmental groups risks a trade deal with India.
Leaders Tony Abbott and Narendra Modi are keen for talks to conclude in coming months, Mr Robb told the National Press Club on Wednesday.
But goodwill is being sorely tested by a recent court decision to overturn approval of Indian mining giant Adani's $16.5 billion coal mine in central Queensland.
The Federal Court found a legal loophole in the government's approval for the Carmichael mine after a challenge mounted by environmental groups.
"You think that's not going to change India's appetite to get an agreement with Australia this year?" Mr Robb asked.
"It makes it all the more difficult."
Conservationists say Environment Minister Greg Hunt failed to consider two threatened species - the yakka skink and ornamental snake.
Mr Robb said the legal challenge was mounted on a technicality.
"It was 'lawfare' brought about by activist groups to whom the skink is a patsy," he said.
"They wanted to kill the project because they don't like fossil fuels."
The Indian company had patiently been through the rigorous approval process and was ready to go but for this legal challenge.
Australia's environmental approval processes had so far been a selling point to investors because, although lengthy, they offered businesses certainty once granted.
But Mr Robb said the trend of environmental activists funded by international green groups was a real problem.
He accused their foreign backers of offering unlimited funds to use courts to dictate what happened in Australia without the government having an opportunity to influence those decisions.
"(Adani) have done all the right things, now they've been blindsided by a technicality and so you end up with uncertainty, sovereign risk," he said.
"We've got to deal with it."
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