Australian universities warned on Wednesday that Indian students would go elsewhere if their safety in Australia was not assured.
The warning came after bashings and muggings in Melbourne received wide coverage in India and prompted calls from political parties for a boycott of Australian goods and services.
"We need to respond with more than spin," Universities Australia spokesman Daryl Le Grew said. "We need to acknowledge there's a problem."
Prime Minister Kevin Rudd telephoned Indian counterpart Manmohan Singh at the weekend to apologise for attacks that have left one student with severe burns and another with stab wounds.
The call coincided with a march in Melbourne that drew more than 1,000 members of the Indian community at which students vented their anger at the attacks and the perceived inadequacies of the police in dealing with them.
Police say the muggings are not motivated by racial hatred but are the work of ordinary criminals who see foreign students as easy targets.
They argue Indians are over-represented because they take jobs to pay for their studies that put them on the streets and on public transport late at night. Many work in petrol stations, convenience stores or as taxi drivers.
India's 90,000 students represent about 18 per cent of all foreign students and are worth 2 billion Australian dollars ($1.6 billion) to the economy.
The government has set up a taskforce led by former elite soldier Duncan Lewis to co-ordinate a response to the assaults and the perception they are hate crimes.
"Clearly, we are just going to have to lift the effort to try and deal with the sensitivity and the way we are demonstrating this is of concern to us," Trade Minister Simon Crean said.
Crean, who is acting foreign minister, said the Indian government had accepted that Canberra was doing what it could to tackle the problem.
But sensational reporting in India - one newspaper falsely claimed 20 Indian students had died - has whipped up anxieties that have led to threats of sanctions. There have been calls for revenge attacks on Australian expatriates.