Police on Monday raided the Sydney office of a migration agent they believe is exploiting Indians who come to study in Australia.
The raid followed claims on national television that a young Indian reporter posing as a student to expose scams had been assaulted in Sydney.
National broadcaster ABC said it had evidence that agents were offering to help students cheat in English language proficiency tests and provide fake work experience certificates.
Rallies were held this year in Sydney and Melbourne to protest muggings and assaults on Indians that authorities denied were racially motivated. The rallies prompted police to boost patrols at railway stations where many of the attacks had taken place.
Authorities said that Indians were disproportionately the victims of crime because they were more likely than others to be travelling late at night on public transport.
The 90,000 Indians studying in Australia have been urged not to be provoked into revenge attacks that could further inflame racial tensions.
Australia has pulled in many Indian students with its offer of permanent residency for those who gain diplomas in vocational subjects like hairdressing and cooking.
Because of the economic downturn, the government in December made it more difficult for those with vocational qualifications to become permanent residents.
Monash University demographer Bob Birrell, who has campaigned against linking diplomas with visas, has warned of a backlash from Indian students who feel they have been duped by the Australian government now that visas are harder to get.
"It's unlikely they are going to leave Australia without a fight," he said.
Andrew Smith, from the Australian Council for Private Training and Education, said the government should honour the implicit contract it had with students.
"They came in Sydney for an education," Smith said. "We set up an expectation that there could be a permanent residency outcome. That should be delivered."
To try to head off a confrontation, Education Minister Julia Gillard invited foreign students to discuss their concerns in Canberra in September.
"It is important that international students have an opportunity to discuss issues affecting their experience in Australia and to put forward ideas on how to address their concerns," Gillard said in a statement.