India-Australia Trade Pact: An Opportunity to Unlock Potential

After signing the historic India Australia Economic Cooperation and Trade Agreement ECTA last week, India and Australia are looking forward to further bilateral trade and economic ties by converting this into a Comprehensive Economic Cooperation Agreement (CECA) towards the end of 2022. This article discusses some of the key sectors that can benefit from the culmination of this agreement.

• India- Australia are looking forward for a CECA to liberalise and deepen bilateral trade in goods and services for which negotiations are expected to be concluded by the end of the year 2022.
• Collaborations between the two countries can help India to secure and manage resources and adopt innovative solutions from Australia and multiplying services exports to Australia.
• Apart from leveraging strengths, there is a great opportunity for India to enhance collaborations in sectors such as Pharmaceuticals, Agri-business, Gems and Jewellery, Ready-to-Eat Food, Wines, Education etc.
• In addition, for the development of sectors such as Electric Vehicles, the demand for minerals would rise in India and Australia can be a key import market.
• By inking this trade pact, India and Australia are expected to significantly reduce their import dependence on China.

Last week, India and Australia signed a historic Economic Cooperation and Trade Agreement India and Australia are looking forward to furthering bilateral trade and economic ties by signing a Comprehensive Economic Cooperation Agreement (CECA) towards the end of this year. Notably, this is the first trade agreement of India with a developed country after over a decade.

Through the ECTA, India stands to benefit from preferential market access provided by Australia on 100% of its tariff lines. This encompasses a number of labour-intensive sectors like Gems and Jewellery, Textiles, leather, footwear, furniture, food, and agricultural products, engineering products, medical devices, and Automobiles. India will also give preferential access to Australia on over 70% of its tariff lines, including key products of interest such as coal, mineral ores and wines, as reported by the release of the Department of Commerce, Government of India.

In the realm of services, Australia has offered commitments in around 135 sub sectors and Most Favoured Nation (MFN) in 120 sub sectors. India’s interests are covered in sectors like IT, ITES, Business services, Health, Education, and Audio visual. Provisions include quota for chefs and yoga teachers; post-study work visa of 2-4 years for Indian students on reciprocal basis; mutual recognition of Professional Services and Other licensed/regulated Occupations; and Work & Holiday visa arrangement for young professionals.

While the two sides had initially started negotiations around May 2011, due to different priorities it didn’t reach any conclusion and discussions halted in 2015 after nine rounds of negotiations.

Negotiations were re-launched last year 2021, and an early-harvest deal is expected to be signed soon. As per the latest reports, to deepen the economic ties between both the countries, recently, the Australian Government has highlighted to invest over US$ 280 million in India. In addition, for the enhancement of Austrade’s presence in India, a US$ 8.9 million support is also planned by the Australian Government.

Also, to broaden the Australia-India Strategic Research Fund for Australia-India Innovation and Technology Challenge, Australia has committed US$ 17.2 million. The Australian Government has highlighted its commitment to the India Economic Strategy and its ambitious goals: to make India one of its top three export markets by 2035.

Status of Bilateral Trade

With India rising as one of the fastest-growing consumer markets, Australia is expected to be an ideal strategic partner for India. Australia is the 13th largest economy in the world in terms of Gross Domestic Product (GDP) and has a stable economic environment as compared to other developed economies. As per data from the Ministry of Commerce and Industry, India’s exports to Australia were recorded at US$ 4.04 billion in fiscal 2020-2021, increasing to US$ 6.33 billion during April-Jan 2022. However, India has a trade deficit with Australia with imports worth US$ 13.50 billion during April-Jan 2022. Nevertheless, this trade deal is expected to significantly reduce the trade gap.

Top 5 exports from India to Australia

Source: ITC Trademap (* Top 5 are selected based on the 2019 values)

Top 5 imports to India from Australia

 Source: ITC Trademap (* Top 5 are selected based on the 2019 values)

Growth in trade between India and Australia has been on account of many growing complementarities between the two economies. The data reflects that India’s key imports from Australia include minerals, gems and jewellery items and inorganic chemicals; while India’s key exports to Australia include minerals, gems and jewellery, pharmaceutical products, railway equipment and machinery.

For the development of sectors such as electric vehicles, the demand for minerals would rise in India and Australia can be a key import market. For India, apart from leveraging its strengths in sectors such as pharmaceuticals, there is a great opportunity to enhance services exports.

Some of the key sectors to look out for collaborations are:

• Electric Vehicles: India is gradually shifting its focus towards electric vehicles and Australia has one of the biggest reserves of minerals such as lithium, which is a critical component of electric car batteries. Given the need to meet the supplies for the e-mobility programme, Indian companies can also collaborate with Australian companies which are engaged in these critical minerals.
• Pharmaceuticals: India is one of the largest exporters of low-cost and high-quality pharmaceutical products and biosimilars in the world. However, India’s share of global exports to Australia only accounts for 1.6 percent. Australia’s market demand for biosimilars and generic drugs have been growing and India’s competence in manufacturing low-cost generic drugs would be favourable for Australia. Both sides have also agreed to a separate Annex on Pharmaceutical products, to enable fast track approval for patented, generic and biosimilar medicines. As a part of the trade deal, negotiating a Mutual Recognition Agreement (MRA) for pharmaceutical products with Australia can be beneficial, similar to the one concluded with the UAE recently.
• Gems and Jewellery: This is the largest sector contributing towards India’s goods exports. While Australia imports a huge share of gems and jewellery from India, it is mainly concentrated in a few segments. Through this trade pact, Indian exporters can diversify their exports to meet the growing demand in segments such as diamonds, emeralds, ruby, sapphires, etc.
• Education: Education services are amongst the highest exported services from Australia to India, with the number of Indian students increasing year on year. The education sector in India is also expanding with the rise in online education. Through this trade deal, both Australia and India can look at mutual recognition of educational qualifications to increase the number of students seeking education in each country.
• Agribusiness: The high productivity and quality produce of Australian agriculture is renowned globally. India has an opportunity to expand the knowledge transfer in Agri-tech. The collaboration can be looked in the areas like innovative storage techniques, Mega Food Parks, and availability of aquaculture technology designs at low cost in India.
• Ready-to-Eat Foods: In Australia, the Indian diaspora is growing over the years and the popularity of Indian cuisine is on the rise. This provides ample opportunities for Indian companies in the ready-to-eat food segment to enhance their exports. Large Indian processed food manufacturers/exporters already have a strong presence in the Australian retail stores. Other players can also explore Australia as a potential market for exports of ready-to-eat Indian products.
• Wine: Australia is keen to get market access in areas such as wine, which will not compete with domestic products in India. As a part of the trade pact, India is expected to reduce its duties on imported wine, where Australia accounts for almost 40% of the total wine imported by India.

Conclusion

The rising complementarities in recent years between India and Australia, who are also Quad partners, have raised the prospects of greater bilateral trade and economic ties. While both sides are yet to finalize the products, the early-harvest deal is expected to be concluded at the end of this month. These are some of the key areas for collaboration, opportunities exist across a range of other sectors such as agriculture, textiles, IT, etc.

By inking this trade pact, India and Australia are expected to significantly reduce their import dependence on China. The trade deal is expected to increase bilateral trade from US$ 27.5 billion currently to US$ 45-50 billion in 5 years. However, the outcome of the interim trade deal and later the CECA would depend on the global trade scenario as impacted by the current Russia-Ukraine trade war.

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Dr. Javeria Maryam is working as an Associate Public Policy and Research at Shangrila Corporate Services. Angana Parashar Sarma is PHD scholar at Department of Economics and Finance, BITS Pilani. Views expressed are personal.