What India gains from FTA with Australia

Source: The post is based on the article “What India gains from FTA with Australia” published in Livemint on 24th November.

What is the News?

After 10 years of negotiations, India and Australia have finally agreed on an interim free trade deal called India-Australia Economic Cooperation and Trade Agreement(ECTA).

How will Indian firms benefit from this deal?

Along with ECTA, the Australian parliament has also approved an amendment to the Double Taxation Avoidance Agreement (DTAA)—a long-standing tax issue for Indian companies operating in Australia. 

As per industry estimates, Indian IT firms lost more than $1 billion in taxes due to the existing provisions in DTAA. Most IT firms take up projects where they do some portion of work on-site, and some from India. However, Australian courts have ruled that even the work done from India can be taxed as per local Australian laws. The same income was subject to taxes in India, too.

Now this amendment in DTAA is expected to lead to savings for Indian information technology (IT) companies operating in Australia.

What’s in it for pharmaceutical companies? 

ECTA says Indian drugs that have already been approved in the UK and US will get faster approval in Australia too.

India has the highest number of USFDA-approved sites and other stringent regulatory agencies approvals, too—which will yield results once ECTA comes into effect.

Will ECTA give a push to labour-intensive industries? 

Getting easier access to apparel, textiles, leather, footwear, gems & jewellery, furniture, machinery and electrical goods in western markets is India’s key aim in trade deals. 

ECTA will see India getting zero duty on 98.3% of tariff lines from the day the agreement comes into force and on 100% of tariff lines within five years.

Can India cut its trade deficit with Australia? 

At the moment, Australia exports much more to India than it imports. During the last financial year, India had a trade deficit of $8.5 billion with Australia with $8.3 billion worth of exports and $16.8 billion worth of imports. 

According to experts, entering the Australian market is not just about lowering tariffs as Australia is already a very open economy. There already are firmly established players in Australia and displacing them would need cutting trade costs and signing a comprehensive deal.