India-Australia trade pact

Source– The post is based on the article “India-Australia ECTA is a landmark in bilateral relations, will deepen ties” published in The Indian Express and “Growth through trade” in the Business Standard on 24th November 2022.

Syllabus: GS2- Bilateral groupings and agreements

News- The article explains the recently concluded India-Australia ECTA (Economic Cooperation and Trade Agreement (ECTA)).

What is the importance of this relationship?

India and Australia both are Commonwealth countries, and parliamentary democracies with similar legal systems. Both are members of the Quad, a trilateral Supply Chain Resilience Initiative and the Indo-Pacific Economic Framework.

What is the status of an economic relationship?

India has 3.7% share in Australia export and a 2.4 per cent share in its imports as of 2021.

Manufactured goods constitute 72 per cent of India’s exports to Australia.

India primarily imports raw materials. 82% of its imports from Australia are these materials.

What are the main points of the agreement?

Australia will eliminate Customs duties on 98% of the traded goods and 100% of its tariff lines. India will do so for about 40% of its import tariffs immediately and 70.3% of its import tariffs over a 10-year period.

The agreement would provide duty-free access to over 6,000 broad categories of Indian products in the Australian market.

The Ind-Aus ECTA goes beyond merchandise trade. The Indian services sector also gets a major boost as it makes wide-ranging commitments in around 135 service sectors.

The Most Favoured Nation status will be granted in about 120 sub-sectors covering key areas of India’s interest such as IT, ITES, education, health and audio-visual.

The deal provides an annual quota of 1,800 for yoga teachers and Indian chefs. It provides a commitment to over one lakh of India’s outgoing students to Australia.

What is the importance of this agreement?

This is salient also because most free trade deals New Delhi has negotiated and entered into have been mostly with South Asian countries. These have hardly served India’s trade interests. This is the first trade deal concluded with a developed country in a decade.

It provides an opportunity for Australian exporters to tap the vast Indian market of 1.4 billion consumers. Indian exporters can market their value-added products.

The deal should be complemented for excluding the most sensitive sectors, dairy and agriculture. These provide employment in rural areas to about 50-55 per cent of its population with small landholdings and 1-2 cattle per farmer. This is in sharp contrast to Australian agriculture and dairying.

China is Australia’s largest trade partner. Strategically, there is a need for trade diversification away from China for Australia, in view of a multiplicity of geopolitical factors. It tilts the balance in favour of India. It is  a win-win partnership for both.

What are the economic benefits of this deal?

It will benefit India’s labour-intensive exports such as textiles and apparel, agriculture and fish products. These now fetch 4-5 per cent import duty in the Australian market.

The trade deal will boost exports of pharmaceuticals to Australia.

India is the world’s largest importer of coal. Out of India’s coal trade deficit of $24 billion, Australia accounts for $11 billion. The Ind-Aus ECTA is likely to make coal available at competitive prices.

The duty-free imports of Australian raw materials such as copper, nickel would boost the competitiveness of Indian industry and create enormous job opportunities.

The Ind-Aus ECTA is expected to increase bilateral merchandise exports by $10 billion by 2026-27. It will contribute to the creation of additional job opportunities for Indians in Australia and an additional 10 lakh jobs in India as a result of Australian investments.

The trade deal also resolves the long-pending Double Taxation Avoidance Agreement related to IT/ITES. This will lead to yearly savings of over $200 million.

What are the major concerns with FTAs in the case of India?

The principal concern is the move towards greater protectionism in Indian economic policy. There is a steady rise in Customs tariffs on a wide range of goods since 2017. The Make in India production-linked incentive schemes for a range of industries shows an inwards looking approach.

A related question is whether India will now discard its earlier reservations about the RCEP among Asia-Pacific nations, from which it abruptly withdrew in 2019.