Opinion

Here’s how India will benefit from the FTA with Australia

The Australian Parliament has passed the Free Trade Aagreement with India on Tuesday, almost two months after negotiators from both sides held a meeting to finalise a full-fledged FTA. Australian PM Anthony Albanese broke the news on Twitter saying, “Our Free Trade Agreement with India has passed through parliament.”

India-Australia ties: Recent growth & Economic partnership

The new development comes just days after PM Anthony Albanese announced on the sidelines of the 17th G20 Summit that he will be visiting India in March 2023. This Free Trade Agreement will be getting finalised after more than a decade of negotiations and will result in a more liberalised and deepened bilateral relations between India and Australia. Fresh round of negotiations began in September 2021 which produced speedy results. In April this year, both the countries signed an interim Economic Cooperation and Trade Agreement (ECTA) and had reaffirmed their commitment to conclude a Comprehensive Economic Cooperation Agreement (CECA) by the end of 2022.

How an FTA with Australia is beneficial for India?

From $13.6 billion in 2007, the bilateral trade in goods & services between both the nations has only been able to reach the current figure of $27.5 billion. Moreover, Australian exports to India have grown rapidly in recent years, which further increase India’s trade deficit with Australia. Here is where this FTA holds a lot of significance as it can bring a solution to balance this trade deficit between both the nations by removing or reducing current restrictions in both foreign investment regimes.

This can happen in more ways than imaginable, which will require both nations to hold more talks in future. An example of such a solution was seen during Australian Minister for Trade Dan Tehan’s meeting with Indian Commerce Minister Piyush Goyal in September 2021. “This growth will be across all areas because of the complementarities in the two countries’ industries. Our merino wool could be used by Indian textiles makers to produce the best product,” Tehan had said after having concluded the long-pending CECA last year. In reply, Minister Piyush Goyal had reiterated that Jammu and Kashmir’s Pashmina could similarly be an attractive proposition for Australians.

Dan Tehan had also asserted that the move could double the bilateral trade from the current level of A$26 billion to A$52 billion once a full fledged FTA is in place.

The CECA will play a major role in expanding the base of merchandise trade, removal of non-tariff barriers, encouraging investments and addressing trade restrictions. The agreement is set to cover trade in goods, services, investment, government procurement, logistics, transport standards and rules of origin (criteria needed to determine the national source of a product). This will result in re-engagement and cooperation by both countries in a range of areas including critical minerals, health, critical technology, science and agriculture.

According to Australia’s Dept. of Foreign Affairs and Trade, India stood as 8th most important trading partner for Australia and the fifth-largest export market for Australian services in 2018-2019. On the other side of the trade, Australia is also becoming an increasingly important destination for Indian exports in value. India’s exports to Australia grew by 10.8% over the five years up to 2019. But in order to take this export value to an all new height, a proper trade framework like CECA with a nation as important as Australia, is mandatory for India.

Potential within markets: What to expect

The agreement will provide greater market access to exporters in both the countries. Both sides have already prepared and shared with each other their goods and services offer lists.

India, which has a fast growing and increasingly affluent consumer market, does show an appetite for Australia’s premium products and services. India’s large market, plus its expanding middle class section may also excite Australia. It would therefore be interested in accessing this market through lower Indian tariffs, given that its other Asian competitors would already have this access through FTAs with India.

Similarly, India eyes the Australian labour market. As Australia warmly welcomes skilled professionals, India would also be eying gains from increased movement of its abundant and skilled manpower. It may also want to increase its exports in textiles, diamonds, jewellery, pharmaceuticals, vehicles etc. in Australian market with the same (lower) tariffs which Australia currently gives to its FTA partners. A comprehensive FTA will also look after increasing transparency, introducing stronger investment protection mechanisms, foster even stronger growth, including through more diverse trade and investment flows.

Since Australian exports are more concentrated in raw materials and intermediates, a lot of Indian industries can have cheaper raw materials and make them competitive, specifically for sectors like garments, steel, Aluminum, etc. Similarly, on the exports of products that are of interest to Australia, India is offering concessions mostly on raw materials and intermediates in the form of tariff elimination, tariff reduction (TR) with or without a tariff-rate quota (TRQ).

In case of pharma sector, the agreement would provide speedy approvals and fast-track quality inspections of manufacturing facilities. Further, in the services sector, India would be enjoying benefits like post-study work visa of two-four years for Indian students on reciprocal basis; and work and holiday visa arrangement for young professionals.

Under the agreement, Australia has agreed to resolve the double taxation issue being faced by domestic IT companies in that market & also agreed to amend its domestic tax law to stop the taxation of offshore income of Indian firms providing technical services in Australia.

Finding an alternative to China

In December 2020, India-Australia bilateral ties had witnessed a new peak with the Comprehensive Strategic Partnership, signing major agreements. This also included the landmark agreement for reciprocal access to military bases against the backdrop of their frosty relationship with China. Both the nations have also majorly engaged in stabilising the strategically important Indo-Pacific region against China’s aggressive posturing.

India’s relationship with China has been on a thin strand ever since the Galwan Valley clash of June 2020. India has thus been looking to engage vehemently with other like-minded nations in the south-east Asia and Indo-Pacific region to reduce dependence on China as an economic partner. On the same lines, India, Japan and Australia together have also started an initiative wherein trade chiefs from Japan, Australia and India agreed (in march 2022) to develop a set of principles in order to strengthen supply chains through better data management in the Indo-Pacific region.

This is because many countries, who have China as one of their major trading partners, are finding it hard to crack their way through strict Chinese trade laws and policies including South Korea, Japan, Taiwan, and others. Australia is also at loggerheads with China for quite some time, ever since the latter reportedly began imposing sanctions against certain Australian exports, including coal, beef, seafood, wine, barley, etc. The Free Trade pact would assist India to ensure an uninterrupted supply of key raw materials to Indian industries, while it will also help Australia to look at India as a reliable alternative.

Building up on Strengths

Australia has also long been an energy exporter to India. Australian PM Scott Morrison in an online briefing with Indian media had said that not only will Australia continue to do that, but a whole new line will also open up. He had added that India’s manufacturing capabilities, combined with the resource strengths of Australia, particularly in the field of rare earth and critical minerals, also provides a natural partnership. “We want the right deal for both countries… We will take the gains where we can take them and.. we will just keep adding and adding I think to the strength of that Comprehensive Economic Cooperation Agreement that we’re seeking,” PM Morrison had said.

Thus, a Foreign Trade Agreement like CECA with Australia will be of great assistance to Indian Government, especially when the latter has set an ambitious target of touching the $1-trillion exports mark by the year 2025.

 

If you like this story then please support us by a contributing a small amount you are comfortable with.