India-Australia trade pact

India-Australia Trade Pact: An Opportunity to Unlock Potential

After signing the historic Economic Cooperation and Trade Agreement (ECTA), India and Australia are looking to further bilateral trade and economic ties by converting this into a CECA towards the end of 2022. A look at the key sectors that could benefit.

BY DR. JAVERIA MARYAM & ANGANA PARASHAR SARMA

India and Australia signed a historic Economic Cooperation and Trade Agreement in early April, 2022 and 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 labourintensive 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.

The Australian Government has highlighted to invest over US$ 280 million in India. 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 affirmed its commitment to the India Economic Strategy and its ambitious goal is to make India one of its top 3 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. It is the 13th largest economy in the world in terms of 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 2020-21, increasing to US$ 6.33 billion during April-Jan 2022. However, India has a trade deficit with Australia with imports worth US$ 13.5 billion during April-Jan 2022. This trade deal is expected to significantly reduce the trade gap.

Growth in trade between India and Australia has been on account of their growing complementarities. India’s key imports from Australia include minerals, gems and jewellery items and inorganic chemicals; while its key exports include minerals, gems and jewellery, pharmaceutical products, railway equipment and machinery.

For development of sectors such as electric vehicles, 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 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 humungous 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%. Australia’s market demand for biosimilars and generic drugs has been growing and India’s competence in manufacturing low-cost generic drugs would be favourable for the latter. Both sides have also agreed to have 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. BILATERAL TRADE BETWEEN INDIA AND AUSTRALIA

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14

12

10

8

6

4

2

0

2014 2015 2016 2017 2018 2019 2020

Exports Imports

Source: ITC Trade Map; Figures in US$ billion

AUSTRALIA’S LITHIUM RESERVES CAN HELP INDIA GREATLY IN ITS VISION TO BOOST PENETRATION OF ELECTRIC VEHICLES

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 either country.

Agribusiness: The high productivity and quality produce of Australian agriculture is renowned globally. India has an opportunity to expand knowledge transfer in agri-tech. Collaboration can be explored in a plethora of distinct areas like innovative storage techniques, Mega Food Parks, and the availability of aquaculture technology designs at low costs in India.

Ready-to-Eat Foods: In Australia, the Indian diaspora has been 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 retail stores in Australia. Other players can also explore Australia as a potential market for exports of ready-to-eat products of Indian origin.

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

Rising complementarities in recent years between India and Australia, who are also Quad partners, have raised 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. Besides, the supply chain resillience initiative among Quad nations can provide a definite advantage for the India-Australia trade agreement.

However, the outcome of the interim trade deal and later the CECA would depend on the global trade scenario as impacted by the ongoing Russia-Ukraine trade war.