India-Australia FTA – What it means for the core sectors

There has been a significant increase in the volume of trade between India and Australia in the recent years. The two-way trade in goods and services between the two countries have increased from $13.6 billion in 2007 to $24.3 billion in 2020. In 2020, Australia had $15.4 billion invested in India. In the same year, the stock of two-way foreign direct investment was worth $1.4 billion.

After several years of negotiations, on November 22, 2022, the Australian parliament in a landmark agreement cleared a Free Trade Agreement (FTA) with India. As a result of the agreement, the market of share of Indian goods and services in Australia is expected to increase, with India’s exports expected to increase from US$ 10.5 billion in 2021 to US$ 20 billion by 2026-27. India-Australia FTA is expected to raise bilateral trade to $45-50 billion in the next five years.

What it means for the core focus sectors?

The agreement is expected to offer multiple opportunities to the country – Indian businesses, students, and the citizens in general.
Given the importance of services in such trade agreements, the IT sector is anticipated to benefit most from this agreement. Also, the pharmaceutical industry will get a big boost as the medicines that have undergone rigorous approval process by UK and USA be given a fast route to approval in the Australian regulatory system.

Various labour-intensive industries including textiles and apparel, certain agricultural and fish products, leather, footwear, furniture, sports goods, jewellery, machinery, electrical goods, and railway wagons will gain significantly through this agreement and is expected to generate around ten lakh jobs in the next 5-7 years.

ECTA will allow duty free access to the Australian market for over 6000 broad sectors on 98.3% of tariff lines from the day agreement comes into force and 100% of tariff lines within 5 years.
Further, Australia has extended the term of stay by two to three years Indian students, with first class honours degree in areas related to science, technology, engineering, mathematics (STEM), and information and communication technology (ICT).

How would it impact the Indian MSME

The trade deal with Australia is a much welcome move especially for MSME manufacturers as Australia is a major supplier of raw materials and intermediate goods (coal, aluminium etc.) and these raw materials will be available to India at a cheap cost post the agreement. This will help increase our competitiveness in the export market.

Additionally, there are great opportunities for cooperation between Australia and India in a number of crucial fields, including space and defence, cyber technology, key minerals, water resources, training, and education.

The trade deal is expected to greatly benefit all the sectors with heavy MSME presence such as textiles and apparel, footwear, agriculture and fish products, furniture, engineering products, sports goods, jewellery and certain pharmaceuticals and medical devices.

How would it impact the Australian industry 

India offers considerable growth opportunities for Australian business across various sectors, including food and agriculture, technology, and green energy, to health and education services. The trade agreement with India will enable Australian goods exporters to obtain favoured access to the enormous untapped Indian market.

Until recently, China dominated the Australian market for plastics, toys, pharmaceuticals, textiles, and leather goods. The India Australia ECTA could make India a reliable alternative to China, which has been resorting to sanctions on Australian exports including coal, beef, seafood, wine, and barley.

The removal or reduction of tariffs on products such as sheep meat, wool, wine, coal etc. will allow Australian products to be exported and open new business opportunities, notably in regions where commerce was previously unfeasible due to high tariffs. Lower Australian tariffs may result in lower import costs for items from India and a wider selection of products for Australian customers.
Further, the agreement will ensure certain mobility outcomes that will foster people-to-people links, support trade and business and promote cultural exchange between the two nations.

In order to realise the full potential of this trade agreement, Indian manufacturers need to utilise the essential Australian raw materials available to them. However, the level of ultimate profit would depend on how competitively Indian firms will be able to export in the future. Any failure to achieve those crucial production advantages resulting from this FTA will eliminate India’s future gains from the agreement.

However, as both the countries are actively working towards making this deal successful, it can go a long way in making this pact economically advantageous to the two countries.

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