Introduction
As two major liberal democracies in the Indo-Pacific region, India and Australia share common viewpoints on many regional and global matters. Relations between the two countries have undergone transformative evolution in recent years. The bilateral relationship is special and this is characterised by the shared value of a pluralistic, parliamentary democracies, Commonwealth traditions, expanding economic engagement, long-standing people-to-people ties and increasing high-level interaction[i]. Both are members of the Quad, a major grouping consisting of Japan and the US as other two, and engaging at summit levels and at the level of defence and foreign ministers on continuous basis to discuss regional issues. While the political understanding is in place, the potentials to deepen economic ties have not been honed as desired. This lacuna has now been removed with the signing of the India-Australia Economic Cooperation and Trade Agreement (ECTA) in April 2022. While hailing the trade deal and admitting both sides are 50 years late in enhancing ties, Union Commerce Minister Piyush Goyal said it is “better late than ever”.[ii]
Goyal was on a three-day visit to Australia to ink the trade pact. While addressing a key event at Melbourne University, Goyal said the pact gives both countries an opportunity to get back the “brotherhood, fraternity and togetherness that was rightly due”. The signing of the trade pact opens up opportunity for other agreements in education, particularly on the healthcare sector. Greater cooperation in the healthcare sector has been realised after the remarkable service rendered by doctor, nurses, paramedical workers for saving peoples’ lives during the Covid-19 pandemic. Goyal held wide-ranging discussions with his Australian counterpart Dan Tehan in the outgoing Scott Morrison government on carrying forward the ECTA. One does not see any change in Australia’s commitment to deepen ties with India by the new Labor government headed by Anthony Albanese.
ECTA is the first trade agreement of India with a developed country after more than a decade and provides for an institutional mechanism to improve trade between the two countries. In February 2022, India signed a Free Trade Agreement (FTA) with the UAE and is currently working on FTAs with Israel, Canada, UK and the EU. Australia is also the third OECD country after Japan and Korea with which India has signed an FTA. This agreement has strategic significance too, as both India and Australia are part of the Quad and partners in the Supply Chain Resilience Initiative (SCRI)[iii]. India negotiated some important trade pacts in the past that involved large economies such as those of the Association of South East Asian Nations (ASEAN), Japan, Korea, Singapore and Malaysia. Indian Industry, however, did not show the kind of enthusiasm it is expressing for recent trade deals, first with the UAE and now with Australia. One of the major factors behind this new FTA confidence and support shown by Indian Industry is that the government has identified the right set of countries for such trade and aggressively ensured meaningful market access for Indian exports.[iv]
Goyal too held talks with Tony Abbott, then Australian PM Morrison’s Special Trade Envoy. Australia is the 17th largest trading partner of India and India is Australia’s 9th largest trading partner. The trade pact shall pave the way to deepen economic ties, increase bilateral trade and investment, besides forging unity among Quad members. The agreement would help in taking bilateral trade from USD 27.5 billion at present to USD 45-50 billion in the next five years. India’s goods exports were worth USD 6.9 billion and imports aggregated to USD 15.1 billion in 2021[v]. This trade imbalance could be because of the composition of trade, which is tilted in Australia’s favour. The new trade pact is expected to address this trade imbalance issue. Goyal is optimistic that both countries should aim for USD 100 billion bilateral trade volume by 2030.[vi]
On 2 April, India and Australia signed the Economic Cooperation and Trade Agreement (IndAus ECTA) under which both the countries are providing duty-free access to a huge number of goods and relaxing norms to promote trade in services. Besides agreement on dual degrees in the education sector, scope for cooperation in promoting service trade also look promising. Research, start-ups and agri-tech are other areas for potential cooperation. Australian companies can look at India as the fast-growing economy to invest in the infrastructure sector. Australia has a huge investible surplus and investment in projects in India can fetch fair return to Australia. Strengthening air and shipping connectivity with focus on expanding direct shipping lines between India and Australia can be a win-win situation for both sides. As Goyal’s then counterpart Dan Tehan described, the trade pact is a “unity agreement” and a comprehensive one. Council for Leather Exports (CLE) Vice Chairman Rajendra Kumar Jalan said that leather is a part of the agreement and the pact would promote its trade with Australia.
Another highlight of the trade pact is that it will give about 85 per cent of Australia’s exports zero-duty access to the Indian market, including coal, sheep meat and wool, and lower duty access on Australian wines, almonds, lentils, and certain fruits[vii]. Prime Minister Narendra Modi described the trade pact as a “watershed moment” and “one of the biggest economic doors”.[viii] India needs to be watchful if the trade imbalance is not further widened unless reciprocal facilities are utilised properly. The trade pact is set to provide zero-duty access to 96 per cent of India’s exports to Australia including shipments from key sectors such as engineering goods, gems and jewellery, textiles, apparels and leather. Zero-duty access for Indian goods is set to be expanded to 100 per cent over five years under the agreement. According to a government estimate, the pact shall also generate over one million jobs in India.[ix]
The future in the education sector also looks promising. The agreement shall facilitate student exchange, professionals and tourists, deepening bilateral ties. Under the agreement, Indian graduates from STEM (Science, Technology, Engineering and Mathematics) will be granted extended post-study work visas. Australia will also set up a programme to grant visas to young Indians looking to pursue working holidays in Australia[x]. The agreement shall come into force after it is ratified by the Australian Parliament.
Currently, a number of Indian exports face a tariff disadvantage of 4-5% in many labour-intensive sectors relative to competitors — those with FTAs with Australia — such as China, Thailand, Vietnam. Removing this barrier could enhance merchandise exports significantly. Under the pact, Indian goods and services exports to Australia are expected to reach USD 20 billion in FY2027 and USD 35 billion in FY2035, up from about USD 10.5 billion in 2021. Australian wine imports, almonds, lentils, oranges, mandarins, pears, apricots and strawberries are set to benefit from lower tariffs under the agreement. India has, however, excluded a number of Australian products from tariff reductions under the agreement to protect “sensitive sectors” including dairy products, wheat, rice, chickpeas, beef, sugar, apples, toys and iron ore.
While negotiating the trade pact, Indian side took into consideration and kept the interests of the Indian industry where it has certain sensitivities. Many sensitive products were kept in the exclusion category (29.8 per cent of tariff lines). These included milk and dairy, walnut, pistachio nuts, bajra, apple, sunflower seed oil, oil cake, gold, silver, platinum, and many medical devices. This is a major gain for India under the ECTA. India also managed to get commercially meaningful offers from Australia in several sectors. This included 1,800 Indian traditional chefs and yoga teachers entering Australia as contractual service suppliers, post-study visas for Indian students, the pursuit of a mutual recognition agreement on professional qualifications, and an enhanced commitment on the movement of professionals as intra-corporate transferees. These are some of the key gains for Indian service sectors.
Australia is a major exporter of key resources, some of which India needs to import to sustain its economic growth. For example, coal accounts for 74 per cent of Australia’s exports to India and accounts a duty of 2.5 per cent. The elimination of duties on coking coal is expected to boost the competitiveness of Indian steel exports. Zero-duty access for Australia is set to increase to cover 91 per cent of its exports by value and over 70 per cent of India’s tariff lines over 10 years. Other key Australian products which will see tariffs eliminated when the agreement comes into force include LNG, wool, sheep meat, alumina and metallic ores while tariffs on avocados, onions, pistachios, macadamias, cashews in-shell, blueberries, raspberries and blackberries are set to be eliminated over seven years. Procuring lower cost raw materials such as alumina from Australia is in India’s interest as it will boost the international competitiveness of Indian manufacturers[xi].
One factor that led to an early push for Australia to clinch the trade deal after over a decade of negotiations stemmed from its worsening trade ties with China. Both the countries began talks on the trade deal back in 2011, but discussions were bogged down and suspended in September 2015 after nine rounds of negotiations, pending the outcome of other multilateral negotiations. The spark was provided and it was reignited when Australia-China trade ties strained over tariff issue. Australia’s demand for a WHO inquiry to the origin of the virus worsened relations. The government of Scott Morrison in Australia sought to diversify exports markets and reduce Australia’s dependence on its biggest trading partner China, after diplomatic spats led to Beijing sanctioning certain Australian products.[xii] As Australia wanted to reduce its dependence on China, diversifying export markets facilitated early conclusion of the trade pact with India. As natural partners, the relations between India and Australia rest on the pillars of trust and reliability. The negotiations, therefore, for the ECTA were formally re-launched on 30 September 2021 and concluded on a fast-track basis by the end of March 2022.
The trade pact follows the decision of both countries to upgrade their relationship to a Comprehensive Partnership in the middle of 2021. It cannot be missed that the economic agreement has a strategic angle attached to it.[xiii] There is a new dimension to India’s FTA negotiations with foreign countries. Earlier, India negotiated with potential trade partners mainly for market access for business professionals under Mode 4 (Movement of Natural Persons), but now the emphasis shifted to market access to all of India’s merchandise exports.
Before the trade pact was signed with Australia, Indian exports faced a tariff disadvantage of 4-5 per cent in many labour-intensive sectors vis-a-vis competitors in the Australian market such as China, Thailand, Vietnam, South Korea, Japan, Indonesia and Malaysia. Removing these barriers under the ECTA shall enhance India’s merchandise exports significantly. Once the pact is ratified by the Australian Parliament and come into force, all the major traditional Indian exports, such as textiles and apparel, select agriculture and marine products, leather, footwear, furniture, gems and jewellery, pharma and engineering products, etc, stand to gain immensely. Since the composition of export items from Australia is heavily concentrated in raw materials and intermediate products, many industries in India will get cheaper raw material and thus become more competitive, particularly in sectors like steel, aluminium, power, engineering and so on. This also could address to the issue of correcting trade imbalance, which is now in Australia’s favour.
IUM
One of the breakthroughs achieved under the ECTA is that the Australian government agreed to amend its domestic tax law to stop taxation of the offshore income of Indian firms providing technical services to Australia. This was a long-pending demand of the Indian IT industry. Once the amendment is made, the Indian tech companies would no longer be required to pay taxes on offshore revenues in Australia, which would enhance their competitiveness in the international market. It may be noted that though India successfully negotiated an excellent trade deal for businesses, one cannot brush under the carpet the fact that Australia has currently 16 FTAs under operation, and therefore accessing the Australian market would not be a cakewalk.[xiv] The onus lies on India to improve its competitiveness, as in most trade sectors, India would be competing with the likes of China, ASEAN, Chile, Japan, Korea and New Zealand. These countries have already-functional FTAs with Australia and therefore can pose serious competition for India.[xv]
What makes the trade pact significant that India is the world’s largest democracy and is a market for 1.3 billion people? Its youthful population, diversified economy and growth trajectory present significant opportunity for Australian business, including in education, agriculture, energy, resources, tourism, healthcare, financial services, infrastructure, science and innovation, and sport.[xvi] Indeed the trade deal is historic in India-Australia relations and would open up new vista in many more fronts.
The joint media report with Morrison released on 2 April 2022 said that Australian households and businesses will benefit, with 96 per cent of Indian goods imports entering Australia duty-free once the agreement enters into force. This covers many products which currently attract 4-5 per cent customs duty in Australia. Labour-intensive sectors which would gain immensely include textiles and apparel, few agricultural and fish products, leather, footwear, furniture, sports goods, jewellery, machinery, electrical goods and railway wagons.[xvii]
One can see further activism from the Indian side as following the signing of the trade pact, Coal and Mines Minister Prahlad Joshi visited Australia in early July 2022 to build upon an MoU signed between Khanij Bidesh India (KA Bill), a joint venture of three central public sector entities under the mines ministry and Critical Minerals Facilitation Office (CMFO) of Australia. The MoU envisages USD 6 million as initial funding to be shared equally by both countries towards a shared ambition to develop secure, robust and commercially viable critical minerals supply chains[xviii]. Joshi visited mineral-rich sites of Tianqi Lithium Kwinana and Green bushes mines and held talks with key ministers in the Australian government. Bilateral cooperation between India and Australia in this critical sector shall help in India’s transition towards clean energy ambitions. The steps will complement India’s mineral security for e-mobility initiatives and other diversified sectors entailing usage of critical and strategic minerals. Indeed, India is among the fastest growing economies in the world and there is huge scope for collaboration in the mineral sector. Technology transfer, knowledge-sharing and investment in critical minerals like lithium and cobalt are strategic to achieving clean energy ambitions.[xix] Australia is in possession of critical minerals like lithium, cobalt and vanadium, all critical for the manufacturing of critical electronic components.
The commitment of Australia’s minister for resources Madeleine King of A$8 million to the three-year bilateral Critical Minerals Investment Partnership with the aim to lowering emissions and boosting the use of renewable energy was another highlight.[xx]
Australia has noted the potentials of India’s growth projections, with GDP at 9 per cent in 2021-22 and 2022-23, and 7.1 per cent in 2023-24. Australian government’s goal is to lift India to its top three export markets by 2035, and to make India the third largest destination in Asia for outward Australian investment. Australia is confident that the agreement would create enormous trade diversification opportunities for Australian producers and service providers bound for India, valued at up to USD 14.8 billion each year.[xxi] By unlocking the huge market of around 1.3 billion consumers in India, Australia hopes to strengthen the economy, and create jobs.
To list the benefits of ECTA, the following are worth-noting[xxii].
- Sheep meat tariffs of 30 per cent will be eliminated on entry into force, providing a boost for Australian exports that already command nearly 20 per cent of India’s market
- Wool will have the current 2.5 per cent tariffs eliminated on entry into force, supporting Australia’s second-largest market for wool products.
- Tariffs on wine with a minimum import price of USD 5 per bottle will be reduced from 150 per cent to 100 per cent on entry into force and subsequently to 50 per cent over 10 years (based on Indian wholesale price index for wine).
- Tariffs on wine bottles with minimum import price of USD 15 will be reduced from 150 per cent to 75 per cent on entry into force and subsequently to 25 per cent over 10 years (based on Indian wholesale price index for wine).
- Tariffs up to 30 per cent on avocados, onions, broad, kidney and adzuki beans, cherries, shelled pistachios, macadamias, cashews in-shell, blueberries, raspberries, blackberries, currants will be eliminated over seven years.
- Tariffs on almonds, lentils, oranges, mandarins, pears, apricots and strawberries will be reduced, improving opportunities for Australia’s horticulture industry to supply India’s growing food demand.
- The resources sector will benefit from the elimination of tariffs on entry into force for coal, alumina, metallic ores, including manganese, copper and nickel; and critical minerals including titanium and zirconium.
- LNG tariffs will be bound at 0 per cent at entry into force.
- Tariffs on pharmaceutical products and certain medical devices will be eliminated over five and seven years.[xxiii]
The outgoing Morrison Government unveiled plans to invest USD 280 million to further the growing economic ties and support jobs and businesses in both countries. These include:[xxiv]
- USD 7 million to support cooperation on research, production and commercialisation of clean technologies, critical minerals and energy;
- USD 25.2 million to deepen space cooperation with India and
- USD 28.1 million to launch a Centre for Australia-India Relations.
Though the trade pact was cheered by wine exporters and sheep farmers, dairy and grain farmers were a bit disappointed. While wine exporters in Australia can recover from their loss over China with export opportunities to India, the same cannot be said for other sectors. The significant reduction of tariffs shall help Australian wine exporters and sheep farmers. Dairy and grain industries expected a better deal and feel the agreement is a major lost opportunity for market expansion.[xxv] Since the trade war began with China, Australia’s wine industry was looking to find new markets. The trade deal with India came in perfect time to rescue the industry.
When the trade war broke out with China in 2020, China announced to impose tariff up to 200 per cent on all Australian wine. Though the new deal with India shall not help the wine industry recover all losses, it is seen as a vital step towards addressing the national oversupply of wine. The Chinese wine market for Australia was USD 1.2 billion when it was closed in 2020. Though the new frontier in India could help to recover to some extent, the entire loss from the Chinese market cannot be recovered. It is encouraging that imports of Australian wines to India increased by 71 per cent by volume and 81 per cent by value in 2021, the base was small. Besides India, Australian wine industry is also looking to expand into Southeast Asia and Scandinavia. Its established markets are the US, Canada and Britain.
As regards wool, the trade deal shall remove the five per cent tariff on exports to India to zero. Already being the second biggest export market for the product, it will be a win-win situation for both countries. Though India’s consumption of wool is small compared with China, this shall pave the way for larger exports in quantity as the buying power of the Indian consumers has increased considerably. Before the trade pact, India provided a limited market for Australian lamb and mutton products as the tariff imposed was 20 per cent. After the pact, Australian exporters of these products shall benefit as tariffs have been removed as imports by India are likely to rise every year.
As mentioned, dairy farmers were disappointed as the sector was completely excluded in the FTA. Probably Goyal factored during negotiations that including this sector would have been a threat to India’s domestic industry and thus would have affected India’s social fabric. With a large population and majority in the agriculture sector, India has the largest dairy industry in the world and the interests of farmers mostly with two to four cows had to be protected in any trade negotiations with a foreign country. Australia still pins hope for bringing this sector on board in future negotiations.
Like the dairy sectors, the grain growers in Australia are too disappointed as they miss out on the Indian market from exporting premium Australian chickpeas. The interim FTA offers some potential benefits for Australian lentils exporters who hope to see over time benefits for faba beans, canola oil and soyabean, the grain sector expected more access to the Indian market. The grain growers see the pact as a “huge missed opportunity for the chickpea market”.
Long-term Benefit for India
Though the trade pact is expected to come into force by August 2022 or so, India is likely to leverage the pact with Australia and earlier with the UAE to ensure long-term economical energy security. Global supply chain disruption is one of the major causes of concerns for import-dependent nations. The Russia-Ukraine crisis further exacerbated the situation. The oil price volatility forced state-run oil companies to raise patrol and diesel prices frequently. India, which is the world’s third largest consumer of fossil fuels, imports 85 per cent of its crude oil requirement and 54 per cent of its natural gas. India’s coal imports from Australia are increasing and already emerged as the main source of imports of India’s total coal requirements. The new trade pact would further boost energy imports from Australia which has an edge over LNG and liquefied petroleum gas for cooking and automobiles.[xxvi]
The trade pact with Australia also signals that India’s trade policy is moving into higher gear. This also removes tariff disadvantages India suffered in merchandise exports of labour-intensive goods vis-a-vis China and ASEAN countries because of RCEP. Leaning towards import substitution will blunt India’s export competitiveness over time. It denies India cheaper components that reduce product manufacturing costs. Also, the strategic implications of the trade pact cannot be overlooked because as bilateral trade and mutual trust grow, it will be easier for both sides to get on the same page in countering China’s dominance in the Indo-Pacific region. The onus lies on both sides that the momentum is maintained to reap the benefits for a win-wins situation.
Conclusion
Backing the trade pact, former Australian Prime Minister Tony Abbott who played a critical role in the trade agreement observed that if China can weaponise trade, it becomes compelling for Australia that it invests on India and target bilateral trade to reach USD 100 billion by 2035.[xxvii] While Australia-China relationship was built on people-to-people ties which took the bilateral trade to USD 75 billion, India and Australia were always cultural partners. The trade pact shall unlock huge opportunities for Indian exports of automobiles, textiles, footwear and leather products, gems and jewellery, toys and plastic products.
It is also argued that as two liberal democracies coming together with this pact and being part of the Quad, and further complimented by joint naval exercises, both can fight an “assertive and autocratic government” in the Indo-Pacific region and strengthen supply chain, especially around critical minerals. In a clear reference to an assertive China, it was remarked that if an autocratic government that is seeking to change the rules of the game, then the India-Australia trade pact shall help both to fight to keep the rules-based order in place and make sure all countries in the Indo-Pacific can continue to flourish.
Author Brief Bio: Professor Rajaram Panda is currently Senior Fellow at the Nehru Memorial Museum and Library, New Delhi. As a leading expert on the Indo-Pacific region with micro focus on the Northeast and Southeast Asia, Prof. Panda was also Senior Fellow at the IDSA, Lok Sabha Research Fellow and ICCR Chair Professor at Reitaku University, Japan.
References
[i] https://pib.gov.in/pressreleasepage.aspx?prid=1812730
[ii] https://www.freepressjournal.in/india/better-late-than-never-in-australia-piyush-goyal-hails-bilateral-trade-deal
[iii]https://clashofnews.com/CategoryMainPage/opinion/Indias_trade_pact_with_Australia_will_click_It_ticks_the_right_boxes.html
[iv] Chandr Ajit Bannerji, “India’s trade pact with Australia will click: It ticks the right boxes”, 4 April 2022,
[v] https://www.dailyexcelsior.com/new-australian-govt-supports-trade-pact-with-india-goyal-2/
[vi]“India, Australia Should Look At $100 Billion Bilateral Trade By 2030, Says Piyush Goyal”, 6 April 2022,
vii] https://www.msn.com/en-in/news/other/india-australia-sign-fta-trade-likely-to-double-in-5-yrs-generate-1-mn-jobs/ar-AAVN1Zx
[viii] “Oz trade deal ‘watershed moment’: PM”, Times of India, 3 April 2022, https://timesofindia.indiatimes.com/india/australia-trade-deal-watershed-moment-pm/articleshow/90616760.cms
[ix] Karunjit Singh, “India, Australia sign FTA, trade likely to ‘double in 5 yrs, generate 1 mn jobs’”, Indian Express, 3 April 2022, https://indianexpress.com/article/india/india-australia-ink-economic-cooperation-and-trade-pact-to-boost-ties-7849230/
[x] https://www.msn.com/en-in/news/other/india-australia-sign-fta-trade-likely-to-double-in-5-yrs-generate-1-mn-jobs/ar-AAVN1Zx
[xi] https://www.msn.com/en-in/news/other/india-australia-sign-fta-trade-likely-to-double-in-5-yrs-generate-1-mn-jobs/ar-AAVN1Zx
[xii] “Australia-India trade deal to open ‘biggest economic door’: Morrison”, Indian Express, 2 April 2022,
[xiii]“’Historic’ trade agreement with India signed after decade of negotiations”, 2 April 2022, https://www.abc.net.au/news/2022-04-02/india-australia-trade-deal-signed/100961618
[xiv] ChandrAjit Banerjee, “India’s trade pact with Australia will click: It ticks the right boxes”, 4 April 2022,
[xv] “Signing of the Economic Cooperation and Trade Agreement (ECTA) between India and Australia”, Ministry of Commerce & Industry, 2 April 2022,
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1812730
[xvi] “Australia-India Comprehensive Economic Cooperation Agreement (AI-CECA)”, Department of Foreign Affairs and Trade, Government of Australia,
[xvii] https://www.livemint.com/news/india/india-australia-ink-economic-cooperation-and-trade-pact-to-boost-ties-11648877714291.html
[xviii] https://pib.gov.in/PressReleseDetailm.aspx?PRID=1838947
[xix] “India, Oz bring critical minerals into strategic ties”, Times of India, 4 July 2022, https://timesofindia.indiatimes.com/business/india-business/india-oz-bring-critical-minerals-into-strategic-ties/articleshow/92642824.cms
[xx] “India, Oz to boost cooperation in rare minerals projects, supply”, 5 July 2022, https://www.htsyndication.com/hindustan-times/article/india%2C-oz-to-boost-cooperation-in-rare-minerals-projects%2C-supply/62379083
[xxi] “Historic Trade deal with India”, Ministry of Trade, Tourism and Investment, 2 April 2022, https://www.trademinister.gov.au/minister/dan-tehan/media-release/historic-trade-deal-india
[xxii] http://www.16news2.com.au/index.php/2022/04/03/historic-trade-deal-with-india/
[xxiii] Ibid.
[xxiv] Ibid.
[xxv] Jane McNughton, “Australia-India Free Trade Agreement cheered by wine exporters and sheep farmers, but dairy and grain miss out”, 4 April 2022, https://www.abc.net.au/news/rural/2022-04-04/australia-india-free-trade-agreement-winners-and-losers/100963986
[xxvi] Rajeev Jayaswal, “India may leverage FTAs for long-term supply of energy”, Hindustan Times, 4 April 2022, https://www.hindustantimes.com/india-news/india-may-leverage-ftas-for-long-term-supply-of-energy-101649008398413.html .
[xxvii] Pavitra Kanagaraj, “The numbers behind India and Australia’s $100-billion trade target”, Hindustan Times, 11 April 2022, https://www.hindustantimes.com/india-news/the-numbers-behind-india-and-australia-s-100-billion-trade-target-101649634267907.html.
