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India and Australia enjoy excellent historical bilateral relations which have further matured into a friendly partnership. This partnership is also fortified by shared values of a pluralistic society, parliamentary democracies, and commonwealth traditions.
To strengthen this relationship, open different and newer avenues for trade, and bolster business across this corridor, both countries have signed a Free Trade Agreement that is scheduled to come into force on 29 December 2022. As per the Ministry of Commerce and Industry, India currently has 13 FTAs with multiple countries across the globe; and the latest one with Australia added to the list will further enable India to maintain an active nexus of economic co-operation across the globe.
Currently, as per the Ministry of Commerce and Industry, Australia is the 17th largest trading partner of India and India is the 9th largest trading partner of Australia. India-Australia's bilateral trade for both merchandise and service trade was valued at US$ 27.5 billion in 2021.
With the ratification of the India-Australia Economic Cooperation and Trade Agreement (‘ECTA’), the bilateral trade in goods and services for both countries is expected to rise from the existing US$ 27.5 billion to US$ 45 billion in five years. This FTA creates a channel of reciprocal trade benefits for both countries, wherein they gain economic precedence in each other’s markets, supporting several sectors and services.
Australia will provide zero-duty access to India for 100% of its tariff lines (98.3% tariff lines from day one and the remaining 1.7% in a phased manner). The ECTA ensures an institutional mechanism to encourage business growth between the two countries. This is extremely helpful, especially for labour-intensive sectors such as engineering, textiles and apparel, gems and jewellery, leather and footwear, which otherwise are subject to a 4-5% duty in Australia.
India, on the other hand, will provide zero-duty access to Australia for 70.3% of its tariff lines (40.3% tariff lines from day one and the remaining 30% in a phased manner). Around 96% of Australia’s exports to India are raw materials and intermediate products, therefore the tariff concessions offered by India will allow local/domestic industries to get cheaper raw materials and enhance their competitiveness. This FTA is also going to generate employment for over a million people, as estimated, over the next five to seven years.
In the future, this FTA will also encourage vertical movement in the value chain with an increased presence of higher-value technological products, such as electronics, pharmaceuticals, medical devices, and more in the trading portfolios.
In the long-term, this move is expected to enhance not just the fiscal relationship between the two countries, but also improve living standards and the general welfare of the people in the two nations. Cementing the strategic partnership between India and Australia is a key milestone to dismantle geographical borders and deepen collaboration.
This also opens up the participating economies for mutual investment and furthers the cause of an interconnected world. The passage of the Australia-India FTA in the Australian Parliament, after more than a decade of negotiations, is a significant milestone in India’s aim to achieve the $2 trillion export target by 2030.