Operationalizing of India Australia Trade Deal-ECTA is a “Watershed Moment” remarked by India’s Prime Minister, Shri Narendra Modi. Certainly, it is the most discussed topic among all stakeholders of International Trade these days. We cannot repudiate that it is a partnership between two large economies in the world where India is the 5th largest Economy, Australia is the 14th largest economy in the world, and India has accomplished the trade deal with a developed country like Australia after a decade.
Relation between RCEP and India Australia Trade Deal-ECTA:
After protracted negotiations, India did not join RECP, the world’s biggest trade bloc of 15 countries, in November 2019. According to the Former vice chairman of Niti Ayog Arvind Panagariya, and many other economists and Policy Analysts, India’s Withdrawal from RCEP was a major mistake.
India could participate in the global value chain and attract foreign investment if India joined hands with this trade bloc. But the manoeuvre of the Indian Govt exhibits a protectionist attitude towards international trade, as the Government is already being criticised owing to the promotion of “Self-Reliance” or “Atmanirbhar” Bharat and belief in a Close Economy.
On the other hand, according to the explanation specified by concerned Government officials, the single largest reason for India’s reluctance to join the RCEP was China. The Economic reason behind this is that it can harm Indian MSME sectors due to overflooding with inexpensive Chinese goods. Consequently, local goods can become uncompetitive in the Indian market.
Nevertheless, India focuses on trade deals with one-to-one countries involved in the RCEP trade bloc to compensate for the losses due to the rejection of RCEP joining. India already has trade agreements like CECA with ASEAN countries and CEPA with Japan and the Republic of Korea. On 29th December 2022, India executed the trade deal with Australia, so only New Zealand is left.
India Australia Trade Deal-ECTA
Australia has been a strategic partner of India for a long time, as both India and Australia are part of the US-led Quadrilateral Security Dialogue, known as the Quad, Supply Chain Resilience Initiative and Indo-Pacific Economic Forum. Inevitably, Indo Australia trade deal has been executed very fast and perfectly, whereas our Honorable Ministry of Commerce has confirmed that the Indian Govt has successfully protected the Indian Agriculture and Diary sectors from this deal.
The notable economic factor observed from the trade pattern between India, and Australia is that both countries provide complementary goods and services instead of competitive ones. This deal will boost international trade between India and Australia. According to the report, India and Australia’s Bilateral Trade should cross 45 to 50 billion Dollars in five years, which is 31 billion dollars now. Indian merchant export is predicted to increase by about 10 billion dollars in the next five years, which stands at around 6.7 or 7 billion dollars now.
Right now, 96% of imports to India from Australia are intermediate goods or raw materials. The remaining are capital goods 1% and consumer goods 3%. In contrast, Raw materials and Intermediate goods exported to Australia from India occupy a very trivial portion of the Indian export bucket. Mostly Indian goods exported to Australia are Finished Goods like Leather, gems and Jewellery, Iron Steel, Pharmaceutical products etc.
Benefits of India in the India Australia Trade Deal-ECTA
- India will benefit from preferential market access provided by Australia on 100% of its tariff lines, including all the labour-intensive sectors of export interest of India, such as Gems and Jewellery, Textiles, leather, footwear, furniture, food, and agricultural products, engineering products, medical devices and Automobiles. It will provide zero-duty access to 96% of India’s exports to Australia, and India will offer preferential access to Australia on over 70% of its tariff lines, including lines of export interest of Australia, primarily raw materials and intermediaries such as coal, mineral ores and wines.
- Annual Visa Quota for 1800 Indian Yoga and Chef, as there is a demand for them, has been observed in Australia.
- Over 1 lakh Indian graduate Students from STEM (Science, Technology, Engineering, Mathematics) will get an advantage from a post-study work Visa for a tenure of 18 months to 4 years, depending on their qualifications and degree.
- India will import engineering and technology from Australia at a discounted price. Therefore, there is potential to receive better technology in India from Australia.
- India is anticipating receiving Superannuation funds from Australia as foreign investment in India.
- India’s labour-intensive sectors like textile and apparel, gems and jewellery, and leather will benefit due to zero custom duty. The applied condition is that exporters must furnish a certificate of origin, which must be India and Australia. It is predicted that 10 lakh jobs will be created in India as import is going to be low-priced and industries are projected to flourish.
- India will enjoy the import at a cheaper rate from Australia, whether the carton is about 28 millimetres or raw materials like coal. Steel Industries stakeholders are very optimistic about the low-cost import of coal, which is a crucial substance for the steel industry.
- Double taxation has been removed. Subsequently, Indian IT companies can save 120 million dollars per year.
- Australian resources and other commodities such as Critical minerals, wool and cotton significantly contribute to Indian industries.
Benefits of Australia in India Australia Trade Deal-ECTA
India Australia Trade Deal-ECTA is a passport for Australia by which they get market access to one and a half billion people in India at a low-price rate. According to DFAT, Indian tariffs on over 90% of Australia’s goods exported to India by value are eliminated, and tariffs over 85% of exported goods like sheepmeat, barley, oats, coal, alumina etc., have been banished with effect from the 29th December 2022.
Tariffs on a further 5 per cent of Australian export goods like nuts, fruit and vegetables, infant goods, seafood etc., will be phased out to 0 per cent over 2, 4 or 6 years. In addition, high tariffs will be considerably reduced for some important agricultural products as well. These results are commercially significant for reaching $14.8 billion worth of Australia’s current merchandise trade destined for India each year.
Concerning Services, India is Australia’s third-largest export market. According to Australian Government data, over the last decade, Australian services like Business Services, Communication Services, Construction and related engineering services, educational services, Environmental Services, Financial Services etc, exports to India have nearly doubled to reach $6.9 billion in 2020.
Australian service suppliers will advantage from full or partial access across more than 85 Indian service sectors and subsectors. India agrees to give any future FTA partner in 31 sectors and subsectors, which will always boost Australian services sellers to be on par with new worldwide competitors.
Australia has been able to take advantage of India’s current liberalisation in the banking and insurance sectors, where India has increased foreign participation in commercial banks, insurance and fund managers. India has agreed to lock in 49 per cent foreign equity for a range of Australian banking and insurance services in India Australia Trade Deal-ECTA, higher than the foreign equity limit India provided in other significant free trade agreements with Japan, the Republic of Korea and Singapore.
Discussion on non-tariff barriers
Australia and India have agreed to safeguard transparency in applying non-tariff measures so that such measures cannot create irrelevant obstacles to trade. Australia and India’s commitment to non-tariff barriers are beneficial in strengthening the trading relationship, as non-tariff measures generally affect the smooth flow of trade between two countries.
India Australia Trade Deal-ECTA contains assurances for both countries to be transparent about implemented laws, regulations, and decisions of government.
Although Mutual Recognition Agreement (MRA) to eradicate the NTB barrier in the Export of goods are yet to be executed.