Impact of India-Australia Trade Agreement

15 Feb, 2023

The year 2022 has been one of the most challenging years for Global Trade. The Russia-Ukraine conflict and the spike in Covid cases in China, trade across geographies has effected a huge slowdown on the world economy. Apart from these, rising interest rates and a bump in the inflation in major economies across the globe is further pushing them towards a recession.

While India has been one of the very few resilient economies who have stood strong in these tough times with a projected growth rate of 6.8, the government has been actively working on negotiating FTAs with various countries to boost its trade with its partners. While the Government is assertively negotiating a favourable FTA with UK, EU and Canada, it has successfully hit the ball out of the park with successful closure of the FTAs first, with UAE and now with Australia in the calendar year 2022.

Deep dive into the IAFTA

The Free Commerce Agreement (FTA) between India and Australia, formally known as the Economic Cooperation and Trade Agreement (ECTA), establishes an institutional system to promote and improve trade between the two countries.

The ECTA between India and Australia encompasses virtually all commercial tariff lines between the two countries. The Australian government has decided to grant India privileged market access across all of its tariff lines. Exports to India that rely heavily on manual labour include: gems and jewellery; textiles; leather; footwear; furniture; food and agricultural products; engineering and medical gadgets; automobiles.

The India Australia Free Trade Agreement (IAFTA) is an important milestone in the global trade landscape. The agreement focuses on removing barriers to trade, reducing tariffs and non-tariff measures, promoting mutual investment, and improving market access. This will be beneficial not only to both countries. While 96.4 of Indian Exports to Australia will become duty free, 85  of Australian Exports to India will be duty free. The deal has the potential to further boost bilateral trade between the countries to 50 billion USD in the next 5 years.

Industry wise changes with IAFTA

Indian Products that will get a boost: Garments & Textiles, Gems & Jewellery, Leather and Non-leather Footwear, Furniture, Sports Goods, Automobile parts and Engineering products.

Currently, apparel accounts for a meagre 5 of Australia’s Import with China taking the biggest pie of almost 70. Having said that, Indian Apparel exports to Australia which have steadily increased over the past 5 years would get a competitive edge with a duty advantage over its competitors like China, Vietnam and Indonesia.

The Gems & Jewellery sector, which currently exports 1.2 Billion USD is expected to double to 2.5 Billion USD in the next 3 years. This boost in exports is generating employment for 88,000 jobs in the sector as per the GJEPC.

Australian Products that will get a boost: Raw Materials such as Coal Aluminum, Wine, Pharmaceuticals, Cosmetics.

A cut in import duties of basic raw material would directly reduce import bills of local manufacturers, it would make them more competitive as compared to their global peers. This in turn would boost exports further.

While the FTA would give Indian manufacturers an edge, it would further cast a shadow on the Indian Wine industry. The Indian wine industry has traditionally been shielded by a steep import duty of 150 and would now face stiff competition from Australian Wine makers. Having said that, the agreement only covers 2 of the wine being imported from Australia, while the remaining 98  would continue to attract the duty.

In conclusion, both countries have agreed that they won’t put up trade barriers that aren’t necessary through non-tariff measures. This is to increase transparency.

The IAFTA also set up a Committee on Trade in Goods, whose job will be to talk about issues related to trade. This committee will be very important in improving the two-way trade between the two countries and making it easier for goods to move in both directions.

Overall, the India-Australia Free Trade Agreement (IAFTA) is a big step forward in making the two countries’ economies stronger. It will help trade and investment grow, give businesses new opportunities, and boost economic growth. The agreement will also help consumers because it will make it easier and cheaper for businesses to import and export goods and services between the two countries. This means that consumers will have more choices and prices will go down.

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