Sealing a pact that their leaders hailed as a “watershed moment” and “one of the biggest economic doors there is to open in the world”, India and Australia Saturday signed an Economic Cooperation and Trade Agreement (IndAus ECTA) which 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, apparel and leather.
The pact is expected to boost bilateral trade in goods and services to $45-50 billion over five years, up from around $27 billion, and generate over one million jobs in India, according to a government estimate.
The agreement will also give about 85 per cent of Australia’s exports zero-duty access to the Indian market, including coal, sheep meat and wool, and lower duty access on Australian wines, almonds, lentils, and certain fruits.
Zero-duty access for Indian goods is set to be expanded to 100 per cent over five years under the agreement.
- India and Australia enjoy excellent bilateral relations that have undergone transformative evolution in recent years, developing along a positive track, into a friendly partnership.
- This is a special partnership characterized by shared values of a pluralistic, parliamentary democracies, Commonwealth traditions, expanding economic engagement, long standing people-to-people ties and increasing high level interaction.
- The India-Australia Comprehensive Strategic Partnership initiated during the India-Australia Leaders’ Virtual Summit.
- Growing India-Australia economic and commercial relations contribute to the stability and strength of a rapidly diversifying and deepening bilateral relationship between the two countries.
- India and Australia have been each other’s important trading partners. These excellent bilateral economic and commercial relations have continued to enhance and deepen over time.
- Australia is the 17th largest trading partner of India and India is Australia’s 9th largest trading partner. India-Australia bilateral trade for both merchandise and services is valued at US$ 27.5 billion in 2021.
- India’s merchandise exports to Australia grew 135% between 2019 and 2021. India’s exports consist primarily of a broad-based basket largely of finished products and were US$ 6.9 billion in 2021.
- India’s merchandise imports from Australia were US$ 15.1 billion in 2021, consisting largely of raw materials, minerals and intermediate goods.
Watershed moment for our bilateral relationship:
- It is the first Free Trade Agreement (FTA) that India has signed with a major developed country in over a decade. In February 2022, India signed an FTA with the UAE and is currently working on FTAs with Israel, Canada, UK and the EU.
- “This is indeed a watershed moment for our bilateral relationship,” Modi said, adding that the agreement would make it easier for both countries to exchange students, professionals and tourists which in turn would strengthen 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.
- These are never all or nothing deals as far as we’re concerned, we see all of these as the next step and the next step and the next step.
- The agreement is expected to come into force after it is ratified by the Australian Parliament.
- Commerce Ministry said the agreement was expected to boost trade between the two countries to $45-50 billion within five years and generate over one million jobs in India.
- Officials pointed out that a number of Indian exports currently 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, officials said, could enhance merchandise exports significantly.
- Bilateral trade in goods and services between India and Australia stood at $27.5 billion in FY2021.
- Indian goods and services exports to Australia are expected to reach $20 billion in FY2027 and $35 billion in FY2035, up from about $10.5 billion in 2021.
On double taxation by agreeing to amend local taxation laws:
- The agreement will also allow for faster approval of Indian medicines by Australian regulators as they have agreed to use inspection reports and approvals from Canada and the EU in the evaluation process for India pharmaceuticals and manufacturing facilities.
- Australia has also addressed a long-standing concern of Indian IT firms on double taxation by agreeing to amend local taxation laws to stop the taxation of offshore income of Indian firms providing technical services to Australia.
- Australia is set to benefit from zero-duty access on coal which currently accounts for about 74 per cent of Australia’s exports to India and currently attracts a duty of 2.5 per cent.
- The elimination of duties on coking coal, which accounts for about 73 per cent of coal imports, is also 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.
India and Australia are partners in the trilateral Supply Chain Resilience Initiative (SCRI) arrangement along with Japan which seeks to enhance the resilience of supply chains in the Indo-Pacific Region.
Further, India and Australia are also members of the recently formed Quad, also comprising US, and Japan, to further enhance cooperation and develop partnership across several issues of common concerns.