India Australia Trade Agreement to support Indian supply chains, boost exports

In a virtual ceremony on 2nd April, India and Australia signed the Australia-India Economic Cooperation and Trade Agreement (AI ECTA), a free trade agreement. The agreement was in talks since a decade and was finally signed in light of Australia’s trade tensions with China and an impending Australian election season in May. The Agreement is aimed at achieving a trade target of USD 100 billion between both countries by 2030.

The two economies are not competing, but complementing each other. Sector by sector analysis show that $100 billion trade [in goods and services] can be achieved by 2030.”

~ Piyush Goyal, Union Minister for Commerce and Industry

Our geography places us squarely in the middle of the world’s strategic centre of gravity. And as the international system becomes more multi-polar, the region’s resilience will be tested. (India and Australia have) shared responsibility to ensure a peaceful, inclusive and resilient Indo-Pacific. A region where the rights of all states are respected, regardless of size. Where disputes are managed peacefully, legally and without coercion. Where open markets facilitate the flow of free trade, greater investment, and stronger people-to-people ties.”  

~ Barry O’Farrell, Australian High Commissioner to India

Though the agreement has been in consideration between both nations since 2011, it kept hitting multiple obstructions and roadblocks. For instance, India wanted tariff-free access for Indian agricultural goods in Australia, and a liberal visa regime for Indian professionals and on the other hand, Australia wanted duty free market access for its processed foods, wines, dairy products and critical minerals. According to sources, both nations displayed some level of flexibility in wake of the pandemic, and in 2020, New Delhi and Canberra upgraded ties to the level of ‘Comprehensive Strategic Partnership’, and signed a defence pact, the Mutual Logistics Support Agreement (MLSA), paving the way for better defence cooperation.

Anil Wadhwa, former secretary at the Ministry of External Affairs said that the Agreement will be a win-win for both the countries as it will not only reduce Australia’s dependency on trade with China, but will also allow deeper penetration of Indian goods and services into the Australian market. Back in 2021, China had issued sanctions against Australian exports of seafood, barley, coal, timber and others as part of punishment over Canberra’s criticism of Beijing blocking investigations into the origin of the COVID-19 pandemic. With the Agreement, Australian exports will have new markets in India.

This is a watershed moment for our bilateral relations. On the basis of this agreement, together, we will be able to increase the resilience of supply chains, and also contribute to the stability of the Indo-Pacific region.”

~ Narendra Modi, Prime Minister of India

In a welcoming move, 96.4% of Indian exports will get zero duty market access in Australia from the first day of implementation of the agreement, and the duty on the remaining 3.6% of exports will be phased out in the next 5 years. Similarly, 85% of goods coming from Australia will also be admitted without any duty. This will certainly reduce a part of the cost involved in the logistics aspect of trade between the countries.

The Agreement also aims for better trade prospects between the countries in high priority areas including that of critical minerals and related technology. It can prove to be a boost to India’s plans of switching to sustainable supply chains with environment-friendly fuels as Australia has reserves of 21 of 46 minerals identified as the key to India’s strategy for sustainable mobility.

There is also a whole new pool of Australian super funds and infrastructure companies to invest in India’s infrastructure and toll roads sector, which has the potential to further India’s plan of action in the Gati Shakti Masterplan.

At present, Australia is the 17th largest trading partner for India, and India is Australia’s 9th largest trading partner. India’s merchandise exports to Australia primarily consist largely of finished products, and were valued at USD 6.9 billion, whereas, India’s merchandise imports from Australia were valued around USD 15.1 billion in 2021, consisting largely of raw materials, minerals and intermediate goods. Three-fourths of India’s imports from Australia consist of coal.

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