How will the recent trade deal between Australia-India benefit Australia?

Key Takeaways:

• India and Australia signed a free trade deal on Saturday, 02 April 2022.
• Tariffs would be removed on 85% of the Australian goods exported to India.
• Australian farmers, manufacturers, and producers will grow strongly in the coming days.

On Saturday 02 April 2022, India and Australia signed a breakthrough economic pact under which duties will be slashed to more than 85% of goods exported to South Asian countries. Both the governments secured alternative supply chain and counters. The virtual ceremony was attended by Indian Prime Minister Narendra Modi and Australian Prime Minister Scott Morrison, Indian commerce minister Piyush Goyal and his counterpart  Dan Tehan.

The Deal:

As per the deal, Indian exporters from more than 6,000 sectors will directly have duty-free access in the Australian market. Some of these sectors include textiles, leather, furniture, jewellery, machinery, etc.

On the other hand, India’s deal will help Australia diversify export markets and lessen its reliance on China after diplomatic fights led to Beijing sanctioning some Australian products. Further, the agreement with India removes tariffs on over 85% of Australian goods exported to India. It will gradually be increased to ~ 91% in the next 10 years.

Tariffs will be scrapped on sheep meat, wool, copper, coal, alumina, fresh Australian rock lobster, and some important minerals and non-ferrous metals to India.

Both the countries have agreed to continue working in the direction of a full free trade agreement in an accelerated way.

Significance of the free trade agreement:

The free trade agreement contributes to greater economic activity and job creation in Australia. Through these deals, there is a massive opportunity for Australian businesses which provides them benefits from greater trade and investment.

Not only do free trade agreements help lessen and remove tariffs but it will also help to assist behind the border barriers that would hamper the movement of goods & services, boost investment, and improve the rules affecting issues like intellectual property, e-commerce, and government procurement.

Besides, free trade agreements allow Australian companies as well as consumers’ better access to broader competitively priced goods & services, new technologies, and innovative practices. Australia also gets benefitted from foreign investment.

India as a market for Australia:

India is the biggest democracy in the world and is amongst the fastest-rising major economies, a technology powerhouse, and major power. In 2020, India was the seventh biggest trading partner and sixth-largest export market of Australia, compelled by coal and international education. People-to-people contacts support the relationship, with the size of the Indian movement increasing and its roles to Australia’s economy and multicultural landscape.

Over the next two decades, Australia expects that India will need most Australian goods and services, comprising agriculture, education and skills training, and healthcare.

Before the COVID-19 pandemic in 2020, India’s economy was the third-largest in the world in terms of Purchasing Power Parity. It is believed that India will become the world’s third largest by 2030 in market exchange rate terms. However, post the pandemic, India noted its first economic contraction in 40 years in 2020. The extreme disturbances due to COVID-19 were escorted by the start of economic support measures and structural reforms. Thus indicating that India’s business circumstances have experienced substantial changes following the beginning of COVID-19.

Further, in the long-term, India’s robust fundamentals, young demographics, growing consumer class, stable urbanisation, unmet infrastructure investment requests, and digitalisation along with the formalisation of the economy might drive continued growth.

Sectors to benefit from free trade deal

As pointed out above, tariffs will be removed on 85% of the Australian goods exported to India. Australia will be able to ease labour shortages in the technology sector. Top performing students will be allowed to stay in Australia for 3 years after graduating to work in fields of science, technology, and engineering mathematics.

With this trade deal, sheep farmers were the big winners who will see a 30% tariff on meat scrapped once this deal comes into force. Wool, lobsters, coal, manganese, copper, zirconium, alumina, titanium dioxide, and other key minerals are next in line where we can see tariff cuts.

Other products like wine, infant formula, specific peas and beans, macadamias, avocados, onion, cherries, berries, apricot, strawberries, and pharma products will see gradual cuts in tariffs.

The agreement between the two countries will open the way for Australian farmers, manufacturers, producers, and many more. Australia will now be able to unlock the huge 1.4 billion consumers in India.

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