India-Australia Free Trade Deal Offers Australia First Mover Advantage in World’s Fastest Growing Economy

Reforming industrial subsidies

AI ECTA is India’s first deal with a developed economy in a decade and only a second trade deal in a span of eleven years. It is indicative of how Australia’s bilateral relationship with India has grown in leaps and bounds recently, particularly since the elevation of ties to a Comprehensive Strategic Partnership (CSP) in 2020. The signing of the reasonably comprehensive interim trade deal, the Australia India Economic Cooperation and Trade Agreement (AI ECTA), promises to push bilateral trade from the current $27.5 billion to $45 billion in the next five years, and on to $130 billion by 2030.

With federal elections just a few weeks away, PM Morrison has affirmed his government’s commitment to building Australia’s economic resilience by delivering economic diversification. AI ECTA will allow tariffs to be eliminated on more than 85 per cent of Australian goods exports to India (valued at more than $14.8 billion a year), and 96 per cent of Indian goods imports entering Australia. Australia’s goal is to lift India into its top three export markets by 2035 and to make India the third-largest destination in Asia for outward Australian investment.

AI ECTA is India’s first deal with a developed economy in a decade and only a second trade deal in a span of eleven years. The last agreement India signed was with Japan in 2011, followed by UAE and Australia in 2022.

Australia and India began negotiating a Free Trade Agreement (FTA) in 2011. But after six years of toil, nine rounds of negotiations, and a detailed joint FTA feasibility study, the negotiations were suspended over divided sectoral interests in 2015. The negotiations for AI ECTA were formally re-launched on 30 September 2021 and concluded on a fast-track basis by the end of March 2022.

The appointment of former Prime Minister Tony Abbott, who has a good rapport with PM Modi and India’s political class, as a special trade envoy to India in August 2021 reflected the Morrison government’s awareness that strong relationship building was needed to make progress on a trade deal with India.

The recent 3-day visit of the Indian Commerce Minister Piyush Goyal to Australia after the deal was signed included a large Indian business delegation of 58 business leaders and constituted a strong message to stakeholders that India is aggressively pushing its economic growth ambitions and global economic engagements.

REFLECTIONS ON WHAT AI ECTA MEANS FOR BOTH COUNTRIES

Since the elevation of bilateral ties to a Comprehensive Strategic Partnership in 2020, the past 18 months have been exciting and action packed for the Australia-India bilateral relationship. The constant shuffle between gloom and doom of COVID and the ambitions of government to maximise options and opportunities for producers, manufacturers, and industry sectors has been an interesting lesson in how tough times can become a lever for new promising gains. China is no longer Australia’s best trading ‘friend’, while the pandemic has exposed all countries to global supply chain risks, the dangers of reliance on highly concentrated trade flows and the need for economic diversification.

In that context, the AI ECTA deal is both the dawn of a new trade orientation for Australia and a poster example of New India’s willingness to engage with countries on trade deals that it views as reciprocal, equitable and non-discriminatory. It should assist in changing perceptions across the developed world which have typecast India as ‘protectionist’.

AI ECTA brings Australia to the inner circle of Indian economic diplomacy, which otherwise has often been overlooked because of Australia’s population size and scale, offering Australia a first-mover advantage across various sectors in a large growing aspirational economy; one that requires goods and services in agriculture, critical minerals, education and skills training, and healthcare.

India’s scale, demographics, and growing middle class offer a new long-term growth opportunity to Australian businesses. Australian manufacturers can use India as a cost-effective manufacturing base, and export from India to the world. At a Business Council of Australia event during his recent 3-day tour, Minister Goyal discussed how “in 11 years Cochlear have sold 27,000 implants in India. Cochlear can scale up its operations by setting up a manufacturing facility in India, which will not only reduce the cost of implants but also provide export opportunities from India to other countries, and they can do this without any commitment to technology transfer, as has been insisted by other countries.”

Strong Australia-India economic ties will also pave the way for a stronger Indo-Pacific economic architecture based on supply chain resilience, complementarities, sustainable commitments and mutual dependence across countries. The combined GDP among the Quad countries (US, Japan, India, and Australia) sits at $34 trillion, with all four countries also having the balancing capacity to fulfil each other’s needs and make up for their respective economic weaknesses.

For example, India, an energy-dependent economy that needs to constantly upgrade its infrastructure, could rely heavily on Australia, a commodity-rich economy, for inputs. The newly deepened Australia-India economic partnership could pave the way for India to engage in further regional economic integration.

AI ECTA will build “brand India” and “brand Australia” in respective markets and develop business confidence. It will bring India to the centre of Corporate Australia’s business aspirations and connect Australian corporates to the New India growth story.

From Scott Morrison’s “ScoMosas”, to his recent khichdi (Narendra Modi’s favourite dish), the message is clear that all recipes and ingredients have been tried and tested to ensure that the bilateral relationship is prepared with care, and is well nourished. The governments have delivered. Will business follow?

Natasha Jha Bhaskar is General Manager of Newland Global Group, a Sydney-based Australian corporate advisory firm specialising in the Australia-India space.

The views expressed here are the authors alone, and do not represent the views of the Institute for International Trade

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