Unlocking Australia and India’s trade potential

Author: Anita Medhekar, Central Queensland University

It is time for Australia and India to adopt an independent foreign policy and unlock their trade potential through the signing of a bilateral Australia–India free trade agreement (FTA). The bilateral FTA will bring mutual benefits for both countries, fostering inclusive economic growth and forming strategic preferential partnerships.

The revival of Australia–India Comprehensive Economic Cooperation Agreement (CECA) negotiations in September 2021 and the Modi government’s proactive ‘Act East’ policy is important, given the dysfunctional South Asian Association for Regional Cooperation (SAARC). The historic Australia–India Economic Cooperation and Trade Agreement (ECTA), signed in April 2022, aims to grant Australian producers access to the Indian market and provide opportunities for trade, investment and innovation.

The ECTA deal holds strategic significance as both countries distance themselves from China. Integrating Australia with India into the Indo-Pacific region will strengthen their partnership and provide opportunities to diversify exports, promote free trade and increase connectivity and stability. The prospects of the bilateral FTA with India are promising — especially in the context of Australia’s Indian Economic Strategy (IES) until 2035 and India’s Australia Economic Strategy, which identify potential opportunities and priorities.

The IES is still to be delivered amid the challenges of COVID-19 supply-chain disruptions, Indian reforms and the geopolitical environment faced by Australian businesses. Since early 2023, Australian diplomats and businesses have engaged in FTA negotiations in key sectors such as education, tourism, infrastructure and technology. These initiatives have taken off and are expanding Australia’s footprint in India.

A bilateral FTA will lead to enhanced reciprocal market access, economic cooperation and greater regional integration with SAARC countries, with a focus on security, trade, economic development and stability in the Indo-Pacific region.

The ECTA was implemented in December 2022 to eliminate tariffs on 85 per cent of Australian products exported to India and on 96 per cent of Indian goods exported to Australia. Australia’s tourism and higher education sectors will also benefit from a supply of skilled Indian labour trained in Australia. Consumers and businesses will save from reduced tariff and non-tariff barriers on duty-free exports of raw inputs and finished goods and services.

In April 2023, India overtook China as the world’s most populous country, with a youth population comprising 600 million people under the age of 35. The bilateral FTA and CECA can give Australia access to this youth market. Meanwhile, Australia can help India drive its youth demographic dividend by supporting technological exchange, education, research and innovation to create jobs for sustainable economic growth.

There are some sensitive regional trade areas in the ECTA. While Australia will stand with India on regional security issues, Australia’s economic reliance on China may conflict with the ECTA trade agreement.

The Regional Comprehensive Economic Partnership Agreement (RCEP), signed in 2020, exhibits a low degree of trade liberalisation and lacks uniform regulatory labour market and environment standards. India has not joined RCEP due to its huge trade deficit with China and disagreements over market access for agriculture and dairy products.

Australia and India have to find a way to complement each other without causing friction with RCEP countries or compromising their own interests, particularly regarding sensitive agriculture products. Certain Australian products that benefit from the ECTA may overlap with US exports to India, potentially diminishing the US market share in India. The increasing volume of Australian agricultural exports to India could also be subject to anti-dumping laws, which could be negotiated under the FTA. The FTA gives reciprocal market access to Australian agricultural goods, in return for Indian non-agricultural goods, leveraging the comparative advantage for both countries.

Nearly 67 per cent of Australia’s exports come from regional Australia, including agriculture and mining. The Indian food and agriculture sector is focused on self-sufficiency, food security, agriculture feminisation and subsistence farm management practices. While Australian wine and Hass avocados have approved access to India, many Australian agriculture goods will be hard to crack and a major irritant in negotiations. To increase market access, Australia could export agricultural goods like mangoes in November without directly competing with the Indian seasonal mango crop harvested in May.

China overtook Japan in 2010 to become Australia’s largest bilateral trading partner. In the next decade or two, India has the potential to surpass China. But India’s trade deficit in 2022 reached a record high of US$192.41 billion. In 2019–20, India ranked 8th among Australia’s top ten trading partners while Australia was the 6th largest export market for India. But in Australia’s top 10 investment destinations, and import and investment sources, India is invisible.

Little detail is provided about the impact of ECTA and FTA-driven development on small businesses and how Australian businesses will navigate the Indian market and address business risks like bribery and corruption.

India’s demand for high-value food gives it the potential to be a supply chain hub for Australian agricultural goods, while ensuring Indian food security. India also has the potential to be a manufacturing hub for diversified goods, pharmaceuticals and medical devices, creating employment opportunities and ensuring sustainable supply chains for Australia in South Asia. Accelerating bilateral FTA negotiations through political will, as demonstrated by Modi’s recent visit, can have positive effects on other sectors and cement the Australia–India relationship for the future.

Anita Medhekar is Senior Lecturer in Economics at Central Queensland University.

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