India-Australia Economic Cooperation and Trade Agreement (Ind-Aus ECTA)

India-Australia Economic Cooperation and Trade Agreement (Ind-Aus ECTA)

The India-Australia Economic Cooperation and Trade Agreement (Ind-Aus ECTA), signed in April 2022 and ratified in November 2022, has completed two years. Both nations aim to build on this agreement with targets like reaching AUD 100 billion in trade by 2030.

What is the Ind-Aus ECTA?

The Ind-Aus ECTA is a landmark trade agreement designed to deepen economic integration and foster trade between India and Australia. By addressing tariff reduction, services exchange, and boosting investment flows, the agreement aims to enhance the trade relationship between the two countries.

Key Features of the Ind-Aus ECTA:

1. Tariff Reductions:

   • Australian exports to India: Over 85% of Australian goods will enter India tariff-free, increasing to 90% by January 2026.

   • Indian exports to Australia: 96% of Indian goods are now tariff-free, with this number set to reach 100% by 2026.

   • The agreement will reduce costs for consumers, enhance global competitiveness, and provide cheaper raw materials for industries.

2. Market Access:

   • India’s access to Australia’s fast-growing market with a population of over 1.4 billion people.

   • Australia’s access to India’s labor-intensive sectors: This includes industries like gems and jewelry, textiles, leather, furniture, food, and agriculture.

3. Services:

   • The agreement covers 135 sub-sectors in services, with India offering market access to Australia in 103 sub-sectors and MFN status (Most Favoured Nation) in 31 sub-sectors.

   • Prominent sectors include business services, communication, construction, and engineering.

4. Pharmaceutical and IT Benefits:

   • The agreement fast-tracks approval for medicines.

   • Double taxation in the IT sector has been eliminated, enabling India’s IT companies to compete more effectively and save millions.

5. Job Creation and Skill Exchange:

   • 1 million jobs are expected to be created in India.

   • The agreement provides benefits for Indian yoga teachers, chefs, and up to 100,000 students through post-study work visas.

6. Geopolitical Importance:

   • Strengthens the India-Australia relationship.

   • Aligns the two countries’ interests in strategic forums like the Quad, Indo-Pacific Economic Framework for Prosperity (IPEF), and the Supply Chain Resilience Initiative (SCRI).

How Has Bilateral Trade Evolved Under Ind-Aus ECTA?

• Trade Surge:

  • Bilateral merchandise trade more than doubled, from USD 12.2 billion in 2020-21 to USD 26 billion in 2022-23.

  • In the first eight months of 2024, bilateral trade reached USD 16.3 billion, reflecting sustained momentum.

• Export and Import Utilization:

  • 79% of India’s export utilization has been achieved, while 84% of import utilization is reported.

• Sectoral Growth:

  • Key sectors like textiles, chemicals, and agriculture have seen considerable growth.

  • India has diversified its exports, including products like gold studded with diamonds and turbojets.

• Raw Materials:

  • India has significantly benefited from importing raw materials like metalliferous ores, cotton, and wood, fueling its manufacturing sector.

Vision for the Future of India-Australia Economic Relations

1. Comprehensive Economic Cooperation Agreement (CECA):

   • Building on the Ind-Aus ECTA, India and Australia are negotiating a more comprehensive economic cooperation agreement (CECA). With 10 formal rounds completed, CECA aims to further deepen the trade relationship.

2. Trade Target:

   • Both countries aim to increase trade to AUD 100 billion by 2030, a target that reflects their shared vision for a robust and mutually beneficial trade partnership.

3. Global Economic Impact:

   • Strengthening India-Australia relations will contribute to a resilient global economy, enhancing both countries' roles in the international trade landscape.

Other Trade Agreements Between India and Australia

1. Double Taxation Avoidance Agreement (DTAA):

   • Enforced in 1991, it prevents double taxation of income, making business operations smoother between the two countries.

2. Bilateral Investment Treaty (BIT):

   • The 1994 BIT was terminated by India in 2017, and both nations are exploring a new investment treaty to promote and safeguard bilateral investments.

3. Sector-Specific Agreements:

   • There are multiple MoUs across various sectors, including education, science and technology, defense, and agriculture.

Challenges in India-Australia Trade

1. Export Competitiveness:

   • India’s competitiveness in Australia remains lower compared to other global markets like the U.S. and China.

2. Non-Tariff Barriers (NTBs):

   • 32% of India’s NTBs with Australia arise from Sanitary and Phyto-Sanitary (SPS) measures, which affect agricultural exports.

3. Absence of a Comprehensive FTA:

   • Current agreements do not fully address critical issues like government procurement, digital trade, and rules of origin, leaving gaps in the trade framework.

4. Political Delays:

   • Australia’s 2025 federal elections have slowed down progress on the Comprehensive Economic Cooperation Agreement (CECA), delaying resolutions to trade challenges.

Way Forward

1. Leveraging Strategic Partnerships:

   • Enhance collaboration through frameworks like the Quad to strengthen trade resilience and coordinate on supply chain diversification.

2. Expedite CECA Negotiations:

   • Accelerate CECA to address gaps in government procurement, digital trade, rules of origin, and intellectual property to create a more comprehensive trade framework.

3. Encourage Investment:

   • Finalize a new Bilateral Investment Treaty (BIT) to promote innovation and protect investments.

4. Tackle NTBs:

   • Work on resolving SPS issues through Mutual Recognition Agreements (MRAs) to simplify export compliance procedures.

Conclusion

The Ind-Aus ECTA marks a significant milestone in the economic cooperation between India and Australia, with a substantial increase in trade and deeper bilateral ties. The ongoing negotiations for a Comprehensive Economic Cooperation Agreement (CECA) and initiatives to address challenges like non-tariff barriers and digital trade will be crucial for future growth. Both nations are committed to increasing trade to AUD 100 billion by 2030, which will help them become key players in the global economy.