After 10 years of negotiations, India and Australia have finally agreed an interim free trade deal called the India-Australia Economic Cooperation and Trade Agreement (ECTA).

What is the news?

• Australia’s parliament has ratified the ECTA.
• The two countries has signed the ECTA on April 2 this year.
• The trade deal will now come into effect on a mutually agreed date.

Key terms of the India-Australia ECTA

• Under the India-Australia ECTA, duties on 100 percent tariff lines will be eliminated by Australia, covering 6,000 broad sectors.
• Meanwhile, India’s tariffs on 90 percent of Australian goods exports, including meat, wool, cotton, seafood, nuts, and avocados, will be removed.
• From day one, Australia will offer zero-duty access to India for almost 96.4 percent of exports by value. Presently, many of these products have a 4-5 percent customs duty imposed by Australia.

Key benefits offered

• Exporters, businesses, workers, and consumers in both markets are set to benefit from the trade liberalization, market opening, and freer movement of people.
• Implementation of the trade agreement will create an estimated 1 million jobs.
• The India-Australia ECTA agreement is expected to increase bilateral trade to about US$45-50 billion in the next five years from the existing US$31 billion.
• India hopes to increase its merchandise exports by US$10 billion BY 2026-27.

Special benefits to India

• IT sector to be a big gainer as it contributes significantly to both economies
• Visas to be offered to Indian chefs and yoga instructors
• Work opportunities for Indian students pursuing education in Australia
• Cheaper raw materials from Australia will make Indian goods more competitive in the global market
• Medicines approved under rigorous US and UK regulatory regimes will benefit from a fast track mechanism to get approval in Australia (improving market prospects for India’s patented, generic, and biosimilar medicines)

Volume of India-Australia Trade

• Australia is the 17th largest trading partner to India and India is Australia’s ninth largest trading partner.
• In 2021-22, India’s goods exports to Australia valued US$8.3 billion and imports were about US$16.7 billion. Two-way trade in goods and services in 2020 were valued at US$24.3 billion.
• India’s merchandise exports to Australia grew 135 percent between 2019 and 2021.
• India’s exports consist primarily of a broad-based basket largely of finished products. Around 96 percent of Australia’s exports are raw materials and intermediate products.

How will Indian IT firms benefit from the deal?

• Along with ECTA, the Australian parliament has also approved an amendment to the Double Taxation Avoidance Agreement (DTAA) – a long-standing tax issue for Indian companies operating in Australia.
• As per industry estimates, Indian IT firms lost more than $1 bn in taxes due to the existing provisions in DTAA.
• Most IT firms take up projects where they do some portion of work on-site, and some from India.
• However, Australian courts had ruled that even the work done from India can be taxed as per local Australian laws.
• The same income was subject to taxes in India too.

What’s in it for pharma companies?

• ECTA says Indian drugs that have already been approved in the UK and US will get faster approval in Australia too.
• India has the highest number of USFDA-approved sites and other stringent regulatory agencies approvals too — which will yield results once ECTA comes into effect.
• India exported $387 mn worth of pharma products to Australia registering a growth of 11.58% FY22.
• India can now expect share in Australia’s US$ 13 billion pharma market to go up.

Will ECTA give a push to labour-intensive industries?

• Getting easier access for apparel, textiles, leather, footwear, gems & jewellery, furniture, machinery and electrical goods in western markets is India’s key aims in trade deals.
• ECTA will see India getting zero duty on 98.3% of tariff lines from the day the agreement comes into force and on 100% of tariff lines within five years.

Can India cut its trade deficit with Australia?

• At the moment, Australia exports much more to India than it imports.
• During the last financial year, India had a trade deficit of $8.5 billion with Australia with $8.3 billion worth of exports and $16.8 billion worth of imports.
• Entering the Australian market is not just about lower tariffs as Australia is already a very open economy.
• There already are firmly established players in Australia and displacing them would need cutting trade costs and signing a comprehensive deal.

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