India, Australia sign FTA, trade likely to ‘double in 5 yrs, generate 1 mn jobs’

The pact is expected to boost bilateral trade in goods and services to $45-50 billion over five years, up from around $27 billion, and generate over one million jobs in India, according to a government estimate.

The agreement will also give about 85 per cent of Australia’s exports zero-duty access to the Indian market, including coal, sheep meat and wool, and lower duty access on Australian wines, almonds, lentils, and certain fruits.

Zero-duty access for Indian goods is set to be expanded to 100 per cent over five years under the agreement.

It is the first Free Trade Agreement (FTA) that India has signed with a major developed country in over a decade. In February, India signed an FTA with the UAE and is currently working on FTAs with Israel, Canada, UK and the EU.

The agreement was signed by Commerce and Industry Minister Piyush Goyal and Australia’s Minister for Trade, Tourism and Investment Dan Tehan in a virtual ceremony witnessed by Prime Minister Narendra Modi and Prime Minister Scott Morrison.

“This is indeed a watershed moment for our bilateral relationship,” Modi said, adding that the agreement would make it easier for both countries to exchange students, professionals and tourists which in turn would strengthen ties.

Under the agreement, Indian graduates from STEM (Science, Technology, Engineering and Mathematics) will be granted extended post-study work visas. Australia will also set up a programme to grant visas to young Indians looking to pursue working holidays in Australia.

According to news agency Reuters, Morrison, who is expected to call a general election within days, told reporters in Tasmania that the agreement represented “one of the biggest economic doors there is to open in the world today”.

“These are never all or nothing deals as far as we’re concerned, we see all of these as the next step and the next step and the next step,” he said.

The agreement is expected to come into force after it is ratified by the Australian Parliament.

Goyal said the agreement was expected to boost trade between the two countries to $45-50 billion within five years and generate over one million jobs in India.

Officials pointed out that a number of Indian exports currently face a tariff disadvantage of 4-5% in many labour-intensive sectors relative to competitors — those with FTAs with Australia — such as China, Thailand, Vietnam. Removing this barrier, officials said, could enhance merchandise exports significantly.

Bilateral trade in goods and services between India and Australia stood at $27.5 billion in FY2021. Goyal said merchandise exports to Australia had grown faster than exports to any other country in FY2022.

Officials said Indian goods and services exports to Australia are expected to reach $20 billion in FY2027 and $35 billion in FY2035, up from about $10.5 billion in 2021.

Australian wine imports, almonds, lentils, oranges, mandarins, pears, apricots and strawberries are set to benefit from lower tariffs under the agreement.

India has, however, excluded a number of Australian products from tariff reductions under the agreement to protect “sensitive sectors” including dairy products, wheat, rice, chickpeas, beef, sugar, apples, toys and iron ore.

Australia is set to benefit from zero-duty access on coal which currently accounts for about 74 per cent of Australia’s exports to India and currently attracts a duty of 2.5 per cent.

The elimination of duties on coking coal, which accounts for about 73 per cent of coal imports, is also expected to boost the competitiveness of Indian steel exports. Zero-duty access for Australia is set to increase to cover 91 per cent of its exports by value and over 70 per cent of India’s tariff lines over 10 years.

Other key Australian products which will see tariffs eliminated when the agreement comes into force include LNG, wool, sheep meat, alumina and metallic ores while tariffs on avocados, onions, pistachios, macadamias, cashews in-shell, blueberries, raspberries and blackberries are set to be eliminated over seven years.

Officials said that procuring lower cost raw materials such as alumina from Australia is in India’s interest as it will boost the international competitiveness of Indian manufacturers.

Lower duties would be provided on products such as cotton, lentils, oranges, almonds and mandarins based on tariff-rate quotas which would see tariffs return to pre-agreement levels for imports above threshold quantities.

For instance, lentil imports up to 1.5 lakh tonnes from Australia will only attract total import taxes of 15 per cent, compared to 30 per cent duties on lentil imports from countries with which India does not have trade agreements.

The agreement also includes strict rules of origin to prevent any routing of products from other countries and provides for a safeguard mechanism to address any sudden surges in imports of a product.

Duty concessions would be provided on Australian wines in a phased manner based on prices. Wines with a minimum import price of $5 per 750 ml bottle will be reduced from 150 per cent to 100 per cent upon the implementation of the agreement and will be brought down to 50 per cent over 10 years. Tariffs on wine priced above $15 per 750 ml bottle would be cut to 75 per cent when the agreement comes into force and would be cut further to 25 per cent over 10 years.

The agreement will also allow for faster approval of Indian medicines by Australian regulators as they have agreed to use inspection reports and approvals from Canada and the EU in the evaluation process for India pharmaceuticals and manufacturing facilities.

Australia has also addressed a long-standing concern of Indian IT firms on double taxation by agreeing to amend local taxation laws to stop the taxation of offshore income of Indian firms providing technical services to Australia.