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India-Australia Trade Agreement: Business Opportunities

Trade agreement between India & Australia facilitates zero-duty on 96% of India’s exports to Australia & approx. 85% of Australia’s exports to India.

Australia is the 17th largest trading partner of India and India is Australia's 9th largest trading partner. India’s Overseas Direct Investment in Australia since April 2020 till February 2022 is USD 1682 million. Further, bilateral trade between the countries is expected to rise from the existing USD 27.5 billion to USD 45 billion in five years. To boost trade in the coming years, India and Australia signed the Economic Cooperation and Trade Agreement (IndAus ECTA) on 2 April 2022, which happens to be the first trade agreement for India with a developed country after more than a decade.

This trade agreement encompasses cooperation across the entire gamut of bilateral economic and commercial relations between the countries. It will cover areas like trade in goods, rules of origin, trade in services, technical barriers to trade, sanitary and phytosanitary measures, dispute settlement, movement of natural persons, telecom, customs procedures, pharmaceutical products, and other cooperation areas.
 

Benefits of the Trade Agreement

  • Zero-duty on 96% of India’s exports to Australia including shipments for sectors such as engineering goods, medical devices, gems and jewelry, textiles, apparel, and leather. This is expected to boost bilateral trade in goods and services to USD 45-50 billion over five years, up from around USD 27 billion; and generate over one million jobs in India.
  • Boost about 85% of Australia’s exports with zero-duty access to the Indian market including coal, sheep meat, wool, almonds, lentils, textiles, leather, furniture, sports goods, machinery, electrical goods, railway wagons, selected pharmaceutical products and medical devices, certain fruits, and a lower duty access on Australian wines. India currently imposes 150% tariff on alcoholic beverages.
 

Commitments by the Govt. of Australia

  • Investment of over USD 280 million to boost economic cooperation with India.
  • Additional investment, including USD 16.6 million to strengthen linkages with India's key policy and finance institutions as part of India Economic Strategy 2035.
  • USD 8.9 million to support enhanced business engagement and an increased Australian Trade and Investment Commission (Austrade) presence in India.
  • Investment of USD 35.7 million in India for a Green Steel Partnership, a Critical Minerals Research Partnership and contribution to the International Energy Agency to support cooperation on research, production and commercialization of clean technologies, critical minerals, and energy.
  • Australia will allot USD 25.2 million to expand the Australian Space Agency's International Space Investment initiative to deepen space cooperation with India.
  • Around USD 28.1 million to be allocated by Australia to launch a Centre for Australia-India Relations to deepen community ties, promote public discussions, policy dialogue and engage the Indian diaspora.
Besides these, Australia-India Strategic Research Fund will continue to support a world-class relationship and establish an Australia-India Innovation and Technology Challenge.
 

Top Seven Investment Opportunities in India


India is one of the world’s fastest growing economy and an attractive market for Australian exporters. The Australia India Business Exchange (AIBX) is a multi-year program that helps Australian companies to enter India market.

Food and Agriculture


India’s agricultural micronutrients market is expected to grow from USD 571.6 million in 2022 to USD 1,057.6 million by 2029, with 9.19% CAGR. The ECTA will cover agriculture products such as avocados, cherries, nuts, blueberries, almonds, oranges, mandarins, pears, and strawberries with liberalizing tariffs on trade.

Sector Custom duty before ECTA Custom duty after ECTA
Agriculture (includes few agricultural and fish products) 4%-5% Zero
 
However, note, there is no elimination or concession of tariff for milk and other products like wheat, rice, bajra, chickpeas, walnut, pistachio nut, sunflower seed oil, sugar, apple, and oil cake.
 

Minerals


In March 2022, Australia announced a three-year critical minerals investment partnership with USD 5.8 million. This will encourage strong, strategic supply chain partnerships, including technical studies. This combined capabilities of Australia and India will take on the challenge of resourcing emerging technologies used in sectors such as defense, aerospace, automotive, renewable energy, telecommunications, and Agri-Tech. India will offer economies of scale for offtake projects and a pipeline of manufacturing-led commercial innovation opportunities.

Australia has the potential to be one of the top suppliers of cobalt and zircon to India. The ECTA will provide certainty to the supply of high quality and competitively priced critical minerals essential in the production of mobile phones, flat screen monitors, wind turbines, electric cars, and solar panels.

The end-use industries for minerals for India and Australia are as follows:
  • traditional – titanium and vanadium
  • sunrise – lithium
  • mixed use – cobalt, nickel, graphite, light rare earth elements (LREEs), heavy rare earth elements (HREEs)
Sector Custom duty before ECTA Custom duty after ECTA
Minerals (alumina and some critical minerals and non-ferrous metals) USD 2.32 billion Zero
 

Mining and Resources


The Indian mining sector is expected to reach USD 2427.85 billion in 2025 at a CAGR of 7%. India’s coal production increased by 6.13 % to 79.60 million tons from 75 million tons during January 2022 as compared to 2021.

Also, India is a major investor in Australian resources with significant demand for critical minerals products and other resources. India can fulfil Australia’s demand for mining equipment, technology and services, competitive edge in mining consultancy; exploration technologies; mining software; processing components and systems; environmental and mineral quality technologies and safety equipment; and mining education and skills. Attracting Indian investment into the Australian resource sector can bring in capital and create jobs. For India, vertically integrated investments in Australia can help smooth commodity price volatility. As India's exploration and extraction continue to grow, there will be an opportunity for Australian Technology and Services (METS) companies.

      
Sector Custom duty before ECTA Custom duty after ECTA
Mining and resources (coal, copper, silver, platinum, iron ore) 5% Zero
    
 

Healthcare


The Indian healthcare infrastructure is expected to reach USD 349.1 billion by 2022. The e-health market size is estimated to reach USD 10.6 billion by 2025. Australia accounts for 1.6% of India’s pharma exports. India shipped pharmaceutical products worth USD 316 million to Australia in 2020-21, 25% cent higher than the year before.

Australia is India’s biggest export destination in the Oceania region and among the top 15 where Indian goods are sent. India’s exports to Australia were worth USD 7.4 billion between April 2021 and February 2022 — a growth of over 100% from the corresponding period last year. Pharmaceuticals and healthcare services stand to benefit the most. Zero duty on Indian pharma products will give a tremendous boost to the sector.

The trade agreement, which is likely to be implemented in about four months, is expected to double bilateral trade from USD 27.5 billion currently to up to USD 50 billion over the next five years. Australia has agreed to annex on pharmaceutical products, giving benefits to Indian pharma exports. This includes fast track approval for patented, generic and biosimilar medicines using the Comparable Overseas Regulator pathway, and fast track quality assessment / inspections of manufacturing facilities.

This will benefit Indian pharmaceutical manufacturers / medicines which have EU / Canada FDA approvals.
 
Sector Custom duty before ECTA Custom duty after ECTA
Healthcare (includes medical devices and selected pharmaceutical products)   4% - 5% Zero
 

Energy


India's demand for energy is set to outpace domestic supply by providing the largest contribution (30%) to global energy demand growth by 2035. India and Australia can seize opportunities by diversifying into new products. There will be a growing market for services and technologies in areas where Australia is competitive, including support to the development of a resilient, low emissions energy sector in India. India is looking to invest offshore, energy security and price-hedging being a few reasons.

Sector Custom duty before ECTA Custom duty after ECTA
Energy (includes renewable energy, electric car)   5% Zero
 

Science & Innovation Sector


India and Australia will collaborate to combine Australian research and technology with India's record of frugal innovation to scale up innovations or create new products. They will combine complementary skills and expertise to leverage Australian expertise in areas such as Agri-Tech, Health-Tech, water management, energy efficiency and renewable energy with Indian expertise in data analytics, biotech, and mobile applications, to name a few. This will lead to market access.

Sector Custom duty before ECTA Custom duty after ECTA
Science & Innovation(engineering goods, including flat and value-added iron and steel products, scientific and medical instruments, parts, transport equipment, non-electrical and electrical machinery, etc.) 5% Zero
 

Education


The education market in India is expected to amount to USD 225 billion by 2025. India and Australia are also expected to soon start a dual degree program for students. Under the dual degree program, norms would be devised that would allow students to study the course for a few years in India and for a few years in Australia. This program will be part of India-Australia trade deal and aim at increasing interaction and collaboration between the universities of both countries.
 

Conclusion


This trade agreement has been signed at a time when India is already working with other developed countries such as the UK, Canada and the European Union to sign free trade agreements – an evident shift in India’s strategy. In February, India signed an FTA with the UAE and is currently working on FTAs with Israel, Canada, UK, and the EU. Under the ECTA, Indian graduates from STEM (Science, Technology, Engineering and Mathematics) will be granted extended post-study work visas.

Australia will set up a program to grant visas to young Indians looking to pursue working holidays in Australia. Australia has agreed to resolve the double taxation issue being faced by domestic IT companies in the market. Australia has also agreed to amend its domestic tax law to stop the taxation of offshore income of Indian firms providing technical services in Australia.

With respect to the tariff exemptions and concessions under the ECTA, a safeguard mechanism will be available for about 14 years from the date of completion of elimination or reduction in tariff, post which, there will be a special review mechanism after 15 years for certain aspects of the trade agreement in a time-bound manner.

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