Australian PM Albanese announces free trade agreement with India: What the India-Australia FTA means for both nations?

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New Delhi: Australian Prime Minister Anthony Albanese on Tuesday announced that his country’s Free Trade Agreement (FTA) with India has been passed in their Parliament. According to Australia, the agreement will help secure them a foothold in the world’s fastest-growing economy and enable Australian businesses to unlock or expand their operations in a market of nearly one and a half billion consumers. Last week, Australian trade minister Don Farrell said the agreement presents an enormous opportunity for services companies and professionals from his country to access the 140 crore-strong Indian markets. “India presents unparalleled growth opportunities for Australian business across a range of sectors, from food and agriculture, technology and green energy, to health and education services,” he’d said. 

But what does India gain from this arrangement? 

For one, the deal is extremely crucial for Australia as they want to diversify exports from China. Relations between the two countries are strained over Beijing’s increasing dominance in the South Pacific Ocean. At the same time, China is also involved in territorial disputes with India along the Himalayan frontiers from Ladakh to Arunachal Pradesh. In such a scenario, both countries would like to hit where it hurts – the economy. 

Under FTA, Australia will offer zero-duty access to India for about 96 percent of its exports (by value) from Day One. Labor-intensive industries in India such as gems & jewelry, textiles, leather & footwear, furniture, food & agricultural products, automobiles, railway wagons, medical devices, and engineering products will benefit the most. Australia hopes that with FTA, Indian goods will become competitive and cheaper in their market and replace Chinese products in the long run. 

And what does Australia gain? India will offer preferential access to Australia on over 70 percent of its tariff lines. Australia will be looking forward to exporting mostly raw materials such as coal, mineral ores, and wines. 

India-Australia trade 

Recent years have seen remarkable growth in trade between India and Australia. Two-way trade in goods and services has grown from $13.6 billion in 2007 to $24.3 billion in 2020. Australia’s stock of investment in India was $15.4 billion in 2020. The stock of two-way foreign direct investment was valued at $1.4 billion the same year. 

“India-Australia FTA is expected to raise bilateral trade to $45-50 billion in the next five years,” Union commerce and industry minister Piyush Goyal said soon after the FTA ratification by the Australian parliament. 

Education is Australia’s largest service export to India, valued at $6bn and accounting for 88 percent of the total in 2020. By 2020-end, Indian students in Australia numbered 115,137. In the same year, Australia’s exports to India amounted to $11.3bn. The main exports were coal ($9.12bn), aluminum oxide ($300mn), and gold ($279mn). 

India too exported goods worth $3.74bn to Australia. Its main exports were refined petroleum ($913mn), medicaments ($316mn), and diamonds ($145mn), according to the Massachusetts Institute of Technology’s Observatory of Economic Complexity (OEC). 

China-Australia trade 

China is one of Australia’s largest trading partners, accounting for 31 percent of the latter’s global trade. Two-way trade with China totaled $245bn in 2020, of which Australia’s goods and services exports amounted to $159bn. 

China is the sixth-largest foreign direct investor in Australia ($44bn in 2020), with a wide range of projects in mining, infrastructure, services, and agriculture. On the contrary, Australian FDI in China totaled $7bn in the same year. 

In 2020, China exported goods worth $57.2bn to Australia. The main exports were computers ($4.35bn), broadcasting equipment ($3.82bn), and refined petroleum ($1.46bn), according to OEC. Australian exports to China were pegged much higher at $102bn. The main exports were iron ore ($63.9bn), petroleum gas ($9.55bn), and coal ($6.34bn).