While reciprocal tariffs announced by the US have upended the global trade, it is to the credit of the Government of India that it has been able to finalise the free trade agreement with the UK in just about four years of negotiations. The negotiations started in May, 2021 when the Prime Ministers of UK and India discussed 'Enhanced Trade Partnership' (ETP).
The trade deal with the UK will bring tariff to zero on 99 percent of imports from India. This should help India in boosting export of food items, textiles, leather, footwear, auto parts, engineering, and gems and jewellery. UK is excited about lower Indian tariff on whiskey and gin.
India is currently negotiating FTAs, with the European Union, Peru, Sri Lanka and Oman. India-Australia Comprehensive Economic Cooperation Agreement (CECA) is also under negotiation. Existing FTAs like India-South Korea Comprehensive Economic Partnership Agreement (CEPA), ASEAN-India Trade in Goods Agreement (AITIGA) with 10 ASEAN countries are under review.
Performance of trade agreement with Australia for agriculture and allied sectors
On April 2, 2022, India and Australia signed the Economic Cooperation and Trade Agreement (ECTA) which came into effect in December 2022. Under this, 96 per cent of exports from India to Australia enjoy zero tariff. This would rise to 100 per cent by January 1, 2026.
India agreed to allow tariff free import on 85 per cent of Australian goods exports by value. This is to increase to 90 per cent by January 1, 2026.
Bilateral trade has doubled
Under ECTA, India agreed to reduce tariffs on several agricultural and allied products. These include sheep meat, wool, lobster, wood and pulps and hides and skins. Cotton, lentils and wine, several fruits and nuts from Australia also became eligible for reduced tariff though Tariff Rate Quota continues for certain items (e.g. 51,000 tonnes of cotton can come duty free).
It must be noted that India did not agree to reduce tariff on several sensitive items like milk and other dairy products, wheat, sugar, iron ore, apple, walnuts and others. These are in India’s exclusion list.
An important provision of the ECTA is that the Australian service suppliers in 31 sectors and subsectors will receive same terms as accorded by India in any future free trade agreement. These sectors include higher education, business services (tax, medical and dental, architectural and urban planning research and development, communication, construction and engineering, insurance and banking, hospital, audio-visual and tourism and travel. If and when India reaches an agreement with the US and EU on services, these terms will become applicable to Australia also.
The agreement with Australia has resulted in substantial increase in trade of agriculture and allied sectors for both India and Australia.
The bilateral trade between India and Australia has more than doubled, increasing from $12.2 billion in 2020-21 to $24.1 billion in 2023-24. In 2023-24 India's goods exports were worth $7.94 billion and imports were $16.15 billion.
Trade in agriculture and allied sectors
Australian exports of agriculture and allied products to India are higher than that from India to Australia. They have risen from $329.6 million in 2019 to $1.14 billion in 2023. Indian exports have increased from $310.35 million to $468.5 million.
Export of rice from India enjoys the highest value among export of agricultural items from India. It has gone up from $60.91 million in 2019-20 to $82.63 million in 2023-24. Exports of food preparations have more than doubled from $23.37 million to $56.55 million. Exports of bread and pastry have increased from $12.29 million to $17.29 million. Vegetable saps and extracts, coffee, sugar confectionary and even butter etc. have also shown an increase.
It seems that the increase in export of several food items is due to Indian diaspora’s preference for products from India. Indians seem to have a liking for Indian butter (perhaps Amul) rather than Australian butter!
Import from Australia into India
From Australia, the import of lentils has increased from $48.4 million in 2019-20 to $574.8 million in 2023-24. Raw cotton imports have increased from $31.25 million to $140.34 million. Import of almonds has increased from $60 million to $93.24 million (Australian dollar). Richer Indians have been consuming more oats and import from Australia has increased from $6.48 million to $17.14 million.
Australia has clearly benefited from India’s dependence on imported pulses and better varieties of cotton. Raw (greasy) wool is another major item of import from Australia. It is estimated that 30 to 50 percent of imported wool is re-exported from India as woollen yarns or garments.
Conclusion
Free trade agreements are not the ideal way to conduct global trade as differential tariffs make the trade more complicated. Since the negotiations on agriculture in WTO were not reaching anywhere, FTAs with rich nations provide an opportunity for boosting Indian exports of agriculture and allied products. However, non-tariff barriers like the EU's Carbon Border Adjustment Mechanism (CBAM) still hamper India’s exports. The ECTA with Australia is a success story even if full potential of the deal is yet to be realised for Indian exports.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
