Why India- Australia Free Trade Agreement Matters?

Introduction

India and Australia are one amongst the few countries having commonality in their values interests and trade strategies. Compared with many other advanced economies, the near-term engagements between both the countries looks promising especially when both the countries are participating in the Regional Comprehensive Economic Partnership (RCEP) process. Hence getting Comprehensive Economic Cooperation Agreement (CECA) signed by year end is top priorities for both the countries to federalise their economic relation which will generate more refined trade and investment flows. Unlike RECP which might lead to power asymmetries within the region, and thereby giving less space to India to negotiate, CECA covering goods and services will lead to win-win cooperation by involving states swapping trade concession and addressing trade related issues in a more efficient manner.

Opportunity from CECA

India presents a huge opportunity for Australian industries in agriculture, energy, infrastructure, science and technology and education. The growing population, the rising middle class and labour force growth in India provides for a wider scope of engagement between both the countries’ economy and business. Considering there is potential to enhance the scope and size of the economic engagement between both the countries, CECA between India and Australia is perfect for the moment as the two countries target $40 billion bilateral trade by 2020. According to the Joint Study Group (JSG) report, the welfare gain from the FTA could be in the range of 0.15 and 1.14 per cent of GDP for India and 0.23 and 1.17 per cent for Australia[1].

Food Security and Agriculture

The Agriculture sector is one of the important sectors which can be benefitted from the FTA implementation. According to a joint report by McKinsey & Co. and the Confederation of Indian Industry (CII), India’s per capita GDP is expected to increase by 320 per cent between 2012 and 2030[2]. With increase in population, India’s overall food consumption is expected to grow 4 % annually which will increase the demand for Australian agricultural and dairy products. However, the potential won’t be realised if the issue of market accessibility remains unresolved. The agriculture market in India is highly restricted with the average applied tariff of 37.6 per cent on agricultural goods. Additionally, India applies various anti-dumping and non-tariff restriction such as import bans and standards or certification agreement which makes the agricultural sector highly regulated. In this context, CECA can act as a facilitator for Australia to get duty –free access to India market for its booming dairy products, pharma, meat and wines. On the other hand, India could gain from Australian expertise to bring in innovation in dairy and food processing sectors.

Energy, Mining and Resources

The FTA also provide opportunity to both the countries to explore newer markets and enable cross-investments by the private sectors in the two countries including energy, mining and renewable resources. With Australia expanding its gas production and India growing its appetite, FTA echoes for a stronger growth story. Though, the new government of India has permitted the 100 per cent FDI inflows in the mining sector under automatic route, till date Australian investors has to face various regulatory and administrative obstacles including rules of origin, lengthy approval time, cumbersome rules for foreign investors, lack of supporting infrastructure, unpredictable taxes and cesses at the central and state level that has made the Investment inflows in these sectors difficult in India. An FTA could address the trade and behind the border barriers impeding investment to further boost trade and investment flows to the benefit of both economies.

Additionally, Energy collaboration can see increasing intensification once the FTA is implemented. India offers a very significant market for sale of Australian Uranium as India’s nuclear power capacity is expected to double in five years. Seeking this, both the countries leaders had signed a civil nuclear agreement in September, 2014. Once FTA is in place, the Australian Uranium exports to India can increase to 9,000 tonne by 2018-19 which at present is 6,000 tonnes. Further, association is possible in renewable energy sector with India being keen to become a hub of solar energy. Through, FTA India could be benefitted in seeking Australian expertise in this field by bringing clean, green energy generation through hydro, wind and solar power and through LNG exports.

Infrastructure

Another sector which will be benefited out of FTA is infrastructure. India, by far now represents the fastest growing countries in the world. A 2012 report by the MCKinsey Global Institute estimated that by 2030, India will have 68 cities with more than 1 million people, all of which will need a huge infrastructure overhaul[3]. Besides that, the Smart cities and Industrial corridors and Urbanisation Project undertaken by India will need the next generation infrastructure for India’s cities which suits well for trade relation between India and Australia. The forecast bring in lot of unexplored opportunity for Australia to invest in big infrastructure projects such as metros, high speed rails, special economic zones, airport and ports. India and Australia has already embarked upon the idea of building sister-city and sister state relationship. FTA can multiply both the countries efforts in this direction.

Higher Education and Skill Development

Skilling of youth which represent 65 per cent of the Indian population has been the top priority of the government of India. According to the National Skill Development Corporation (India), India is not equipping the number of people it needs with the skills necessary for its economy to grow at 10–12% a year[4]. With India targeting 500 million skilled workforces by 2020, now is the best time for India to shed away it worries and forge for partnership with Australian institutions. In this regards, FTA places India in a position to negotiate on the issue of visa to the Indian students.

Moreover there are opportunities in engineering, health services, financial, construction, and agricultural industries services which both the countries can explore through FTA.

Conclusion

The bilateral agreement has been expressed as a top priority by both the countries leaders. However, having finalised a successful Australia- China FTA, it is unlikely that India will represent same demand for Australian products. Overall 93 per cent of the Australian exports to China will be free from tariffs within four years[5]. But compared to RCEP which include 16 members, CECA will bring in more space for India to negotiate with Australia.

India need to be firm on the negotiations and there has to be significant shift in the mindsets and policies, especially from Indian side or else the spring of heightened hope will become the winter of lost opportunity.

Endnotes

[1] http://commerce.nic.in/trade/final_jsg_report_as_printed_and_released_4thmay_2010.pdf

[2] http://www.mckinsey.com/global_locations/asia/india/en/our_people/barnik_chitran_maitra

[3] http://www.mckinsey.com/insights/urbanization/urban_awakening_in_india

[4] http://articles.economictimes.indiatimes.com/2014-05-27/news/50122840_1_national-skill-development-agency-entrepreneurship-sam-pitroda

[5] http://www.futuredirections.org.au/publications/food-and-water-crises/28-global-food-and-water-crises-swa/2045-australia-india-economic-partnership-agreement-promising-for-australian-agriculture.html

(The author is a Research Assistant at Observer Research Foundation, New Delhi)

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