India’s foreign trade policy has seen a significant shift in recent years which can be seen through the signing of two crucial trade agreements with the UAE and Australia.

Both these agreements had been in the offing for quite some time, but Delhi has been able to make significant developments that are expected to be beneficial for the Indian market.

Many of the previous FTAs were disproportionate in benefiting the bilateral partner. With the India-UAE CEPA and the India-Australia ECTA, this trend seems to be reversed.

India and Australia signed an early harvest free trade agreement or the Economic Cooperation and Trade Agreement (ECTA), on April 2, 2022.

This is considered a watershed moment for India and Australia’s bilateral relations. Being the first free trade agreement that India has signed with a developed country in more than a decade, the deal is aimed at benefiting a range of sectors in both countries.

In a nutshell, Australia will provide 100 per cent market access for all Indian goods over five years and lower duty on 95 per cent of Indian goods.

The current duty of 5 per cent imposed on Indian goods from labour-intensive sectors like gems and jewellery, leather and footwear, and textiles would be waived, thereby offering zero-duty access to the Australian market.

India, too, would lower the import duty on more than 70 per cent of Australian imports, which would grow to include 85 per cent of Australian goods in 10 years.

The complementarities

This agreement has been sensitive to the needs of both economies.

For the first time, India has signed a deal that enforces ‘country of origin’, preventing items from other countries entering through the FTA route.

Also, Delhi has been able to safeguard its interests by excluding sensitive sectors such as agriculture and dairy from the agreement.

Similarly, Australia has also been able to tackle the ‘China problem’ by diversifying its import and export baskets in sectors like automobiles, coal, and wines.

With the ECTA, Indian companies will get access to the relatively untapped $27-billion automobile industry of Australia.

A similar situation can be observed with respect to Australia’s coal exports. By leveraging the Chinese ban on Australian coal imports, India has been able to capitalise on the opportunity and Australia has emerged as a cheaper alternative to South American and Indonesian coal.

Movement of people

India had always been hesitant about the prospect of the international movement of its people. However, with the ECTA, India is seen to move on from this scepticism and pave the way for new opportunities for its skilled workforce.

From Indian chefs and yoga teachers who now have the right to relocate to and practice in Australia under a work visa permit for four years to Indian students studying in Australia being granted leeway to extend their stay post completion of their courses, the trade agreement further cements India’s trust in Australia and strengthens their relationship.

Future course of action

Through the ECTA, leaders of both nations have been able to create a balanced trade agreement with far-reaching positive consequences for both the nations as well as essential for geopolitical security.

Previous experience of early harvest agreements with nations like Thailand and Sri Lanka have not been able to graduate to full-scale FTAs.

Thus, it is essential to keep the conversation between the nations going, to ensure a speedy signing of the full-fledged free trade agreement.

The writer is Managing Director, Investment Realisation, Primus Partners, New Delhi

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