India has negotiated important trade pacts in the past involving major economies such as those of the Association of Southeast Asian Nations (ASEAN), Japan, Korea, Singapore and the Malaysia. Indian industry, however, has not shown the kind of enthusiasm it expresses for recent trade deals, first with the United Arab Emirates and now with Australia. One of the main factors behind this newfound confidence and support for Indian industry under the FTA is that the government has identified the right set of countries for such trade and aggressively secured meaningful access to the market for Indian exports.
Industry is consulted at every stage of the negotiations, which has helped industry members articulate their interests in foreign market access. In previous free trade agreements, India mainly negotiated market access for professionals under mode 4 (movement of natural persons), but now the focus is increasingly on access to foreign markets for all our merchandise exports.
Over the past decade and a half, there has been a remarkable growth in bilateral trade between India and Australia, aided by tremendous complementarities between the two economies. Bilateral trade in goods and services has increased in value from $13.6 billion in 2007 to $24.3 billion in 2020. Now, with a trade agreement in place, bilateral trade in goods and services for the two countries should reach 45 billion dollars in five years. There will be consolidation and growth in the market share of Indian goods and services, and India’s goods and services exports are expected to increase from $10.5 billion in 2021 to $20 billion by 2026-27 , then exceed $35 billion by 2035.
Currently, Indian exports face a 4-5% tariff disadvantage in many labor intensive sectors compared to competitors in the Australian market such as China, Thailand, Vietnam, South Korea , Japan, Indonesia and Malaysia. Removing these barriers under ECTA can significantly increase our merchandise exports. Australia offers zero-duty access on 100% of tariff lines from India. There will immediately be zero duty on 96.4% of the value of Indian exports (98% of tariff lines); that is, for these items, Indian exports will have immediate market access at zero duty from the first day of entry into force of the agreement. All major traditional Indian exports, such as textiles and garments, some agricultural and marine products, leather, footwear, furniture, gems and jewelry, pharmaceuticals and engineering products, etc., are expected to gain Verry much.
Upon completion, India would immediately eliminate tariffs on 40% of its tariff lines, comprising 85% of Australian exports by value to India, and then schedule an additional 30.3% of its tariff lines for elimination or the reduction of customs duties over time periods of 3/5/7/10 years. Indian industry needs to use this arrangement wisely, as Australian exports to India are more focused on raw materials and intermediate products. Many industries in India will get cheaper raw materials and thus become more competitive, especially in sectors like steel, aluminum, energy, engineering, etc.
We are aware that due to our diverse industrial base, which includes companies of all sizes and multiple sectors/products, Indian industry has certain sensitivities. We are grateful to the government for keeping many sensitive products in the exclusion category (29.8% of tariff lines) without offering any concessions. These products include milk and milk products, chickpeas, nuts, pistachios, wheat, rice, bajra, apple, sunflower seed oil, sugar, cakes, gold, silver, platinum, jewelry, iron ore and most medical devices. This is a major gain for India under ECTA.
Apart from securing significant gains in the goods sector, India has also managed to secure commercially significant offers from Australia in several services sectors. An annual quota of 1,800 Indian traditional leaders and yoga teachers entering Australia as contract service providers, post-study work visas for Indian students, seeking a mutual recognition agreement on professional qualifications and Enhanced commitment on the movement of professionals as intra-business transferees are some of the key gains for Indian service sectors.
One of the breakthroughs achieved under ECTA is that the Australian government has agreed to amend its domestic tax laws to end the taxation of offshore income from Indian companies providing technical services to Australia. This was a long-standing request from the Indian IT industry. Once the change is made, Indian tech companies would no longer be required to pay offshore income tax in Australia, which would boost their competitiveness in the international market.
Finally, a point to note for industry colleagues. Although the government has managed to negotiate a great trade deal for business, given that Australia currently has 16 FTAs in place, gaining access to the Australian market would be no small feat. We will still have to work on improving our competitiveness as in most trade sectors India would be competing with countries like China, ASEAN, Chile, Japan, Korea and New Zealand. , which already have functional FTAs with Australia.
ChandrAjit Banerjee is the Chief Executive of the Confederation of Indian Industry.
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