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What the India-Australia trade deal means for your business

Blog By Duncan Khoury – 01 June 2022
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The International Monetary Fund (IMF) recently downgraded its 2022 global growth forecast to 3.6%. This was largely in response to Russia’s invasion of Ukraine

But despite the latest global economic challenges, the IMF forecast an 8.2% economic growth rate for India this year. Compare that to the following growth rate projections for:

  • China at 4.4%
  • the United States at 3.7% 
  • advanced European economies at 2.8%

It’s no wonder that world leaders have been trying to beat a path to India’s door. And the good news is that Australia got there first. 

The two countries signed an interim India-Australia trade agreement on 02 April 2022. Known as the India-Australia Economic Cooperation and Trade Agreement (IA-ECTA), its aims include:

  • making Australian exports to India cheaper
  • opening up new import opportunities
  • creating a slew of new job prospects for Australian businesses

To help your company take advantage of the potential opportunities, we’ve created a guide to the interim Australia free trade agreement with India. It covers everything from background on the historic trade agreement to what the deal could mean for critical Australian industries. 

Understanding Australia-India trade relations

According to the Department of Foreign Affairs and Trade (DFAT), two-way trade in goods and services between Australia and India grew “in value from $13.6 billion in 2007 to $24.3 billion in 2020.”

Additionally, in 2020, India was Australia’s:

  • seventh-largest trading partner 
  • sixth-largest goods and services export market, valued at $16.9 billion
  • third-largest market for services exports

As background, India is the world’s largest democracy and has a population of 1.3 billion people

Over the past decade, India has also experienced significant economic growth, emerging as an influential global player. In terms of purchasing power parity, it has become the world’s third-largest economy.

As stated by DFAT, “India is an attractive market for Australian exporters due to:

  • a fast-growing and increasingly affluent consumer market
  • a transforming economy that offers fast-growing opportunities for Australian businesses
  • an appetite for Australia’s premium products and services.”

Given the opportunities it creates and the fact that negotiations on a trade deal like this originally started in 2011, calling the agreement ‘historic’ is not an overstatement.

Just over a decade ago, the two countries started negotiations for a Comprehensive Economic Cooperation Agreement (CECA). However, despite negotiations undergoing nine rounds, an agreement never eventuated. So both countries agreed to suspend negotiations in 2015.

Then, in June 2020, the two countries formally re-launched CECA negotiations, leading to the recent signing of the interim IA-ECTA. While this agreement is now signed, it hasn’t yet been ratified, but legal experts expect it to come into force in the second half of 2022.

Looking ahead, both countries are expected to continue working towards a full Comprehensive Economic Cooperation Agreement

Man writing on a clipboard while standing in a warehouse full of boxes to be shipped between India and Australia as part of the free trade agreement
The India-Australia trade agreement presents a strong opportunity for Australian businesses. Are you ready?

Business impacts of the India-Australia free trade agreement

Once ratified, the IA-ECTA will eliminate tariffs on over 85% of Australian goods exported to India. This figure will then rise to almost 91% of tariffs over ten years. DFAT estimates that this will be “commercially significant for up to $14.8 billion worth of Australian merchandise trade destined for the Indian market each year.”

In return, the Australia-India trade agreement will allow around 96% of Indian imports to enter Australia duty-free.

The IA-ECTA will also have additional benefits for specific Australian industries. Let’s take a look at some of these for each relevant industry. 

Agriculture

Overall, Australia’s agricultural industry will win big from the IA-ECTA. However, the agreement doesn’t include some trade-sensitive goods for India, such as beef, dairy, chickpeas and wheat

The IA-ECTA exclusions for beef and dairy are unlike the China-Australia Free Trade Agreement (ChAFTA) goods provisions, which we explored in our recent article on importing from China. However, despite ChAFTA, China introduced trade restrictions in 2020 on Australian exports of:

  • beef
  • lobster
  • cotton
  • coal
  • copper 
  • timber 

China also introduced significant tariffs on Australian wine and barley

While our country’s trade with China heads into unknown territory, the IA-ECTA provides plenty of opportunities for Australian businesses. 

According to an Australian Government media release, key IA-ECTA benefits for the agricultural and food industries include:

  • Current sheep meat tariffs of 30%: immediately eliminated, providing a boost for Australian exports that already command nearly 20% of India’s market.
  • Current wool tariffs of 2.5%: immediately eliminated, “supporting Australia’s second-largest market for wool products”.
  • Current tariffs of 150% on wine with a minimum import price of US$5 per bottle (based on Indian wholesale price index for wine): immediately reduced to 100%, and subsequently reduced to 50% over ten years.
  • Current tariffs of 150% on wine bottles with a minimum import price of US$15 (based on Indian wholesale price index for wine): immediately reduced to 75%, and subsequently reduced to 25% over ten years.
  • Current tariffs of up to 30% on avocados, onions, broad beans, kidney beans, adzuki beans, cherries, shelled pistachios, macadamias, cashews in-shell, blueberries, raspberries, blackberries and currants: eliminated over seven years.
  • Current tariffs on almonds, lentils, oranges, mandarins, pears, apricots and strawberries: reduced, “improving opportunities for Australia’s horticulture industry to supply India’s growing food demand.”

In addition, DFAT states that the following preferential tariffs will apply:

  • Seafood: immediate elimination of tariffs for fresh rock lobster, and elimination over seven years for other fresh, frozen and processed seafood products.
  • Infant formula: elimination of tariffs over seven years.
  • Barley, oats and lentils: locked-in duty-free entry for barley and oats, and immediate 50% reduction for in-quota exports of lentils.

Materials

The mining and resources sector will also enjoy significant benefits from the IA-ECTA including:

  • Coal, alumina and metallic ores, including manganese, copper and nickel: tariffs immediately eliminated.
  • Critical minerals, including titanium and zirconium: tariffs immediately eliminated.
  • LNG tariffs: immediately bound at 0%.

Given that India is Australia’s fifth-largest energy and resources market, tariff eliminations are particularly relevant. 

According to global law firm, Norton Rose Fullbright, “the growing importance of India to global manufacturing means that Australia’s critical minerals and resources sector can expect greater certainty in the export of minerals required to produce mobile phones and monitors.”

Additionally, Australia is in a favourable position to supply India with critical minerals to power clean energy. These include the minerals required to manufacture solar panels and electric cars

Pharmaceutical and Healthcare

The agreement is also good news for the pharma and healthcare industries: eliminating tariffs on pharmaceutical products and certain medical devices over five and seven years.

And the IA-ECTA benefits Australian service suppliers too, including business services (medical and dental) and hospital sectors. Specifically, it states that these suppliers will “receive the best treatment accorded by India to any future free trade agreement partner.”

Meanwhile, for pharmaceutical imports to Australia, the IA-ECTA includes provisions stating that the therapeutic goods regulators of each country must work together to facilitate trade

According to a recent Australian Financial Review article, this means that:

“Australia has agreed to recognise approvals gained by Indian products in major markets, including the European Union, the UK, and the United States, and to speed up the assessment of manufacturing facilities in a similar way.”

Construction and Engineering

The IA-ECTA guarantees that Australian construction and engineering service suppliers will “receive the best treatment accorded by India to any future free trade agreement partner.”

In other words, the agreement will help Australian-based businesses that need employees skilled in science, technology, engineering, maths (STEM) or information technology (ICT). 

Under the deal, DFAT also states that Australia will extend access time in the country for former Indian students after completing a:

  • diploma or trade qualification (up to 18 months)
  • bachelor’s degree (up to two years)
  • master’s degree (up to three years) or doctoral degree (up to four years) 

An additional year (increasing from two to three years) will be available for Indian students who graduate with bachelor’s degrees in STEM and ICT with First Class Honors.

Finally, the IA-ECTA also sets the foundations for each country to negotiate potential mutual recognition between professional services bodies of:

  • qualifications
  • licensing 
  • registration procedures

DFAT states, “Australian professionals such as architects, engineers and accountants will benefit as this framework will help improve the recognition of professional qualifications, and promote two-way mobility.”

Retail and Wholesale

According to DFAT, “India will provide market access for single-brand retailing and franchising, as well as commitments regarding wholesale distribution services. 

Australian internet services businesses in India will also have more opportunities to expand their portfolio with a foreign equity limit of 74% for commercial presence.”

Finally, several Indian exports into Australia will have duty-free status, with the following being most relevant to the retail and wholesale industries:

  • pharmaceutical
  • clothing
  • textiles
  • footwear
  • leather
  • gems
  • engineering goods

Image of a silver compass with an Australian flag in the centre, and the arrow pointing north toward the word ‘trade’ - symbolic of Australia focused on its new trade partnership with India

How Octet can help to power business growth into Indian markets

The Australian Government’s goals for the IA-ECTA are to make India:

  • one of the country’s top three export markets by 2035
  • the third-largest destination in Asia for outward Australian investment

With all the potential on offer for Australian exporters, you might be considering ways to successfully enter the Indian market or expand your company’s existing trade in the country. 

Octet can help with both goals. Here’s how. 

Boost your cash flow confidence

If you’re looking to enter the Indian market, it’s vital to ensure that your local Australian operation has enough cash flow sustainability to support international growth.  

Our Debtor Finance solution lets you leverage your unpaid invoices to get the revenue from your sales faster. You can use it to access up to 85% of your accounts receivable value within 24 hours. And as your business grows, so too does your available cash flow.

Similarly, our Debtor Finance solution can help to fund business growth for exporters who want to expand their presence in the Indian market. This ensures your receive payments from your local buyers within 24 hours – on time, every time. You can then use that money to invest in strategies to grow your market share in India, such as:

  • developing a new marketing plan to appeal to new buyers
  • increasing business development activities to build relationships with those buyers
  • acquiring talent, technology or competitors to increase your competitive advantage

You could also consider our Trade Finance solution, which gives you a convenient line of credit for your business. This innovative solution essentially allows you to:

  • set your own trading terms, with up to 60 days interest-free and 120-day repayment terms
  • negotiate early payment discounts with both local and international suppliers
  • receive your imported goods earlier, and therefore commence the local sales process faster than competitors

Essentially, our Trade Finance solution unlocks working capital. This is essential because the longer the period between your supplier receiving payment and actually shipping the goods, the longer your working capital stays tied up in the transaction. 

Simplify your overseas trades

Keeping on top of the steps in your supply chain, from initial enquiry all the way through to product or service delivery, can be a challenge. That doesn’t even factor in coordinating communication between multiple stakeholders.

Thankfully, our intelligent supply chain platform connects every step and stakeholder in a central location to simplify exporting to India. 

The platform’s multilingual capabilities let you easily communicate with international partners in their own language. As a result, you’ll save time and eliminate errors.

Plus, we verify all platform members through comprehensive security processes that include:

  • Anti-Money Laundering (AML)
  • Know Your Customer (KYC)
  • Counter-Terrorist Financing (CTF) 
  • Economic Trade Sanctions (ETS). 

As a result, you can have complete confidence that your transactions are safe and secure.

Empower your exports

Get in touch today to discover how our working capital solutions can help power your company to take full advantage of the India-Australia trade agreement.

 

 

Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.

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