Exports from India to Australia decreased by 62% in December 2022 as a result of exporters delaying shipments in order to benefit from the 5% duty reduction provided by the India-Australia Free Trade Agreement, which went into effect on December 29.
“As the India-Australia Economic Cooperation and Trade Agreement (ECTA) came into effect, many exporters either delayed or held the shipments to get the 5% duty benefit. As a result, the exports declined by 62% in December,” according to Tapan Mazumder, Additional DGFT, Department of Commerce, Ministry of Commerce and Industry, Government of India. He was speaking at a business outreach session on the opportunities and benefits of the ECTA broken down by sector.
Under the ECTA, Australia is granting zero-duty access to India for all of its tariff lines. According to the Certificate of Origin (CO), particularly for industries like gems and jewellery, textiles, engineering products, and transmission lines, he projected that India’s exports would rise dramatically in January.
A CO is a crucial document for international trade that attests that all the products in a specific export shipment were entirely acquired, produced, manufactured, or processed in that nation. He stated that India’s labour-intensive industries, which are currently subject to an import charge of 4-5% by Australia, will see the biggest increase.
Along with its trade agreement with India, the ratification of the double tax avoidance agreement (DTAA) by the Australian Parliament is a significant announcement. The DTAA might go into effect on April 1, 2023, and it’s anticipated to eventually save Indian IT companies doing business in Australia up to USD $1 billion.
Australia is granted duty-free access to 70.3% of India’s tariff lines (40.3 per cent tariff lines from day one and the remaining 30 per cent in a phased manner). Coal, calcined alumina, manganese ore, copper concentrates, bauxite, sheep meat, rock lobster, macadamia nuts, cherries, and wool are all free of duty in India.
The tariff discounts granted by India will enable local/domestic companies to obtain less expensive raw materials and improve their competitiveness since reports indicate that roughly 96% of Australia’s exports to India consisted of raw materials and intermediate products.
It is now clear how a developing recession in the west is affecting India’s overseas commerce. Due to a downturn in demand from important markets following aggressive rate hikes by major central banks and an unfavourable base, merchandise exports decreased 12.2% from a year earlier to $34.5 billion in December 2022, the second decline in three months.
In October, exports of goods had decreased by 16.65% on a yearly basis; however, November saw a flat growth.
In December, imports decreased as well, though more slowly, by 3.5% to $58.2 billion, which was a result of the recent slowdown in domestic goods demand. Additionally, the value of imports and exports has been impacted by the decline in global commodity prices. The trade deficit increased from $22.6 billion to over $23.8 billion in December as a result of higher imports, while it was still well below the record $30 billion imbalance reached in July.
In the September quarter, India’s current account deficit (CAD) increased to $36.4 billion, an all-time high in absolute terms and 4.4% of GDP, mostly due to a record deficit of $83.5 billion.
On a balance of payments (BoP) basis, there was a significant decrease in foreign exchange reserves of $30.4 billion in the quarter, as opposed to additions of $4.6 billion in Q1FY23 and $31.2 billion in Q2FY22.
According to analysts, the CAD may have peaked in Q2FY23, but it may still be at high levels, even if the prospect of capital outflows is expected to have a greater impact on the rupee’s exchange rate.
Up to 19 of the 30 major industries had a fall from the previous year, including petroleum products, engineering products, gems and jewellery, textiles and apparel, medications, and pharmaceuticals. But when compared month to month (without accounting for seasonal variations), goods exports rose marginally by 7.7% in December.