The interim Free Trade Agreement (FTA) between India and Australia, which has been in effect for six months, has yielded positive outcomes for both countries. Notably, India’s trade deficit with Australia has narrowed by 15%, primarily driven by increased exports of drugs, electrical machinery, and iron and steel articles. Additionally, a milder Indian summer has led to a significant decline in coal imports from Australia.
According to official data, India’s exports to Australia experienced a sharp decline of over 32% in the five months leading up to May, compared to the same period in the previous year. Concurrently, imports from Australia also shrank by 25%, resulting in a reduced trade gap of $3.87 billion, representing a 15% decline from the previous year’s figures.
However, when excluding the energy basket, such as oil and coal, from the trade data, India’s exports during the same period increased by 3.3%, while imports witnessed a substantial decline of 31%. Consequently, the trade gap narrowed to $3.27 billion, marking a significant 41% decrease from the previous year.
Coal imports, which account for 75% of total shipments from Australia, saw a considerable 45% decline in India from January to May. This can be attributed to lower demand this year compared to the previous year when India faced heatwaves that drove up electricity generation and power demand to record levels.
Additionally, global coal prices have also decreased in 2023 due to weaker demand in China, the world’s largest coal consumer. The disruptions caused by the Russia-Ukraine war in 2022 significantly impacted global supply chains and led to a surge in energy prices.
Notably, India’s merchandise imports from Australia mainly comprise raw materials, minerals, and intermediate goods. To facilitate trade, India removed the 2.5% import duty on high-grade Australian coal under the trade agreement.
During the April-May period, non-energy exports from India to Australia have witnessed substantial growth, boosted by the early harvest agreement under the Economic Cooperation and Trade Agreement. Notably, exports of Indian pharmaceutical products surged by 34.6%, reaching $79.34 million. This achievement is attributed to the fast-track approval facilitated by the agreement for patented, generic, and biosimilar medicines that have regulatory approvals in the US, European Union, UK, and Canada.
Furthermore, exports of electrical machinery recorded an impressive growth rate of 173%, totalling $82.2 million during the same period. The export of nuclear reactors, boilers, and machinery also increased by 21.6%, amounting to $54.18 million in the first two months of FY24. Additionally, outbound shipments of articles made of iron or steel experienced a remarkable surge of 74.88%, reaching $56.4 million.
Under the Economic Cooperation and Trade Agreement, thousands of domestic goods, including machinery, obtained duty-free access to the Australian market. Previously, these products were subject to customs duty ranging from 4-5% in Australia. As a result of the pact, India now enjoys zero-duty access for about 96.4% of its exports (by value) to Australia from the very beginning of the agreement.
Despite these positive developments, a government official acknowledged that India faces competition from ASEAN countries, which already established their markets in Australia through prior FTAs. The official also mentioned that freight costs to Australia remain high, and it may take some time for India to forge strong partnerships in the region.
However, India’s farm exports to Australia have experienced a marginal decline following the implementation of the FTA due to stringent bio-security checks at Australian ports. In the six months leading up to June this year, Indian agricultural exports to Australia reached $143.78 million, compared to $144.39 million during the same period last year.
The ban on rice exports from India announced recently is expected to further impact agricultural exports to Australia since rice contributes around 15% to the total farm exports.
“Australia maintains very strict bio-security norms due to its status as an island country, making it challenging to export agricultural products in their raw form. Therefore, our focus is on value addition and pushing for processed food exports,” stated a representative.
The Australian High Commission emphasises the critical role of biosecurity in safeguarding the country from invasive pests and diseases, making Australia one of the few nations in the world to maintain a pest and disease-free status.
A spokesperson from the High Commission highlighted that Australia’s biosecurity measures are comprehensive and implemented at different stages, including offshore, at the border, and onshore, to protect human, plant, and animal health. The country’s biosecurity requirements are applied uniformly to all trading partners, without discrimination.
Australia’s approach to biosecurity is risk-based and science-based, ensuring that it aligns with the International World Trade Organisation (WTO) Sanitary and Phytosanitary obligations. Under these obligations, trading partners have the right to maintain a level of protection they deem suitable to safeguard life or health within their territories.