Leslie Massey
Australia and India have been working on strengthening their economic relationship, with India being Australia's fifth-largest trading partner, with two-way trade in goods and services valued at $49.1 billion in 2023. In 2022, an interim agreement, the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA), was signed, which aimed to swiftly liberalise and deepen bilateral trade in goods and services. This agreement entered into force on 29 December 2022, with positive early results, reducing the trade gap between the two countries by 15% in the first six months.
| Characteristics | Values |
|---|---|
| Name of the agreement | Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) |
| Date of signing | 2 April 2022 |
| Date of enforcement | 29 December 2022 |
| Type of agreement | Interim agreement |
| Purpose | To deepen bilateral trade in goods and services, and to develop closer economic ties between Australia and India |
| Tariff on Australian goods exports to India | 85% tariff-free, rising to 90% by 1 January 2026 |
| Tariff on Indian imports | 96% tariff-free, rising to 100% by 1 January 2026 |
| India's position in Australian trade | India is Australia's fifth-largest trading partner, with two-way trade valued at $49.1 billion in 2023 |
| Australia's exports to India | Salmon, wine, pharmaceutical goods, electrical machinery, and iron and steel products |
| Impact of the agreement | The trade gap between Australia and India has shrunk by 15% in the first six months of the AI-ECTA |
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What You'll Learn
The Australia-India Economic Cooperation and Trade Agreement (AI-ECTA)
AI-ECTA provides for tariff-free trade on over 85% of Australian goods exports by value to India, increasing to 90% by 1 January 2026. It also reduces high tariffs on some agricultural products. Additionally, 96% of imports from India are now tariff-free, rising to 100% by 1 January 2026.
The agreement helps secure access to India's fast-growing market of over 1.4 billion people and provides opportunities for Australian businesses to diversify their trade. It is intended to liberalize and deepen bilateral trade in goods and services, with the potential for closer economic ties between the two countries.
AI-ECTA is an interim agreement, with negotiations for a more comprehensive economic cooperation agreement (CECA) currently ongoing. The CECA aims to build upon the outcomes of AI-ECTA to further strengthen economic ties between Australia and India.
Overall, the Australia-India Economic Cooperation and Trade Agreement is a significant step towards enhancing bilateral trade and economic cooperation between the two countries, providing mutual benefits and opportunities for businesses and consumers in both markets.
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AI-ECTA outcomes
The Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) entered into force on 29 December 2022. The agreement was signed on 2 April 2022 by Dan Tehan, Australia's Minister for Trade, Tourism and Investment, and Piyush Goyal, India's Minister of Commerce and Industry.
AI-ECTA is an interim agreement that provides a platform for the two countries to develop closer economic ties. It grants Australian businesses and consumers access to India's fast-growing market of over 1.4 billion people. It also enables Australian businesses to unlock or expand their operations in India.
Under the agreement, over 85% of Australian goods exports by value to India are tariff-free, increasing to 90% by 1 January 2026. High tariffs have been reduced on some agricultural products. Additionally, 96% of imports from India are tariff-free, rising to 100% by 1 January 2026.
AI-ECTA is expected to strengthen Australia's economic ties with India, which was Australia's sixth-largest trading partner in 2022, with two-way goods and services trade valued at $46.5 billion.
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India's cautious approach to free trade
India and Australia signed the Economic Cooperation and Trade Agreement (ECTA) on April 2, 2022, which came into effect on December 29, 2022. The agreement has made over 85% of Australian goods exports by value to India tariff-free, with the number rising to 90% by January 1, 2026. Similarly, 96% of imports from India are now tariff-free, and this number will reach 100% by January 1, 2026.
Despite the agreement, moves to enter the Indian market by Australian companies have been cautious. This is due to a variety of factors, including a general lack of knowledge about India and the ability to scale fast. Australia is best placed to deliver high-value products like cosmetics, wine, clean energy, and helicopters. However, a lack of skills and workforce holds the country back.
India's previous stance on trade agreements has been protectionist. In 2019, the country walked away from the Regional Comprehensive Economic Partnership. However, India's government now wants to hit US$1 trillion in annual exports by 2030 and recognizes that it needs to open up its market to achieve this goal.
India has been actively pursuing free trade agreements with various countries and regions, including the United Arab Emirates, the United Kingdom, Europe, and Australia. These agreements indicate a shift in India's approach to trade, moving away from protectionism and towards a more open and integrated market.
Despite India's recent enthusiasm for free trade agreements, some negotiations have not been successful. For instance, negotiations between India and the United Kingdom concluded without a deal, despite 14 rounds of trade talks. This failure gave Australian trade officials more opportunity to gain a strong market foothold in India.
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Benefits for Australian businesses
The India-Australia Economic Cooperation and Trade Agreement (ECTA), which came into force on 29 December 2022, is expected to benefit Australian businesses in several ways.
Firstly, ECTA provides preferential access to India's fast-growing market of over 1.4 billion people, offering Australian businesses opportunities for trade diversification. This agreement makes over 85% of Australian goods exports to India tariff-free, with the aim to increase this to 90% by 1 January 2026. Additionally, high tariffs on certain agricultural products have been reduced. Australian businesses can also benefit from reduced import tariffs from India, with 96% of imports currently tariff-free and the goal of reaching 100% by 1 January 2026.
The removal and reduction of tariffs will particularly benefit Australian farmers and food producers, giving them a competitive edge in the Indian market. This advantage is expected to grow as India was Australia's sixth-largest trading partner in 2022, with two-way goods and services trade valued at $46.5 billion.
Furthermore, the agreement will improve market access for Australian agricultural and industrial products in India. This will reduce barriers to trade and investment, making it easier for Australian businesses to establish themselves in the Indian market and seek new opportunities.
Overall, the India-Australia ECTA is designed to strengthen economic ties between the two countries and provide a platform for Australian businesses to expand and diversify their trade activities in the large and rapidly growing Indian market.
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Potential for closer economic ties
The Australia-India Economic Cooperation and Trade Agreement (AI-ECTA or ECTA) entered into force on 29 December 2022, marking a significant step towards strengthening the economic relationship between the two countries. This interim agreement has already yielded positive outcomes, reducing the trade gap between Australia and India by 15% in the first six months.
Under the AI-ECTA, over 85% of Australian goods exports by value to India are now tariff-free, with this figure set to increase to 90% by 1 January 2026. Additionally, high tariffs have been reduced on certain agricultural products. On the other hand, 96% of imports from India are currently tariff-free, and this will rise to 100% by 1 January 2026. The agreement provides Australian businesses with access to India's fast-growing market of over 1.4 billion people, offering opportunities for trade diversification and market access.
The early success of the AI-ECTA holds the potential to showcase the benefits of free trade agreements and tariff elimination to Indian officials, encouraging further economic liberalisation. Historically, India has not been a strong proponent of economic liberalism, but the 1991 trade liberalisation budget marked a significant shift, with peak customs duties on non-agricultural products decreasing dramatically. The AI-ECTA could serve as a stepping stone to bring India closer to the global economy and move away from protectionist policies.
Beyond the economic realm, the AI-ECTA holds geopolitical significance as well. As fellow members of the Quad, Australia and India are part of a strategic partnership that extends beyond their bilateral relationship. The agreement can contribute to India's integration into the Indo-Pacific region and enhance collaboration among Quad members. Furthermore, the agreement aligns with Australia's recent focus on diversifying its trade markets and reducing reliance on China.
Negotiations for a more comprehensive agreement, the Australia-India Comprehensive Economic Cooperation Agreement (CECA), are currently ongoing. The CECA aims to build upon the foundation laid by the AI-ECTA to foster even closer economic ties between the two countries. By capitalising on India's large and youthful population, diversified economy, and growth trajectory, Australia can explore opportunities in various sectors, including education, agriculture, energy, resources, tourism, healthcare, financial services, infrastructure, science and innovation, and sports.
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Frequently asked questions
Yes, the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) entered into force on 29 December 2022.
The agreement aims to strengthen the economic partnership between the two countries and reduce tariffs. Over 85% of Australian goods exports by value to India are now tariff-free, rising to 90% by 1 January 2026. Similarly, 96% of imports from India are now tariff-free, rising to 100% by 1 January 2026.
The agreement has helped diversify Australia's trade markets and reduce the trade deficit between the two countries. It has also increased Indian exports of pharmaceutical goods, electrical machinery, and iron and steel products. In addition, the agreement provides opportunities for Australian businesses in various sectors, including education, agriculture, energy, resources, tourism, and healthcare.
No, the AI-ECTA is an interim agreement. Negotiations for a more comprehensive economic cooperation agreement (CECA) between Australia and India are ongoing. The CECA aims to build upon the outcomes of the AI-ECTA to develop even closer economic ties between the two countries.
