The Economic Cooperation and Trade Agreement (ECTA) is the first FTA between India and a developed country in a decade. It was signed by the Minister of Commerce & Industry Piyush Goyal in April 2022 and has come into force from December 29.
The agreement is expected to increase bilateral trade between India and Australia to around $45-50 billion in the next five years from $27.5 billion in 2021.
“The Indian federal government has already done the job; the policy framework is already in place. The Modi government has been pushing and it will continue to do so, we cannot ask more from him, but we need Indian states to engage more to ensure that the numbers are achieved for both sides,” McKay told ET in an exclusive interaction.
Among Indian states, according to her, Tamil Nadu and Uttar Pradesh have already taken lead in terms of their engagements to take advantage of this FTA and other states can take a cue from them.
“When Minister Goyal was in Australia in April, he increased the bilateral trade target to a very ambitious level of $100 billion by 2030. So, if we are to meet those ambitions, then there is a lot of work that the government but also business needs to do,” McKay said.
She is of the view that the free trade agreement has set the framework and a conducive environment for businesses to operate in. But the businesses from both sides now need to step up and be willing to look at commercial activity on a scale not seen before.In 2021, India’s exports to Australia stood at $10.5 billion and India’s imports from Australia were $17 billion, an effective deficit of $6.5 billion for India.
Australia is the 17th largest trading partner to India and India is Australia’s 9th largest trading partner.
India’s goods exports to Australia grew 135% between 2019 and 2021 and primarily comprised finished products such as textiles and apparels, engineering products, leather, footwear, gems & jewellery, and sportswear.
India’s goods imports from Australia consist largely of raw materials, minerals, and intermediate goods. Around 3/4th of India’s imports from Australia consisted of coal, with 70% of coal being coking coal.
Following the implementation of ECTA, according to McKay, a significant growth is expected in finished products from India’s labour-intensive sectors such as textiles and apparel, gems and jewellery, leather and footwear, furniture, and engineering goods. These items had a 4-5% tariff in Australia pre-ECTA, as against other countries with which Australia has FTAs in South East Asia.
The FTA will also help Indian entrepreneurs access cheaper raw materials such as critical minerals for sectors such as steel, renewable, electric vehicles manufacturing, aluminium, fabric and garments, making these more competitive, added McKay who is a passionate advocate of India in Australia, a former member of parliament. Her love of the sari is well-known and she was the first woman to wear a sari to an Australian Parliament.
Along with the ECTA, Australia has agreed to amend Australian domestic taxation law to stop the taxation of offshore income of Indian firms providing technical services to Australia. This resolves a long-pending request made by India. As per industry estimates,
Indian IT firms can potentially save more than $1 bn in taxes over the next few years as a result of the above amendment, enhancing their competitiveness.
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