By Dezan Shira & Associates
Trade prospects between India and Australia have mushroomed in recent years, propelled by the many complementarities between the two economies. The value of bilateral trade in goods and services between both countries increased from US$10.12 billion in 2007 to US$18.08 billion in 2020.
In 2020, India was Australia’s seventh-largest trading partner and sixth largest export destination, driven by coal and international education. On the other hand, Australia is also an increasingly important destination for Indian exports.
Recently on November 17, 2021 during the Bengaluru Tech Summit (BTS) 2021, Australian Prime Minister Scott Morrison announced the proposal to set up a new Australian consulate general in Bengaluru (Karnataka state). In a recorded statement, the Australian PM said, “I’m pleased to let you know that Australia is also seeking to establish a new Consulate General in the city. Bengaluru is the world’s fastest-growing technology hub – of course, we want to be part of it. It is home to a third of India’s unicorn companies. Australia’s new mission in Bengaluru would expand our diplomatic presence in India to five posts Australia will deepen our ties to India’s innovators, to your technologists and entrepreneurs – as well as India’s governments at all levels.”
Trade agreement in the works
With formal resumption of negotiations on the India-Australia Comprehensive Economic Cooperation Agreement (CECA) during the 17th India-Australia Joint Ministerial Commission held on September 30, 2021, this bilateral trade relationship is expected to deepen further.
In the same meeting, both sides agreed to conclude an interim agreement or early harvest trade deal by December 2021. Under the early harvest agreement, duties on certain selected items will be reduced.
Both sides agreed that the long-pending free trade agreement, covering trade in goods and services, investments, etc. will be finalized by the end of 2022.
India Australia trade and investment: Trends and prospects
India’s GDP in 2019 stood at US$2.97 trillion whereas Australia’s GDP during the same period was US$1.4 trillion. In the same period, while India ranked 44th in the Economic Complexity Index (ECI 0.59) and 15th in total exports (US$330 billion), Australia ranked 79th in the Economic Complexity Index (ECI -0.19) and 19th in total exports (US$284 billion).
India’s export basket to Australia majorly comprises of goods like petroleum products, medicines, polished diamonds, gold jewelry, apparels etc., while key Australian exports to India include coal, LNG, alumina and non-monetary gold.
In the services sector, major Indian exports to Australia are related to travel, telecom and computer, government and financial services, while Australian services exported to India are primarily related to education and personal services.
Sectors like food and agribusiness, healthcare, infrastructure as well as mining and resources have been gaining importance in the recent years.
In the healthcare sector, rising income, increased health awareness, and easy access to insurance are driving demand for newer ventures in Medtech as well as research and development (R&D).
In the food and agribusiness category, there is heightened demand in India for premium alcoholic beverages and wines, as well as health supplements and nutraceuticals like cold pressed juices, granola, and baked, gluten-free, and trans fat-free products.
India’s education industry is also rapidly expanding in the online segment, offering new opportunities for foreign investors looking to capitalize on young Indians seeking online training, upskilling, and hobby learning options.
Indian exports to Australia
In 2019, India exported US$3.19 billion to Australia.
The main products that India exported to Australia are refined petroleum (US$287 million), packaged medicaments (US$277 million), and railway passenger cars (US$166 million).
During the last 24 years, Indian exports to Australia have increased at an annual rate of 8.67 percent, from US$433 million in 1995 to US$3.19 billion in 2019.
Australian exports to India
In 2019, Australia exports to India amounted to US$15.3 billion. The main products that Australia exported to India were coal briquettes (US$12.1 billion), gold (US$604 million), and petroleum gas (US$419 million).
During the last 24 years, Australian exports to India have increased at an annual rate of 10.5 percent, from US$1.38 billion in 1995 to US$15.3 billion in 2019.
Education remains Australia’s largest service export to India, valued at US$4.46 billion and accounting for around 88 percent of the total in 2020. At the end of 2020, Indian students in Australia numbered 115,137.
Investment prospects
The total value of two-way foreign direct investment (FDI) between both countries was valued at US$1.04 billion in 2020.
India offers a multitude of investment opportunities to Australian investors as there is a heightened demand for upgraded infrastructure in rapidly urbanizing towns and logistics infrastructure. With the recently announced National Monetization Pipeline, the Indian federal government has invited investments to the tune of US$81 billion by monetizing its core assets in 13 strategic sectors through this pipeline, including railways, roadways, power generation, etc. Projects under India’s National Master Plan for Multimodal Connectivity to Economic Zones also creates multiple investment opportunities for investors.
Besides infrastructure, India’s manufacturing sector is set to benefit from planned efforts by the government to boost specialized and value added segments across multiple industries, such as IT hardware, electric vehicles, ACC battery storage, drones, auto components, pharmaceuticals, solar modules, white goods, food processing, specialty steel, etc. Incentives are doled out based on the investor’s spending plans, sales, and creation of targeted new or higher-tech or value added production capacity. The cumulative impact of these production-linked incentives (PLI) is expected to see India become a much more competitive manufacturing and sourcing base by 2030.
Tariffs between India and Australia
In 2018, the products from India that paid the highest import tariffs to enter Australia were food preparations and grape wines, sparkling wines, fermented beverages, alcoholic drinks etc. at a tariff of 150 percent.
During the same period, the products from Australia that paid the highest import tariffs to enter India were vegetables and mixtures, both fresh as well as dried, including grapes, prunes, apricot etc. at the tariff of five percent.
India-Australia bilateral economic partnership
In 2020, both the countries elevated their bilateral Strategic Partnership concluded in 2009 to a Comprehensive Strategic Partnership (CSP). In September 2021, both countries formally agreed to reengage on CECA to foster cooperation in multiple areas, including critical minerals, health, critical technology, science, and agriculture.
Moreover, both sides have agreed to fast track negotiations to sign an FTA by end of 2022. According to estimates by the Centre for International Economics, a 20-year period FTA could result in a net increase in Australia’s GDP by up to US$32 billion and India’s GDP by up to US$34.23 billion.
To aid Australian and Indian business partnerships, the Australian Government has launched the Australia India Business Exchange (AIBX) program. AIBX provides a range of services to support Australian businesses to enter and establish in India, from industry specific insights to guidance on doing business with India and entering India’s online retail market.
This article was written by Dezan Shira & Associates. The practice assists foreign investors into India and can be reached at india@dezshira.com. Alternatively please visit www.dezshira.com
Further Reading: Doing Business In India 2021 https://www.asiabriefing.com/store/book/introduction-doing-business-india-2021.html
