India and Australia signed a bilateral trade agreement on April 2, which will come into effect in three to four months once Australia’s parliament ratifies it after the election. Called the India-Australia Economic and Trade Cooperation Agreement (IndAus ECTA), the agreement is expected to boost bilateral trade to $45-50 billion after five years from the current level of $27.5 billion. . Under the agreement, Australia offers duty-free access to India for approximately 96.4% of exports (by value), while India offers duty-free access to up to 85% of items, including coal, mutton and wool, and a progressive tariff reduction for the remaining products, including Australian wines, almonds, lentils and certain fruits, over 10 years.[i] Viewing ECTA as an “early harvest agreement”, the two countries decided to conclude the long-awaited Free Trade Agreement (FTA) as soon as possible, officially dubbed the Comprehensive Economic Cooperation Agreement (CECA). .[ii] The main difference in the FTA is India’s sensitivities to dairy, wheat and beef, Australia’s main export products,[iii] ECTA will therefore remain the official pact for some time.

The agreement, signed in the midst of the Ukrainian crisis in which the two countries are not on the same page, however suggests that the strengthening of cooperation between the two countries is necessary to ensure peace and tranquility in the Indo- Peaceful. When Indian Prime Minister Narendra Modi and Australian Prime Minister Scott Morison held a virtual summit on March 21, the two leaders “committed to holding annual summits to enhance cooperation.”[iv] Since India is not part of any of the regional economic groupings such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or the Regional Comprehensive Economic Partnership (RCEP), bilateral trade agreements strengthen India’s relationship with major Indo-Pacific economies.

The trade pact is economically and strategically advantageous for both countries. Since India’s major import items from Australia are raw materials and intermediate products, India is expected to get cheaper raw materials, which will boost the competitiveness of Indian industry. Similarly, India’s labour-intensive sectors such as textiles and garments, leather, some agricultural products, jewellery, electrical appliances and railway carriages will find a new market, until then dominated by Chinese, Japanese and Western products.

For Australia, a close economic partnership with India is a strategic bulwark against Chinese dominance in the Australian economy. China is Canberra’s largest trading partner, accounting for nearly a third of total trade (31%), and Australia’s sixth-largest foreign direct investor ($44 billion in 2020)[v]. However, the close trade-induced relationship has started to deteriorate since the start of the Covid pandemic in 2020, when Australian Prime Minister Scott Morison demanded an independent investigation into the spread of the Covid-19 pandemic from its source. in Wuhan, China. Beijing retaliated with a series of restrictions on imports from Australia, including iron ore, beef, lobster, timber and lamb, and warned against halting coal exports Australian to China.^[vi] In May 2020, Beijing imposed an 80% “anti-dumping” tariff on Australian barley, a measure that was expected to cost Australia 500 million Australian dollars ($350 million) a year.^[vii]

China accounts for 43% of Australia’s total exports, worth $116.82 billion in 2021[viii]of which iron ore, coal, gold, frozen beef and wine dominated bilateral trade, which also constitute Australia’s main export basket.[ix] Despite the fierce trade war between the two, Australian exports to China have grown over the 2020-2021 period,[x] but Canberra wants to reduce its dependence on Beijing and deny China’s use of bilateral trade for strategic purposes. India could be an alternative market for Australian iron ore and coal as New Delhi’s demand for these raw materials increases while other import sources such as Indonesia and South Africa are become expensive.[xi]

Under the deal, Australia would allow easy access for Indian students and professionals, as well as a quota for Indian chefs and yoga teachers.[xii] This would change the demographic profile of foreigners in Australia by the next decade. Currently, the Indian diaspora in Australia numbers around 700,000 people, but it is the second highest tax paying diaspora after the British.[xiii] Easy access to visas for Indian professionals will help overtake the number of Australians born in China over the next decade, Australia’s largest Asian community.

Realize the strategic partnership

A close economic relationship is the final stage of Cold War legacies in India-Australia relations. When the Asia-Pacific Economic Cooperation (APEC) was formed in 1989 under the Australian initiative, India saw no economic and strategic value for Canberra, and the apathy continued for some time. Australia was the first country to withdraw from the first quad formation in 2007, citing the “anti-Chinese” nature of the grouping. For example, Australian Defense Minister Brendan Nelson, during his visit to China in July ahead of Naval Exercise Malabar 2007, said that “Australia doesn’t want to do anything unnecessarily that upsets another country. [China]”, and not interested in “pursuing a quadrilateral dialogue with India”[xiv]. However, Quad members were concerned about China’s strong defense spending growth and the demonstration of new military technologies such as ASAT missiles, so they opted to continue bilateral engagements. Since then, the India-Australia strategic partnership has gradually gained momentum, forming the “Strategic Partnership” in 2009 and a “Comprehensive Strategic Partnership” (CSP) in 2020.[xv]

Australia has been keen to embrace India for a strategic partnership, given China’s assertiveness in the South China Sea where Beijing has placed cruise missiles in the man-made islands, reaching the threat near the ‘Australia.. Given India’s importance to Australia’s security framework, the Foreign Policy White Paper 2017 states that ‘India is at the forefront of Australia’s international partnerships with congruent security interests'[xvi]; Australian Department of Defense Defense Strategy Update of 2020, reiterates India’s role alongside Japan in the Indo-Pacific for the promotion of “shared interests in global rules and norms”.[xvii] Australia joined the Malabar Naval exercise in 2020, five years after the Japanese participation, which has now become the naval exercise ‘Malabar quad’. In the strategic framework, economic and security cooperation go hand in hand, so the trade deal would help cement the strategic partnership between New Delhi and Canberra.

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[i] PTI, “India-Australia Ink Trade Pact; Thousands of Indian Goods to Gain Duty-Free Access”, India timeApril 2, 2022, https://timesofindia.indiatimes.com/business/india-business/india-australia-ink-trade-pact-thousands-of-indian-goods-to-get-duty-free-access/articleshowprint/ 90615312.cms

[ii] PTI, “India and Australia Hold Free Trade Pact Talks”, The HinduFebruary 10, 2022, https://www.thehindu.com/news/international/india-australia-hold-talks-on-free-trade-pact/article38408641.ece

[iii] Kallol Bhattacharjee, “India and Australia move closer to final ‘interim deal’ on trade”, The HinduFebruary 11, 2022, https://www.thehindu.com/news/national/india-australia-edge-closer-to-final-interim-deal-on-trade/article38414737.ece

[iv] Department of External Affairs, “Joint Statement: India-Australia Virtual Summit,” March 21, 2022, https://mea.gov.in/bilateral-documents.htm?dtl/35008/JOINT+STATEMENT++INDIAAUSTRALIA+VIRTUAL+ SOMMET

[v] Department of Foreign Affairs and Trade, Australian Government, “China: China country brief”, https://www.dfat.gov.au/geo/china/china-country-brief#:~:text=China%20is% 20Australia’s %20biggest%20two,for%20cent%20during%20this%20period).

^[vi] “Australia has called for a COVID-19 probe. China responded with a trade war,” ABC NewsJanuary 3, 2021, https://www.abc.net.au/news/2021-01-03/heres-what-happened-between-china-and-australia-in-2020/13019242, accessed January 16, 2021 .

^[vii] Minxin Pei, “China’s economic bullying will never work”, Nikkei AsiaJuly 8, 2020, https://asia.nikkei.com/Opinion/China-s-economic-bullying-will-never-work, accessed January 16, 2021.

[viii] Trading Economics, “Australian Exports by Country”, https://tradingeconomics.com/australia/exports-by-country,

[ix] Data from the Observatory of Economic Complexity (OEC), “Australia”, https://oec.world/en/profile/country/aus

[x] Weizhen Tan, “Australias exports to China jump despite trade fight”, CNBC, October 27, 2021, https://www.cnbc.com/2021/10/28/australias-exports-to-china-are-jumping -despite-their-commercial-struggle.html

[xi] Reuters, “Andhra Pradesh cancels Adani bids to supply imported coal”, The Economic Times, April 4, 2022,

https://economictimes.indiatimes.com/industry/indl-goods/svs/metals-mining/andhra-pradesh-cancels-adani-bids-to-supply-imported-coal/articleshow/90627352.cms,

[xii] PTI, “India-Australia Ink Trade Pact; Thousands of Indian Goods to Gain Duty-Free Access”, India timeApril 2, 2022, https://timesofindia.indiatimes.com/business/india-business/india-australia-ink-trade-pact-thousands-of-indian-goods-to-get-duty-free-access/articleshowprint/ 90615312.cms

[xiii] Stephen Manallack, “India is rapidly becoming a regional security power, the trade deal with Australia affirms it”, News 18April 3, 2022, https://www.news18.com/news/opinion/india-australia-trade-turbo-charge-could-achieve-75-billion-in-five-years-4937066.html

[xiv] Tanvi Madan, “The Rise, Fall and Rebirth of the ‘Quad'”, war on the rocksNovember 16, 2017, https://warontherocks.com/2017/11/rise-fall-rebirth-quad/

[xv] Department of Foreign Affairs and Trade, Australian Government, “Joint Statement on a Comprehensive Strategic Partnership between Republic of India and Australia,” June 4, 2020, https://www.dfat.gov.au/geo/india/joint-statement -global-strategic-partnership-between-the-republic-of-india-and-australia

[xvi] Australian Government, Foreign Policy White Paper 2017, https://www.dfat.gov.au/publications/minisite/2017-foreign-policy-white-paper/fpwhitepaper/foreign-policy-white-paper/chapter- three-stable-and-prosperous-indo-pacific/indo-pacific.html

[xvii] Department of Defence, Australian Government, Defense Strategy Update 2020, https://www.defence.gov.au/sites/default/files/2020-11/2020_Defence_Strategic_Update.pdf

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