India and Australia signed a bilateral trade deal on April 2, which will come into force in three-four months once the Australian Parliament ratifies it after elections there. Termed as India-Australia Economic Cooperation and Trade Agreement (IndAus ECTA), the deal is expected to raise bilateral trade to $45-50 billion after five years from the current level of $27.5 billion. Under the agreement, Australia offers zero duty access to India for about 96 .4 per cent of exports (by value), while India offers zero duty up to 85 per cent of items, including coal, sheep meat, and wool, and a progressive reduction of duty for the remaining items, including Australian wines, almonds, lentils, and certain fruits, over 10 years.[i] Viewing the ECTA as an “early harvest deal”, both countries have decided to conclude the long pending Free Trade Agreement (FTA), officially dubbed the Comprehensive Economic Cooperation Agreement (CECA), as soon as possible.[ii] The major difference in the FTA has been India’s sensitivities about dairy, wheat, and beef, major export items of Australia,[iii] so ECTA will remain the official pact for some time.
The deal, signed amid the Ukraine crisis in which both countries are not on the same page, however, suggests that strengthening cooperation between both the countries is necessary to ensure peace and tranquillity in the Indo-Pacific. When Indian Prime Minister Narendra Modi and Australian Prime Minister Scott Morison held a virtual summit on March 21, both leaders “committed to holding Annual Summits to drive closer cooperation”.[iv] As 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 strengthens India’s relationship with major economies of the Indo-Pacific.
The trade pact is economically and strategically advantageous for both countries. Since India’s major import items from Australia are raw materials and intermediary products, India stands to get cheaper raw materials which will boost the competitiveness of the Indian industry. Similarly, India’s labour-intensive sectors such as textiles and apparel, leather, few agricultural products, jewelry, electrical goods, and railway wagons will find a new market, hitherto dominated by Chinese, Japanese, and Western products.
For Australia, a close economic partnership with India is a strategic bulwark against the Chinese dominance in the Australian economy. China is Canberra’s largest trading partner, accounting for nearly one third of total trade (31 per cent), and the sixth-largest foreign direct investor in Australia ($44 billion in 2020)[v]. However, the trade-induced close relationship started deteriorating since the Covid pandemic began in 2020, when Australian PM Scott Morison demanded an independent enquiry 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 which include iron ore, beef, lobster, timber, and lamb, and warned of stopping Australian coal exports to China.[vi] In May 2020, Beijing slapped an 80 percent “anti-dumping” tariff on Australian barley, a move that was expected to cost Australia 500 million Australian dollars (USD 350 million) a year.[vii]
China accounts for 43 per cent of Australia’s total export worth USD116.82 billion in 2021[viii], of which iron ore, coal, gold, frozen bovine meat, and wine have dominated the bilateral trade, which are also Australia’s major export basket.[ix] Despite the high pitched trade war between the two, Australian exports to China increased during the 2020-2021 period,[x] but Canberra wants to reduce its dependence on Beijing and negate using bilateral trade for strategic objectives by China. India could be an alternative market for Australian iron ore and coal as New Delhi’s demand for these raw materials is rising while other sources of imports such as Indonesia and South Africa have become costly.[xi]
Under the deal, Australia would allow easy access for Indian students, and professionals, and a quota for Indian chefs and yoga teachers.[xii] This would change foreigners’ demographic profile in Australia by the next decade. Currently, India’s diaspora in Australia numbers approximately 700,000 but is the second-highest taxpaying diaspora after the British.[xiii] Easy visa access for Indian professionals will help outnumber Chinese-born Australians over the next decade, the largest Asian community in Australia.
Cementing the strategic partnership
A close economic relationship is the last leg of Cold War legacies in India- Australia relations. When the Asia-Pacific Economic Cooperation (APEC) was formed in 1989 under the Australian initiative, India was found no economic and strategic value for Canberra, and the apathy continued for a while. Australia was the first country to withdraw from the first quad formation in 2007, citing ‘anti-China’ nature of the grouping. For instance, the Australian Defence Minister Brendan Nelson during his visit to China in July, prior to the Malabar 2007 Naval exercise, stated that “Australia doesn’t want to do anything unnecessarily that upsets any other country [China]”, and not interested in “pursuing quadrilateral dialogue with India”[xiv]. However, the Quad members were worried about China’s high growth in defence spending and demonstration of new military technology such as ASAT missiles so did choose to continue bilateral engagements. Since then India-Australia strategic partnership has gradually picked up momentum, forming the ‘Strategic Partnership’ in 2009 and a ‘Comprehensive Strategic Partnership’ (CSP) in 2020.[xv]
Australia has been keen to embrace India for strategic partnership, given China’s assertiveness in the South China Sea where Beijing has placed cruise missiles in the artificial islands, thus reaching the threat close to Australia. Considering the importance to India in Australia’s security framework, the 2017 Foreign Policy White Paper states that “India is in the front rank of Australia’s international partnerships with congruent security interests”[xvi]; Australian Department of Defence’s Defence Strategic Update of 2020, reiterates India’s role along with Japan in the Indo-Pacific for promoting “shared interests in global rules and norms”.[xvii] Australia joined the Malabar Naval exercise in 2020, five years after Japanese participation, which has now become the ‘Malabar quad’ naval exercise. In the strategic framework economic and security cooperation go hand in hand, so the trade deal would help cementing the strategic partnership between New Delhi and Canberra.
[i] PTI, “India, Australia ink trade pact; thousands of Indian goods to get duty-free access”, The Times of India, April 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, Australia hold talks on free trade pact”, The Hindu, February 10, 2022, https://www.thehindu.com/news/international/india-australia-hold-talks-on-free-trade-pact/article38408641.ece
[iii] Kallol Bhattacharjee, “India, Australia edge closer to final ‘interim deal’ on trade”, The Hindu, February 11, 2022, https://www.thehindu.com/news/national/india-australia-edge-closer-to-final-interim-deal-on-trade/article38414737.ece
[iv] Ministry 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+SUMMIT
[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%20largest%20two,per%20cent%20during%20this%20period).
[vi] “Australia called for a COVID-19 probe. China responded with a trade war,” ABC News, January 3, 2021, https://www.abc.net.au/news/2021-01-03/heres-what-happened-between-china-and-australia-in-2020/13019242, accessed on January 16, 2021.
[vii] Minxin Pei, “China’s economic bullying will never work,” Nikkei Asia, July 8, 2020, https://asia.nikkei.com/Opinion/China-s-economic-bullying-will-never-work, accessed on January 16, 2021.
[viii] Trading Economics, “Australia Exports By Country”, https://tradingeconomics.com/australia/exports-by-country,
[ix] Observatory of Economic Complexity (OEC) Data, “Australia”, https://oec.world/en/profile/country/aus
[x] Weizhen Tan, “Australia’s exports to China are jumping despite their trade fight”, CNBC, October 27, 2021, https://www.cnbc.com/2021/10/28/australias-exports-to-china-are-jumping-despite-their-trade-fight.html
[xi] Reuters, “Andhra Pradesh cancels Adani bids to supply imported coal”, The Economic Times, April 4, 2022,
[xii] PTI, “India, Australia ink trade pact; thousands of Indian goods to get duty-free access”, The Times of India, April 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 Fast Becoming a Regional Security Power, Trade Deal with Australia Affirms That”, News 18, April 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 Rocks, November 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-comprehensive-strategic-partnership-between-republic-india-and-australia
[xvi] Australian Government, 2017 Foreign Policy White Paper, 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, Defence Strategic Update 2020, https://www.defence.gov.au/sites/default/files/2020-11/2020_Defence_Strategic_Update.pdf
