Growth through trade

Progress on the Australian trade pact signals a momentum shift

The ratification by the Australian Parliament of the Economic Cooperation and Trade Agreement (ECTA) with India and the prospect of the deal becoming operational by January 1 next year mark a great leap forward in the long-delayed process of signing free-trade agreements (FTAS) by New Delhi. Progress on the ECTA follows the conclusion of a Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates, India’s third-largest trade partner, and the deal came into effect earlier this year. Both deals, the first ones to be signed after the FTA with Japan way back in 2011, are significant because they represent a key shift in New Delhi’s approach. Now negotiations to sign FTAS with the European Union (EU), after a gap of nine years, and the UK also made some advance this year, and India is eyeing a similar agreement with the Gulf Cooperation Council. Talks on the ECTA with Australia began in May 2011 but were suspended in 2016 after nine rounds. The broad contours of the Australian pact reflect the move towards more accommodative stances. Australia will eliminate Customs duties on 98 per cent of the traded goods and 100 per cent of its tariff lines. India will do so for about 40 per cent of its import tariffs immediately and 70.3 per cent of its import tariffs over a 10-year period. A related agreement on the Double Taxation Avoidance Agreement will benefit Indian IT firms operating in Australia. The easier access to visa and travel for Indian students and professionals (including yoga instructors and chefs) must be counted as a big gain in a country where racial tensions have been at the forefront of the political discourse. The pact with the UAE is similarly sweeping in scope, with the West Asian country agreeing to remove Customs tariffs, which account for 90 per cent of India’ exports to it by value.

The critical change in approach towards liberalised trade agreements may well have been driven by current geopolitical pressures and the fact that India is likely to remain a relatively fast-growing economy at a time when the West is headed for recession. But several questions arise against this modest progress. The principal one concerns how these deals for liberalised trade tie in with the broad move towards greater protectionism in Indian economic policy. The steady rise in Customs tariffs on a wide range of goods since 2017 and the move towards autarky as reflected in the Make in India production-linked incentive schemes for a range of industries appear to be at odds with the move to accelerate signing FTAS. A related question is whether India will now discard its earlier reservations about the Regional Comprehensive Economic Partnership among Asia-pacific nations, from which it abruptly withdrew in 2019. The proximate, unstated reason then was China’s participation in this grouping. But given that China remains India’s second-largest trade partner, sheer practicality should encourage New Delhi to reverse its stance on the RCEP, which holds the potential for major economic benefits. Finally, the move towards concluding more FTAS should encourage the government to restore the stalled process of finalising Bilateral Investment Protection Agreements with various countries, which are critical in attracting foreign direct investment. Liberalisation and rule-based economic relations will be India’s best bets in the tough years ahead.