Indo-Australian Trade – Issues and Perspectives

Indo-Australian Trade – Issues and Perspectives

Posted by Deekhit Bhattacharya
June 20, 2018

India’s increasing capitalisation of its geographic position has reoriented its attention towards the Indo- Pacific. India’s footprints and engagements in the region are simultaneously broadening and deepening. One such relationship which has shown immense contemporary growth is the one between India and Australia. Politically and economically converging, trade between the two nations has evolved into being multifaceted and ever expanding. Today, India stands as Australia’s fifth largest Export market while Australia is the eleventh largest source of imports for India. Spanning multiple sectors and dimensions, the economic relationship between the two countries has inescapable significance for the prosperity and development of both. However, the ongoing impasse over a Comprehensive Economic Cooperation Agreement (CECA) is demonstrating the fact that unresolved issues leave a wide space open for further potential.

The principal issue facing the two is the structure of their trade itself. Australian exports are dominated by coal and gold, apart from select agricultural produce, education, and travel as other components. Over 70% of Australian exports to India are primary goods, which are volatile and to an extent ad- hoc. It concomitantly points towards a lack of diversification of trade and expansion of the same. Similarly, the largest imports of Australia from India are petrochemical products, reflecting the very same issues.

  • Coal alone accounts for over half of merchandise exports. Since no new thermal plants would be built in the next decade, the prospects for further thermal coal exports seem dim. However, 90% of Australian coal export is metallurgical coal, used for producing steel. Even though India’s steadily rising steel production numbers augurs well for coal exports, headwinds to India’s steel exports put a constraint to the possibilities.
  • Gold exports tend to show volatility tied to its global price and import duty revisions. Thus, large changes in volume and worth are observed year to year. These fluctuations impact the overall trade numbers despite no change in overall economic relations or conditions.
  • Australia’s agricultural exports to India are primarily composed of grain, nuts and fibres. Of recent, pulses like chickpeas have dominated the flow of produce. However, the volume of produce is directly related to India’s monsoons. Bad monsoons such as in 2016 cause a heavy spurt in both volume and prices, raising prices to unsustainable levels and causing changes in Australia’s cropping patterns for exports. Thus, Normal monsoons dry up the trade just as fast. Essentially, the bulk of this trading flow is simply to meet shortfalls during deficient monsoons. This displays a lack of lasting, consistent trade relations in the particular sector.

Another major issue is the reluctance of both the countries to remove tariffs and protectionist barriers. Since 2011, the Comprehensive Economic Cooperation Agreement (CECA) has been stalled repeatedly over sector specific tariffs. Australia has been keen on maintaining tariffs on automobile components, textiles etc while India is adamant to protect its agricultural sector, pharmaceuticals, meats etc. The issue is especially intractable when it concerns Indian agriculture. Due to the fragmented, labour intensive and underdeveloped nature of Indian agriculture, protectionist barriers are seen as a necessity (both politically and economically). This specific issue is something that saw Indian resistance peak at the WTO, leading us to deduce that concessions will be few.  For now, only sectoral agreements seem possible, which have an implicit element of uncertainty.

The foreign investment scenario leaves much to be desired on both accounts. Australian FDI amounts for only 0.27% of inflows into India while Indian investment into Australia too has similar figures. These figures remain low primarily due to the lack of an overarching framework, complicating regulation. In the absence of an FTA or CECA like partnership, it is imperative that an understanding be evolved for Australians to invest in the India story while Indian firms may invest in a safe and healthy investment opportunity. Similarly, diversifying investment is essential at the moment for maximising mutual benefits. The bulk of Indian investment is in the energy sector, while Australian investment is mostly in the IT sector. Commensurate to opportunities, bilateral investment has barely actualised.

A recently emerging issue is the direction of immigration reform in Australia. With the 457 Visa scrapped, Indians will find it harder overall to pursue careers in Australia. An emotive issue on both sides, its economic impact, however, is yet to be discerned. However, the uncertainty it generates definitely impacts firms with bilateral operations, and puts into jeopardy future plans. Till the picture on immigration isn’t clarified, decisions will have to be kept pending.

On a whole, trade between the two countries has substantive room for depth and growth. Compared to $130 billion trade with China, Indian trade with Australia is dwarfed at $20 billion. Cementing trading relations beyond the primary sector is emerging as the key focus for both the countries. Particularly important is India’s social and developmental sector warming up to foreign partners. This could be an arena for Australia to burnish its credentials while intensifying its economic partnership. The primary takeaway is that the current pace of sector wise agreements require an increase in pace for convergent interests to materialise as tangible relations. In this context, the forthrightness and spirit of cooperation between the two countries is reassuring. Despite some of these outstanding issues, concordant overtures are crystallising into concrete steps. The rising footprint of Indian trade in the region and Australian insistence on expanding the roles of its trading partners augurs well for the growth of this relationship for years to come.

 

By Deekhit Bhattacharya

Deekhit Bhattacharya is a student of Economics in the Delhi College of Arts and Commerce, University of Delhi. He is presently interning at AII@Delhi.

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