India and Australia Saturday signed an economic pact, entitled “The India-Australia Economic Cooperation and Trade Agreement” (IndAus ECTA), that will eliminate tariffs on over 85 percent of Australian good exports to India.
Prime Minister Modi of India remarked that this agreement will contribute to the stability of the Indo-Pacific region. The free trade agreement is anticipated to aid India’s efforts to strengthen connections with the raw-material-rich country as it aims to transform into a manufacturing center to resuscitate the pandemic-ravaged economy. Prime Minister Morrison of Australia stated that “the agreement would create enormous trade diversification opportunities for Australian producers and service providers bound for India, valued at up to $14.8 billion each year.”
The agreement will grant Australia duty-free access to over 6,000 Indian products. This includes textiles, leather, furniture, jewelry, and machinery. India has also agreed to lower tariffs on Australian wine. To protect critical sectors, India has designated some commodities as exclusions, which means no tariff discounts will be granted to Australian imports.
Australian exports are concentrated in raw materials and intermediates. Because of this, many Indian industries, particularly steel, aluminum, and fabric/garments, will benefit from cheaper raw materials. This is hoped to make the industries more competitive.
This agreement follows both countries’ attempts to find alternative supply chains. The agreement would open doors for a market of over 1.4 billion people as the countries grapple with China’s trade restrictions on a variety of commodities exports. It is also aimed at strengthening people-to-people links between the two countries.