Indo-Australian trade crosses pre-pandemic levels, pact likely soon

A large part of the trade has been driven by increased exports to Australia, at $5.6 billion; the figure already 60% higher than $3.5 billion in FY19

India’s total trade with Australia has exceeded pre-pandemic levels even as talks of a trade agreement gather pace.

The government on Friday announced that they have reached an understanding on an interim trade agreement with Australia to be finalised in the next 30 days. This is expected to help reduce barriers to exchange of goods and services between the two countries.

The agreement comes even as the latest data shows India’s total trade with Australia has touched $17.8 billion for the financial year 2021-22 (FY22) so far. This is higher than in FY21 (12.3 billion) and FY20 ($12.6 billion). It is also higher than the $16.7 billion in FY19 and seems set to exceed the FY18 figure of $18 billion.

A large part of this has been driven by increased exports to Australia. Exports to Australia of $5.6 billion are already 60 per cent higher than the FY19 figure of $3.5 billion. India’s import figure of $12.1 billion is around 8 per cent lower than the FY19 figure of $13.1 billion (see chart 1). Lower imports are said to also reflect an uneven economic recovery which has affected local demand.

The longer term impact of the trade deal may be positive, if one goes by data from a recent economic survey. The analysis in the 2019-20 survey looked at all the agreements signed between 1993 and 2018. It showed that the overall impact on India’s manufactured product exports was 13.4 per cent. It was 10.9 per cent for total merchandise exports. The impact on manufactured product imports was 12.7 per cent. The total merchandise import figure was affected to the tune of 8.6 per cent (see chart 2).

“Therefore, from the perspective of trade balance, India has clearly ‘gained’ in terms of 0.7 per cent increase in trade surplus per year for manufactured products and of 2.3 per cent increase in trade surplus per year for total merchandise,” said the note.

“The differential effect on overall merchandise exports as compared to the manufacturing subset is not surprising as several primary products are usually included in the negative/sensitive list of the trade agreements. Therefore, a majority of the trade agreements exerted no effect on overall merchandise exports. Compared to manufactured exports, a fewer number of trade agreements exerted a positive impact on India’s manufactured imports,” it added.

The agricultural sector is said to be a key point for negotiators, while education is significant among Australia’s service exports.

“Education is Australia's largest service export to India, valued at $6 billion and accounting for around 88 per cent of the total in 2020. At the end of 2020, Indian students in Australia numbered 115,137,” said a note on the Australian department of foreign affairs and trade website.

Export-led growth can lead to greater job creation. The economic survey of 2019-20 had suggested raising India’s export market share to 3.5 per cent in 2025 and 6 per cent by 2030 with a focus on labour-intensive segments. This was projected to add 38.5 million jobs by 2025, and another 82 million jobs by 2030.