India-Australia trade gap narrows by 15% with FTA

  • India’s exports to Australia fell by over 32% in the five months to May compared to the year-ago period, while imports shrank by 25%, resulting in a narrowed trade gap of $3.87 billion, representing a 15% decline from the previous year

Ravi Dutta Mishra, Dilasha Seth
First Published26 Jul 2023
Excluding the energy basket, such as oil and coal, from the trade data reveals that India’s exports rose by 3.3% during the period.
Excluding the energy basket, such as oil and coal, from the trade data reveals that India’s exports rose by 3.3% during the period.(Bloomberg)

The India-Australia interim free trade agreement (FTA), in place for six months, has led to a 15% narrowing of India’s trade deficit with Australia on increased exports of drugs, electrical machinery, and iron and steel articles, along with a significant decline in coal imports due to a milder Indian summer.

India’s exports to Australia fell by over 32% in the five months to May compared to the year-ago period, while imports shrank by 25%, resulting in a narrowed trade gap of $3.87 billion, representing a 15% decline from the previous year, according to official data.

Excluding the energy basket, such as oil and coal, from the trade data reveals that India’s exports rose by 3.3% during the period, while imports saw a significant decline of 31%, resulting in a narrowed trade gap of $3.27 billion, marking a 41% decrease from the year earlier.

Coal imports account for 75% of total shipments from Australia, while oil exports account for 38% of India’s total exports to Australia. India’s merchandise imports from Australia consist largely of raw materials, minerals, and intermediate goods. Under the trade agreement with Australia, India removed the 2.5% import duty on high-grade Australian coal.

India’s coal import from January to May fell 45%, driven by lower demand this year than last year when India witnessed heat waves that drove electricity generation and power demand to a record. Besides, coal prices have also declined in 2023 from the previous year due to weaker demand in China, the world’s largest coal consumer. The Russia-Ukraine war disrupted global supply chains in 2022, leading to a surge in energy prices. While coal imports from Australia in the five months to May declined by 34% in value, they fell by about 20% in volume terms.

Meanwhile, among non-energy shipments, exports of Indian pharma products to Australia grew by 34.6% in the April-May period to $79.34 million. The early harvest agreement offers easier access to Indian pharma products to Australia by enabling fast-track approval for patented, generic, and biosimilar medicines that have regulatory approvals in five markets, i.e. the US, European Union, UK, and Canada.

Besides, electrical machinery exports rose by 173% in the April-May period to $82.2 million. Exports of nuclear reactors, boilers, and machinery rose by 21.6% to $54.18 million in the first two months of FY24. Outbound shipments of articles of iron or steel rose by 74.88% to $56.4 million.

The Economic Cooperation and Trade Agreement provided duty-free access to thousands of domestic goods, including machinery. These products earlier attracted 4-5% customs duty in Australia. The pact offered zero-duty access to India for about 96.4% of exports (by value) from Day 1.

“India has a lot of complementarities with Australia. There is a scope for growth in engineering products and textile products, but we are competing with ASEAN (Association of Southeast Asian Nations) countries that have already established their markets in Australia as they had signed an FTA with them before us. Freight cost to Australia is high. So, it will take some time before they forge partnerships with us,” a government official said.

India’s farm exports to Australia after the FTA declined marginally due to tough bio-security checks in Australian ports. In the six months to June this year, Indian agri exports to Australia stood at $143.78 million, compared to $144.39 million during the comparable period last year.

It is expected to decline further after India’s ban on rice exports last week, as rice contributes around 15% of the total farm exports to Australia.

“Australia has very tight bio-security norms because it is an island country. So, it is difficult to export agri products in the form of raw materials. So, we are looking to do value addition and push for processed food exports,” the person stated.

An Australian High Commission spokesperson said that biosecurity plays a critical role in reducing risk and ensuring Australia remains one of the few countries in the world to be free from the world’s most invasive pests and diseases. 

“To protect Australia’s human, plant and animal health status, we apply biosecurity measures offshore, at the border and onshore. Australia’s biosecurity requirements are applied equally to all trading partners. Australia’s Appropriate Level of Protection is risk-based and science-based and consistent with our international WTO Sanitary and Phytosanitary obligations where trading partners are entitled to maintain a level of protection they consider appropriate to protect life or health within their territory,” the spokesperson said.

Queries sent to the spokesperson for the commerce and industry ministry remained unanswered.

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