A difficult balancing act

• The Indian market offers great potential for Australian exporters. Already the world’s third largest economy and growing by over 7% annually, India looks set to overtake China as the world’s most populous country in the next 7 years and reap the growth dividend of a young population (when many countries face the drag of population ageing on growth). India’s middle class is growing rapidly, lifting spending power. By 2030 India’s middle class could have the largest share of that group’s global spending.

• Despite this solid growth, Australian exports to India have been falling in recent years but this reflects specific issues in the three categories that dominate trade rather than a broader problem. Medium term export prospects are undoubtedly held back by India’s very closed market – only a handful of countries have higher tariffs on agricultural imports or larger barriers to services trade. Lowering these trade barriers therefore offers a big opportunity to Australian business.

• However, the political sensitivities involved in securing a free trade agreement with India are probably even greater than was the case for China. In previous FTAs, India has refused to liberalise trade in a long list of agricultural products of key interest to Australia. There is also a perception in India that past FTAs have not delivered as much export benefit as hoped for. The high protection in many service sectors reflects their ongoing political and lobbying muscle (with the on again off again FTA negotiations between India and the EU highlighting all these problems). India will want better access for temporary workers into the Australian job market (already a political issue since the Chinese FTA deal). Finally, India’s new model investment protection agreement offers far less protection to the $10 billion Australian business has invested in India than under existing arrangements.

• Consequently, an FTA with India is a difficult balancing act involving concessions by both sides in sensitive areas but the long run rewards of success should be considerable and signing a deal against these odds would be quite an achievement.

For further details, please see the attached document:

Australia/India Free Trade area – what to watch for (PDF, 991KB)