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The India-Australia FTA has led to a 15% reduction in the trade gap

Jul 26, 2023

By: BlinkX Research Team

The India-Australia interim free trade agreement (FTA), active for six months, has resulted in a 15% reduction in India's trade deficit with Australia. This improvement is attributed to increased exports of drugs, electrical machinery, and iron and steel articles, as well as a significant decrease in coal imports due to a milder Indian summer.

Official data shows that India's exports to Australia declined by more than 32% in the five months leading up to May compared to the same period in the previous year. Simultaneously, imports from Australia decreased by 25%, leading to a narrowed trade gap of $3.87 billion, which represents a 15% decline from the previous year.

Excluding the energy category, such as oil and coal, from the trade data reveals that India's exports rose by 3.3% during the period, while imports experienced a significant decline of 31%. This led to a narrowed trade gap of $3.27 billion, marking a substantial 41% decrease from the previous year.

Coal imports, which constitute 75% of total shipments from Australia, witnessed a 45% decrease from January to May. Additionally, coal imports from Australia in the same period declined by 34% in value and about 20% in volume terms.

On a positive note, non-energy exports to Australia showed promising growth. For instance, Indian pharmaceutical products' exports increased by 34.6% in the April-May period to $79.34 million, while electrical machinery exports surged by 173% to $82.2 million. Exports of nuclear reactors, boilers, and machinery rose by 21.6% to $54.18 million during the first two months of FY24, and outbound shipments of articles of iron or steel rose by 74.88% to $56.4 million.

The Economic Cooperation and Trade Agreement facilitated duty-free access to numerous domestic goods, including machinery, which previously attracted 4-5% customs duty in Australia. The pact provided zero-duty access to India for approximately 96.4% of exports (by value) right from the beginning.

However, India's farm exports to Australia experienced a slight decline due to stringent bio-security checks in Australian ports. Over the six months leading to June this year, Indian agricultural exports to Australia amounted to $143.78 million, compared to $144.39 million during the corresponding period last year. The ban on rice exports by India last week is likely to cause further decline, as rice accounts for approximately 15% of the total agricultural exports to Australia.

Content source: Media reports