India's return to free trade deals – a decade in the making

May 11, 2022

The signing of the Australia-India Economic Cooperation and Trade Agreement (ECTA) in April 2022 marked the single most wide-ranging deal signed by India since its 2011 free trade agreement (FTA) with Japan. This followed the signing of less comprehensive deals with the United Arab Emirates in 2022 and Mauritius in 2021. Is India returning to free trade deals?

From the Australian perspective, at least, ECTA was a clear win. After more than a decade of on-off negotiations, the deal will eliminate tariffs on more than 85% of Australian exports, valued at more than US$9 billion. In the next decade, this figure is expected to climb to 91%. Some 96% of goods from India – including coal, several critical minerals, wine, and a range of agricultural commodities ranging from sheep meat to oranges – will eventually get tariff free access.

Considering the size of the domestic industries straddling these products, this is a significant concession from India. The country’s domestic coal industry, for example, is the world’s third largest and employs some 700,000 people. Previously, the industry had been protected by a 25% tariff, but power shortages last year and rising energy costs for the steel sector appears to have prompted a rethink in New Delhi.

Several key factors took India over the line during the negotiations. Some of India’s most sensitive agricultural sub-sectors – dairy, rice, beef, wheat, and lentils – were excluded from tariff liberalisation and may continue to be excluded from the final version of the agreement. Although ECTA is only interim in nature, there is no guarantee that any of these goods will be included in any ultimate agreement.

Another successful strategy for ECTA was playing to India’s strengths in services, worth US$250 billion globally, and pharmaceuticals, worth US$24 billion. More than 50,000 Indian students in Australia will benefit from significantly enhanced rights to work, post-graduation.[6] Discussions will begin on the mutual recognition of qualifications for a wide range of industries and Indian firms will obtain better access to over 100 services sub-sectors. Finally, regulatory requirements have been eased for India’s rapidly growing pharmaceutical exports to Australia, worth some US$225 million.

Less tangibly, growing levels of strategic alignment between the two countries seem to have provided extra political impetus for the deal. This was echoed in comments by both trade ministers, who specifically cited the Quadrilateral Security Dialogue (QUAD). ECTA was not conceived in a purely economic silo. Australia’s desire to cultivate traditionally non-aligned and protectionist India as a counterweight to China gave New Delhi substantial leverage in negotiations.

A conducive nexus between economics and geopolitics also played a role in the deal with the UAE, India’s second-largest export market at US$18.1 billion.

The UAE has a close relationship with China and, to a lesser extent, Pakistan. Yet, there has been a notable uptick in the strategic dimension of New Delhi-Abu Dhabi ties. Increasing bilateral and multilateral exercises and the launch of a new “Quad” featuring India, the UAE, Israel, and the US, are the most conspicuous manifestation of this dynamic