The Diplomat - 29 October 2019
Why Australia and India haven’t settled an FTA yet
By Grant Wyeth
It has been more than eight years since Australia and India began negotiations on a free trade deal, known as the Australia-India Comprehensive Economic Cooperation Agreement. There have been nine rounds of negotiations, but the two countries have yet to reach a settlement that both New Delhi and Canberra feel comfortable with. The momentum toward an agreement seems to have waned. Although Australia still considers the agreement a priority, India appears less eager, with no noticeable signs that they are currently looking to reopen negotiations. (The Diplomat made an inquiry to Australia’s Department of Foreign Affairs and Trade about the current state of negotiations, but received no response by the time of publication).
Despite the lack of a comprehensive trade agreement, and India’s famously high trade barriers and low ease of doing business, two-way trade between the two countries has progressed steadily recently, having grown in value from $9.3 billion in 2007 to $20.8 billion in 2018. However, this is far from the expansive growth Australia hopes for as it seeks to diversify its economy away from an overreliance on China, and also attempts to strengthen its bilateral relationship with India.
In the last round of negotiations Australia’s agricultural exports were seen as a particular sticking point between the two countries, with the democratic calculations of the Bharatiya Janata Party (BJP) playing a considerable role in preventing agreement. Over half of all Indian employment is tied to agriculture, and although the sector is highly inefficient in both production and distribution — leading to frequent price spikes like those recently affecting onions — no political party has the will to open the sector up to increased competition, or indeed reform, even if the long term benefits would be considerable. This political reality indicates that Australia is unlikely to see its agricultural products receive favorable status if and when negotiations recommence.
While India has recently become more receptive to foreign investment, the Indian state has a historic distrust toward liberalized markets, born from an initial assumption upon achieving independence that self-sufficiency would consolidate that hard-fought independence. This assumption has not proved correct, as instead India’s insular economy has limited the country’s growth, and stifled its considerable potential to attain great power status. However, the mindset remains persistent.
The Prime Minister Narendra Modi’s BJP has often been seen as a party that would move India away from its protectionist tendencies, and become a natural partner for Western governments looking to negotiate mutually beneficial free trade deals. However, this perspective fails to grasp both the depth of protectionist sentiment within the Indian state, and the nature of the BJP itself.
Despite the party often being described in the Western press as “pro-business,” it is a problematic description. The phrase tends to conflate the ideas of “pro-business” and “pro-market,” although they are far from synonymous. The BJP is “pro-business” in the sense that it receives the overwhelming majority of its political donations from India’s largest corporations, and these companies feel threatened by the prospect of increased market competition from foreign companies that an FTA may create. Their wish is for the BJP to defend their current privileged status in the Indian domestic market.
Alongside this, a deep suspicion toward trade is an inherent feature of the nationalism espoused by the BJP. The party’s ideological fountainhead, the Rashtriya Swayamsevak Sangh (RSS), sees trade liberalisation as a threat to Indian identity, and their economic understanding remains bound to the idea of Swadeshi — self-sufficiency — via prioritizing of domestic products produced entirely from Indian lines of production. The organisation’s economic wing recently held a 10 day protest against India’s participation in the Regional Comprehensive Economic Partnership (RCEP), a free-trade framework currently being negotiated between the 10 ASEAN countries and Australia, China, India, Japan, South Korea and New Zealand. India’s concerns remain a hurdle to all countries involved reaching an agreement (talks are set to recommence November 1).
While India may have difficulty accepting the liberalized trading norms of most Western countries, it is also not in economic retreat. In response to Australia’s India Economic Strategy released last year, the Indian government commissioned a reciprocal Australia Economic Strategy set to be released before the end of the year. While this is an indication that India clearly wants to enhance its trading relationship with Australia, it will remain to be seen whether the report recommends that New Delhi reopen negotiations on the free trade agreement.
Beyond this, Australian Prime Minister Scott Morrison has been invited by the Indian government to deliver a keynote address at the annual international affairs conference, the Raisina Dialogue, to be held in New Delhi in January (the conference is a joint initiative of the Observer Research Foundation and India’s Ministry of External Affairs). Morrison’s presence will be a prominent symbol that the broader bilateral relationship is strengthening, regardless of the stalled progress on the FTA. On this matter Canberra may need to come to an acceptance that the ideological (and political) realities of India will continue to be less than complimentary to Australia’s desires.