An analysis of the current India-Australia trade agreement status and impacts for Indian investors in 2023.
Source and Citation: Article from ET Bureau published on Dec 30, 2023 originally titled “India, Oz may Ink Full Trade Deal After 2024 LS Polls”
Analysis of this news for a layman
India and Australia signed an interim trade agreement in 2022 that came into effect in December 2023. This lowered import duties on some Australian agricultural exports to India like avocados, peas, beans, etc.
However, Australia seeks deeper access and lower duties for its exports to India’s large consumer market, especially in segments like wheat, wine, and fruits. India, on the other hand, is hesitant to grant this without adequate safeguards to protect domestic farmer incomes and food security.
Given the upcoming 2024 elections, the government is cautious about taking steps that could upset its farmer vote bank. Allowing Australian agricultural imports is seen as a potential political risk. As a result, a more detailed final trade agreement might only be signed after the 2024 elections conclude. For now, the limited pact focuses on areas of consensus like education, mining, and defense.
Overall, two-way trade between India and Australia is growing due to existing lowered duties. However, achieving ambitious trade targets may take longer if issues related to agriculture market access are not resolved.
Impact on Retail Investors
For Indian retail investors, the uncertain India-Australia trade deal has limited direct impacts right now:
- With the government cautious about allowing greater agricultural imports from Australia before elections, the policy uncertainty in the sector is reduced in the short term. Stocks of farmer-focused companies like fertilizer producers (Coromandel), tractor manufacturers (Escorts), and agriculture retailers (UPL) won’t face Australian import competition yet, and their prices shouldn’t come under pressure.
Mining & Materials
- With existing import duty cuts on Australian minerals like coal and gold, metal producers like Vedanta, Hindalco, and JSW Steel could benefit from cheaper raw material access, leading to potential improvements in profitability throughout 2023.
Overall, the stalled trade pact means limited direct stock implications currently. Investors need to monitor agricultural policy changes after the 2024 elections for potential long-term impacts on those stocks.
Impact on Industries
Some Indian industries that could be impacted when the India-Australia trade deal expands in scope:
Agriculture & Food Processing
- While India is currently cautious about allowing more Australian imports, if that changes, sectors like food processing could benefit from cheaper imports of wheat, lentils, and wine. Companies like Britannia Industries and Jubilant Foodworks could see advantages if these imports become more accessible.
Resources & Materials
- India gaining cheaper access to Australian minerals like lithium, cobalt, and nickel could support its electric vehicle and electronics manufacturing goals under “Make in India.” Companies like Hindustan Zinc and National Aluminium Corporation Limited stand to benefit.
Textiles & Apparel
- If the pact expands bilateral investments and eases norms, affordable Australian wool could boost India’s garment exporters. Companies like Raymond and Siyaram Silk Mills may gain.
So, while the agriculture sector’s policy is guarded currently, sectors like mining and manufacturing could accelerate by importing cheaper Australian raw materials when the trade pact widens.
Long Term Benefits & Negatives
Potential long-term benefits from an expanded India-Australia trade deal:
- A strategic advantage of closer economic ties with a fellow democracy and Quad ally, countering China’s influence in the Indo-Pacific region.
- Support for India’s manufacturing and export goals through a steady supply of Australian metals, minerals, and wool at competitive rates under reduced duties.
- Growth opportunities for India’s education sector to attract more Australian students and vice versa, leveraging cultural-linguistic proximity.
Potential long-term negatives:
- The risk of Australian agricultural imports flooding the Indian market, hurting incomes of India’s politically influential farmer lobbies, worsening rural poverty, and food security challenges.
- India’s trade deficit with resource-rich Australia could widen further from current levels, as India mainly imports materials while exporting services.
- The development of an economically subservient relationship dynamic, if India becomes overly dependent on Australian imports without matching export capacity emerging under the pact.
The next Indian government will need to balance these trade-offs around farmer interests, manufacturing policy, and strategic affiliations when negotiating the future full trade deal with Australia after 2024.
Short Term Benefits & Negatives
Short term benefits of the current limited India-Australia trade pact:
- Increased exports of Indian goods in areas like apparel, machinery, and vehicles, benefiting companies in those sectors due to reduced Australian import duties.
- Savings on raw material costs for Indian mining, metal, and minerals companies as they gain some duty relief on Australian critical mineral imports like lithium and cobalt.
- Higher education exports as more Indian students consider Australia, leveraging new point-based immigration paths. Ed-tech firms like Byju’s with Australian partnerships may gain enrollment.
Some short term negatives:
- Revenue loss for the Indian government as duties are lowered on Australian imports under the interim deal, which could widen the fiscal deficit.
- The risk of India committing over-ambitious export targets to Australia much larger than current two-way trade, which could imbalance the trade relationship.
- India appearing non-accommodative on Australian agri-imports due to political sensitivities could strain diplomatic relations and trust between historically close Indo-Pacific partners.
In the near term, while positively impacting minerals, machinery, and education sectors, India needs to carefully balance fiscal impact alongside the geostrategic equations with Australia bilaterally.
Potential Impact of India-Australia Trade Talks on Companies:
Indian Companies Likely to Gain:
- ITC Ltd.: As a leading exporter of agricultural products like spices, basmati rice, and coffee, ITC could benefit from improved access to the Australian market under a comprehensive trade deal. Higher export volumes could positively impact their stock price.
- Mahindra & Mahindra: If trade barriers for farm equipment are reduced, Mahindra’s tractor exports to Australia could increase, boosting their agricultural machinery segment and potentially driving stock price growth.
- Dabur India Ltd.: With increased access to the Australian market, Dabur’s Ayurvedic and herbal products could find new customers, potentially pushing up their market share and stock price.
- Basmati rice exporters (Kohinoor Foods, KRBL Ltd.): Reduced tariffs on basmati rice could significantly boost exports to Australia, leading to increased revenue and potential stock price appreciation for these companies.
- Wine producers (Grover Zampa Vineyards, Sula Vineyards): If India grants concessions on wine imports from Australia, domestic winemakers might face increased competition, impacting their market share and potentially affecting their stock prices negatively.
Indian Companies at Risk:
- Sugar & dairy cooperatives: Increased Australian dairy and sugar imports could harm domestic producers facing stiff competition. Lower revenue and profitability could negatively impact the stock prices of these cooperatives.
- Poultry farmers: Australia is a major poultry exporter, and increased access to the Indian market could negatively impact domestic poultry farmers’ market share and profitability, potentially affecting their stock prices.
Global Companies Likely to Gain:
- Australian agricultural exporters (GrainCorp Ltd., Tegel Group): Easier access to the Indian market would significantly expand their customer base and boost their export volumes, potentially driving strong stock price growth.
- Australian wine producers (Treasury Wine Estates, Yalumba): If India eases wine import restrictions, Australian winemakers would gain significant market share in India, leading to increased revenue and potentially pushing up their stock prices.
- Australian farm equipment manufacturers (John Deere, CNH Industrial): Reduced tariffs on farm equipment exports to India could open up a lucrative new market for these companies, boosting their growth and potentially making their stocks more attractive.
Global Companies at Risk:
- European and American agricultural giants: If Australia gains significant market share in India’s agricultural imports, it could come at the expense of established players from other countries, potentially impacting their revenue and stock prices.
- The news could lead to positive sentiment for companies likely to benefit from the trade deal, particularly in sectors like agriculture, food processing, and farm equipment.
- Companies potentially facing increased competition might see negative sentiment, especially in sectors like sugar, dairy, and poultry.
- Overall market sentiment will depend on the final terms of the agreement and its specific impact on various industries.
This is an analysis based on the limited information provided and should not be considered financial advice. Please consult with a professional financial advisor before making any investment decisions.
I hope this organized analysis in 100 words for each point clarifies the potential impact of the India-Australia trade talks on various companies.