Australia’s exports to India are skewed towards commodities so fluctuations in commodity prices have an effect on the value of Australia’s exports to India.
Resources exports to India account for 64 per cent of Australia’s total goods exports to the latter, of which hard commodities such as coal account for as high as 59 per cent. Other key resource exports include copper and iron ore.
While the main exports from Australia to India are commodities, agricultural exports have also picked up recently. They now constitute 20 per cent of Australia’s goods exports to India, compared with only 3.5 per cent between 2005 and 2012.
Meanwhile, 24 per cent of the value of total goods Australia imported from India pertains to refined petroleum in 2017. This is followed by textiles and related items at 13 per cent, jewellery at 9.9 per cent, and medicaments (substances used for medical treatment) at 7.7 per cent.
ANZ Research expects resource exports will continue to remain an important component of the Australia-India trade relationship in the future. There is a link between per capita incomes and per capita consumption of hard commodities.
This link is especially strong when per capita income reaches levels between $US5,000 and $US10,000, which have historically been associated with rapid urbanisation and industrial development.
By 2030, 90 per cent of India’s metallurgical coal demand will be met by imports. At 80 per cent of the total, Australia already dominates India’s metallurgical coal imports. This relationship is expected to strengthen in the next few years due to strong demand and low landed cost of Australian coal.
The structural gap between domestic supply of agricultural commodity and India demand for agricultural commodities is expected to widen in the next few years.
As income levels rise in India, diet habits are expected to tilt in favour of higher-value products such as proteins and packaged goods. The growth potential for Australian exports is thus in soft commodities such as pulses, grains, and oilseeds.
Besides direct exports, Australia can also offer technical expertise to improve productivity in India’s agriculture sector. This will open the door for collaboration between the two countries to beyond trade in agricultural commodities.
It is interesting to note the bilateral trade relationship between Australia and India is to a significant extent characterised by India’s imports from Australia of raw materials and intermediate products which are used by India to produce final goods for exports, part of which are shipped to Australia.
India is Australia’s sixth-largest trade partner in the world and the third largest in Asia (behind China and Singapore) in terms of services trade. The total services trade between the two countries was valued at $US5.1 billion in 2017. This accounted for about 24 per cent of total two-way trade between the two countries.