Etching a trade line to bond beyond oil : India-UAE relations

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Etching a trade line to bond beyond oil : India-UAE relations

  • India and the United Arab Emirates will sign the first ever bilateral Free Trade Agreement between the two countries.
  • The FTA — Comprehensive Economic Partnership Agreement (CEPA) — is expected to be in focus during a virtual summit between the Indian Prime Minister and the Crown Prince of Abu Dhabi Sheikh Mohamed bin Zayed al Nahyan.
  • India-UAE trade was expected to revert to pre-pandemic level this year and touch $60 billion in this financial year.
  • Investment from the UAE has steadily grown and has reached $17 billion, which has provided a foundation for signing this biggest trade agreement of the last 7 years.

India’s changing FTA dynamics

  • India’s approach towards FTAs is now focusing more on gaining meaningful market access and facilitating Indian industry’s integration into global value chains.
  • India would no longer be signing trade agreements just to join a group, but the new approach of FTA negotiations would respond to the need of new emerging dynamics in international trade and the Indian economy.

Focus countries under the revamped FTA strategy

  • The Government of India has prioritised at least six countries or regions to deal with, in which the United Arab Emirates (UAE) figures at the top of the list for an early harvest deal; the others are the United Kingdom, the European Union, Australia, Canada, Israel and a group of countries in the Gulf Cooperation Council (GCC).
  • The early harvest deal is to be enlarged into a comprehensive FTA in due course of time.
  • Early harvest agreements are used to open up bilateral trade between two countries on a restricted list of goods and services, primarily as a front runner to clinching a more comprehensive FTA.

Importance of UAE

  • The UAE has emerged as an important economic hub not just within the context of the Middle East/West Asia, but also globally.
  • The UAE, due to its strategic location, has emerged as an important economic centre in the world. In recent years, the UAE, through its ‘Vision 2021’, has sought to diversify its economy and reduce its dependency on oil.
  • the UAE has diversified its economy, ‘the hydrocarbon sector remains very important followed by services and manufacturing. Within services, financial services, wholesale and retail trade, and real estate and business services are the main contributors’.
  • India and the UAE strive to further deepen trade and investment ties.

India-UAE relations: Economic

  • The India-UAE total trade merchandise has been valued at U.S.$52.76 billion for the first nine months of the fiscal year 2021-22, making the UAE India’s third largest trading partner.
  • The aim is to boost bilateral merchandise trade to above U.S.$100 billion and services trade to U.S.$15 billion in five years.
  • The UAE’s investment in India is estimated to be around U.S.$11.67 billion, which makes it the ninth biggest investor in India.
  • On the other hand, many Indian companies have set up manufacturing units either as joint ventures or in Special Economic Zones for cement, building materials, textiles, engineering products, consumer electronics, etc.
  • Many Indian companies have also invested in the tourism, hospitality, catering, health, retail, and education sectors.
  • India is aiming to achieve the U.S.$1 trillion of merchandise exports and U.S.$1 trillion of services exports by the year 2030.
  • A trade agreement with the UAE could well be a springboard to realise these ambitious export targets.
  • As part of the GCC, the UAE has strong economic ties with Saudi Arabia, Kuwait, Bahrain, and Oman, meaning the UAE shares a common market and a customs union with these nations.
  • Under the Greater Arab Free Trade Area (GAFTA) Agreement, the UAE has free trade access to Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, Jordan, Egypt, Iraq, Lebanon, Morocco, Tunisia, Palestine, Syria, Libya, and Yemen.

Challenges/ Concerns

  • In terms of investments, India's sluggish implementation is a key stumbling block.
  • In recent years, bilateral trade has decreased dramatically.
  • Labor from other nations, such as Filipinos and Bangladeshis, have been noted to be replacing Indian workers.

Way forward

  • India must guarantee that investment initiatives are carried out with the necessary skills.
  • Defense trade, food and agricultural products, as well as autos, are all potential sectors for increased bilateral commerce.
  • Medical tourism is one area where India may be able to lure Emiratis.
  • Indian firms with experience in the renewable energy industry are welcome to invest in the UAE.
  • There is a need to improve collaboration in the defence industry through joint training programmes.