FTA boost: All you need to know about India-UAE trade deal

NEW DELHI: India and the United Arab Emirates (UAE) will sign the first ever bilateral free trade agreement ( FTA) between the two countries during a virtual summit today.
The comprehensive economic partnership agreement (CEPA) with the UAE will have clauses to protect domestic industries but also to provide them a gateway to markets in West Asia and Africa.
The summit will be held between Prime Minister Narendra Modi and Abu Dhabi Crown Prince Sheikh Mohamed bin Zayed al Nahyan. Both leaders are likely to lay out their vision of the historic and friendly bilateral relations, at a time when UAE is marking the 50th anniversary of its foundation and India is celebrating 75 years of its independence.
The FTA is likely to boost trade between India and the UAE from $60 billion to $100 billion in next five years, of which trade in services is expected to enhance by $15 billion.
Both countries have said that CEPA will create new jobs, raise living standards, and provide wider social and economic opportunities in both nations.
Once CEPA comes into effect, the flow of goods and services between the two countries will get easier, and custom duties will be reduced across broad categories. The two countries had been working towards this deal since 2015. India is keen to step up its apparel, gems and electronics exports to the UAE.
Here is everything you need to know about the trade pact:
UAE is India’s third-largest trading partner
UAE is India’s third-largest trade partner currently and the second-largest export destination after the US. In 2021, bilateral trade between the two countries stood at $43.3 billion. India was the UAE’s second-largest trading partner in 2019, with bilateral non-oil trade valued at 41 billion. The UAE is the eighth-largest investor in India, having invested $11 billion between April 2000 and March 2021, while investment by Indian companies in the UAE is estimated to be over $85 billion.
Today, Indians make up ‘largest minority ethnic group’ in the UAE, accounting for around 38% of UAE’s total residents.
The trading history:
India and UAE have shared trade links through the centuries. The trade, which was dominated by traditional items such as dates, pearl and fishes, underwent a sharp change after the discovery of oil in UAE (oil exports begun from Abu Dhabi in 1962). With the emergence of UAE as a unified entity in 1971, exports from India started growing gradually over the years. The real impetus, however, started after Dubai positioned itself as a regional trading hub by early 1990s and about the same time, the economic liberalization process started in India. Both sides are striving to further strengthen these ties for mutual benefits.
What does India export to the UAE?
India’s major exports to the UAE include petroleum products, precious metals, stones, gems and jewellery, minerals, food items such as cereals, sugar, fruits and vegetables, tea, meat, and seafood, textiles, engineering and machinery products, and chemicals. India’s top imports from the UAE include petroleum and petroleum products, precious metals, stones, gems and jewellery, minerals, chemicals and wood and wood products. India imported $10.9 billion of crude oil from the UAE in 2019-2020.
UAE investments in India:
UAE sovereign wealth funds invested over $4.12 billion in India during FY 2020-21. UAE’s investments in India are concentrated mainly in five sectors: Services Sector (15.78%), Sea Transport (8.80%), Power (8.34%), Construction (Infrastructure) Activities (7.15%) and Construction Development: Townships, Housing, Built-Up Infrastructure and Construction-Development Projects (7.08%).
During Prime Minister Narendra Modi’s 2015 UAE trip, the two countries decided to establish an UAE-India Infrastructure Investment Fund, with the aim of reaching a target of $75 billion to support investment in India’s plans for rapid expansion of next generation infrastructure, especially in railways, ports, roads, airports and industrial corridors and parks.
UAE is also investing in a post-Article 370 Jammu and Kashmir, thereby helping to strengthen India’s position on Kashmir.
When was the first round of talks held?
The first round of CEPA negotiations were held on 23-24 September 2021 to reach a mutually beneficial economic deal.Both the countries have collaborated closely during Covid-19 pandemic in critical areas of food security and healthcare. Bilateral trade, energy relations and investment have remained robust. Both sides are also strengthening their cooperation in new areas of start-ups, renewable energy, fintech, etc. India is participating in Dubai Expo 2020, with one of the largest pavilions.
“Negotiations for CEPA were launched in September 2021 and have been completed,” the external affairs ministry said in a statement. “The agreement will take India-UAE economic and commercial engagement to the next level.
Why is this deal significant?
The FTA with UAE will be the second major trade deal after the India-Mauritius comprehensive economic cooperation and partnership agreement (CECPA) signed in February 2021. India is negotiating almost half a dozen other FTAs with the UK, the EU, Australia, Israel and Canada. The signing of the pact with the UAE should also helps to step up India’s proposed free trade agreements with Saudi Arabia, Bahrain, UAE, Qatar, Kuwait and Oman.
What it means for the gems and jewellery sector
The FTA has got a thumbs up from the Gem and Jewellery Export Promotion Council (GJEPC) as the deal will push jewellery exports to UAE to the level of $10 billion by 2023. The GJEPC said in a statement that the sector has already crossed Rs 2.4 lakh crore, marking a post-pandemic recovery. “Among the top 10 gem and jewellery export destinations, UAE has witnessed the highest fall of 41.5% followed by Belgium 15.81%, Japan 12.20%, and Hong Kong 3.06% during April 2021 to January 2022 as compared to April 2019 to January 2020,” said GJEPC in a statement.
What does India expect to gain?
India hopes to gain greater market access in the UAE for items such as textiles & apparels, agriculture and processed food, electronics, gems & jewellery, chemicals & pharmaceuticals and engineering goods. In areas of service, India is aiming to ink mutual recognition pacts in several sector for smoother movement of professions between the two nations. In December 2021 the UAE lifted a ban on import of eggs and other poultry products from India, conceding a long-standing demand.
80% of India’s exports to the UAE will be duty free
The biggest advantage is that import duties will be brought down on all items exchanged between the two nations. Only a small list of products will be kept out of the pact.
At least 80 percent of India’s exports into the UAE will be duty free once the free trade agreement is in place, said a report in the Economic Times. Under the pact, India will be able to also export textiles worth an additional $12 billion in the next two years, while the exports of plastics is expected to be up by three times to $1.3 billion from the existing $418 million. Sports goods and furniture exports to the UAE could also get zero duty access. India is also keen to get duty-free access for its cheese, spices, organic chemicals and paper products.
The agreement will also create 5 lakh jobs in India gems and jewellery, textiles, engineering, pharma and auto sectors, among others. In the UAE, the pact is expected to create over 1 lakh jobs in the next few years.
The industry has sought the abolition of 5% import duty on exports of golds, silver and platinum jewellery from India to the UAE, since these exports shrank to $1.18 billion in 2020-2021 due the pandemic.
CEPA is also likely to include areas such as digital trade, intellectual property rights, government procurement etc.
“The two sides are also strengthening their cooperation in new areas of renewable energy, start-ups, fintech, etc,” the MEA said in a statement.
The air bubble
The two nations worked closely during the pandemic committing to the welfare of the 3.5 million-strong Indian community living in the UAE. The Air Bubble agreed in August 2020 has helped several Indians to return back for employment and business. India is the top remittance destination for the Emirates and absorbed 33.6% of the total outflow in 2021.

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