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India reaps early benefits from its trade deal with UAE

India fans in the stands of Dubai International Stadium, ahead of their cricket team's Asian Cup match against Pakistan on September 4 Reuters/Satish Kumar
India fans in the stands of Dubai International Stadium, for their cricket team's Asia Cup match against Pakistan on September 4. Indian nationals make up a third of the UAE's total population
  • Non-oil exports to the UAE are up 14%, says India’s commerce ministry
  • Analysts say New Delhi is benefiting more from the agreement – so far
  • The deal is forecast to add 1.7% to the Emirates’ GDP by 2030

India’s non-oil exports to the UAE have recorded double-digit growth since the two nations signed a trade deal earlier this year.

New Delhi’s Ministry of Commerce reported that exports to the UAE, excluding petroleum products, grew to $5.92 billion in June-August, from $5.17 billion during June-August 2021 – an increase of 14 percent.

India’s global non-oil exports in the same period grew by just 3 percent.

However, Wes Schwalje, COO of Dubai’s Tahseen Consulting, cautioned that the comprehensive economic partnership agreement (CEPA), which was signed in February and came into force in May, appeared to be one-way traffic so far.

“The benefits remain pretty one-sided at this point, with UAE exports to India and UAE businesses looking to expand to India not as significant as the other way around,” he told AGBI.

“That’s a generalised issue with some of the UAE’s CEPAs – the benefits for the UAE seem far smaller and much less certain than the benefits for the counter parties.”

Indian non-oil imports from the UAE for the same period nudged up from $5.56 billion in June-August 2021 to $5.61 billion this year, an increase of just 1 percent. However, the UAE enjoys a strong total trade surplus with India once oil products are added into the equation.

Trade volumes between India and the UAE are projected to reach $100 billion by 2030.

Deepa Sachanandani, deputy head of research at Century Financial, said the CEPA was “proof of the UAE’s economic strategy to become a hub of free trade and capital”.

She added: “Gold bars from the UAE and jewellery from India are the two essential items that have caught the most market attention. India imports around 800 tons of gold every year and Dubai could compete with Zurich, which currently accounts for half of India’s gold imports.”

Looking at the longer-term picture, Sachanandani said: “UAE is India’s third-largest trading partner, so investments should follow trade and the overall numbers should go up substantially in the coming years.

“Agriculture and food-related sectors, in particular, should see a spike in investments from UAE to India. For the UAE alone, the CEPA is expected to add 1.7 percent to its GDP by 2030.” 

Schwalje said the digital economy could be another area where the UAE benefits from a migration of Indian Web3 startups. Dubai’s Virtual Assets Regulatory Authority, set up as Singapore stepped up crypto licensing requirements and US progress slowed, has made the UAE’s “crypto siren song even more irresistible to Indian crypto and Web3”.

India’s growth in non-oil exports comes despite macro-economic headwinds such as the conflict in Ukraine, inflation, expected policy tightening in advanced economies and a global growth slowdown. However, India’s Commerce Ministry said in a statement that exports were likely to increase further in the coming months.

This view is supported by Sunjay Sudhir, New Delhi’s ambassador to the UAE, who said last week that he expects total bilateral trade to hit the $100 billion mark before 2030. The figure has already passed $72 billion.

The CEPA – which allows most of India’s exports duty free access to the UAE – was signed in February and came into force in May. Image: ThaniAlZeyoudi/Twitter

‘Connected for thousands of years’

Dr Bhaskar Dasgupta, head of strategic development MENA and India at financial services provider Apex Group, said: “UAE and India have been connected for thousands of years – with ancient trade routes, deepening ties with trade, food, inter-marriage, population, cultural exchanges and the like. 

“Given the UAE’s desire for food security, the rise in agri-related imports is a good indicator. Besides this, the UAE further increased imports of machinery, chemicals, nuclear equipment.”

Apex administers more than $50 billion of Indian funds globally and more than $22 billion in the UAE. Dasgupta added: “We have also noticed Indian firms, funds and families further globalising and choosing UAE as one of their preferred jurisdictions to expand abroad.

This trend is going to increase substantially as global headwinds grow and trade/investment prefers to move to safer/well tested country pair relationships such as UAE-India.”

India is the UAE’s top export partner, second in terms of imports, and first in attracting foreign direct investment from the UAE. Air traffic between the two countries reached nearly 3.5 million passengers in 2021.

Naina Bhardwaj, an associate with Asia Briefing, a business and investment research and advisory platform, said: “Other than aluminium, copper and petrochemicals, pharmaceutical and agricultural products, the deal also covers a commitment by the UAE to grant 140,000 visas to highly skilled workers from India by 2030.

“The CEPA is also expected to generate one million jobs in India’s export-oriented industries like textiles, handloom, gems and jewellery, and leather and footwear.”

The workers return

The Gulf’s demand for Indian workers has rebounded significantly this year, signalling the end of the coronavirus-induced reverse migration. An increase of nearly 50 percent in fresh migration to the six GCC members – Saudi Arabia, Qatar, Bahrain, Kuwait and Oman, as well as the UAE – was recorded in the first seven months of this year, compared to the whole of 2021.

The UAE hosts the largest concentration of Indian nationals outside India, making up 3.42 million of its total population of nearly 10 million.

Earlier this month, Sheikh Abdullah bin Zayed Al Nahyan, minister of foreign affairs and international cooperation, chaired the 14th edition of the UAE-India Joint Committee.

“The growth of our economic relations brought about by CEPA has generated substantial opportunities in areas such as trade, investment, tourism, and aviation. Indeed, our respective economies have already begun to prosper under this agreement,” he said.

Raghu Mandagolathur, CEO of Marmore Mena Intelligence, pointed to benefits for both: “With rising inflation, the Russia-Ukraine conflict and COVID-19 restrictions in China highly impacting the world’s access to goods and services, the India-UAE CEPA would be beneficial for the UAE to import non-oil essentials from India. 

“On the other hand, the trade agreement will help boost infrastructure development and economic growth in India due to higher influx of foreign direct investment and joint ventures agreements by UAE.”

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