India, UAE sign free trade deal expected to double trade to $100 billion in 5yrs

India and the United Arab Emirates (UAE) signed a free trade pact that is expected to almost double two-way trade to $100 billion in the next five years during a virtual summit between Prime Minister Narendra Modi and Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed Al Nahyan on Friday.

The two sides issued a joint vision statement that outlined the future course of relations and highlighted areas of focus, including enhanced maritime cooperation and joint steps to fight terrorism and measures to boost trade and investment.

The negotiation process for the comprehensive economic partnership agreement (CEPA), which was signed by commerce minister Piyush Goyal and UAE’s economy minister Abdulla bin Touq Al Marri, was one of the shortest in recent years. The two sides began work on the pact in September last year and it was finalised in a little more than three months.

The agreement will provide significant benefits to Indian and UAE businesses, including enhanced market access and reduced tariffs, according to an official statement. The CEPA is expected to increase bilateral trade from the current level of $60 billion to $100 billion in the next five years, it said.

Two memorandums of understanding (MoUs) signed between Indian and UAE entities were announced at the summit – a MoU between Agricultural and Processed Food Products Export Development Authority (APEDA) and DP World & Al Dahra for a food security corridor initiative and another between India’s Gift City and Abu Dhabi Global Market on cooperation in financial projects and services.

According to the joint vision statement, the two sides agreed to enhance maritime cooperation to maintain peace and security in the region, and reaffirmed their joint commitment to fight extremism and all forms of terrorism, including cross-border terrorism, at regional and international levels.

In the economic field, the two sides will expedite work on a dedicated investment zone for UAE companies and joint ventures with a focus on setting up a food corridor and establishing a dedicated “India Mart” in Jebel Ali Free Zone in Dubai.

The two sides will also work to create investment opportunities for Indian investors in establishing specialised industrial advanced technology zones in Abu Dhabi, with a focus on logistics and services, pharmaceuticals, medical devices, agriculture, agri-tech, and steel and aluminium.

India and the UAE will also take steps to enhance the resilience and reliability of food supply chains. They agreed to expand cooperation through enhanced bilateral food and agriculture trade and to strengthen the infrastructure and dedicated logistic services connecting Indian farms to ports and the final destinations in the UAE.

The two sides further agreed to collaborate in research, production and development of reliable supply chains for vaccines and enhance investments by UAE entities in India’s health infrastructure. The two sides also agreed on establishing an Indian Institute of Technology in the UAE.

Nine broad sectors that account for 90% of India’s exports, in terms of value, to the UAE will get immediate market access at zero duty from the day the CEPA is enforced. These sectors are textiles, engineering products, gems and jewellery, pharmaceuticals and medical devices, plastics, automobiles, leather and footwear, agricultural products and other labour-intensive products such as furniture, wood products and sports goods.

“All the above sectors are highly labour-intensive and the agreement will not only boost exports in terms of value, but also create jobs,” an official said.

According to the CEPA, zero duty will be extended to another half-a-dozen sectors comprising 9% of India’s exports within five to 10 years, the official said. These products are electronic goods, chemicals and petrochemicals, articles of stone, cement, ceramics and machinery.

According to the official, zero duty on textiles is expected to lead to additional exports worth $2 billion over the next five years. This segment will include textiles of both man-made fibres and cotton. “With duty free tariffs, India can cater to the hospital segment of the UAE through institutional selling of home textiles, such as bed and bath linen, and contract textiles such as beach towels, salon and spa linen,” he said.

“The exports of engineering goods are projected at $7 billion, $8 billion and $9.2 billion for 2024-25, 2025-26 and 2026-27, respectively,” he said. India’s exports of engineering products to the UAE during April-December 2021-22 saw a 77% jump to $4.2 billion, up from $2.4 billion in the same period in the previous fiscal.

In the gems and jewellery segment, exports of plain gold jewellery and gold studded jewellery is expected to increase to $10 billion in 2023. Tariff concessions offered to the UAE by India in products such as gold will reduce the import cost of inputs, he said.

The pharmaceuticals and medical devices sector is expected to grow at CAGR (compound annual growth rate) of 26% to 28% in the next five years to touch more than $1 billion. “As the UAE’s local formulation industry is developing fast, India may have a chance of increasing APIs [active pharmaceutical ingredients] much faster now,” he said.

The agreement will facilitate automatic registration and marketing authorisation of Indian generic medicines in 90 days, he said, adding the UAE plans to become a global regional distribution hub for pharmaceuticals by 2030, which will greatly benefit India.

It is projected that preferential access of Indian plastic products to the UAE market will lead to additional exports to the tune of $1.3 billion. “Additional increase in exports is projected at $872 million in the short term and another $402 million in the long term,” he said. During 2020-21, India exported plastics worth $418 million to the UAE.

“Tariff concessions offered to the UAE by India in products like polyethylene and polypropylene will reduce import costs of inputs for domestic industries,” he said.

In automobiles, the projected increase in exports over the five-year horizon is $160 million. “After India gets the FTA benefit, the average per unit price for India manufactured vehicles will reduce from $12,829 to $12,218, which should benefit us,” he added.

Similarly, the deal will boost India’s leather and footwear industry and agricultural products. “In the leather and footwear segment, an additional increase in exports is projected at $130 million over the next five years. On agricultural products, additional increase in exports is projected at $850 million in five years,” he added.

In the segment of other products, such as furniture, wood products and sports goods, the customs duty imposed by the UAE will be reduced to zero, which will boost manufacturing within India, the official said.