The UAE and India, Asia’s third-largest economy, signed a Comprehensive Economic Partnership Agreement that is expected to boost non-oil trade between the two countries to $100 billion in five years, from $60bn currently.
The agreement marks a new phase of strategic co-operation and will open additional avenues of investment and trade for companies in India and the UAE.
It will add 1.7 per cent or $8.9bn to the UAE's gross domestic product and boost exports by 1.5 per cent or $7.6bn by 2030, said Abdulla bin Touq, UAE Minister of Economy, in an online joint press conference on Friday in New Delhi, attended by top government officials from both countries.
The 881-page agreement lifts 80 per cent of tariffs on UAE and India goods, while all tariffs will be removed within 10 years, said Dr Thani Al Zeyoudi, the UAE Minister of State for Foreign Trade.
“The fact that we were able to agree the terms of a deal of this size, scope and importance within five months, demonstrates the power of our shared vision,” Mr bin Touq said.
“I am confident that the UAE-India CEPA agreement will be regarded as a towering achievement and a new era, not only for our two nations, but for global trade.”
The pact is an extension of the long-standing economic and trade relationship between the two countries. India is already the UAE’s second-largest trading partner, accounting for 9 per cent of the Emirates’ total foreign trade and 13 per cent of non-oil exports.
Trade between India and the UAE grew by more than 70 per cent in the first six months of 2021 to $21bn.
India is expected to become the world's fastest-growing major economy in 2022, expanding by 9 per cent despite continued headwinds fanned by the Covid-19 pandemic, according to the International Monetary Fund. Its economy grew at the same pace last year.
India could become the world's third-largest economy by 2026 and have an economic output of $10 trillion by 2030 if it grows at the same pace, Bloomberg Intelligence and World Bank estimates show.
Under the CEPA, key UAE commodities that will benefit from the tariff elimination include aluminium, copper and petrochemicals.
The key Indian sectors that will benefit are textiles, agriculture, furniture, pharmaceuticals and engineering, said India’s Minister for Commerce and Industry Piyush Goyal.
The deal will promote trade, investment and innovation in diverse sectors, including economy, energy, climate action, emerging technologies, skills and education, food security, health care and defence and security, the Indian prime minister's office said in a statement.
The agreement was signed by Mr Goyal and Mr bin Touq in the presence of Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, as well as India's Prime Minister Narendra Modi on Friday in New Delhi in an online ceremony.
India and the UAE also signed two initial pacts related to food security and financial services.
Negotiations between the two countries covered 18 chapters, resulting in the elimination of tariffs and enabling further investment in sectors including hospitality, logistics, construction and professional services, Mr bin Touq said.
It will also promote collaboration in key future industries such as AgriTech, renewable energy and advanced technology, while providing a platform for small- and medium-sized businesses to expand to new markets, he said.
“As we emerge from the global pandemic, this CEPA will uphold the movement to a free, fair, inclusive and non-discriminatory, transparent, predictable and stable trade and investment environment,” he said.
The deal with the UAE follows several rounds of talks that were first initiated in September, when Dr Al Zeyoudi led a delegation to India.
The UAE official held discussions with India’s Finance Minister Nirmala Sitharaman, Mr Goyal, Minister of Civil Aviation Jyotiraditya Scindia and Minister of Electronics and Information Technology Ashwini Vaishnaw, as well as with senior government officials during the tour.
The mutually beneficial partnership will help to create new jobs, promote foreign direct investment, empower entrepreneurs, attract talent and accelerate the knowledge-driven economies of the two countries, Dr Al Zeyoudi said at the time.
The agreement will “deepen economic ties” between the two countries that have shared a “long and rich history” of social, cultural and commercial ties spanning several centuries, global consultancy KPMG said in its report.
“The future of the India-UAE relationship is bright as both countries look to strengthen ties in the coming years,” it said.
“Both governments have been proactive in developing initiatives to boost foreign investment and their key sectors.”
For Indian companies, the attraction of the UAE includes its geographic proximity to India, its strategic location providing access to key markets in the GCC and Africa, and the ease of doing business.
For UAE companies, India's large market, the wealth of opportunities across sectors and cost advantages are attractive.
“As both nations look to strengthen ties further in the coming years, there are several opportunities across various sectors to boost bilateral trade and investment,” KPMG said, identifying 12 sectors that show potential for growth.
These include gems and jewellery, pharmaceuticals and medical services, food production and security, technology start-ups and artificial intelligence, education, financial services, advanced technology, aviation, defence, infrastructure development, oil and gas and renewables, it said.
While sectors such as gems and oil and gas will continue to be important, emerging sectors in both countries will be key in driving future trade and investment opportunities, KPMG said.
There is also significant opportunity in focusing on emerging economic centres such as second-tier and third-tier cities in India to strengthen ties.
“The planned CEPA is an important milestone in the historic partnership between the two countries. Its effective implementation will be a major boost to trade and investment relations, providing prioritised access to markets and capital,” KPMG said.
The agreement will provide a launch pad for more jobs and higher investment in industries from textiles and steel to food processing, experts said.
Arun Chawla, director general of the Federation of Indian Chambers of Commerce and Industry, said the textile, steel and food-processing industries will benefit most from the agreement.
“With the UAE looking for food security and plans to set up India-UAE food corridor, removal of the current 5 per cent tariff on food and dairy products will be a win-win for both the countries,” he told The National.
“The food and agri-processing industry in India will see tremendous growth as we see a potential duty-free access to the UAE market of over 10 million consumers and [it] is expected to act as a springboard for the entire Mena region.”
The Emirates, as is the case with other GCC countries, imports about 85 per cent of its food products.
In 2020, UAE entities committed $7bn to create a food corridor between the UAE and India to provide a stable market for farmers in the Indian states of Punjab, Madhya Pradesh, Uttar Pradesh and Gujarat.
The agreement will also trigger collaborations between businesses in technology, health care and education.
“Despite the challenges posed by the pandemic, the two countries worked together relentlessly to ensure a long-term growth in the coming years. With this [agreement], there will be an immediate boost in people-to-people contact,” Mr Chawla said.
There are gains expected with job creation as the two countries strengthen co-operation.
“The CEPA is expected to benefit labour-intensive sectors such as aluminium, copper, the chemicals and petrochemicals industry, agriculture, textile and jewellery,” he said.
“This will result in spillover economic benefits, including increased investments, job creation and employment opportunities, which in turn will boost the economy.”
Jewellery businesses are also expecting a rise in exports to the UAE.
The UAE accounts for 80 per cent of India’s plain gold jewellery exports and 20 per cent of studded jewellery exports.
Colin Shah, chairman of India's Gem and Jewellery Export Promotion Council, described the country as the gateway to the entire Middle East.
The agreement “will provide impetus and much-needed push to exports of gem and jewellery products to the Emirates”, Mr Shah said.
In December, the export credit agencies of the UAE and India also signed an agreement to improve trade ties and provide market access for small- and medium-sized enterprises.
Etihad Credit Insurance and India's Export Credit Guarantee Corporation will co-operate in exploring mutual opportunities for insurance, reinsurance and coinsurance services linked to the export of goods in a third country, as well as support insured exporters with investments, ECI said on December 29.
India, with a population of more than 1.3 billion, is already an attractive market for the UAE’s private and public sector companies.
In June 2020, Abu Dhabi’s strategic sovereign fund Mubadala Investment Company invested $1.2bn in India’s telecoms provider Jio Platforms.
Indian conglomerate Reliance last year announced an investment of $2bn in Abu Dhabi’s Ta'ziz Industrial Chemical Zone.
The UAE, the Arab world’s second-biggest economy, has made a strong recovery from the coronavirus-induced economic slowdown and has maintained strong trade momentum despite global travel uncertainty.
Its exports are projected to expand at an average annual rate of more than 6 per cent to Dh1.1tn ($299bn) by 2030, as the UAE continues to diversify its economy away from oil, Standard Chartered said in a report this month.
Metals and minerals as well as gold and machinery will dominate the UAE's exports over the next decade, with India and China serving as the country's principal export markets, the report said.
The country is further strengthening relations with key trading partners. It is currently negotiating a CEPA agreement with Indonesia, the biggest South-East Asian economy.
Indonesia expects to finalise the agreement in the first quarter of this year, its Trade Minister Muhammad Lutfi told The National in November.
“We are going to sign the CEPA in the first quarter of next year  and hopefully after that … we are going to double or triple [our trade] by 2025,” he said at the time.
The UAE is also holding negotiations for a CEPA agreement with South Korea, which is expected to be finalised by the end of 2022. The agreement aims to enhance the economic partnership between the two countries to a minimum of $20bn in the next three to five years.