Friday, 17 May, 2024
By: Yash Gupte
In February 2022, India became the first country with which the UAE signed a Comprehensive Economic Partnership Agreement (CEPA). Image Source: IANS
India-UAE trade rose to USD 85 billion in 2022, making the UAE India’s third-largest trading partner for the year 2022-23 and India's second-largest export destination
As Prime Minister Narendra Modi visited Abu Dhabi on Saturday to advance cooperation in sectors like trade, energy, and climate action, India and United Arab Emirates signed agreements on trade settlement in national currencies and establishing a real-time connectivity for cross-border transactions. On his arrival in Abu Dhabi, Modi was received at the airport by Crown Prince Sheikh Khaled bin Mohamed bin Zayed Al Nahyan. He then held talks with UAE President Sheikh Mohamed bin Zayed Al Nahyan at the Qasr Al Watan presidential palace.
The leaders expressed satisfaction that UAE-India relations have witnessed tremendous progress on all fronts. India-UAE trade rose to USD 85 billion in 2022, making the UAE India’s third-largest trading partner for the year 2022-23 and India's second-largest export destination. India is the UAE’s second largest trading partner. In February 2022, India became the first country with which the UAE signed a Comprehensive Economic Partnership Agreement (CEPA). Bilateral trade has increased by approximately 15 percent since the entry into force of the CEPA on May 1, 2022.
The two leaders held wide ranging discussions covering various dimensions of the bilateral partnership, including trade & investment, fintech, energy, renewables, climate action, higher education and people to people ties. In order to promote the use of local currencies, the Indian Rupee (INR) and the UAE Dirham (AED), for cross-border transactions, Shaktikanta Das, governor of the Reserve Bank of India (RBI), and his counterpart Khaled Mohamed Balama, at the Central Bank of UAE (CBUAE), signed a Memorandum of Understanding (MoU).
The first of its type MoU aims to establish a Local Currency Settlement System (LCSS) to encourage the bilateral use of INR and AED. It includes all legal capital account transactions as well as current account activities. Exporters and importers would be able to invoice and pay in their respective local currencies thanks to the establishment of the LCSS, which would also promote the growth of the INR-AED foreign exchange market. "This agreement would encourage remittances and investments between the two nations. The RBI noted in a press release that the use of local currencies will reduce transaction costs and speed up settlement times for all transactions, including remittances from Indians living in the UAE.
The Unified Payments Interface (UPI) of India and the Instant Payment Platform (IPP) of the UAE will be connected through the MoU on "Payments and Messaging Systems," which will lay the groundwork for this. It will connect the relevant Card Switches, including UAESWITCH and the RuPay Switch. It will also look at ways to connect the UAE messaging system and the Indian SFMS, or Structured Financial Messaging System.
Source: Ministry of Commerce and Industry
In 2022–2023, commerce between India and the UAE was valued at $84.5 billion. The UAE, which imports the majority of its food needs, has promised to invest $2 billion in the creation of several food parks in India. By 2030, the two parties also agreed to grow non-petroleum trade to $100 billion.
According to Foreign Secretary Vinay Kwatra, since the CEPA was signed in 2022, the two countries' commercial and economic ties have greatly improved. According to him, the two agreements on the use of domestic currencies for trade settlement and the integration of payment systems pave the way for more strategic economic convergence between the two sides.
Talking about CEPA, It is a form of free trade agreement that includes negotiations pertaining to investment, trade in services, and other aspects of economic cooperation. It might even take into account negotiating in areas like IPR, competition, and customs cooperation for commerce. More extensive than free trade agreements are partnership or collaboration agreements. The CEPA includes a regulatory problems agreement that examines the regulatory component of trade.
The CEPA is the first comprehensive free trade agreement (FTA) that India has signed in the previous ten years. Over 80 percent of the goods traded between India and the UAE are eligible for preferential market access under the CEPA. In particular, sectors including gems and jewellery, textiles, leather, footwear, sporting goods, plastics, furniture, agricultural and wood products, engineering products, medical equipment, and vehicles will profit from the decrease or abolition of tariffs on India's exports to the UAE.
The CEPA covers 11 broad service sectors and more than 100 sub-sectors. A liberal and nondiscriminatory regime for cross-border investment between India and the UAE is provided by the CEPA. Provisions on dispute resolution and collaboration for investment facilitation are also covered.
One of the question which would come across our minds is that why did India and UAE sign a CEPA rather than a Free Trade Agreement (FTA). In terms of partnerships over a greater coverage of areas and the type of agreements, CEPA is, as its name implies, is more extensive and ambitious than an FTA. A CEPA is more ambitious in terms of a comprehensive covering of many areas, such as services, investment, IPR, government procurement, disputes, etc., whereas a standard FTA focuses only on products. Second, compared to an FTA, CEPA takes a closer look at the regulatory aspects of trade.
Some of the key sectors, including labour-intensive sectors, that have witnessed significant export growth on account of the CEPA include: Mineral Fuels; Electrical Machinery (particularly telephone equipment); Gems & Jewellery; Automobiles (Transport vehicles segment); Essential Oils/Perfumes/Cosmetics (Beauty/Skin care products); Other Machinery; Cereals (Rice); Coffee/Tea/Spices; Other Agri Products; and Chemical Products
Under the India-UAE CEPA in the Goods Domain, the UAE eliminated duties on 97.4 percent of its tariff lines corresponding to 99 percent of imports from India. India has obtained immediate duty elimination on over 80 percent of its tariff lines corresponding to 90 percent of India’s exports in value terms.
USA and UAE are India’s top export destinations. Also, remittances are an important source of maintaining foreign exchange reserves and they significantly contribute in the growth of economy. Around 10 million Indians live across the Gulf, sending remittances of about $45 billion annually on average, according to certain estimates. India was the largest recipient of remittances in the world in 2021, receiving around $87 billion, approximately 50 percent of which came from the Gulf, according to a World Bank report. This was nearly twice the remittances to the next highest recipient, Mexico, at $42.9 billion.
Source: RBI Remittance Survey
As a member of the GCC, the UAE has close economic ties to Saudi Arabia, Kuwait, Bahrain, and Oman, with whom it also shares a common market and a customs union. With the help of this FTA with the UAE, India will be able to take advantage of the UAE's strategic location and relatively simple access to the African market and its many trading partners, which will enable India to join the supply chain there, particularly in the handloom, handicraft, textile, and pharmaceutical industries.
Also, Indian Commerce and Industry Minister Piyush Goyal stated on June 12 that India and the UAE are looking into methods to enhance trade in value-added gold and gold products. He said that, after Switzerland, the UAE is one of India's main sources of gold and that New Delhi would like to promote commerce with the UAE even more. A free trade agreement allows India to grant some tariff exemptions on the import of gold from the United Arab Emirates. India has consented to import duties that are lenient for up to 200 tonnes of gold each year. Gold imports are generally subject to a 15 percent tariff.
