On February 19, India and the UAE signed a significant and expansive trade agreement that will bring both economies closer towards realizing $100 billion in trade over the next five years. India’s Prime Minister Narendra Modi and the Crown Prince of Abu Dhabi, and Deputy Supreme Commander of the UAE Armed Forces Sheikh Mohamed bin Zayed Al Nahyan, met virtually to inaugurate the Comprehensive Economic Partnership Agreement (CEPA), an economic cooperation deal made on the coattails of the rapidly expanding strategic partnership between Abu Dhabi and New Delhi. The agreement is expected to come into effect in the first week of May.
Indian-Emirati collaboration over the past few years has risen at a meteoric pace, the seeds of which were planted in 2003, when the late Indian President A.P.J. Abdul Kalam visited Abu Dhabi, followed by Saudi King Abdullah’s historic visit to India in 2006. Modi became the first Indian prime minister in 34 years to visit the UAE in 2015, and Abu Dhabi’s crown prince visited India in 2016 as the guest of honor during the nation’s Republic Day celebrations. In 2017, both countries upgraded their ties to the level of "Comprehensive Strategic Partnership." Whereas free trade agreements (FTA) usually take years, even decades, to come to fruition, the successful signing of the CEPA (signed in under 90 days of negotiations) represents a new model for bilateral cooperation.
The CEPA removes a gambit of obstacles to facilitate an easier and viable exchange of both products and services. For example, the agreement mandates the removal of the 80% tariff lines that cover nearly 90% of India’s export value to the UAE. This tariff-free access is set to increase to around 97% over the next few years as the CEPA is implemented. Sectors ranging from hyper-competitive ones such as textiles (currently under a tariff regime, while other economies, such as Bangladesh, which excels in textiles, pay no duties on such exports to the UAE) to jewels, automobiles, pharmaceuticals, etc. stand to benefit from the CEPA. According to Indian forecasts, this agreement will likely create an estimated 1 million new job opportunities in India. Furthermore, the agreement also obliges the UAE to offer 1.4 million work visas for highly skilled professionals from India. One must note here that the greater Gulf region is home to more than 8 million Indian citizens (about the same as the entire population of Switzerland). Although India has historically been seen as providing Gulf states with cheap labor, this trend is progressively changing, as Gulf capital increasingly favors India as a premier destination for highly skilled human capital.
The signing of the CEPA shatters ceilings, not only on the India-UAE front, but also on the very issue of FTAs. There is no denying the fact that India is home to a very sensitive and volatile domestic market, where small and medium-scale industries remain the largest employers. As India’s FTA negotiations with other countries and regions, such as the EU, UK, Australia, etc., face mutually significant roadblocks and challenges, the deal with the UAE highlights the Gulf economies’ waxing interest in India as an incubator for both new businesses and investments. These interests lie specifically in fields such as energy security, food security, and safe environments for investing sovereign wealth funds, not to mention that developing economies (such as India) will still require a steady supply of hydrocarbons for the next two decades at least.
Talks about extending the CEPA as a launch platform into the greater Gulf region are also expected to move forward at a healthy pace from here on out. India’s Commerce Minister, Piyush Goyal, has said that India is on track to closing an FTA with the Gulf Cooperation Council (GCC) by the end of the year. This agreement will incorporate the economies of the UAE, Saudi Arabia, Bahrain, Oman, Qatar, and Kuwait into a single trading block with similar understandings on tariffs as laid out by the CEPA. Collectively, the GCC is already India’s single largest trading block, which has experienced a tenfold increase in trade between 2000-01 and 2015-16. In this context, India-UAE trade has been the vanguard for Indian-GCC economic partnership.
Lastly, the recent recalibration of geopolitical realities in the Middle East has also provided a much more nuanced environment for greater and more stable economic cooperation. The Abraham Accords, which brought a group of Arab states (led by the UAE) to normalize relations with Israel, provided further opportunities for economic cooperation as part of this reconfiguration. India is also in negotiations with Israel regarding an FTA, and in October 2021, the foreign ministers of the US, India, Israel, and the UAE met virtually to discuss future cooperation in the region. The US readout of the meeting highlighted trade, climate change, energy, and maritime security as core areas of common interest. With the growing likelihood of more expansive Emirati-Israeli economic collaboration in critical sectors such as technology, nations like India today finds itself in a comparatively less strenuous business and political environment. As such, India will find it much easier now to balance its strategic relations between Israel, the Arab world, and Iran.
In conclusion, the CEPA is more than just a sign of fledging India-UAE ties. With significant disturbances to the global economy brought on by the COVID-19 pandemic, crisis in Ukraine, and an increasingly imposing China, trade agreements with strong fundamentals and mutual respect for the joint interests offer some desperately needed safety nets for the economies and peoples of both parties. Many of the moves made nowadays between India and the UAE would not have been possible in the 1990s. The fast trajectory of developing Indian-Emirati relations over the past decade shows that both nations are turning a new page. The fact that the motives spearheading this change are economics, trade, and improved person-to-person relationships is a positive step forward for both nations.