PM Narendra Modi may inaugurate free trade pact with UAE during upcoming trip

People familiar with the development said the Prime Minister’s Office (PMO) wants initial discussions on the deal to be completed by the time of the visit, so that Modi can inaugurate the pact. But the PMO may not get what it wants.

Bilateral trade between India and the UAE was worth $43.3 billion as of 2020-21, down from $59 billion in 2019-20, and is spread across thousands of traded items. Given that the UAE remains India's third-largest export destination as well as the third-largest source of imports, commerce department officials said work on the pact is still ongoing.

Trade deal ahead

In late September, India and the UAE officially began negotiations on a mutually beneficial CEPA. Both sides had hoped to end the preliminary part of the talks by the end of December, a deadline so tight that it was considered unprecedented. Both nations had publicly stated that they wished to sign a formal agreement in the early part of 2022.

However, talks have progressed at a much slower pace. "The technical aspect of any trade deal requires careful deliberations.
The reason a shorter time frame was attempted was due to the mutually agreeable positions of both nations on many issues, including reduction of customs duties on select items," a senior commerce department official said.

While stressing that optimism remains, he added that the aggressive agenda drawn up by both sides requires more work. India has focussed on easing market access for major exports such as textiles, gems and jewellery and heavy engineering items. Food, the medical and financial sectors and digital trade are among the sectors being eyed by the UAE, another official said.

As the pandemic shut down entire economies and global manufacturing came to a halt, trade flows originating from the UAE were particularly hurt. The pandemic shut down the important ports of Dubai and Abu Dhabi, major conduits of global trade, for months together.

As a result, India's exports to the UAE fell to $16.6 billion in 2020-21, down from $28.8 billion in 2019-20, before the pandemic hit.
Similarly, imports fell to $26.6 billion, down from $30.2 billion. A large part of this comprised crude oil; India also exported processed petroleum to the UAE.

Going forward, both governments have focused on non-oil trade, which stood at $21 billion as of 2020-21. The volatility of oil trade, combined with pledges to go green by both nations, have impacted trade negotiations.

While the final dates of the visit are yet to be officially announced, people familiar with the development say the two-nation tour would be held over the first and second weeks of January.

Long-term plans

The visit also comes on the back of a foreign policy push to bring the region closer to India. The PMO has decided to elevate relations with the Gulf region, in its quest to tap a more sustained source of foreign direct investment, a senior diplomat said on condition of anonymity.

"The understanding is that despite being long-time allies, India has never been able to fully utilize the economic opportunities offered by the Persian Gulf nations to the extent that others such as the United States, United Kingdom and European Union have," he stressed.

The geographical proximity of the Gulf is set to become closer as the government plans to use the Chabahar port in Iran, he added. Illustrating the proximity, the number of weekly flights between India and UAE stood at more than 1,000 before the pandemic hit.