India-UAE trade deficit widens to $5 billion after FTA

According to Ministry of Commerce data, India’s exports to the United Arab Emirates increased by 11% to $20.25 billion during the period, while imports increased by 24.4% to $36.23 billion. This created a trade gap of $15.98 billion, compared to a trade deficit of $10.89 billion in the same period last year.

India’s non-oil trade deficit more than doubled between May and December 2022 to about $2.2 billion from $1.01 billion the year before. The Comprehensive Economic Partnership Agreement (CEPA) between India and the United Arab Emirates entered into force on May 1, 2022.

India’s non-oil shipments to the United Arab Emirates increased 2.59% to $15.03 billion, while non-oil shipments increased 10.03% to $17.23 billion in the May-December period became.

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Commerce Department officials said CEPA use was “on the rise” and likely to increase further. Noting the increasing use of free trade agreements by Indian exporters, officials said the issuance of Preferred Certificates of Origin (COO) will be available under CEPA in May 2022, worth $415 million. Certificates increased to 6,111 worth $1.11 billion in December 2022.

However, the surge in imports was driven mainly by shipments of high-value petroleum products and raw materials, while exports were driven by two major exports, such as gems and jewellery, electrical machinery and equipment, automobiles and grains, on which India earned tariffs. Guided by digit expansion. Free access under contract. Experts noted that it was a good start.

“Under CEPA, Indian exporters are accruing significant tariff benefits. This is a source of competitive advantage for Indian exports to the United Arab Emirates. Practical utilization started in June 2022. A dedicated effort has been made by the Department of Commerce to raise awareness to assist Indian exporters to take advantage of CEPA. , regular industry exchanges and ongoing end-to-end handholding…” Only limited products that meet value-added criteria are sourced directly from the UAE under CEPA.

The agreement, negotiated in a record 88 days, was signed on February 18. It is the first major free trade deal signed by Prime Minister Narendra Modi’s government since he came to power in 2014, worth about $26 billion, with the UAE imposing import tariffs of his 5%. of Indian products may benefit.

Ajay Sahai, DG and CEO of the Federation of Indian Export Organizations (FIEO), emphasized that the growing trade deficit with the UAE is mainly due to large imports of oil and polymers. “The value-added segments such as electronics, electricity, automobiles, machinery, gems and jewellery, have shown impressive growth in exports. Recently, we have seen strong growth in the apparel, textiles and leather footwear sectors. ”he said Sahai.

Crude oil imports rose 60% to $20.12 billion from April to November, while polymer imports rose 30% to $1.09 billion.

“The trade deficit is widening mainly due to rising oil prices. Last year prices were much cheaper. “You can see that half of the crude LPG we import is re-exported to the UAE as a final product. It’s counterintuitive that oil and gas trade only flows in one direction,” said an Indian expatriate to the UAE. Ambassador Sunjay Sudhir said in a recent interview.

The deal immediately eliminated tariffs on 90% of value-based exports from India to the United Arab Emirates. This includes areas such as gems and jewellery, textiles, leather and engineered products.

Gems and jewelery exports to the United Arab Emirates increased 33% in May. It grew 18% from June to December to $3.38 billion. Exports of electrical machinery and equipment increased by 28% over the same period to $2.25 billion. During this period, exports of automobiles and grains increased by 35% and 39% respectively, while exports of machinery and electrical goods he increased by 17%.

Professor Arpita Mukherjee of ICRIER said countries with high tariffs like India would see higher import bills if tariffs were reduced. “But we may benefit from our investment. Also, the UAE will be used as a transshipment hub. Exports may not be growing due to the slowdown in key export markets,” Mukherjee said. Stated.

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