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CEPA can propel UAE-India trade to $115 billion

Agreement sets up the platform to open up trade, investment flows



The UAE and India will hold a virtual summit on Friday where the CEPA deal will be signed.
Image Credit: Gulf News Archives

Dubai: How can one improve a trade relationship that’s already going strong at a substantial $60 billion? The UAE and India have found the answer – CEPA.

The Comprehensive Economic Partnership Agreement deal opens up ways that could take bilateral trade as high as $100-115 billion in the next five years, further strengthening India’s status as a key economic partner for the UAE, and vice-versa. In the last financial year, the UAE was India’s third biggest export and import market with $60 billion in trade, behind the US ($67.4 billion) and China ($65.1 billion).

The UAE and India will hold a virtual summit on Friday where the CEPA deal will be signed in the presence of His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, and Indian Prime Minister Narendra Modi.

His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, and His Highness Shaikh Mohammad Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, with Indian Prime Minister Narendra Modi during a session at the World Government Summit in Dubai last February
Image Credit: Gulf News Archives

“With CEPA, it will be about high-priority sectors in both countries getting better access to the others’ market,” said Suresh Kumar, former banker and chairman of the Indian Business & Professional Council (IBPC). “However, India’s pharmaceutical companies have until now had limited presence. It takes time for them to get all the regulatory approvals. This could change with CEPA. A lot of the processes in select categories can, thus, get the boost.”

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If you take the goods and services space, India has had consistently high trade volumes with UAE in categories such as software.

- Suresh Kumar

Duty cuts, rollbacks

Once CEPA comes into effect, what it will do is smoothen the flow of goods and services between the two countries, with customs duty reduced or cut across broad categories. What they are and the extent of these duty rollbacks – and from when – will be confirmed once the deal is signed. Some of the changes are likely to take effect as early as April 1, which is the start of the financial year in India. The two countries had been working towards this deal since 2015.

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India’s ‘window’ to the world

According to business houses and Indian government sources, the CEPA deal was put on the fast track in the recent months and a fairly conclusive set of initiatives for the benefit of both nations was arrived at. It’s important to note that CEPA is not a free-trade agreement (FTA), which allows for the movement of goods and services across sectors with minimal duties.

There is a reason for that. It is the Gulf Cooperation Council (GCC) as an economic bloc that can enter into an FTA with another country or bloc.

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It is a sentiment widely shared that the UAE gets to be the window for India’s goods to access a wider base of export markets, and with the added benefit of doing so at lower customs duties.

Investment blitz

On the investment side, India and the UAE have already come a long way. DP World is one of the systemically important players in India’s ports management space. The Mukesh Ambani-owned Reliance Industries and its group ventures list some of Abu Dhabi’s blue-chip enterprises like Mubadala and ADIA as key investors.

“Whether it’s in Reliance or digital startups – like what Gulf Islamic Investments did with the online skincare company Bombay Shaving – the investment flows in these two to three years have been robust,” said a senior banker at a Mumbai-based bank. “The new deal is more about getting maximum possibilities from trade – CEPA and duty cuts will be a good start.”

“India is thus lowering its trade barriers to select trade partners and the UAE is the first one with which the country has done so. This agreement thus sets the benchmark for the future.”

India is also working out expansive trade alliances with a handful of other key partners, including the UK.

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Gold trade awaits key moment

One sector that is keenly awaiting any development from CEPA is gold and jewellery, whether in the UAE or India. “It is expected that the UAE will exempt Indian-made jewellery from customs duty, which is 5 per cent at the moment,” said Abdul Salam K.P., vice-chairman of Malabar Gold & Diamonds. “India supplies more than 80 per cent of the world’s diamond requirements. A trade agreement will help India to come close to their expected jewellery export of $70 billion against current exports of less than $35 billion.

This will provide employment to artisans in India in the gold industry, estimated at eight million. And for Dubai, this is an opportunity to market these products worldwide using its current setup as the ‘City of Gold’

- Abdul Salam K.P

Opening the way to a $5 trillion economy

In time, the benefits of CEPA will accrue to old- and new-age economic activity alike. “CEPA will open the gates to duty-free access to a number of goods from across different sectors,” said Kunal Bilakhia, founder of Taxpro Advisors.

While the UAE will try to close the gap with Indian exports to the US, India will benefit in its aim to be a $5 trillion economy by 2025, with a new thrust to sectors like fintech, renewable energy, food security and healthcare.

- Kunal Bilakhia

In other words, for the UAE and India, CEPA is a win-win.

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