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

India’s exports to the UAE rose 11 percent to $20.25 billion during the period, while imports rose 24.4 percent to $36.23 billion, Commerce Ministry data showed. This resulted in a trade deficit of $15.98 billion, compared with a deficit of $10.89 billion a year earlier.

India’s non-oil trade deficit more than doubled between May 2022 and December 2022, to about $2.2 billion from $1.01 billion a year earlier. The India-UAE Comprehensive Economic Partnership Agreement (CEPA) came into force on May 1, 2022.

India’s non-oil outbound cargo to the UAE rose 2.59% to $15.03 billion during the May-December period, while non-oil inbound cargo rose 10.03% to $17.23 billion.

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A Commerce Department official said the use of CEPA was “on an upward trend” and would only increase further. Noting that Indian exporters are increasingly taking advantage of free trade agreements, the official said the issuance of preferential certificates of origin (COO) certificates under CEPA increased from 415 worth $133.2 million in May 2022 6,111 by December 2022, worth $1.11 billion.

However, while the surge in imports was mainly driven by shipments of high-value petroleum products and raw materials, exports were led by double-digit growth in gems and jewellery, electrical machinery and equipment, automobiles, grains, etc., on which India imposed tariffs Access is free under agreement. Experts point out that this is a good start.

“Under CEPA, Indian exporters get huge tariff benefits. This is a source of competitive advantage for India’s exports to the UAE. The practical application of statistical significance begins in June 2022. The Ministry of Commerce has been and is working on raising awareness. A A Ministry of Commerce official said that regular industry interaction and continuous end-to-end hand-in-hand are being carried out to assist Indian exporters to take advantage of CEPA….Under the WTO framework, only limited products that meet the value-added criteria can be approved under CEPA is sourced directly from the UAE.

The agreement was signed on February 18, which took a record 88 days. It is the first major free trade agreement signed by the Narendra Modi-led government since it came to power in 2014, and could benefit some $26 billion worth of Indian products that are subject to a 5% import duty from the UAE.

Federation of Indian Export Organizations (FIEO) Director General and Chief Executive Officer Ajay Sahai stressed that the rising trade deficit with the UAE is mainly due to heavy imports of petroleum and polymers. “In value-added sectors such as electronics, electrical, automobiles, machinery, gemstones and jewellery, our export growth has been very significant. Recently, we have seen good growth in the garment, textile and leather footwear sectors,” Sahai said.

While crude oil imports surged 60% to $20.12 billion in the April-November period, polymer imports rose 30% to $1.09 billion.

“The trade deficit widened mainly because of higher oil prices. Last year, prices were much lower. But after the war in Ukraine, prices soared and one of our main imports was oil. However, we can see that the crude oil we import from the LPG, we re-export half of the finished product to the UAE. It’s counterintuitive that oil and gas trade can only flow one way,” India’s ambassador to the UAE, Sunjay Sudhir, said in a recent interview.

The agreement immediately removed 90% of duties on Indian exports to the UAE, covering industries such as gems and jewellery, textiles, leather and engineered products.

Gems and jewelry exports to the UAE rose 33% in May. It rose 18 percent to $3.38 billion in the June-December period. Over the same period, exports of electrical machinery and equipment rose 28 percent to $2.25 billion. Exports of motor vehicles and grains rose 35 percent and 39 percent respectively during the period, while exports of machinery and electrical appliances rose 17 percent.

ICRIER professor Arpita Mukherjee said that once tariffs are reduced, high tariff countries like India will see higher import bills. “However, we may profit from our investments. Also, the UAE is used as a transshipment hub. Exports may not grow as the main export market slows down,” Mukherjee said.

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