India’s trade deficit with UAE widens as oil imports rise

The country’s trade deficit with the UAE widened to $3.92 billion in two months from $980 million a year earlier.

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India also saw growth, with exports to the West Asian country rising 17.5 percent to $5.4 billion. Imports, on the other hand, rose 67% to $9.3 billion during the period, largely due to surges in both oil shipments and value due to soaring global prices.

Unlike imports, however, India’s exports mainly consist of value-added and manufactured goods such as textiles, gems and jewellery, machinery, footwear and automobiles.

Arpita Mukherjee, a professor at economic policy think tank ICRIER, said the widening trade deficit was not the main problem as India mainly imports raw materials from the UAE.

“The increase in exports after the signing of the trade agreement shows that the trade agreement will be good for exports. I am not very worried about imports. We have to import raw materials, intermediate products and goods that are not produced in the country,” Mukherjee said.

Countries such as China, the United States and India are scouring the world for raw materials and energy supplies to feed their industries and fuel economic growth.

For example, China’s ambitious Belt and Road Initiative (BRI) aims to develop multiple trade corridors to ensure factory supply chains and energy security.

In this case, a trade deal with the UAE, a major energy supplier and an important market, could bring long-term benefits to India.

The growth of India’s exports to the UAE has been most pronounced in industries that have received duty-free access under the Comprehensive Economic Partnership Agreement (CEPA), which came into effect on May 1.

Exports of footwear jumped 73% in May, gems and jewellery up 33%, tea, coffee and spices up 50%, garment textiles up 42% and automobiles up 192%.

As a result, exporters expect India to sell $40 billion in goods to the UAE this FY22, compared to $28 billion in FY22.

“While many industries are still gearing up to tap their potential, the first month has been impressive. We should be looking for $3.5-40 billion in exports this fiscal,” said Confederation of Indian Export Organisations Director General and CEO Ajay Sahai said.

Product-wise quarantine data is not yet available in June.

Pharmaceutical exports also reported a 52% increase. The agreement stipulates that Indian medicines and medical products will receive regulatory approval within 90 days of regulatory approval in developed jurisdictions such as the US, UK, EU, Canada and Australia. Vegetable exports soared by 147%.

In addition to the Export Inspection Council, the agreement for the first time lists 17 agencies on the Indian side to digitally issue certificates of origin to exporters. They include the Fragrance Council, the Coir Council and the Tobacco Council. This facilitates faster customs clearance and transactions.

The agreement removes 90 percent of the value of India’s exports to the UAE, covering industries including gems and jewellery, textiles, leather and engineered products.

“May is Ramadan with fewer working days. Over the next few months, we will see the real trends in exports. The increase in imports is mainly due to high-value oil imports. The UAE is India’s third largest partner and the The agreement will help Indian exporters increase their sales in African and Arab markets. Over the next five years, we aim to achieve $100 billion in goods trade and $15 billion in services,” said a government official who requested anonymity.

Inquiries emailed to the UAE Ministry of Trade remained unanswered as of press time.

A Ministry of Commerce official said, “India-UAE CEPA has only recently come into effect. Although bilateral trade has entered a high growth trajectory through India-UAE CEPA, it is inappropriate to draw premature conclusions about business direction or trends from one month’s data. Any extrapolation or conclusion. It will take months of data to make a meaningful analysis. Needless to say, both parties are expected to benefit from different aspects of the Indo-UAE CEPA over time.”

While exports of petroleum products such as gasoline and diesel more than doubled in May, imports of crude oil more than tripled, leading to a trade imbalance.

Of the $4.9 billion worth of goods imported from the UAE in May, oil imports were worth $2.9 billion. Excluding oil, imports from the UAE rose 43% this month, while exports fell 11%. Oil imports rose 62% year-on-year in May. India imported crude oil at around $109 a barrel in May and $116 a barrel next month.

Since FY20, India has run a trade deficit with the UAE as India buys more oil from the West Asian country. In volume terms, for example, oil imports tripled in FY22 and the trade deficit widened to $16.8 billion from $10 billion the previous year. Pearl imports rose 28% in May, while gold imports rose as much as 248%.

Under the trade agreement, India has offered a 1% tariff relief on gold imports from the UAE, which can be applied to up to 200 tonnes of inbound cargo. Under the agreement, India has also offered the UAE significant tariff concessions on dates, petroleum products, petrochemicals, metals and minerals.

Jawaharlal Nehru University professor Biswajit Dal said: “These are the first signs that India can benefit from CEPA. However, Indian businesses must ensure that these initial gains are sustainable. This is the key question. .”

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

The UAE’s share of India’s total exports fell from 7.2% in April to 6.9% in the quarter ended June. The UAE accounted for 6.65% of total exports in FY22, up 68%.

In terms of imports, the UAE accounted for 7.31% of India’s total imports in FY22, up 68%.

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