Landmark developments in India’s trade policy took place recently as India signed two trade agreements in a gap of less than 50 days. This happened for the first time in India’s history of trade engagement. On February 18, 2022 India and the United Arab Emirates (UAE) signed the Comprehensive Economic Partnership Agreement or CEPA after having only three rounds of discussion[i]. On April 2, 2022, India and Australia entered into an interim trade agreement as discussion on finalising a comprehensive deal continues[ii]. This reflects India changing outlook towards foreign trade, and its commitment to engage more openly with countries as contrasted with its earlier approach towards trade agreements when it disengages from the Regional Comprehensive Economic Partnership (RCEP) process where its concerns were not met. Both agreements will have significant implications for India’s trade as they are expected to unleash avenues for the business and its professionals. This article aims to outline the expected benefits that India would gain from these two deals.
Benefits expected from UAE deal
India’s total trade with UAE in 2021-22 was US$ 65 billion which includes export value of US$ 25 billion and import of US$ 40 billion[iii]. The UAE contributes around 7 percent of India’s total trade. India’s export basket to UAE primarily consists of textiles, pharmaceuticals, precious metals, and agricultural products while it primarily imports oil and natural gas from the Arab Emirate. The CEPA aims to increase bilateral non-oil merchandise trade to US$ 100 billion in the next five years. Indian exports would enormously benefit from CEPA as 90% of the Indian goods would avail duty free access to UAE market. Indian exports such as textiles, leather goods, pharmaceuticals, which are facing steep competition from Bangladesh, Vietnam, and China among others, could take advantage of this deal. The zero-duty access for Indian products to the UAE is expected to expand over 5-10 years to 97% of UAE tariff lines, or 99% of Indian exports by value. The UAE is India’s third-largest trading partner and second-largest export destination. India is also UAE’s second-largest trading partner.
This agreement will pave way for Indian service sector to cater to a strong economy in the region. It will create additional jobs and improve the working environment for the large Indian workforce working in the UAE. India expects increased flow of foreign direct investment (FDI) from the UAE especially in manufacturing sector and to boost the programs such as Make in India and Atmanirbhar Bharat (Self-reliant India). It is likely to generate one million jobs in various labour-intensive businesses as announced by Indian Commerce Minister Shri Piyush Goyal[iv].
What Australian deal offers
India’s total trade in 2021-22 with Australia stands at US$ 22 billion, of which US$ 7 billion is export and 15 billion is import[v].Natural/cultured pearls, pharmaceutical products, apparel and clothing primarily make India’s export consignment to Australia whereas mineral items, inorganic chemicals, iron and steel, aluminium are mostly shipped from Australia to India. The interim trade deal would provide zero duty exports to 100% tariff lines from India to the Australian market. It would facilitate India’s manufacturing sector and various labour-intensive sectors to market their product in Australia. Tariffs for 85% of Australian mercantile export to India would be eliminated. 97% of Indian mercantile export would enjoy preferential access to Australia as soon as the agreement is enforced. India will subsequently expand the tariff line to 91% for Australian export over the next 10 years while it will receive an expanded list of preferential tariff lines up to 97% by 2027[vi]. India’s manufacturing and infrastructure sector would be among top beneficiaries as they would be able to import steel and iron used as raw material for their final products at a cheaper rate. Australia would be a great source for India to rely for its energy needs as it aspires to become a major player in industries such as electric vehicles. India can import minerals from Australia abundantly used in batteries used in electric vehicle. India’s strong pharmaceutical production base with around 3000 brands will get an opportunity to collaborate with Australian firms to advance their R&D in activities.
For the service sector, the trade deal would also create several benefits. Liberalised visa norms for students and professionals, with special attention to Indian chefs and yoga teachers through pre-set quota, would provide them a chance to commercialise their skills. Annually 1800 qualified Indian traditional chefs and yoga teachers would be able to reap benefit under the trade deal. Information technology (IT) sector, business services, health, education sector are expected to receive impetus from this agreement.
Similarities in the two deals
One of the crucial commonalities in these two deals can be observed from India’s strategic ambition of playing major role in the changing world order. Both Australia and the UAE are geopolitically important to India and the deals are significantly driven by its geo-economic needs. They are also prominent sources of FDI to India. A large and strong Indian Diaspora represents both partners.
In the recent times, Australia emerged as India’s key partner in the Indo-Pacific region. High level officials, including Prime Ministers from both nations have met several times in the recent past. Initiatives such as the Quadrilateral Security Dialogue (Quad) and the Supply Chain Resilience Initiative have brought the two countries closer than before. Currently India does not have a trade deal with any economy in the South Pacific region. Australia would fill the gap and open avenues to penetrate in other markets in the region.
India is negotiating a trade deal with Gulf Cooperation Council (GCC). The CEPA with the UAE will serve as a template for the fast conclusion of this deal. The Modi government intensified its engagement with the Gulf countries after assuming office in 2014 through ‘Look West Policy’[vii]. The CEPA with the UAE would not only bring India closer to it but also serve as a stepping stone to the Arab world and engage closely with the region.
The new and expedited form of India’s trade engagement clearly spells its commitment to a liberal and equitable trade relation and marks a new era of trade policy. This is primarily driven by its domestic needs and growing external ambition motivated by geo-economic and geopolitics in the changing world order. As India’s Commerce Minister said, India would no longer sign a trade agreement just to be in a particular group and also not hesitate to sign a deal with likeminded nations[viii]. Australia and the UAE definitely fall in that category and India is expected to accrue benefits for goods as well as for services sector from both deals.
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*Dr. Rahul Nath Choudhury is a research fellow at the Indian Council of World Affairs.
Disclaimer: Views are personal.
End Notes
[i]Ministry of Commerce, Government of India. https://commerce.gov.in/international-trade/trade-agreements/comprehensive-economic-partnership-agreement-between-the-government-of-the-republic-of-india-and-the-government-of-the-united-arab-emirates-uae/
[ii]Department of Foreign Affairs and Trade, Government of Australia. https://www.dfat.gov.au/trade/agreements/negotiations/aifta/australia-india-comprehensive-economic-cooperation-agreement
[iii] Ministry of Commerce, Government of India. https://tradestat.commerce.gov.in/eidb/iecnt.asp
[iv]Press Information Bureau.https://pib.gov.in/PressReleasePage.aspx?PRID=1799756
[v] Ministry of Commerce, Government of India https://tradestat.commerce.gov.in/eidb/iecnt.asp
[vi]India Australia ECTA official text.https://www.dfat.gov.au/trade/agreements/negotiations/aifta/australia-india-ecta-official-text
[vii]Burton Guy (August 6, 2019) India’s “Look West” Policy in the Middle East under Modi. The Middle East Institute, Washington DC. https://www.mei.edu/publications/indias-look-west-policy-middle-east-under-modi
[viii] Chaturvedi,Amit. (January 22, 2022) India no longer signs FTAs just to be part of a group: Piyush Goyal. The Hindustan Times. https://www.hindustantimes.com/business/india-no-longer-signs-ftas-just-to-be-part-of-a-group-piyush-goyal-101642814485521.html accessed on 11.4.2022