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India-UAE Pact Opens Up Numerous Opportunities

Export opportunities for India are largely untapped, with its share in global merchandise exports staying around 1.6 per cent . Thus, it has a lot to gain from export-oriented growth and signing more trade and economic pacts will be one of the key enablers of such growth.

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The Comprehensive Economic Partnership Agreement (CEPA) signed between India and the United Arab Emirates (UAE) on 18 February 2022 marks a major trade agreement the country has made with a key trading partner since its last collaboration with Japan in 2011. A cogent step to leverage the strategic bonds that exist between the two countries, this CEPA will build a mutual collaboration among areas that can determine the future growth prospects of both the economies. The entire process of finalising and signing CEPA was completed in a record time of 88 days. This has raised hopes that the same level of commitment and dedication will be shown in executing collaborations proposed in CEPA.  

Merchandise trade will be an apparent beneficiary of CEPA. The UAE is India's third biggest trading partner . Both nations are committed towards increasing merchandise trade to USD100 billion  over the next five years. This economic partnership will expand the markets for Indian manufacturers and Micro, Small and Medium Enterprises (MSMEs), helping them get a deeper access. Labour-intensive sectors, including gems and jewellery, plastics, leather, and footwear, among others, are more likely to benefit from this deal, thus generating more employment. For Indian medical products that are approved in any advanced nation, the benefit will come in terms of time-bound registration and authorisation in the UAE.

While many of the Production Linked Incentive (PLI) sectors have been kept out of CEPA, mobile products, which have been granted duty-free access, have been included. This will help Indian manufacturers gain a market share in the UAE. The liberalised visa regime offering a 90-day visa for business visitors and contractual service suppliers, as well as a three-year visa for intra-corporate transferees, could make India's services sector a big gainer. For the UAE, the liberalised visa regime means that it can deploy Indian skills to build a strong foundation for a range of service segments, including professional services, legal, accounting, taxation, etc.Apart from boosting bilateral trade, CEPA can unlock real potential for both the countries by facilitating collaboration in various fronts, including investment, technological development, and climate change. While dedicated investment zones for UAE companies to be set up in India could create employment opportunities here, their Indian counterparts can establish specialised industrial advanced technology zones in Abu Dhabi.

The UAE is seen as a gateway to the Gulf Co-operation Council countries (GCC); hence, establishing presence in the UAE can enable Indian companies to easily access GCC markets. Besides, they can also use the UAE as a springboard to get themselves integrated with the supply chain to Africa. As much of exports to Africa is routed through Dubai, Indian firms can tap into this opportunity by setting up warehousing and distribution centres. But the UAE's status as a global distribution centre also poses a risk-goods originating from outside the UAE, for instance, can exploit duty-free access facilitated by CEPA and flow into the Indian market. A permanent mechanism incorporated in the deal, however, is expected to be effective in addressing this issue.
India has proven its ability to create technology-driven processes, and the UAE has an investment ecosystem. If partnerships are created among Indian and UAE firms-by leveraging these strengths-in healthcare, education, financial services, space, among others, they could emerge as leading players to address global innovation needs in these areas. The presence of large Indian diaspora (3.4 million ) in the UAE had always attracted Indian brands to collaborate with Middle East companies, targeting this consumer base. CEPA ought to encourage more such tie-ups, alongside acting as a platform for non-resident Indians (NRIs) residing in UAE to participate in India's growth story.  

Climate change is one of the major risks that the global economy is facing today, and the world is fast moving towards building a low-carbon future. In this context, a proposed agreement between the two nations to support clean energy missions could open up rewarding opportunities. While UAE firms can participate in India's renewable energy transition initiatives by committing investment, India's diverse skill sets could be deployed in boosting the growth of non-oil sectors in the UAE.  

India has been benefiting from the upswing in global trade-its exports registered 47 per cent  of growth in April-January 2021-22. To achieve sustained growth rates in exports and integrate domestic companies in in global supply chains, India needs to enter into more trade pacts, which could improve the competitiveness of our products in countries with whom we are signing those pacts. This CEPA is the first in a series of free trade agreements (FTAs) that India is negotiating to grow product and services exports to USD1 trillion each by 2030.  This momentum should be preserved, and negotiations with other trading partners, such as GCC, U.K., Australia, and Canada, should be executed with the same level of keenness. Resolving the existence of non-tariff barriers in our key export markets should be another focus area, especially as they create impediments to our exports.

To conclude, export opportunities for India are largely untapped, with its share in global merchandise exports staying around 1.6 per cent . Thus, it has a lot to gain from export-oriented growth and signing more trade and economic pacts will be one of the key enablers of such growth.

Partner Risk Advisory and COO - India Global, KPMG in India

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Neeraj Bansal, KPMG

The author is Head of Real Estate and Construction sector, KPMG in India

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