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India-UAE Free Trade Agreement: Economics and Strategy

With signing of new FTA, government is looking to tap opportunities for better bilateral economic opportunities and diplomatic alliances in the Middle-East.

At a time when the world’s superpowers are eyeing south Asia as a center of power, the Free Trade Agreement (FTA) between India and United Arab Emirates (UAE) is making noise due to its far-fetched diplomatic implications.

This deal is one of the initial Comprehensive Economic Partnership Agreements (CEPA) between certain economies identified by the government of India. A similar interim trade agreement was signed earlier between India and Australia as a part of the same initiative.

Reasons for choice of UAE

Since 2015, with the incoming of the National Democratic Alliance (NDA) regime, the India-UAE relations have touched in a new high, with UAE contributing heavily to humanitarian relief causes like Kerala floods while remaining peaceful in a neighborhood of war struck countries, which makes it an ideal diplomatic choice over the other middle-eastern countries, which are both politically and economically unstable while remaining diplomatically unfeasible due to unstable relations.

This deal furthers India’s indirect influence as well as its interests in the Gulf Countries Council (GCC) where its interests had limited hearing due to the prominence of its strict antagonists like Iran and Saudi Arabia. Further, it even provides India access to the Greater Arab Free Trade Area (GAFTA) for better supply chain access and elimination of hurdles at seaports caused by other Islamic countries in the region. Already India has lost its strategic partnership in Chabahar-Zahedan port-rail projects to China, and this deal could help nullify the interests lost there.

In addition to this, UAE’s geographic position is very strategic with it holding access to the Modern Silk Route enabling access to virtually all the strongest growing economies of the world, and facilitating the exchange of labor via this agreement would mean better income prospects for Indians as per capita income of UAE is more than 20 times that of India.

Finally, in 2021 UAE announced its vision 2021 which entails decreasing dependence on oil and increased focus on non-petroleum industries, which could be an opportunity for India to exploit.

Interests of UAE in the deal

With the announcement of diversification in the economy by UAE in its vision 2021, it seeks heavy foreign investment and incoming of trained labor, specialized companies, and training institutes, given the transition will not be easy as UAE has been petroleum-dependent for too long. Additionally, other biggest trade partner China is not a solution for all these new problems as its money investing strategy is to indebt the partner heavily which may be detrimental to the economy of UAE at this infant stage. Already the announcement for the first IIT abroad has been made with the establishment being announced in UAE, which is one of the first solid steps in the deal.

Indian population also forms the largest minority group in UAE, with 38% of people being Indian so entry of India into any beneficial deals with UAE would also help UAE in making residing Indians a favorable party to their decisions.

Adding to this is the ever-growing entry of Indian companies into the market-space of UAE due to the carefully crafted Special Economic Zones (SEZs) which strongly cater to the needs of Indian businesses and business houses. So not only investment but also employment and trade would boom in UAE despite its limited land-and natural resources along with the arid weather, which makes it seem like an unconducive investment to multiple other nations. 

Hurdles for India in the deal

UAE already has multiple bilateral and multilateral trade agreements, most of them with its middle-east neighbors, some of which are strict antagonists of India’s interests, and conserving Indian interests without being a direct member of bilateral and multilateral forums would be a challenge for Indian governments. Further, the tariff rates are determined universally for GCC members and currently laid at 5% which could play the spoilsport in the deal signed. Finally, some of internal barriers laid down as Non-Tariff measures (NTM) by UAE itself like Sanitary and Phytosanitary (SPS) measures along with Technical Barriers to Trade (TBT) provide considerable hindrance to the complete financial potential of the deal.

Way Forward

Given that the deal has a lot of interests of both participating countries, issues like SPS, TBT, Tariff rates, etc. are required to be solved diplomatically for the deal to reach its full potential, however the benefits are manifold for both the fronts and signing of the FTA should be seen as a new high in the diplomatic relations of India and UAE.



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Tags: #India #UAE #economics #diplomacy #trade #international #deal #FTA


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