India-UAE bilateral FTA: Upgrades in the export basket, shows data

The share of mineral products, pearls, precious stones and metals has declined, whereas machinery and appliances have climbed to double digits

Last month, India and the United Arab Emirates (UAE) signed their first Co­mprehensive Economic Part­nership Agreement (CEPA), a bilateral free trade agreement that reduced custom duties acr­oss broad categories and is exp­e­cted to significantly enhance tr­a­de between the two countries. The UAE is India’s third lar­gest trading partner and second largest export destination after the US. But the content of trade flows between the two countries has changed in the past decade.

In recent years, trade flows have reflected the pressures of the Covid-19 pandemic. In 2021-22, 6.6 per cent of India’s exports landed in the UAE. Although hig­her than the 5.7 per cent exp­or­ts to the UAE in 2020-21, it was much lower than the 9.3 per cent in 2019-20. Until a de­c­ade ago, 13.5 per cent of Ind­ia’s exports went to the UAE (see chart 1).

In absolute terms, India’s exports to the UAE will exceed the 2019-20 figures but will still be lower than levels achieved in 2012-13. It is safe to assume that India’s trade with the UAE has increased, but its trade with other nations has increased faster. The government expects its new trade agreement to put the UAE back as one of India’s leading trade partners.

But the export basket has ch­a­nged. Mineral products, pearls, precious stones and metals still account for most of India’s exp­orts to the UAE, but their share is lower than the peaks achieved in the past two decades. Mineral product exp­orts accounted for 19.9 per cent of total exports from India to the UAE in 2021-22, similar to the 19.4 per cent share achieved in 2012-13. How­e­ver, they were still lower than the peak of over 30 per cent share of total exports between 2006 and 2008.

On the other hand, in 2001-02, pearls, precious stones and metals accounted for 20 per cent of India’s exports to the UAE; within a decade, their share increased to 58.6 per cent (by 2011-12), but has declined again to just 17.7 per cent.

Textiles, which once accou­nted for 24.1 per cent of India’s UAE-bound exports, now have just a 10 per cent share. Instead, machinery and appliances have been accounting for a higher percentage of outbound trade to the seven-emirate federation.

Until 2019-20, the share of machinery and appliances in exports to the UAE remained below double digits. For the past three years, however, the share of this category of goods has accounted for nearly 13 per cent of India’s total trade. Similarly, the share of base metals has almost doubled in a decade from 4.8 to 9.2 per cent. The share of products from chemical and allied industries has instead increased from a meagre 1.9 per cent to 7.2 per cent share (see chart 2).

In contrast, imports from the UAE have witnessed only a mi­nor variation in the last decade. Data shows mineral products and pearls, precious stones and metals account for over 80 per cent of the trade from the UAE. Their share had declined from 91.1 per cent to 84.8 per cent.

Imports of chemical and allied industries products have increased 0.4 per cent to 2.8 per cent during this period. The share of machinery and appliances has gone up from 0.7 per cent to 1.6 per cent (see chart 3).

The free trade agreement is expected to open up the Indian economy for more imports, but it remains to be seen if the diversification in India’s exports to the UAE will hold.