First year of FTA with UAE: India's fuel exports grow faster than non-fuel

A year after the free trade agreement (FTA) with the United Arab Emirates (UAE) kicked in, India's non-petroleum exports grew at a relatively slower pace than exports of refined petroleum products to the West Asian nation.

Commerce and industry ministry data showed that non-oil exports witnessed a 3 per cent jump at $22.95 billion, while the overall shipments to the UAE grew 9.5 per cent at $30.98 billion during May 2022-April 2023. 

Export of refined petroleum products to UAE grew at 17.8 per cent to $7.52 billion during the same period. The rise in exports was led by demand for items such as gold jewellery, electrical machinery and equipment.

In comparison, India’s global non-oil exports witnessed a 3.37 per cent contraction at $346.26 billion during the same time period, commerce and industry ministry data showed. This means that the outbound shipments to UAE fared well as compared to India’s exports globally, amid waning external demand due to slowdown in regions such as North America and Europe.

However, there is still no clarity on the share of trade being done by both nations using the CEPA route, which will be an indication of the utilisation as well as the real gains from the trade deal. The Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE began in May 2022.

The trade deal is expected to benefit almost 90 per cent of India’s exports, in terms of value. The UAE has overall duty elimination on over 97 per cent of its tariff lines corresponding to 99 per cent of India’s exports in terms of value. The UAE is also India’s second-largest export market.

Indian exporters got immediate zero duty market access in labour intensive sectors such as leather, footwear, textile, gems and jewellery, furniture, among others. Barring gems and jewellery segments, other sectors are yet to see substantial gains.

Widening deficit

Overall imports from the UAE saw a 17.4 per cent increase to $52 billion during the one-year period. This resulted in the widening of the trade deficit to $21 billion to $17 billion a year ago.

The widening of the deficit is mainly due to India’s substantial dependence on crude oil imports from the West Asian nation. A third of total imports from UAE is crude oil. Besides, last year, UAE was also India’s fourth largest crude oil import partner, with a share of over 10 per cent.

Under the trade agreement, crude oil has been completely eliminated, although basic customs duty of the commodity was anyway negligible at Rs 1 per metric tonne.

Ajay Srivastava, former trade ministry official and founder of think tank Global Trade Research Initiative (GTRI) said that the UAE is a valued trade partner giving India access to markets of GCC, and CIS countries. 

“For FY2023, India has a trade deficit of about $30 billlion but this should not worry us as UAEs industrial base is narrow and 79 per cent of imports into India are of crude oil, petroleum products, gold or rough diamonds,” Srivastava said.

“We imported airplanes of value $1.9 billion in FY2023. Even though trade is free, this may be looked into as the UAE does not make large planes. We do not know what share of the trade is under FTA as the data is not in the public domain,” he said.

Government officials said that going ahead, the focus will be on non-oil trade. Both countries have agreed to increase non-petroleum trade from $48 billion to $100 billion by 2030.