A little over two years after it turned its back at the last minute on a major multilateral trade agreement it had spent years negotiating, India last week announced the signing of a Comprehensive Economic Partnership Agreement with the United Arab Emirates (UAE). The free trade pact is a tacit acknowledgment that India needs to strengthen its trade ties with existing partners by lowering tariff walls and obtaining more favourable access for its exports in order to boost trade and economic output. With the COVID-19 pandemic having thrown into sharp relief the public health and economic vulnerabilities of an increasingly interconnected world, a reflexive urge to turn inward was evident in the last two years as nations imposed tight travel and entry restrictions in a bid to protect their populations. And ironically, even as India sought to promote atmanirbharta or self-reliance, the pandemic also depressed domestic consumption demand, dragging down overall economic output. Exports on the other hand have rebounded strongly, with growth outpacing even the pre-pandemic levels. It is in this backdrop that the Government’s renewed push to negotiate its bilateral free trade agreements is a welcome change in tack and signals that India is keener to strengthen trade ties with individual partner countries on equitable terms rather than be tied into multilateral pacts that do not necessarily address its key concerns.
That the accord was finalised in less than six months’ time, from the start of negotiations in September, is a testimony to the strength of the bilateral ties and the recognition that there is more to gain from a deepening of the relationship. The UAE is already India’s third-largest trading partner with bilateral trade in 2019-20 valued at $59 billion. While India’s exports amounted to about $29 billion in the pre-pandemic fiscal year ended March 2020, the UAE supplied India with $10.9 billion worth of crude oil in that period and counts New Delhi as its second-largest trading partner. The two partners now aim to leverage the free trade deal to lift bilateral merchandise trade to $100 billion over the next five years. While the fine print of the tariff concessions on both sides is yet to be spelt out, India has made it clear that a range of exports including textiles and jewellery are set to benefit from a zero-duty regime once the accord is formally operationalised by May. Two-way investment flows and remittances — a major source of foreign exchange earnings for India given the large Indian workforce in the UAE — are also expected to receive a fillip. With multiple other FTAs in the pipeline, India has a fresh opportunity to reset its trade ties with the international community, one accord at a time.