India-UAE Comprehensive Economic Partnership Agreement (CEPA)

In News

• Recently, India and the United Arab Emirates (UAE) have officially launched negotiations for the Comprehensive Economic Partnership Agreement (CEPA).

Comprehensive Strategic Partnership (CSP) Agreement

• January 2017: During the visit of Crown Prince al-Nahyan to New Delhi as Chief Guest for Republic Day celebrations, India and the UAE signed a Comprehensive Strategic Partnership (CSP) agreement.
• Objective: It was signed to give a new impetus to strong bilateral relations. 
• Focus Areas: The focus areas underlined in the CSP were:
  • economy with emphasis on a two-way flow of investments, 
  • counter-terror cooperation and defence ties.
  • It may even consider negotiation in areas such as trade facilitation and customs cooperation, competition, and Intellectual Property Rights.
• Present Situation: The two sides have been working to realize the goals of forging a strong strategic partnership through the regular exchange of visits, improving bilateral trade and investments, greater understanding of security concerns and vulnerabilities and readiness to harness the momentum created due to greater political understanding.
• Now, India and UAE aim to conclude negotiations under the Comprehensive Strategic Partnership signed in 2017, by December 2021 and sign a formal agreement in March 2022 after the completion of internal legal procedures and ratification.

Previous Projects

• In June 2020, Mubadala invested $1.2 billion in Indian telecom provider Jio Platforms, 
• In 2019 a number of UAE entities committed $7 billion to India’s food production and agriculture sectors. 
• In return, India’s Reliance recently announced an investment of $2 billion in Abu Dhabi’s TA’ZIZ Industrial Chemical Zone

India – UAE Relations

• Trade:
  • The UAE is currently India’s third-largest trading partner with bilateral trade in FY20 valued at $59 billion. 
  • The UAE is India’s second-largest export destination after the US, with exports valued at approximately $29 billion in FY20. 
  • India was the UAE’s second-largest trading partner in 2019, with bilateral non-oil trade valued at $41 billion. 
• Investment:
  • The UAE is the eighth-largest investor in India, having invested $11 billion between April 2000 and March 2021, while investment by Indian companies in the UAE is estimated to be over $85 billion.
• Import and export items:
  • India’s major exports to the UAE include:
    • petroleum products, 
    • precious metals, 
    • stones, 
    • gems and jewellery, 
    • minerals, 
    • food items such as cereals, sugar, fruits and vegetables, tea, meat, and seafood, 
    • textiles, 
    • engineering and machinery products, 
    • chemicals. 
  • India’s top imports from the UAE include: 
    • crude petroleum and petroleum products, 
    • precious metals, 
    • stones, 
    • gems and jewellery, 
    • minerals, 
    • Chemicals
    • wood and wood products. 
  • India imported $10.9 billion of crude oil from the UAE in FY20.

Image Courtesy: Worldatlas

Significance

• Trade:
  • A new strategic economic agreement is expected to increase bilateral trade in goods to $100 billion within five years of the signed agreement and increase trade in services to $15 billion
• Investment:
  • Because of the trade deal, while UAE will get priority in India’s big plans in infra development and asset monetization, UAE investors will also feel more confident in investing in India.
• Employment generation:
  • Both India and UAE ministers emphasized that CEPA will create new jobs, raise living standards, and provide wider social and economic opportunities in both nations.
• India – a big market:
  • The deal will remain beneficial for UAE as they will get access to the big consumer base in India and will have a chance to capitalize that while providing job opportunities and standard of living to Indian people.

Challenges

• Lacking Global Giant Experience: 
  • Despite being a US $2.5 trillion economy, Indian businesses are small in size. In fact, none of the Indian business giants come close to the big global conglomerates that have the capacity, infrastructure and experience to handle huge investments. 
• Procedural Issues: 
  • Including lack of planning, lack of complete information, bureaucratic bottlenecks continue to remain a challenge for foreign investors despite significant efforts by the government in this direction to make investments easy and convenient. 
• Legal Issues:
  • Legal problems have in the past dampened foreign investments from coming to India. For example, the investments from UAE’s Etisalat and Etihad had got stuck in legal problems, thus dampening investor enthusiasm. While checks and regulations are needed, better streamlining of the procedures and processes help in avoiding such problems.
• Political Will: 
  • There are challenges pertaining to political diversions, especially when an election year is approaching. 
  • India has a tendency to become focused inward and in the process, ignore foreign policy. 
  • The UAE with an appetite for large-scale investments needs to be continuously engaged. 
• Regional Issues in the Persian Gulf: 
  • While India has control over challenges emanating from domestic issues, there are regional geopolitical challenges in the Persian Gulf and the Middle East that India needs to deal with without having any control over them. 
  • Regional turmoil, civil wars, internal strife, geopolitical competitions have become a hallmark of the Middle East and this has complicated India’s options. 
  • India has thus far been able to maintain friendly relations with competing regional actors such as Saudi Arabia, Iran, the UAE, Qatar and Israel but given the escalation in the rivalry between Saudi Arabia and Iran, the growing tensions and fear of rupture within the Gulf Cooperation Council (GCC), along with calls from Israel and the US to isolate Iran, has made India’s choices difficult.

Way Ahead

• Concluding the CEPA negotiations “quickly and constructively” will further strengthen the deep trade and economic ties between India and the UAE.
• Further, both countries need to identify clear areas of focus and establish ways of working together to resolve trade remedy cases.

Source: LM