India-UAE partnership: Leading the regionalisation of trade through the decades

France’s President Emmanuel Macron is in India as the chief guest of the country’s Republic Day celebrations as it marks 75 years of being a constitutional republic.

Over the years, various world leaders have been accorded the honour of being the chief guest for the Republic Day celebrations in New Delhi. Foreign policy, culture, and tradition, along with political, economic, strategic factors play a key role in choosing a chief guest.

The UAE’s President Sheikh Mohamed bin Zayed Al Nahyan was accorded the honour of being the chief guest in 2017, during his time as the country’s crown prince. His presence, as a representative of the UAE, highlighted the strong bonds of friendship – age-old cultural, religious and economic ties between the two nations.

The India-UAE bilateral has flourished since the accession of Sheikh Zayed Bin Sultan Al Nahyan as the ruler of Abu Dhabi in 1966 and subsequently with the creation of the UAE Federation in 1971. Since then, both sides have gone on to become strong partners – in trade and people-to-people ties.

Bilateral

The leaders of India and the UAE have historically enjoyed a close relationships with multiple bilateral and multilateral meetings in recent year. Most recently, Sheikh Mohamed was in India to participate in the Vibrant Gujarat Summit, as an invitee of Prime Minister of India Narendra Modi. His presence underscored the success in trade the two nations have enjoyed since the signing of the UAE-India comprehensive economic partnership agreement (CEPA) in 2022.

The following statistics look at the performance of the trade deal in its first year.

UAE-India CEPA

The CEPA was agreed upon and implemented to promote cross-border trade and investment. The agreement covers a significant amount (up to 95 per cent) of originating goods that were previously subject to customs duties on both sides.

The two countries envisage that bilateral trade in goods will reach over $100bn and trade in services will reach $15bn within five years, according to India’s ambassador to the UAE, Sunjay Sudhir.

?? ?? Surging ahead!
Prime Minister’s visit to Abu Dhabi was historic @narendramodi @MohamedBinZayed .MoUs on launch of settlement mechanism in local currencies INR-AED & IIT Delhi in Abu Dhabi mark a new era in #IndiaUAEDosti @MEAIndia @ABZayed @DrSJaishankar @RBI pic.twitter.com/cA2e32k07p

— India in UAE (@IndembAbuDhabi) August 6, 2023

The CEPA has considerably impacted bilateral trade (oil and non-oil) within just 12 months of its implementation.

According to official data from India’s Ministry of Commerce and Industry, the bilateral trade increased from $67.5bn (from May 2021-March 2022) to $76.9bn (May 2022-March 2023) – an annual increase of 14 per cent. India’s exports to the UAE increased from $26.2bn (May 2021- March 2022) to $28.5bn (May 2022 – March 2023) – an 8.5 per cent year-onyear growth.

Meanwhile, India’s imports from the UAE have grown to $53.2bn, an annual increase of 18.8 per cent during the period April 2022 to March.

Non-oil imports during the same period grew by 4.1 per cent.

The UAE was the second largest export destination for India with its exports amounting to over $28bn for the year 2021-22, according to data provided by the Indian Embassy in the UAE. For the UAE, India was its second largest trading partner for the year 2021, with its non-oil trade figure amounting to $45bn.

Leveraging people-to-people ties

In order to surpass the bilateral trade-target set by the two countries and leverage the 3.5 million strong Indian expatriate population that calls the UAE home, the two countries also signed a currency agreements during PM Modi’s visit in 2023.

The two countries, based on the strength of their respective economies and the strong people-to-people network, aim to create a regional platform for growth and collaboration.

The two countries’ growing strategic importance is being positioned to channel the flow of investments, and opportunities to stimulate economic prosperity in both countries and strengthen their partnership for sustainable growth.

Unified Payment System

The currency agreements, referenced above, will allow the Reserve Bank of India (RBI) and the Central Bank of the UAE (CBUAE) to set up a local currency settlement system (LCSS) that encourages the use of the rupee and the dirham to cover export-import transactions.

The RBI said the LCSS would enable exporters and importers to send invoices and pay in their respective domestic currencies, which in turn, would support the development of the Indian rupee and Emirati dirham foreign exchange market.

The deal is also expected to help promote investments and remittances between the two countries. The UAE is India’s second largest remittance source country after the US. Remittances to India from the UAE currently stand at 18 per cent of the $89.1bn in total remittances received for the fiscal year 2021-22, as per a report from India’s Ministry of Finance.

The second agreement will allow the two central banks to link India’s Unified Payments Interface (UPI) with UAE’s Instant Payment Platform (IPP). The UPI-IPP linkage would enable users in either country to “make fast, convenient, safe, and cost-effective cross-border fund transfers”, said the RBI.

Thus said, the two emerging economies are leading the regionalisation of trade based on historical ties, with economic ones that are future ready.