Bilateral Trade Relations between India and UAE: Evolution, Present Status, Challenges, and Future Prospects

By MOHD AMMAR ZIKRY

Introduction

India and the United Arab Emirates (UAE) have established a rich and evolving bilateral trade relationship. From a humble beginning with an annual exchange of US$180 million in the 1970s to a robust partnership today, this relationship has exhibited remarkable resilience and strategic importance. This paper will explore this partnership’s origins, growth, challenges, and prospects, demonstrating the significance of its shared strategic vision in driving the future of its trade relations.

Historical Background and Evolution

The trading relationship between India and the UAE can be traced back several centuries when traders voyaged across the Arabian Sea to exchange goods. It took a formal turn in the 1970s with an annual trade volume of US$180 million. The relationship evolved progressively over the decades, with the UAE emerging as India’s largest trading partner in the fiscal year 2012-13. Given the UAE’s small population, this attests to its strategic location and economic policies. This association was based on economics and fortified by cultural and personal ties.

The trade relationship between India and the UAE has a deep historical origin, dating back centuries when traders would sail across the Arabian Sea to exchange goods. This relationship took a more formal and strategic turn in the 1970s. The trade volume was relatively modest during this period, amounting to US$180 million annually.

In the following years, the relationship between the two countries grew more vigorous, with the UAE becoming one of India’s top three exporting nations. By the fiscal year 2012-13, the UAE had become India’s largest trading partner, a significant achievement considering the UAE’s small population size.

The growth of bilateral trade relations has been systematic and strategic, strengthening the countries’ economic, commercial, and strategic partnerships. This strategic relationship has also been complemented by strong cultural and people-to-people ties, with a sizeable Indian diaspora residing in the UAE. Overall, the evolution of India-UAE trade relations is a testament to both nations’ mutual understanding, shared interests, and strategic vision.

Current Patterns and Trends

As of 2021, India-UAE trade increased to US$72.8 billion (IBEF, 2023). The UAE invested more than US$4 billion in India in FY2020 through its sovereign wealth funds, signifying the growing importance of India as an investment destination for the UAE  (Palit, 2022). Defence cooperation also has been steadily growing, reinforcing their comprehensive strategic partnership (Ministry of External Affairs – Government of India, 2020). 

According to a report by KPMG (2022), trade between India and the UAE has increased significantly over the years (see Table 1):

Note. Adapted from “India-UAE bilateral trade and investment report” by KPMG, 2022 (https://kpmg.com/ae/en/home/insights/2022/02/india-uae-bilateral-trade-and-investment-report.html)

The table shows the bilateral trade between India and UAE from 2016 to 2020 regarding exports, imports and total trade. It shows that the trade peaked in 2019 at USD 60 billion but declined in 2020 due to the pandemic. It also shows that India has a trade surplus with UAE, meaning it exports more than it imports from UAE. Nevertheless, the trade volume has grown significantly, from US$180 million in the 1970s to USD 60 billion in 2019, and is expected to reach US$100 billion by 2030. This shows the high potential for business and investment opportunities between the two countries, as they have diversified their trade sectors and expanded their cooperation in various fields.

Challenges and Opportunities

While trade relations have been thriving, both countries face several challenges, including geopolitical factors, regional integration, market access, and regulatory barriers. The need to safeguard critical supply chains and diversify trade partners are factors shaping their Free Trade Agreement (FTA) engagements (Palit, 2022). Nonetheless, these challenges also present opportunities for enhancing cooperation, such as improving regulatory harmonisation, enhancing mutual investments, and strengthening the strategic partnership.

The two countries also signed a Comprehensive Economic Partnership Agreement (CEPA) in February this year, giving market access to 97 per cent of tariff lines accounting for 99 per cent of Indian exports. The CEPA was the first signed by India in the Middle East and North Africa region and by the UAE in any country worldwide.

However, some challenges and opportunities exist in bilateral trade relations between India and the UAE. Some of the challenges include:

• Diversifying the trade basket beyond petroleum products, gems, and jewellery, which account for most trade between India and the UAE (2016-2020). 
• Enhancing connectivity and logistics infrastructure to facilitate trade flows and reduce costs. Addressing non-tariff barriers such as standards, certifications, and regulations that may affect market access. 

Some of the opportunities include: 

• Leveraging the strategic location of the UAE as a gateway to Africa, Europe, and Central Asia for Indian exports. 
• Exploring new sectors of cooperation such as fintech, clean energy and climate action, food security, sustainability, digital payments, cyber security, cryptocurrencies, and advanced technologies. 
• Increasing investment flows in both directions, especially coal, oil and gas, and real estate. 

Future Prospects

As we look ahead, the impact of global market trends, oil prices, and economic policies will continue to shape the future of India-UAE trade relations. The world is gradually shifting towards renewable energy, and the oil demand may decline over the coming decades. This transition presents an opportunity for both countries to invest in and trade renewable energy technologies. The growth of digital economies also offers potential for cooperation in sectors such as e-commerce, fintech, and artificial intelligence. With the right economic policies and a strategic vision, India and the UAE can further navigate these global shifts and strengthen their trade relationship.

Conclusion

The bilateral trade relationship between India and UAE has proven to be dynamic and resilient, persisting through global market trends, fluctuating oil prices, and evolving economic policies. From modest beginnings, this relationship has grown into a partnership of strategic importance for both countries, with trade volumes reflecting the depth of their economic cooperation.

The evolution of India-UAE trade relations is a testament to their mutual understanding, shared interests, and strategic vision. The shared vision of prosperity and strategic collaboration between India and the UAE holds a beacon of promise, guiding their journey as they continue to shape the future of their bilateral trade relations.

(999 WORDS)

REFERENCES

IBEF. (2023). India-UAE Trade. https://www.ibef.org/indian-exports/india-uae-trade

KPMG. (2022). India-UAE Bilateral Trade and Investment Report. Retrieved May 19, 2023, from https://kpmg.com/ae/en/home/insights/2022/02/india-uae-bilateral-trade-and-investment-report.html.

Ministry of External Affairs, Government of India. (2020). Bilateral Brief February 2020. Retrieved May 19, 2023, from https://mea.gov.in/Portal/ForeignRelation/Bilateral_Brief_feb_2020_.pdf.

Palit, A. (2022). India-United Arab Emirates CEPA: New Beginning in India’s Trade Engagement. Retrieved May 19, 2023, from https://www.isas.nus.edu.sg/papers/india-united-arab-emirates-cepa-new-beginning-in-indias-trade-engagement/