INDIA UAE RELATIONS

GS 2 : INTERNATIONAL RELATIONS

Why in news:

Indian Prime Minister Narendra Modi visited the UAE to meet with UAE President
Sheikh Mohamed bin Zayed Al Nahyan and discuss bilateral relations. The focus
areas of the visit were energy, food security, and defence.

India – UAE Bilateral Relations

After a 34-year hiatus, the relationship between India and the United Arab
Emirates was given a significant boost by Narendra Modi's visit in 2015. After
that, there were multiple visits to the UAE by prime ministers. In 2017, Sheikh
Mohammed bin Zayed Al Nahyan, president of the United Arab Emirates, was the
principal guest at the Republic Day parade in New Delhi. In 2019, Prime Minister
Modi was awarded the UAE's highest civilian honour, the Order of Zayed. All of
this elevated the relationship and infused new vitality into the bilateral
connections between India and the UAE.

 The two nations have enjoyed cultural, religious and economic ties for a
long time. However, official diplomatic relations were established in 1972.
 The UAE established its embassy in New Delhi in 1972 and India set up its
embassy in Abu Dhabi (the capital of UAE) in 1973.
 Since then, both nations have tried to extend their relationship deeper.
Aspects of India – UAE Relations
The different aspects or pillars of the bilateral relationship between India and the
UAE are discussed in this section.

Strategic/Political/Security Relations

 Iran’s threats to close the Strait of Hormuz due to its conflict with Saudi
Arabia are worrying for the UAE also.
 Earlier, Pakistan was a partner of the UAE and had deep security
cooperation with it. However, of late, Pakistan does not seem to be of
much help to the UAE; it could not come to the aid of Saudi Arabia in its
fight against the Iran-backed Houthi rebels in Yemen. Pakistan has also
been unable to control the separatists operating from its soil across West
Asia.
 There has been rising congruence between India and the UAE on terror-
related issues.
 In 2003, an MoU was signed between India and the UAE on Defence
Cooperation. A Joint Defence Cooperation Committee (JDCC) was also set
up.
 The UAE and Israel have agreed to normalise their relations. This opens up
the possibility of India, Israel and the UAE working together to counter
terrorism and security-related concerns.
Economic Relations

 Trade can be called the backbone of the bilateral relations between both
countries.
 Until the discovery of oil in that region, trade was dominated by traditional
items such as pearls, fish, dates, etc.
 Export from India also increased gradually since the UAE was unified as one
entity in 1971.
 Currently, the UAE is India’s third-largest trading partner. It is also the
second largest export destination for India, second only to the United
States.
 India is the Emirates’ second-largest trading partner.
  The UAE’s foreign direct investment (FDI) in India has increased over the
past few years and has surpassed $12 billion.
 Abu Dhabi has invested over $6 billion in big-ticket investments in the Jio
platform, Adani, Tata Motors and Tata Power.
 A comprehensive free trade agreement has been in effect between India
and the UAE since 2022. A variety of items from both nations are granted
duty-free access to the markets of the other under the agreement, in
addition to loosened regulations to encourage investment.
 The Comprehensive Economic Partnership Agreement (CEPA) signed in
2022 between India and the UAE is one of the key drivers of the rise in FDI
from the UAE.
 Energy cooperation is one of the biggest areas of cooperation between
both countries. It is one of the top five largest suppliers of crude oil to
India.
 Additionally, the UAE has promised to collaborate with India on renewable
energy projects.
 The UAE has also entered into an agreement with Karnataka for the
strategic storage of crude oil in Padur and Mangalore.
Diaspora

 There is a huge Indian diaspora in the UAE engaged in various activities.

 The number of Indian nationals in the country is estimated to be 3.5 million
as of 2021.
 This constitutes roughly 30% of the UAE’s total population.

The UAE is an important destination for job seekers (both blue and white-collar
workers) from India.
How India and UAE are planning to promote use of local currencies for cross-
border transactions:

India and the United Arab Emirates (UAE) have signed a pact to establish a
framework to promote the use of the rupee and UAE Dirham (AED) for cross-
border transactions.

The MoU on establishing a framework for the use of local currencies for
transactions between India and the UAE, aims to put in place a Local Currency
Settlement System to promote the use of INR (Indian rupee) and AED (UAE
Dirham) bilaterally.The MoU covers all current account transactions and
permitted capital account transactions.

The mechanism

The framework for the use of local currencies for transactions between India and
the UAE aims to put in place a Local Currency Settlement System (LCSS). The
creation of the LCSS would enable exporters and importers to invoice and pay in
their respective domestic currencies, which in turn would enable the
development of an INR-AED foreign exchange market, according to the RBI. This
arrangement would also promote investments and remittances between the two
countries. The use of local currencies would optimise transaction costs and
settlement time for transactions, including for remittances from Indians residing
in UAE.

Impact of the move

Bilateral trade between India and the UAE was around $85 billion in FY23.
Government officials indicated that New Delhi is looking to work out a way to
hedge exchange rate risks in the rupee-based trade to limit losses for Indian
exporters.

The move to ink the pact with the UAE is part of a concerted policy effort by India
to internationalise the rupee to bring down the dollar demand as a means to
insulate the domestic economy from global shocks. Government officials had
earlier indicated that apart from Russia, countries in Africa, the Gulf region, Sri
Lanka and Bangladesh had also expressed interest in trading in rupee terms.
The RBI’s plan to settle international trade in the local currency will let importers
make payments in the rupee, which will be credited to the special account of the
correspondent bank of the partner country, while exporters will be paid from the
balances in the designated special account. The Central bank is also in the process
of issuing a Standard Operating Procedure to all banks so that e-BRC (electronic
bank realisation certificate) becomes easy to use.

Comprehensive Economic Partnership Agreement (CEPA):

It is a kind of free trade pact which covers negotiation on the trade in services and
investment, and other areas of economic partnership.

Why does the FTA with UAE matter?

• Increase trade: With the conclusion of the CEPA, India and UAE aim to increase
bilateral goods trade over the next five years to $100 billion.

• Employment opportunities in UAE: It also obliges the UAE to offer 1.4 million
work visas for highly skilled professionals from India.

• Zero duty exports: Around 90% of products exported from India to UAE will
attract zero duty with implementation of the Agreement.

• Value addition: It also has stringent 'rules of origin' reflecting requirements for
substantial processing of up to 40% value addition.

• Market accessibility: Through the pact, Indian exporters will also get access to
the much larger Arab and African markets.

• Promote Indian exports: CEPA is likely to benefit about $26 billion worth of
Indian products that are currently subjected to 5% import duty by the UAE, India’s
third-biggest trading partner behind the US and China.

Some of the issues in the relationship between both countries are:

There are some commercial challenges that Indian companies face in the Emirates
concerning unclear regulations, labour laws and transparency issues by Emirati
businesses.
The UAE and Iran have territorial disputes between them. Any flare-up in this will
affect India’s trade, the Indian community and energy security.

The UAE is home to a large number of Indians, among them blue-collared workers
and manual labourers as well. They face many issues such as terrible working and
living conditions, and discrimination in treatment vis-a-vis other workers.

Way Forward

• Improving the investment climate in India: India has a huge market and there is
a significant scope for growth in automobile industry, services sector, agriculture
and allied industries. If business regulations are eased and the time spent on
getting clearances can be reduced, it can lead to major investments from UAE.

• Enhancing defence engagement: There is a need to further enhance

cooperation through joint training programs for Indian and UAE officers.
Increasing the number of Emirati officers who can avail training in its defence
schools will lead to greater familiarization within the defence establishment.

• Promoting medical tourism: India’s private hospitals have the necessary

infrastructure, facilities and expertise to provide world class medical care within a
fraction of the cost spent in developed countries. Hence, it can be an important
area where India can attract Emiratis.

• Renewable energy: The cost for production and transmission of solar energy in
the UAE are a fraction to that of India and this is a priority area for the UAE
government. Indian companies with expertise in this area can invest in the
renewable energy sector in UAE.

• Education sector: India has some of the finest higher education institutions in
engineering and management fields and given their cost-effective and world-class
education, they can be a major attraction for UAE students looking for acquiring
higher education and better skills.

• Enhancing people to people contacts: There is a need for enhancing the

people-to-people contacts for familiarization and increasing interactions between
think tanks, researchers and through academic exchanges.
Mains Practice question:

Briefly analyze the provisions of India – UAE Comprehensive Economic

Partnership Agreement (CEPA).