India-UAE Pass The CEPA Test With Flying Colours
India and UAE have historically had a robust trade, be it in oil, gold, or manpower. All on all, the trade stands at a robust USD 73 Mn USD. This comes in the backdrop of UAE recognising trade in Indian Rupees, surpassing the US dollar. This is a massive jump from FY202-21 where trade stood at 16.7 Bn USD.
What's new?
India and UAE had implemented the Comprehensive Economic Partnership (CEPA) agreement six months ago on May 1, 2022, which has pushed up the trade between the two countries from USD 73 Bn to USD 88 Bn. UAE's foreign minister Sheikh Abdullah bin Zayed Al Nahyan was on a two-day visit to strengthen the relationship between the two countries in a meeting with his Indian contemporary Dr.S.Jaishankar where these numbers were discussed. Following the discussion, there is optimism that UAE might become India's second-largest trading partner.
The trade deal has also invited big-ticket investments from UAE, like USD 2 bn in Reliance Jio, USD 1 Bn in Tata Motors, and USD 2 Bn in Adani Renewables. India too has invested USD 2 Bn in petrochemicals JV in the UAE. Additionally, there are also talks to make UPI (Unified Payment Interface) as a viable payment platform for remittances from the 3.5 million Indian community in UAE. India has also invited UAE to attend the G 20 Summit, even though the latter is not a member of the organisation.
What is CEPA?
CEPA is mainly concerned with tariff reductions and the elimination of all items which are listed in the tariff quota limit. It is to encourage and accelerate trade between the two countries. The reduced tariff helps the smoother movement of goods while promoting the number of items on the list. A critical component of CEPA is CECA ( Comprehensive Economic Cooperation Agreement) which deals with part of tariff reduction. It covers Tariff Related Quotas (TRQ) only. The partnership agreement in CEPA is more comprehensive than Free Trade Agreement (FTA). The former also looks at the regulatory aspects of trade and also include agreements in this regard. India had already signed CEPA with South Korea and Japan before UAE came into the picture. This shows the ease of collaboration between the two countries.
Why internationalise Rupee?
There are many benefits of internationalising the Rupee, like mitigating currency risk and reducing currency volatility and the cost of doing business. It also reduces the need for high foreign exchange reserves, while reducing dependence on convertible currency, which makes it vulnerable to external shocks. Indian Rupee is set to hit the international market, with steps in line to achieve the same.
