India–UAE Economic Corridor: From Milestone to Momentum

Syllabus: GS2/International Relations

Context

• The economic partnership between India and the United Arab Emirates has been achieved five years ahead of schedule and sought a new target of $200 billion by 2032.

About India and the United Arab Emirates Relations

• Political & Diplomatic Relations: Diplomatic ties established in 1972, and relationships elevated to Comprehensive Strategic Partnership in 2017.
  • It includes frequent high-level visits between leaders, and strong cooperation in regional stability and counter-terrorism.
  • The UAE is one of the few countries where the Indian Prime Minister has received the UAE’s highest civilian honor.
• Economic & Trade Relations: UAE is India’s third-largest trading partner;
  • Bilateral trade exceeds $80–85 billion annually;
  • UAE is a major source of FDI (Foreign Direct Investment) into India;

Policy Backbone: CEPA and Beyond

• CEPA Agreement: India and UAE signed the Comprehensive Economic Partnership Agreement (CEPA) in 2022, and both nations set $100 billion in bilateral trade by 2030.
  • It eliminated tariffs on roughly 90% of goods.
  • CEPA is a free trade agreement that reduces or removes tariffs (import taxes), makes trade cheaper and faster, encourages investment, and boosts exports.
• Bilateral Investment Treaty (2024): It provides investor protections.
• Strategic defence partnership: It adds geopolitical depth.

Economic Scale and Transformation

• Trade Beyond Oil: Non-oil trade between the two nations grew nearly 20% last year, reaching $65 billion.
  • It signals a decisive evolution from an energy-centric relationship to a diversified economic partnership.
• Indian Diaspora & Connectivity: Nearly 5 million Indians live and work in the UAE.
  • Air connectivity: Over 1,200 flights weekly, one of the busiest air corridors globally.
  • India-UAE relations has evolved into a diversified economic corridor spanning manufacturing, logistics, finance, and advanced technology along with oil-and-energy relationship
• Industrial and Manufacturing Expansion: Indian businesses have partnered with UAE’s counterpart in low-carbon chemicals projects (more than $2 billion), electric bus production, and solar-plus-storage projects.
  • Indian Oil Corporation, and Hindustan Petroleum Corporation Limited signed long-term LNG deals for energy security & LNG agreements, strengthening energy security for India while deepening strategic ties.
• UAE Investments in India: UAE businesses committed in Indian infrastructure, banking and FDI, healthcare, renewables, and technology.
  • Abu Dhabi Investment Authority became the first sovereign wealth fund to establish a base in GIFT City.
  • UAE investment into India: Over $22 billion since 2000;
  • Indian investment into the UAE: More than $16 billion;
• Expanding into Third Markets: Bharat Mart (under construction) aims to serve as a wholesale hub for Indian goods and  double India’s exports to regions like Africa, West Asia, and Eurasia.
  • The two nations are exploring joint digital infrastructure initiatives, capacity-building projects across Africa, and collaborative trade facilitation mechanisms.
• Artificial Intelligence: India is hosting the AI Impact Summit in New Delhi, the first global AI summit in the Global South. It reflects India’s growing influence in shaping AI governance and deployment.
  • The UAE, which appointed the world’s first Minister of State for AI in 2017, has heavily invested in AI research and infrastructure. Cooperation is already underway in advanced computing capacity, data centres, and AI-driven innovation ecosystems.

Concerns & Issues That Need to Be Addressed in India–UAE Relations

• Overdependence on Energy Trade: Although non-oil trade has grown significantly under the CEPA, hydrocarbons still form a significant component of the economic relationship.
  • Both countries need to accelerate diversification into renewables, hydrogen, manufacturing, and digital sectors to future-proof the corridor.
• Labor and Welfare Concerns: While reforms have improved labor protections, challenges remain like contract transparency, wage disputes, working conditions in certain sectors, and skill mobility barriers.
  • Because the diaspora forms the human backbone of the partnership, labor-related concerns can quickly become diplomatic sensitivities.
• Geopolitical Instability in the Gulf: The UAE sits in a strategically sensitive region near the Strait of Hormuz, a chokepoint for global energy flows. 
  • Risks include regional tensions involving Iran, maritime security threats, and spillover from broader Middle East conflicts.
  • India relies heavily on Gulf energy imports and remittance flows. Any instability could affect supply chains and financial inflows.
• Trade Imbalances and Market Access Issues: While trade volumes are rising, certain sectors face barriers, like non-tariff measures (regulatory standards, certification rules), compliance costs for SMEs, and logistics bottlenecks.
  • Even with CEPA removing tariffs on about 90% of goods, implementation challenges remain.
• Financial System Exposure: With major investments flowing through sovereign wealth funds and banking acquisitions, financial interdependence is increasing.
  • Potential concerns include exposure to global financial shocks, currency volatility, and banking sector regulatory alignment.
  • For example, cross-border banking investments require strong regulatory coordination between central banks.
• Technology and Data Governance: As cooperation expands into AI, fintech, and digital infrastructure, new complexities arise like data localization rules, cybersecurity coordination, intellectual property protection, and ethical AI governance.
• Strategic Balancing in a Multipolar World: Both India and the UAE maintain diversified global relationships:
  • India engages with the US, Russia, EU, and Indo-Pacific partners.
  • The UAE balances ties with Western countries, China, and regional powers.
    • The challenge is maintaining strategic autonomy while deepening bilateral integration.

Way Forward

• India’s Global Moment: India is now the world’s fourth-largest economy, with GDP approaching $4 trillion. Its strengths include entrepreneurial depth, expanding manufacturing capability, and world-class digital public infrastructure.
  • Indian businesses are increasingly global in ambition.
• Strategic Convergence: The recent Delhi Declaration between India and Arab Foreign Ministers outlined expanded cooperation through 2028 across politics, economy, energy, technology, and security.
• India-UAE partnership will be measured by the depth of economic integration, the scale of joint global outreach, and the ability to lead in emerging sectors like AI and clean energy.
  • Growth accelerates when policy alignment, capital strength, and strategic execution converge.

Source: TH