Whalesbook
India and the United Arab Emirates have surpassed $100 billion in bilateral trade, a milestone achieved under the Comprehensive Economic Partnership Agreement (CEPA) since May 2022. While this marks a significant step in economic ties, a closer look reveals growing concerns about the trade balance and foreign investment flows.
Trade Gap Widens Significantly
Bilateral merchandise trade between India and the UAE reached $101.25 billion in fiscal year 2025-26, a slight increase from $100.03 billion the previous year. India's exports grew modestly by about 2% to $37.36 billion. However, imports from the UAE rose by 0.77% to $63.89 billion. This led to a trade deficit for India of $26.53 billion in FY 2025-26. India's trade deficit with the UAE has been consistently rising, growing from $17.7 billion in 2021 and $9.47 billion in the first half of 2024. The deficit has nearly doubled between 2010 and 2020. The UAE's trade surplus is largely driven by oil and gas, while India's imports from the UAE are dominated by mineral fuels, precious stones, and pearls.
UAE Foreign Investment Declines
Adding to the trade imbalance, foreign direct investment (FDI) from the UAE into India has seen a marked decrease. From April to December 2025-26, UAE FDI into India was $2.45 billion, a significant drop from the $4.34 billion recorded for the full fiscal year 2024-25. This trend contrasts with earlier periods, where UAE investment was growing; for instance, the UAE accounted for 7.28% of India's FDI in 2022-23, its highest share historically. Overall, the UAE is India's seventh-largest investor, with cumulative FDI inflows totaling $22.84 billion from April 2000 to March 2025. This recent dip in FDI, alongside the widening trade deficit, suggests a potential shift in UAE investment strategies.
Sector Growth Contrasts with Trade Balance
The CEPA has clearly spurred trade growth in key sectors, including gems and jewellery, engineering goods, electronics, and agriculture. India's non-oil exports have shown resilience, with electronics seeing the fastest expansion in FY 2024-2025. However, the overall trade picture remains concerning as imports, particularly for energy products and precious stones, have outpaced these growing non-oil exports, widening the trade gap. India's primary imports from the UAE include pearls, precious stones, petroleum products, and aircraft components.
Challenges to Meeting Ambitious Trade Goals
The CEPA aims for bilateral trade to reach $100 billion by 2030 and $200 billion by 2032. While the agreement has increased trade volumes, the widening deficit indicates India is importing more value than it exports, a pattern worsened by rising global commodity prices and specific import demands. India's overall trade deficit reached $119.30 billion in FY 2025-26. Although India also has deficits with China and Russia, the UAE is a significant contributor to this imbalance. The decline in UAE's FDI into India also points to potential concerns about investment sustainability or capital redirection. This is notable as India itself is increasing outbound FDI to the UAE. The reliance on imports for energy and precious stones, coupled with slower growth in high-value exports, creates vulnerability. Geopolitical instability in West Asia could add risk to broader corridor developments like the India-Middle East-Europe Economic Corridor (IMEC).
Looking Ahead: Balancing Trade and Investment
Despite these challenges, both nations are aiming to double bilateral trade to $200 billion by 2032. The CEPA is expected to help achieve this by expanding market access. However, reaching these goals will require focused efforts to accelerate India's export growth, diversify into higher-value exports, and attract sustained foreign investment. The sustainability of the current trade trajectory depends on balancing the deficit and ensuring continued FDI flows from the UAE.