Eight months into a free trade agreement with the United Arab Emirates, India’s trade gap with the Gulf nation has widened by more than $5 billion, lifted by elevated global crude oil prices and an increase in non-oil trade.

While India’s exports to the UAE grew by 11% during this period to $20.25 billion, imports climbed 24.4% to $36.23 billion, data from the department of commerce showed. This caused a trade gap of $15.98 billion, compared to a deficit of $10.89 billion in the corresponding period last year.

India’s non-oil trade deficit more than doubled between May and December 2022 to about $2.2 billion from $1.01 billion a year earlier. The India-UAE comprehensive economic partnership agreement (CEPA) came into force on 1 May 2022.

India’s non-oil outbound shipments to the UAE grew by 2.59% to $15.03 billion, while non-oil inbound shipments jumped 10.03% to $17.23 billion during the May-December period.

An official in the department of commerce said CEPA utilization is “on an uptrend” and is only likely to increase further. Pointing at the increasing utilization of the free trade pact by Indian exporters, the official said the issuance of preferential certificates of origin (COO) under the CEPA increased from 415 certificates worth $133.2 million in May 2022 to 6111 worth $1.11 billion in December 2022.

However, while the import surge was largely led by high-value petroleum products and raw material shipments, exports have been led by double-digit expansion in gems and jewellery, electrical machinery and equipment, automobiles, cereals, etc., where India gained duty-free access under the agreement. That, experts, pointed out, was a good start.

The pact, negotiated in a record 88 days, was signed on 18 February. It is the first major free trade pact signed by the Narendra Modi-led government since it came to power in 2014 and is likely to benefit about $26 billion worth of Indian products that are subjected to 5% import duty by the UAE.

While imports of crude oil surged 60% in April-November to $20.12 billion, imports of polymers were up 30% to $1.09 billion.

The pact immediately eliminated duties for 90% of India’s exports in value terms to the UAE, covering sectors such as gems and jewellery, textiles, leather, and engineering goods among others.

Gems and jewellery exports to the UAE grew by 33% in May. It grew 18% during the June to December period to $3.38 billion. Electrical machinery and equipment exports expanded by 28% to $2.25 billion in the same period. While automobiles and cereals exports grew by 35% and 39%, respectively, that for machinery and electrical appliances expanded by 17% in this period.