On the India-Oman Free Trade Agreement – Bridging The Gulf

Source: This post on the India-Oman Free Trade Agreement has been created based on the article “Bridging The Gulf” published in “Business Standard” on 13^th January 2024.

UPSC Syllabus Topic: GS Paper 2 International Relations – Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

News: The article discusses the status of trade between India and Oman and the Gulf. It also highlights the possible benefits and challenges arising due to the proposed India-Oman Free Trade Agreement.

The text of the proposed trade agreement between India and Oman has been substantially concluded, indicating that a comprehensive economic partnership agreement (CEPA) (a free trade agreement, or FTA) may be signed over the next few weeks.

What is the current status of trade between India and Oman and the Gulf?

Oman is India’s 29th largest trading partner, but the 3rd largest export destination among the 6 Gulf Cooperation Council (GCC) countries.

India exports gasoline, iron and steel, electronics, and machinery to Oman, and imports petroleum products, urea, propylene, and ethylene polymers.

Bilateral trade has been growing, increasing from $3.15 billion in 2021-22 (FY22) to $4.48 billion during FY23 (42% growth).

The GCC countries contribute about 1/6th of India’s total trade. The trade balance, however, is in favour of the GCC (due to India’s petroleum imports).

What could be the potential benefits of the India-Oman CEPA?

Facilitate Trade: It could substantially reduce the customs duties, and even bring them down to zero in some instances.

Provide a Market for Indian Exports: Oman has a high per capita income of $25,060 (India’s being $2,370). Thus, it could emerge as a market for more expensive exports from India.

Strategic Outreach in the Gulf: India is looking to improve its relations with the Persian Gulf nations as a balancing act in the backdrop of the Israel-Hamas conflict.

Balance Tilted in India’s Favour: There is hardly any item sold by Oman that can threaten Indian industry. On the other hand, India might get important market access for its exports to Oman in the form of finished products.
For instance, raw material from Oman such as petrochemicals, chemicals, and crude oil will enter India at a lower/zero duty. In return, India will get market access for finished products such as engineering, chemicals, plastics, textiles.

What are the challenges?

Limited Opportunities: Oman is a much smaller country than India, growth in trade between the two is expected to be limited. With a population of 1.4 billion, compared to Oman’s 5 million, India represents a much larger consumer market for Oman.

Question for practice:

The India-Oman Free Trade Agreement can act as a positive step not just for bilateral trade and the Indian export economy, but also India’s strategic interests. Analyse.