India Focus Report Frost & Sullivan’s senior consultant TJ Sivan on India’s rich pickings with the CEPA FTA Trade Deal with UAE.

CEPA takeoff opens the floodgates to Indo-UAE external trade

Officials from both countries foresee exponential growth in trade between the two nations

Overall, as a result of the bilateral CEPA FTA Agreement signed between the leaders of both countries, India will benefit from preferential market access provided by the UAE on over 97% of its tariff lines which account for 99% of Indian exports to the UAE in value terms particularly from labour-intensive sectors.

The historic India-UAE Comprehensive Economic Partnership Agreement (CEPA) which was signed between the two nations on 18 February 2022, officially entered into force on 1 May 2022.

As regards trade in services, Indian service providers will have enhanced access to around 111 sub-sectors from the 11 broad service sectors.

CEPA is expected to increase the total value of bilateral trade in goods to over US$ 100bn and trade in services to over US$ 15bn within five years.

It is interesting to note that US$ 670bn of exports (goods and service) by India during last fiscal year constituted 22-23% of the GDP, and exports are an important engine of growth for the country’s economy.

Global Supply Chain, in an exclusive, extensive interview with TJ Sivan, Senior Consultant, Supply Chain & Logistics Practice, Frost & Sullivan, for his expert take and the lowdown on the state of the Indian economy and its implications and ramifications for the logistics and supply chain sectors as part of our special India Focus Report.

Global Supply Chain (GSC): How would you characterize the state of the current Indian economy—general comments, brief?

TJ Sivan (TJS): The current highlights are as follows. There is a sharp fall in the economic growth of 4 % in FY2020 compared to historical standards due to covid related disruptions, followed by a strong rebound in the economic growth of 8.7 % in FY 2021

The manufacturing sector in India which grew on an average of 5 % between FY 2016-21, is expected to grow significantly, at a CAGR of 10% from FY2022-26 to reach US$ 742bn.

The Government targets to achieve exports of US$ 2Trillion by 2030; therefore, the focus has shifted to the promotion of manufacturing and industrial goods by supporting conducive business, investment, and infrastructure development initiatives.

In the medium term, manufacturing and export sectors are expected to play a key role in the economic transformation which requires better integration with the global value chain.

Competitiveness of Indian goods in the international market is adversely affected by poor logistics infrastructure and an inefficient logistics ecosystem. Overall, a promising period of growth in the horizon for the Indian economy.

GSC: How do you assess the logistics landscape in India?

TJS: India’s logistics inefficiencies arise from market fragmentation, weak logistics infrastructures, lack of skilled workers, and regulatory hurdles. This causes the increase in its indirect logistics expenditure.

The transportation cost in India from the total cost of logistics stands high due to poor road infrastructure, traffic congestion and regulatory delays. Since the country is heavily dependent on road freight, representing more than 70% of all freight, long-haul freight routes result in more logistics spending than rail freight.

India’s logistics spending is on the higher end, with an estimated 13 % of its GDP, leading to a lower Logistics Performance compared to international standards.

The logistics landscape has an opportunity to grow a higher share of warehousing and value-added services, in comparison to the transportation segment.

GSC: Broadly, how is trade between India and the GCC and UAE in particular faring?

TJS: Total trade with Saudi Arabia and UAE accounted for US$ 100bn; exports from India to these two GCC economies accounted for 30 % of the trade, while imports from these two countries to India accounted for 70 % of total trade.

Major commodities of export from India to Saudi Arabia include engineering goods, rice, petroleum products, chemicals, textiles, food products, and ceramic tiles. Major commodities of import for India from Saudi Arabia are crude oil, LPG, fertilizers, chemicals, plastic, and products thereof and more.

Major Commodities exported to UAE from India include Pearls, precious stones, metals, coins, Electrical, electronic equipment, Iron and steel, Mineral fuels, oils, distillation products, Industrial Machinery, Automotive products, Ready-made garments and apparel, food and beverages, paper and paperboard, Organic chemicals

GSC: Where are the new opportunities and challenges for India from a logistics perspective?

TJS: India’s logistics inefficiencies arise from market fragmentation, weak logistics infrastructure, lack of skilled workers, regulatory hurdles, high reliance on road freight, lack of multimodal connectivity, cold chain facilities and complexity in administrative regulations.

The opportunities will come in the form of Infrastructure development in seaports airports, cold chain infrastructure, supply chain and digitalization, warehouse modernization/automation solutions, e-commerce, healthcare, and food / perishable logistics.

GSC: Recently, HE Narendra D. Modi, India’s Prime Minister announced a new National Logistics Policy. What broadly are the reforms and highlights of the Indian Government’s new logistics strategy?

TJS: Government has given priority to

TJ Sivan has over 15 years of experience in economic, industrial, supply chain, and logistics research and consulting space. He has handson experience developing insights and actionable strategies for various strategic and operational challenges relating to supply chain and logistics.

reducing logistics costs and improving efficiency through key policy initiatives in line with the national infrastructure pipeline, PM Gati Shakti and national logistics policy. These initiatives are expected to improve regional and multimodal connectivity.

National Master Plan for Multi Modal connectivity is a platform used to implement infrastructure projects in integrated planning among various ministries. Key Infrastructure projects relating to Bharatmala (road), Sagarmala (Sea), inland waterways, and dry/land ports are part of this initiative.

Transformational changes in the logistics ecosystem are expected to lower logistics costs with the implementation of the recently approved ‘National logistics policy.’ The new logistics policy will be implemented through a Comprehensive Logistics Action Plan (CLAP). CLAP comprises of four broad initiatives namely Integrated Digital Logistics System (IDS), Development of Unified Logistics Interface Platform (ULIP), Improving Ease of Logistics (E-logS), and Integrated Government Online Training (IGoT) platform to facilitate approvals

Implementation of these initiatives is expected to improve the global competitiveness of exports, make domestic logistics services more efficient by making the supply chain more resilient, and reduce the operational cost of logistics services.

GSC: What must happen, what are the recommendations for increased streamlining in logistics functionally?

TJS: Streamline trade and investment processes, improve export competitiveness, and reduce overall inefficiency in freight transportation and warehousing operations

Elimination of inefficiencies and reduce costs by removing bottlenecks in the logistics value chain by improving multimodal logistics infrastructure.

Areas that require to be strengthened include multimodal connectivity, warehousing, and cold chain storage facilities in tier II and III cities and digitalization of the logistics process with trace and visibility solutions

Interoperable systems to be in place to ensure data is exchanged and communicated between systems seamlessly for real-time visibility and decision-making.

Allowing the removal of non-valueadding intermediaries in the logistics value chain will greatly improve the profitability, visibility, and efficiency of the logistics ecosystem. Digital platforms and tools should be utilized to achieve this integration of the logistics value chain.

GSC: The historic India-UAE Comprehensive Economic Partnership Agreement (CEPA) was signed between the two nations on 18 February 2022. What implications does this mega deal have for bilateral trade between the two countries?

TJS: India-UAE bilateral trade has steadily increased to US$ 68bn in FY 2019-20. UAE has signed a Comprehensive Economic Partnership Agreement with India for zero customs duties on 90% of the trade in value it exports to the nation. This is expected to increase non-oil trade two folds in the next five years to reach around US$ 100bn.

UAE has committed US$ 75bn towards infrastructure development in India and the Government of Dubai signed an MoU for real estate development, industrial parks, IT towers, multipurpose towers, logistics, medical college, and super specialty hospital.

Regional e-commerce hub and redistribution centre: Proximity to East Africa, South Asia, North Africa, and CIS makes UAE an ideal location for crossborder e-commerce and redistribution center agriculture, healthcare, consumer,

and industrial products.

Economic Diversification: UAE has earned the title of being one of the most open economies globally. Low tariffs and some non-tariff trade policies and businessfriendly free zones are expected to diversify and increase the contribution of the non-oil economy.

GSC: How will the logistics sector be the beneficiary of increased trade between the two countries?

TJS: Top exports from India to UAE includes medical appliances, pharmaceuticals, leather products, textile goods, agriculture goods and Industrial machinery and gems and jewelry. Sea and Air trade cargo volumes are expected to grow in line with commodities traded between UAE.

Sea Freight: Less than Container Load (LCL) and Full Container Load (FCL) is expected to benefit as a significant part of exports are from Small and Medium Enterprises.

Air freight companies like Emirates SkyCargo expect a rise in exports of perishables and pharmaceuticals from India in the next five years.

Demand for storage and warehouse space is expected to increase in key ports and urban centers such as Dubai, Abu Dhabi, and Sharjah

GSC: Based on current trends and economic indices, what is your / Frost & Sullivan’s prognosis for the Indian economy and the logistics and supply chain sector for 2022-2023?

TJS: Number of policy initiatives are expected to increase investment and stimulate industrial growth. The Indian government launched the Production Linked Incentives (PLI) Schemes in early 2020 to localize production and manufacturing. Sectors introduced under the scheme are chosen for their capability to reach global scales and establish India in the global value chains. automobiles, appliances, electronics & IT, pharmaceuticals, solar modules, metals & mining, textiles & apparel, and drones are expected to benefit from this initiative.

Self-Reliant India (Atmanirbhar Bharat Abhiyaan): Sectors covered under the initiatives include Agriculture Supply Chain Reforms for Agriculture, tax Reforms, Human Resource Development, and Strengthening the Financial System.

Economic growth is projected to increase to 6.5 % in FY 2023, despite the global uncertainties arising from inflation and increase in interest rates by the monetary authorities, supply chain disruptions associated with the Ukraine war and volatile commodity prices.

GSC: How significant is FDI and the free zones for India’s economy?

TJS: FDI Inflow: India has emerged as a preferred investment destination amongst global investors due to FDI policies that removed restrictions across manufacturing, energy, and service sectors over the years.

Annual FDI inflow was estimated at US$ 83bn in FY 20; Computer Software Hardware (35%), Automobile Industry (20%) and Education Tech (12%) are some of the sectors that benefited from the inflow. To attain a GDP of US$ 5Trillion, the government is likely to give priority to Investment promotion and improve FDI inflow in the coming years.

Free zones and Industry Clusters: Industrial clusters and economic corridors are given priority as part of logistics infrastructure development - Economic Zones like textile clusters, pharmaceutical clusters, defense corridors, electronic parks, industrial corridors, fishing clusters, agro zones are likely to play

Annual FDI inflow was estimated at US$ 83bn in FY 20; Computer Software Hardware (35%), Automobile Industry (20%) and Education Tech (12%)