India and Oman are set to bolster their economic relationship with the signing of a Comprehensive Economic Partnership Agreement (CEPA) on December 18. This agreement, to be signed in Muscat during Prime Minister Narendra Modi’s three-nation tour, aims to enhance trade ties and expand India’s strategic influence in the Gulf region. The CEPA will cover goods, services, and investments, with implementation expected in the coming months following negotiations that commenced in November 2023.
Details of the Agreement
The CEPA aims to reduce or eliminate tariffs on a wide range of products, liberalize trade in services, and facilitate investment between the two nations. According to the Global Trade Research Initiative (GTRI), the structure of this agreement mirrors India’s free-trade pact with the United Arab Emirates. Bilateral trade between India and Oman reached approximately $10.5 billion in the fiscal year 2024-25, with India exporting $4.1 billion worth of goods and importing $6.6 billion, mainly in energy and fertilizer inputs.
Ajay Srivastava, founder of GTRI, pointed out that while the agreement bolsters India’s economic and strategic presence in the Gulf, the trade gains are likely to be incremental rather than transformative. He acknowledged Oman’s relatively small market size yet emphasized its significant geopolitical and energy relevance for India.
Impact on Trade Dynamics
India’s exports to Oman are led by naphtha, valued at $747.6 million, followed by petrol at $561 million, along with various products such as machinery, aircraft, rice, and personal care items. Currently, over 80% of Indian goods enter Oman with an average tariff of around 5%, though some items face duties as high as 100%. The elimination of these tariffs under the CEPA is expected to enhance the competitiveness of Indian industrial exports. However, sustained growth will depend on the quality and differentiation of these products.
On the other hand, Oman is anticipated to benefit from improved access to the Indian market for its energy and industrial inputs. In FY2025, India’s imports from Oman were dominated by crude oil, liquefied natural gas, and fertilizers, each valued at approximately $1.1 billion. Many of these products already enjoy low duties under India’s existing trade agreements, indicating that the CEPA will strengthen current supply chains rather than significantly alter trade flows.
Broader Negotiating Agenda
In addition to tariff reductions, the CEPA includes a comprehensive negotiating agenda encompassing intellectual property rights, government procurement, digital trade, customs cooperation, and support for small and medium-sized enterprises. These provisions aim to address non-tariff barriers and enhance predictability for businesses in both nations.
India also intends to pursue streamlined approval processes for pharmaceutical products that have already been cleared by major international regulatory bodies, such as the US Food and Drug Administration and the European Medicines Agency. This strategy reflects similar provisions in India’s agreement with the UAE, indicating a concerted effort to facilitate trade in critical sectors.
Strategic Significance
Despite challenges posed by Oman’s relatively small population of around five million and a GDP of approximately $115 billion, the CEPA holds significant strategic importance. With over 6,000 joint ventures between India and Oman and Indian investments exceeding $7.5 billion, particularly in the Sohar and Salalah free zones, the agreement is about geopolitics as much as it is about trade volumes. The GTRI report highlights that this partnership is likely to enhance India’s regional presence while fostering economic growth for both nations.
Disclaimer: Digihunt is not a financial advisor and this is not investment advice.