An analysis on the different dimensions of possible enhancement of relationship between UAE and India due to the recent power shift in India.
Couple of weeks back in India, the incumbent Congress has been ousted by Bhartiya Janata Party (BJP). The BJP has got the majority in the parliament on its own, something which was not seen in India over past three decades. It will be interesting to see how the newly elected government, known for its pro-market and liberal economic policies, will shape and stimulate the relationship between India and UAE in the near future, which so far enjoys a strong and constructive engagement across different parameters.
To decipher more about how the relationship between the two rising economic powers will unfold in the coming time; we have written this analysis based on our understanding, integrated with some valuable insights from Indian foreign policy officials. The analysis has also been complemented with short a survey, conducted among the Indian business community members in UAE, to measure their sentiments in the context of the new change.
UAE – India: Mutual Partners
The three fundamental pillars, which define the UAE-India relationship are, investment, trade and manpower. UAE is believed to be one of the most preferred investment locations for Indians, both individuals as well as business houses. Indians are the biggest investors along with United Kingdom, Pakistan and GCC nations in the resurging real estate sector of Dubai, the second largest emirate, accounting for a total investment of around AED 18 billion (USD 4.9 billion) from 8,092 investors in 2013. This is expected to further strengthen, given the fact that in Q1 2014 alone, the total Indian investment in Dubai’s real estate market is estimated at AED 5.9 (USD 1.6) billion.
In addition to real estate, numerous Indian cement, textiles, electronic and food manufacturers have set up their businesses in UAE either through joint ventures in Mainland or across numerous freehold zones of UAE. Besides business friendly policies and tax benefits, Indian companies also benefit from robust infrastructure and access to a large market in Middle East and Africa, by setting up business in UAE. On similar lines, numerous Indian tourism, hospitality and retail companies are also active in UAE. Indian businesses visit in big volume in all the major business events occurring at the emirate. Likewise, the UAE is also touted among the top 10 country to invest in the India.
Both the countries enjoy tremendous trade relationship which has been estimated at AED 277 (USD 75.5) billion in 2013, registering 25 percent annual growth in the previous three years. Major export item for UAE involves wood products, finished jewelries, chemicals and minerals along with petroleum. Major import items involve food items, jewelries, tea, stones, textiles, chemicals and machineries.
UAE is also home to a large number of Indian human-capital and manpower employed at all the strata of UAE’s job market-lower, middle and top management. Not to forget the vibrant Indian business community is active in the gulf country, that is also believed to be lynchpin in the powerful UAE-India relationship.
UAE-India Relationship Background
UAE-India relationship dates back to historic time when large volume of trade used to take place between the Malabar coast in Southern India and emirates in UAE, especially Dubai and Sharjah. However, significant changes happened in 1991, when Indian economy was opened up with one of the objectives being actively reaching out to the world. Interestingly, the present incumbent Indian Prime Minister (PM) Dr. Manmohan Singh was the Finance Minister then and was the key architect to take India towards economic liberalization. Precisely, this was also the time when Dubai, the second largest emirate started evolving as the international center for trade and commerce. Hence, a new chapter began between the two country in the form of rising trade, which got strengthen day by day, with India emerging as the biggest trading partner of UAE in the second half of the previous decade.
In the last decade, when Manmohan Singh was the Prime Minister, more steps were undertaken towards nurturing the relationship from both the end. In between 2004-08 many rounds of Free Trade Agreement (FTA) were discussed between the two nations with in the GCC framework. These FTAs captured policy liberalization pertaining to goods, services, investment and economic cooperation. Later on, 2013 also saw the ratification of a Bilateral Investment and Trade Promotion Agreement (BITPA) agreement between India and UAE.
Last decade was also important as it saw gamut of Indian Industrialists, businessmen, investors, technology entrepreneurs’ coming to UAE. Not to mention senior corporate executives, bankers and academicians, thereby enhancing the significance of the expatriate community, which till then was a source cheap labor force. As of last year there are over 26,000 Indian companies registered with Dubai Chamber alone, which should double by 2021, given the present the growth rate.
Narendra Modi Factor
One of the important dimensions of the present power shift in New Delhi will be Narendra Modi, rising up to the post of Prime Minister. Before becoming PM, Narendra Modi has demonstrated a meteoric rise in Indian politics, while ruling the Western Indian state Gujarat and helping it transform as one of the most progressive states in India. Capitalizing on the efforts made by previous governments, it is believed that Narendra Modi and his distinguished team of foreign policy and trade experts will keep all the stones unturned to further cement economic ties with UAE.
Another area where Narendra Modi can be a key factor could be dismantling the existing bureaucratic impasse, believed to be a bottleneck in the ongoing UAE-India relationship by many policy experts. It is not a secret that Narendra Modi is known for his distaste for large bureaucracy, as also indicated in his election speeches, which was cornered on less government and more governance.
The gulf nation is not only important for India on account of its rising trade, which also involves the large volume of petroleum trade, crucial for meeting India’s energy demand; but also in terms of reaching out to the wider Middle East and North African markets, a region marked with tremendous potential amidst rising income and young demographics.
Research: NRIs will Invest Back
In the evolving India-UAE relationship the Indian diaspora residing in UAE will have a crucial role to play in the coming times. The new government will look out to them for more investment and expertise in the coming time. To decipher more about how the Indian diaspora, especially the business and entrepreneur class will play its cards, we conducted a short survey among 150 Indian businessmen with an annual transaction of AED 1 million and above.
The research indicated that unanimously around 82 percent respondents believed that India-UAE relationship will get a boost in the coming time. Out of them, near about 70 percent believed that the positive impact will be driven by the new government.
Interestingly, 62 percent of the Indian entrepreneur mentioned that they do have some business interest back in India. This could be explained from the fact that many established business from India as well as other countries come to UAE to leverage its strategic position in global supply chain and magnificent infrastructure and business friendly environment. On being asked, whether they have plans to invest in new ventures in India, 22 percent replied in yes, whereas 36 percent stated that they might consider in the near future.
Based on our discussions with some insiders at department of foreign affair in India, coming time might witness more trade delegation visiting from India and vice versa to enhance investment and promote trade and commercial linkages with UAE. As a part of BJP’s manifesto which emphasizes on seeking large investment for its under-utilized infrastructure, India will also look forward to UAE for investments for its under-utilized infrastructure (Indian infrastructure requires an investment of AED 3.67 (USD 1) trillion). UAE’s investment can be routed either through its Government Led Entities (GLEs) or through individual investors in the form of remittance. In addition, UAE will have a key role for India to reach out to larger Middle East Region.
Similarly, UAE will also more actively look up to India as well as Indian business given the fact that the economy is back on track and its investment scenario has improved drastically since last year due to the World Expo 2020 win. It will look for more vigorous participation from Indian companies in its preparation for multi-billion dollar projects such as World Expo 2020, Abu Dhabi 2030 and Smart City plans along with other economic and infrastructure enhancement exercises. Trade and tourism will be another area where UAE will intend to boost its export to India.
(This report has been compiled by Paritosh Kashyap, who is a research analyst with Research Konnection, a UAE based research and feasibility study advisory. He could be reached at [email protected])