Gulf Cooperation Council: Could Be A ‘Game Changer’ For India – Analysis
Jun 8, 2015
With the post-Cold War change in the geopolitical environment and a converging security landscape spanning Afghanistan to the Arabian Gulf, India, which is emerging as an economic power, has now become strategically important for the Gulf countries and vice versa.

Yet, Prime Minister Narendra Modi, who has been on a foreign visit spree, has chosen to keep the region out of his itinerary in the first year of his new government. If not for anything else, a visit by him in the first year, would have been a great assurance to the huge Indian workforce in the region that sends back the highest remittances to their country.

Today, an estimated 6.5 million Indians are living in the Gulf, with the largest number in Saudi Arabia – 2.45 million. The second largest is in the United Arab Emirates at 1.8 million. Then there are countries like Qatar, where the number of Qataris is 300,000 but the number of Indians is 500,000 in a total population of 1.7 million. The 7-million strong Indian diaspora in the region has also been “bridge-builders and economic connectors” between the two sides, sending over USD 40 billion in remittances annually.

However, there is a big difference between expatriate Indians in the Gulf region and those staying elsewhere in the Western world. If you go to the United States or the UK, you have the possibility of getting what is called a Green Card first and then become a citizen. That facility does not exist in the Gulf, as most Indians, go for a fixed work tenure, and then get extension. As a result, scores of Indians come back and settle down, mainly in Southern India, as most of them belong to Kerala, Tamil Nadu or Karnataka.

Another major difference between Indians in the Gulf and those in the Western world is that a large number of them are blue collar workers, and most of them are single bread-winners. So, whatever little they earn, they send it back home.

While India’s economic presence in the region has transformed from traditional barter exchanges between merchants and human capital, as a geopolitical player in the region, the relationship has remained more or less subdued. Amid the recent escalation in violence in a number of Gulf countries, India has expressed deep concern over the rise of fanaticism, extremism and terrorism in parts of the Arab region, saying these are tearing apart the fabric of societies as well as affecting regional stability.

With the Prime Minister Modi seen as ‘pro-business’, there is all the more reason for India to reset its relationship with Gulf countries into a strong partnership – be it trade, business, commerce, political or cultural.

Apart from huge oil reserves in the region, a number of countries in the Gulf, such as Kuwait, Qatar and Bahrain, also have huge sovereign wealth funds. Economic ties between India and its largest trading partner — the six oil-rich countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) of the Gulf Cooperation Council (GCC) — are undergoing a major shift, not only because of the changes in the socio-economic and political landscape of the region post-Arab Spring, but also due to India’s emergence as one of the most important markets.

After all, the GCC, as an economic bloc, is India’s leading trade partner, well ahead of the European Union and North America. India’s $150 billion trade with the GCC represents nearly a fifth of its $764 billion annual trade. Four of the six GCC countries feature among its top 15 trading partners.

It is no surprise, therefore, that External Affairs Minister SushmaSwaraj, addressing an event in New Delhi recently, called for a “deepening of ties”, saying that investments from sizeable sovereign wealth funds in the oil-rich countries can prove to be a “game-changer” in India’s quest for world-class infrastructure. Swaraj’s proposed visit, therefore, is expected to revitalise existing trade ties with the GCC.

Unconfirmed reports indicate that Modi, too, in the second year of his government, is expected to tour GCC states. If this visit goes ahead, it could lead to long-term strategic deals with regional governments, giving a much-needed boost to mutual trade.

Trade between the GCC and India declined 6 per cent to $150 billion in the last financial year ending March 2014, from its peak of $159 billion in 2012-13. The Gulf-India trade balance is heavily tilted against India, whose export earnings from the GCC are less than half the value of its total import bill, mostly due to its reliance on crude oil. Indian exports to the GCC fell 6 per cent in 2013-14 to $48 billion, while imports dropped by over 5.5 percent to $102 billion compared with last year.

Among the GCC states, the United Arab Emirates (UAE) is India’s largest trading partner, with trade links dating back more than a century. Indians are the largest expatriate community in the UAE, numbering nearly 1.5 million.

Historically, pearls, semi-precious stones and precious metals comprised the majority of trade and that is still the case today. Currently, major Indian exports include gems and jewellery, petroleum products, machinery and instruments, while major imports include gold, precious stones and gems, machinery and electronics.

In 2013, trade between the UAE and India took a major hit due to 10 percent gold import duty introduced by the Indian government. The total value of trade dropped 21 percent to $59.61 billion in 2013-14 from $75.45 billion in 2012-13. Elsewhere in the region, Saudi Arabia’s trade with India surged 11 percent to $49 billion in 2013-14, mainly due to higher oil exports. India’s trade with other Gulf countries remained stable last year. Trade with Kuwait rose marginally to $18 billion, mainly due to an increase in crude exports, while trade with Oman surged 26 percent to reach $5.8 billion, while that with Qatar exceeded $16 billion.

One area which will continue to reshape India’s relations with the Gulf is energy security. The GCC countries have consistently met India’s rising demand for oil and gas, currently providing nearly 50 percent of India’s oil imports, with Qatar as the largest gas supplier.

India is also pursuing a free trade agreement (FTA) with the Gulf States. It has already signed a Bilateral Investment Promotion and Protection Agreement with the UAE that helped cement Etihad Airways’ acquisition of a stake in India’s private air carrier Jet Airways.

Infrastructure projects

As GCC governments invest billions of dollars in key infrastructure projects, Indian engineering firms are looking to secure lucrative deals. About $450 billion-worth of projects are currently at various stages of planning and execution in the Gulf, with the UAE, Qatar, and Kuwait expected to implement schemes worth more than $85 billion, $70 billion, and $70 billion, respectively, in 2014.

Among the Indian firms have already made strong inroads in the region are Tata Motors, which said to be exploring the possibility of building its third largest assembly plant for Land Rover vehicles in Saudi Arabia’s Eastern Province. In 2013, Larsen & Toubro, one of India’s largest engineering firms, bagged a section of the Riyadh Metro project. The same year, Tata Steel won an order to supply high-quality rails for a new high-speed line linking the two holy cities of Mecca and Medina.

For now, there is a lot going for both sides to strengthen the ongoing relationship, as India needs the GCC for its energy security and infrastructure development, and GCC can get access to a huge, long-term market for its precious resources. Both sides also share a joint commitment to the security and stability of the Gulf and the broader Indian Ocean region. Expanding the horizons of GCC-India trade and investment will, therefore, be a crucial next step in this direction.

Oman Foreign Minister Yousuf Bin Alawi Bin Abdullah, special envoy of the Sultan of Oman, was the first foreign dignitary to visit India after the Modi government came to power and stressed on boosting economic linkages, including joint investments.The Sultanate of Oman is a strategic partner for India in the Gulf and an important interlocutor in the bilateral, AGCC, Arab League and IORA contexts. Oman also accords high priority to ties with India, as the two countries across the Arabian Sea are linked by geography, history and culture and enjoy warm and cordial relations, which can be ascribed to historical maritime trade linkages, intimacy of the royal family with India and the seminal role of the Indian expatriate community in the building of Oman. Remittances from Oman to India are estimated at $3 billion annually.

With proven crude oil reserve of 5.5 billion bbl and natural gas reserve of 849.5 billion cubic mtrs (Jan. 2013 estimates), Oman has a robust oil-based economy that is being diversified to areas, such as tourism, agriculture & fisheries, small and medium enterprises, and investments abroad. Indian construction companies won mega construction projects in 2013 and 2014 in the Sultanate. At present, there are over 50 India-Oman joint ventures in Oman.

“The Gulf is important to us for a number of reasons. One, they are our largest trading partners. Second, they also happen to be the largest hosts of our expatriate community. Third, they are actually very closely related to us in terms of geography. One particular reason which we had somehow not given importance to in the past is that this is now one of the most powerful and beautiful sources for investments. If you add up all the sovereign funds of the world, three-fourths of them – about four trillion dollars – will end up in the Gulf. So, it is for us an extremely important relationship,” said senior official in India’s Ministry of External Affairs.

Remittances & the Indian community

Some Indian communities’ link with the region goes back centuries. For instance, if you walk around the streets of Muscat, you will find that people look very similar to us. Some of the biggest business tycoons of that country are originally Indians. You could say the same thing in Kuwait. In Dubai, you actually feel that you are in India, not in a foreign country.

According to World Bank estimates, $70 billion came back as remittances to India in 2012 from all Indians abroad, with a sizeable part from the Gulf because men and women working there send about 90 percent of their income back home. So, out of these $70 billion, about $50-60 billion is actually coming from Indians in the Gulf.

With employment pressure building globally, the recent past saw some talk of many Indians in Saudi Arabia thinking of coming back home because the Saudis, Kuwaitis and Omanis want all their jobs back. This has created huge uncertainties among the Indian workforce: How will they go and what visas will they carry? Will it be an employment visa? If yes, then employment visas in the Gulf need to identify a sponsor. Say, a driver, cook, shop assistant, normally gets a sponsor, which defines the period of legal stay in that country.

Out of the eight million people in Saudi Arabia, 2.45 million are Indians. And about 300,000 of these are dependent members. Indians are actually a preferred community there, as they have a reputation of being better workers.

Two-way investments

So far, the major investments that have taken place are the Etisalat telecommunications company from UAE, which has now wound up and gone back. Then, there is Emaar which is doing a huge township in Andhra Pradesh. There are also six ports being run by a Dubai Port World company.

In the case of Oman, we jointly own a fertiliser company in Oman, and a refinery in Madhya Pradesh. We also own a steel mill there. Oman has also got a revolving India-Oman Joint Investment Fund run by the Central Bank of Oman and the State Bank of India. They have a hundred million dollars in the kitty, which has a capacity of one and a half billion dollars.

Investment of some of the big countries like Saudi Arabia is less than $100 million. UAE and Oman are big investors in India, while countries such as Kuwait and Qatar are keen to come. The potential is much bigger than the actual investments that have flowed into India.

In fact, Indian investments in the Gulf may be higher at this point in time than their investments into India. There couldn’t be a better time to tap into the huge potential of the GCC region, keeping in tune with Prime Minster Modi’s agenda of inviting more foreign investment into India.