UAE, India share strong friendship and trade ties

The UAE and India are about 2,000 kilometres apart, but rising trade between the two suggests that despite the geographical distance, their business relations are getting stronger. Last year, the UAE was India’s largest trading partner; bilateral trade between the two countries stood at $75 billion in fiscal 2012–13. The UAE’s exports to India totalled $39 billion, while imports amounted to $36 billion.

Trade between the two countries has grown rapidly. Until the 18th and 19th centuries, the UAE and India were closely engaged in trading of pearls, dates, textiles and other products. At that time, pearls were a major income source for the UAE. This, however, changed with the discovery of oil in 1971. Oil became a major revenue source for the UAE and a major import for India. Trade between the two flourished in the 21st century, when Dubai was positioning itself as a regional trading hub. Between 2002–03 and 2012–13, bilateral trade rose from $4.3 billion to $75 billion, a compounded annual growth rate of 33 per cent.

As with other GCC countries, the UAE has a large number of expatriates. The Indian community is the largest expatriate community in the UAE, numbering more than two million or 25 per cent of the country’s population. Remittances from expatriate Indians in the UAE to their families in India stood at $6.2 billion, according to the MasterCard Worldwide Insights report of 2011. On the other hand, investment by Indians in UAE real estate is rising. Data from the Dubai Land Department suggests that more than 8,000 Indians invested $4.9 billion in Dubai’s real estate during 2013. Moreover, numerous Indian businesses have established presence in the UAE. About 22,000 Indian companies are registered with the Dubai Chamber of Commerce and Industry and operate across economic sectors in the emirate.

UAE considers India an 
investment destination

Earlier this year, a consortium led by state-controlled utility Abu Dhabi National Energy Company signed an agreement to purchase two hydroelectric power plants having a combined generation capacity of 1,391 megawatts from India’s Jaypee Group for an enterprise value of $1.6 billion. A deal of equal significance was struck last year when Abu Dhabi-based Etihad Airways signed an agreement to purchase a 24 per cent stake in India’s Jet Airways for $379 million, becoming the first foreign carrier to invest in an Indian airline after the country relaxed foreign ownership rules. Besides the equity investment, Etihad Airways agreed to infuse $150 million into Jet’s frequent-flyer programme and provide/arrange for a $150 million loan for the Indian airline.

The UAE is a significant investor in India. The country was the 10th-largest investor in India in terms of foreign direct investments, or FDIs, during 2000–12. Cumulative FDI equity inflows from the UAE to India during the period amounted to $2.36 billion. Power (15 per cent of FDI inflows from the UAE), metallurgical industries (12 per cent) and construction development (11 per cent) were the three sectors that drew maximum interest from the UAE.

The two countries have trade agreements and MoUs

The UAE and India have signed numerous agreements and memoranda of understandings, including the Civil Aviation Agreement (1989 and 2014), Double-Taxation Avoidance Agreement (1992), MoU on Defence Cooperation (2003), Bilateral Investment Promotion and Protection Agreement, or Bippa (2013) and an MoU on Cooperation in the Field of Renewable Energy (2014), among others.

The Bippa was signed last December for encouraging and providing legal protection to investors from both countries. India was keen on signing the agreement as it saw the UAE as a capital partner for investments in petrochemicals and fertilisers, infrastructure, food processing and agro-based industries, construction and real estate, and civil aviation. UAE sovereign wealth funds, or SWFs, alone could fund the big projects in the infrastructure sector. During the annual spring meeting of the IMF and the World Bank last year, P Chidambaram, India’s then-finance minister, had stated that the country’s infrastructure deficit in the next five years would be $1 trillion. According to the SWF Institute, the Abu Dhabi Investment Authority, the largest SWF in the UAE, holds about $773 billion of assets.

New pro-business government could strengthen India-UAE ties

India’s 2014 Lok Sabha election outcome, announced last month, was a game changer. The BJP-led National Democratic Alliance swept the polls, securing 336 seats out of 543; the BJP alone secured 282, more than the number required to form a simple majority. India has not had a single-party government in 30 years.

The new government, led by newly-elected Prime Minister Narendra Modi, promises stable pro-business governance.

The government, which is likely to be more decisive, is targeting significant investments, especially in infrastructure (roads, railways, ports, freight corridors and power).

For instance, the construction of the diamond quadrilateral project of a high-speed rail network or bullet train has been proposed. Furthermore, the new government could explore possibilities of pursuing the India-GCC Free Trade Agreement, which has been on the backburner since 2004.

The UAE would also benefit from greater collaboration and strategic partnership with India. The proposal of creating a conducive and enabling environment for improving the ease of doing business in India should help attract many UAE companies that want to set shop in India. For instance, harnessing of solar energy has failed to take off in India. UAE-based companies can help Indian companies tap solar power to meet the increasing energy demand.

The writer is the founder and chief executive officer of Al Masah Capital Management Limited.