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As Covid-19 drags down economies around the world, India's emerging markets and rising middle class are driving a new wave of economic growth. Prior to the pandemic, India's middle class was set to double in size from 300 million people to 600 million, giving the country the economies of scale necessary to launch a boom in domestic industry and manufacturing.
While many countries have seen their economic growth derailed by Covid-19, India's size and momentum may give it the resilience necessary to pull through as its global rivals struggle.
"Indian companies and consumers may face higher costs in the short term, but with government support, Indian manufacturing can quickly achieve economies of scale," A.M. Naik, group chairman of Indian conglomerate Larsen & Toubro, told reporters recently.
Many emerging economies are struggling to access vital international supply chains during the pandemic, forcing them to seek new free trade agreements. But as India has already developed many self-sufficient domestic industries, its domestic economy is set to soar, creating opportunities for the country to build new trade ties with key neighbours, especially in the Middle East.
While the pandemic has thrown India into a recession, many international companies plan to invest in the country. Google plans to invest $10 billion and Apple is producing its new iPhone 11 handsets in the country.
A number of hedge funds and some of the world's largest pension funds - including Canadian and Australian funds that represent over $40 trillion in assets - are pouring money into the country. Reforms such as the elimination of dividend distribution tax (DDT) have opened the country's infrastructure sector to global investors.
Among India's trade partners, Gulf countries in particular are eyeing the country's promising investment opportunities. Just last month, Indian foreign minister Subrahmanyam Jaishankar and his UAE counterpart Sheikh Abdullah bin Zayed Al Nahyan met to discuss growing trade, economic, and investment cooperation. The two laid the groundwork for investors from the UAE to partner with India around highways, logistics, ports, airports, defense, renewable energy projects, and more. India is already a major purchaser of energy from the UAE.
"Noting the close political relations between the two countries, both sides expressed satisfaction over the sustenance of momentum in the bilateral relations.," according to a statement from the Indian foreign ministry. "They agreed to strengthen cooperation in ongoing areas and also to explore cooperation in newer areas reflecting the changing times."
Beginning in 2021, India will grant tax exemptions for UAE institutions seeking to invest in infrastructure, with other sectors to be granted similar privileges in the future. UAE firms are already investing in Indian airports and energy, including oil.
In light of the UAE's normalisation of relations with Israel, Gulf states may now be more politically in line with Indian interests, due in part to prospering relations between India's Prime Minister Narendra Modi and Israeli Prime Minister Benjamin Netanyahu. India's democratic values align with most of the Gulf - in contrast to Pakistan. India has seen increased, deepening ties to the Gulf under Prime Minister Modi. In early 2019, the UAE invited India to address the Organisation of Islamic Cooperation.
"India's geopolitical interests are in close alignment with those in the moderate Arab Center - including Egypt, Jordan, Saudi Arabia, the UAE, and Oman," wrote C. Raja Mohan, director of the Institute of South Asian Studies at the National University of Singapore, recently. "Opposing the forces of regional destabilisation must be at the very heart of India's new engagement with the Middle East."
India's ties with Gulf states also reflect the country's shifting Middle East geopolitics, as New Delhi grows closer to the West and the Gulf. The US and India signed $3-billion in defense deals earlier this year. India has close ties to Israel through similar deals, as New Delhi already accounts for 45 per cent of arms purchases from Israel and is now negotiating another agreement worth $1 billion. The two also have a plan to increase people-to-people exchanges. In addition, India, the US, and Israel recently announced deepening cooperation around digital innovation, including 5G networks.
These ties reflect a shift in India's global role as a result of the pandemic - through investment ties, defense deals, and other agreements - as states seek ties with the world's soon-to-be most populous country.
India's growing middle class is set to amplify the country's economy, making it a haven for investors of all sorts seeking a resilient, rising market amid the pandemic. Countries in the Gulf, like the UAE, now share a close investment relationship with India that will continue to grow in the years to come.
Nadia Hussein is a researcher and analyst based in Oslo, Norway