Financial Express | 12 July 2023
India and GCC revitalize economic partnership: Resuming Free Trade Agreement negotiations
by Huma Siddiqui
Ahead of Prime Minister Narendra Modi’s visit to the UAE later this week, India’s engagement with the Gulf Cooperation Council (GCC) has gained momentum as discussions on the Free Trade Agreement (FTA) between the two parties resume.
Dr Ausaf Sayeed, Secretary (CPV&OIA), Ministry of External Affairs, highlighted the positive development during the 6th India Arab Partnership Conference and said that preliminary documents have been exchanged, and delegations have been meeting, indicating a promising path towards the FTA’s realization. This renewed engagement holds the potential to unlock new opportunities for businesses on both sides.
In addition to the FTA, alternative trading forms are being considered between India and GCC nations. Dr Sayeed mentioned discussions on Rupee trading, barter trading, and other options, especially given the challenges faced by many countries in dealing with foreign currency. This exploration of innovative trading mechanisms reflects a proactive approach in adapting to evolving economic circumstances.
Building upon the progress made, last year in November, India and the GCC countries expressed their commitment to pursuing a FTA and resumed negotiations. Initially scheduled for March 2023, these discussions marked a significant step forward in strengthening economic ties between the regions.
The GCC, comprising Saudi Arabia, the UAE, Qatar, Kuwait, Oman, and Bahrain, stands as India’s largest trading bloc. In the fiscal year 2021-22, India’s exports to the GCC member countries witnessed a substantial increase of 58.26 percent, reaching approximately $44 billion compared to $27.8 billion in the previous year, as reported by the Commerce Ministry.
The bilateral trade in goods also demonstrated remarkable growth, escalating from $87.4 billion in 2020-21 to $154.73 billion in 2021-22. Furthermore, services trade between India and the GCC regions reached an estimated value of around $14 billion in 2021-22, with exports amounting to $5.5 billion and imports reaching $8.3 billion.
Recognizing the significant economic interdependence, both sides have expressed a mutual commitment to pursuing the FTA between the GCC and India. These negotiations aim to achieve a conclusive agreement at the earliest. It is worth noting that the GCC countries play a vital role in India’s energy security, contributing nearly 35% of its oil imports and 70 percent of its gas imports. In the fiscal year 2021-22 alone, India’s crude oil imports from the GCC countries accounted for approximately $48 billion, with LNG and LPG imports standing at around US$21 billion.
While this renewed focus on a free trade agreement demonstrates the determination to deepen economic cooperation, it is worth mentioning that previous attempts at such a pact in 2006 and 2008 faced obstacles and were unable to materialize due to various reasons. However, the current negotiations signify a renewed effort to establish a mutually beneficial trade framework.
The pursuit of the free trade agreement between India and the GCC holds immense potential for enhancing trade and investment opportunities, fostering economic growth, and reinforcing the already robust partnership between the two regions.
The conference also shed light on seven key areas of focus in the Indo-Arab partnership: food security, supply chains, healthcare and pharma, energy security, renewable energy (including green hydrogen and green ammonia), chips and semiconductors, and technology (including FinTech and HealthTech). The entertainment, tourism, and cultural sectors were also recognized as promising areas for growth.
Notably, significant foreign direct investments have already solidified the strong relationship between India and the Arab world. Dr Sayeed emphasized that while Gulf countries have invested around $20 billion in India, Indian companies have also made substantial investments in West Asian nations. This mutual confidence underpins the foundation of the partnership.
Energy security plays a vital role in the relationship, with the Gulf countries supplying a considerable portion of India’s oil and gas imports. However, the energy partnership is evolving beyond a simple buyer-seller dynamic. Some countries are investing in strategic partnerships, while others are offering oil blocks to Indian companies. The focus on renewable energy, particularly green hydrogen and green ammonia, presents a significant avenue for bilateral cooperation, highlighting the shared commitment to sustainability.
During the conference, various officials expressed optimism about the future of the Indo-Arab partnership. Dr Khalid Hanafi, Secretary General of the Union of Arab Chambers (UAC), highlighted the potential for a new relationship based on technology, urging the transformation from a traditional to a tech-driven alliance. Dr Fadi Salti al-Khalil, Chairman of the Planning and International Cooperation Commission of the Syrian Arab Republic, emphasized the partnership’s role in enhancing economic capabilities and advocated for a new economic bloc centered around the fourth industrial revolution. Dr Siddeek Ahmed, Co-Chair of FICCI Middle East Council, stressed the importance of collaboration and leveraging shared strengths and interests to overcome challenges and maximize opportunities in a post-pandemic world.
Overall, the resumed FTA talks and exploration of alternative trading forms, coupled with a focus on key sectors and the shared vision of a technologically-driven partnership, highlight the dynamism and potential of the Indo-Arab collaboration. This evolving relationship is poised to foster economic growth, prosperity, and sustainable development in both regions.