Editorial Notes

[Editorial Notes] Bridging the gap with Gulf region

The Gulf region holds a significant place for India and its foreign policy ranging from energy security to diplomatic ties. India must respond more productively to sustain the strategic and economic cooperation from the countries.
By IASToppers
June 16, 2020

Contents

  • Introduction
  • India and the Gulf region
  • Effects on Gulf economy
  • Importance of the Gulf
  • Impacts on India
  • Way Ahead
  • Conclusion

Bridging the gap with Gulf region

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Introduction:

West Asia/Gulf region holds a significant place for strategic, economic and even domestic political agendas for India and its foreign policy, ranging from migration to energy security. The pandemic has initiated a reverse migration of Indian blue-collar workers as projects in oil-rich States and infrastructure development halts amidst a contracting global economy.

India and the Gulf region:

  • The Arab states of the Persian Gulf are the seven Arab states which border the Persian Gulf, namely Bahrain, Kuwait, Iraq, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).
  • India’s relations with the key Gulf countries are gaining great heights in the recent years.
  • The Gulf is among India’s top trading partners marked primarily with deep energy interdependence and growing volumes of energy imports into India.
  • The number of Indian migrant workers in the region stands at more than 9 million and there are substantive investments from the Gulf into the Indian hydrocarbon sector.
  • A high-level engagement between India and the Gulf in the security sector has blossomed in recent years.
  • There is an expansion of the political engagement and security cooperation, especially on counter-terrorism and maritime engagement.
  • India and its Gulf partners are also taking tentative steps towards defence cooperation.

Effects on Gulf economy:

1. Oil price crash:

  • The oil price crash in the oil dependent economies of the Gulf is triggered following a dispute on output caps between Saudi Arabia and Russia.
  • It has exacerbated further by the crash in demand due to COVID-19.
  • Itwill carry massive costs to the West Asian economies, and by association, to foreign workers employed there.

2. Tourism and Hospitality sectors:

  • More than 70% of businesses classified as small and medium-sized enterprises in Dubai, many owned by Indian nationals, may not survive over the months to come.
  • The labour critical industries such as tourism, conventions, hospitality and airlines are bearing the immediate brunt.
  • The UAE’s hospitality sector itself contributes 4.6% of the country’s GDP, making nearly 600,000 jobs that are mostly fulfilled by foreign workers.
  • Some reports suggest that up to 30% of these jobs could be lost.

3. Wealth Funds and Real estate:

  • The major sovereign wealth funds and other financial institutions in West Asia have been hit hard by COVID-19 as well.
  • The real estate and retail portfolios have shrunk dramatically over the last three months.

4. Fall in consumer spending:

  • In Saudi Arabia, consumer spending for April 2020, compared to the same time last year, was reportedly down by 34.6%.

5. Blow to reforms initiated:

  • The oil price crash is expected to have a significant blow on the reform plans initiated by Crown Prince Mohammed bin Salman.
  • Among the mega-projects that could be hampered include the envisioned $500 billion futuristic mega-city of Neom planned on the coast of the Red Sea.
  • It would affect the structural efforts to open up the Saudi economy and move the country’s financial ecosystem away from its overt dependence on Petro dollars.

Importance of the Gulf:

1. Remittances:

  • An estimated figure of close to nine million Indians work in West Asia, responsible for sending back more than 56% of India’s annual remittances.
  • The UAE alone is responsible for $19 billion in remittances, being the third largest trade partner of India after the United States and China.
  • The highest number of Indians abroad were in UAE, pre COVID-19, followed by Saudi Arabia, US, Kuwait, Oman, Qatar etc.

2. Oil:

  • India gets around 60% of its hydrocarbon requirements from West Asia.
  • On an annualised basis, India saves up to $1.35 billion for each $1 drop in oil prices.
  • India has taken the advantage of the low prices to build up its strategic reserves and is looking at offshore storage options.

3. Investment:

  • India attracts a huge investment in terms of Foreign Portfolio investment and Foreign Direct Investment from the Gulf region.
  • A strong, positive message to West Asian investors to keep their confidence high in India is the need of the hour.

Impacts on India:

  • India has repatriated thousands of its citizens from around the globe, a majority of whom are expected to be from the West Asia region.
  • India will also share the brunt with West Asia, and both are well placed to help each other in this regard.
  • There will be a significant loss of trade revenue and remittances.
  • Further the return of semi-skilled and skilled workers into an economy already struggling with jobs may become a point of worry.
  • To mitigate the same, the government has launched the Skilled Workers Arrival Database for Employment Support (SWADES) which attempts to capture the skills profile of returning workers and house them in a central portal that can be accessed by Indian and foreign companies.
  • However, much more needs to be done with regard to reverse-migration and the economics attached to it.

Way Ahead:

  • India needs to sustain the investments which it has had in the past from the Gulf countries.
  • The confidence building steps include working with the government of Maharashtra to expedite land acquisition for the $50 billion mega-refinery project which Saudi Aramco and the Abu Dhabi National Oil Company have committed to investing $25 billion.
  • Fast-track resolution of endless litigation that has affected the sale of a major stake of Mumbai airport by GVK to a consortium including the UAE sovereign fund, Abu Dhabi Investment Authority (ADIA) will also send out a positive signal to the markets.
  • Some of the UAE’s largest companies such as Etisalat, Emaar and Etihad have previously had a tough time with their investments in India.
  • By creating immediate success stories, India has the opportunity to transform the landscape and attract the kind of long-term capital that the economy needs.
  • India needs to engage more on bilateral and multilateral manner with the region to maintain the friendly terms in the long run.

Conclusion:

The COVID-19 pandemic has shattered lives, economies and even political and global institutions, the post-pandemic diplomatic relations and economic ties will be drastically different than at the present. Keeping in mind the significance of the Gulf region, India must respond more productively to sustain the strategic and economic cooperation from the countries.

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