#142: India-UAE Relations

GS2 IR Notes

PM Modi recently flew back to India from UAE after inking a deal of Rupee-Dirham trade.

This blog post will give you an insight into India-UAE relations over the years.

Introduction

The two countries share age old ties in field of:

• culture

• religion

• economy

• diaspora in UAE

3m+ Indians live in UAE and UAE’s Look East brought it closer to India to address the economy, manpower and security concerns.

India’s success in maintaining political stability in a region of utter chaos, rising economic power and demography presents a lucrative option for UAE.

This saw both countries signing Comprehensive Strategic Partnership (CSP) in 2017

But what pushed UAE towards India?

• Geopolitical tensions in Iran and UAE’s interest in Strait of Hormuz

• India’s market appetite for oil and UAE’s sovereign wealth funds offering fair RoI

• UAE lost 5 diplomats in Kandahar (Afghanistan) which brings terror convergence to the plate among India and the UAE

• UAE’s first set partnerships with Pakistan incorporating deep relationship. But Pak’s internal polity, religious fanaticism, and depleting economic standing drifted UAE away.

• Depleting essence of Gulf Cooperation Council and new India’s rise on the global platform

UAE-India relations

Economic Relations

• UAE’s one of the leading FDI sources in India

• 8% of oil imports (5th largest) come from UAE

• UAE is India’s 3rd largest trade partner after China and the US

Security and Defense Cooperation

• Desert Eagle, 10 day air combat exercise organized b/w two

• Terror convergence is finding pace in the relationship of the two countries

Golden Visa

• 2019 scheme of UAE to offer long term residence visas (5-10 years)

• Open to high net worth or high skill individuals

  • Investors, entrepreneurs, businesspersons above certain threshold

  • Researchers, medical professionals, RnD professional, SnT professionals

• Why this scheme?

  • Must to keep talented, skilled and high net worth individuals in UAE as many left amidst COVID19 lockdowns

  • To attract talented professionals to foster the innovation and bring greatest minds of the world to Dubai.

Concerns

• India’s slow pace of execution puts many investors off

• Reduced bilateral trade; rise of imports from Russia and diversified resources

• Workers from Bangladesh and Philippines have started to replace Indians

Recent wins from the PM Modi’s visit

• IIT Delhi campus in Abu Dhabi

• One MoU to put framework for the promotion of local currencies for trade to push for the trade in Rupee and Dirham across the borders

  • To further the investments and remittances b/w two countries

  • Local Currency Settlement System to promote use of rupee and dirham bilaterally

  • This will allow invoicing in local currencies thus developing forex market for INR-AED

  • Will help

    • averting the exchange rate risks (high in use of USD)

    • increasing cooperation among banks

    • explore competitive pricing

• Second MoU aims at interlinking payment & messaging systems

  • Enables “fast, convenient, safe, and cost effective” cross border transactions

  • UPI to be linked with UAE’s Instant Payment Platform alongside, RuPay Switch and UAESWITCH card switches

  • Card switches entail facilitating communications and transactions b/w different payment providers

  • This will make remittances faster and easier for low wage earners to send money back to home in India

  • MoU will further facilitate mutual acceptance of domestic cards & process transactions

• Discussions on I2U2 and UAE-France-India Trilateral cooperation where the collaborations are explore with other powers

Conclusion

• India-UAE relations are a pivot of India’s Look West policy

• INR-AED trade will give further strength to the respective currencies

• Abraham Accords bring further fresh opportunities in the relationship making UAE as logistics hub for Asian economies

• Multi-domain partnerships in shared economic vision and geopolitical outlook reflect a strong point of reference for both the parties

Way Forward

• Fresh impetus to Medical tourism needed

• India shall explore renewable energy investments

• Faster execution of the investment projects by India is a must

• Join training programs shall be taken up to strengthen defense cooperation

• Strengthen the collective voice on the international platforms against terror

• India shall further explore collabs in food, agri, automobiles and related industries

  

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