India-UAE’s Growing Trade Ties

Countries in the Middle East have had strong political and economic relationships with India for centuries. This included people-to-people contacts, as well as barter of textiles and spices from India for dates and pearls in the region. Sharjah and Dubai were the main hubs for trade with the Western coast of India and, in particular, the Malabar Coast.

Dubai has traditionally served as an entrepôt for trade between the Middle East and the Indian subcontinent, with trade largely dominated by merchants in the gold and textile sectors.

“The discovery of oil brought with it an influx of workers from India in the 1960s. Indian migration to the UAE increased significantly in the 1970s and 1980s, with the expansion of the oil industry and the growth of free trade in Dubai,” says Dr. Ashraf Mahate, head of export market intelligence at Dubai Exports.

But the nature of this relationship has evolved, changing more in the last 10 years than in the past hundred.

“Until the beginning of the 21st century, India was largely credited only for being a source of cheap and abundant labour. In the last ten years or so, the profile of the average Indian in the UAE stands changed. The increasing number of entrepreneurs, investors and skilled professionals is the new face of the relationship today,” says Sanjay Verma, the consul general of India.

Historically, pearls, semi-precious stones and precious metals comprised the majority of trade and that is still the case today. Currently, major Indian exports include gems and jewellery, petroleum products, machinery and instruments; while major imports include gold, precious stones & gems, machinery and electronics. High gold prices have benefitted Dubai as the Indian market is a major source for exporters.

With such a strong and historical influence it is no surprise that India is the largest trading partner with the UAE. Annual bilateral trade between the UAE and India, including oil, now stands close to $75 billion.

In 2012, India was Dubai’s largest export destination accounting for 20 per cent with a value of Dhs32 billion. It was also the largest re-export destination at 15 per cent with a value of Dhs51 billion, and the third largest import destination with 9.3 per cent at Dhs68 billion.

“Today, India is Dubai’s number one trade partner, with goods worth almost Dhs206 billion traded in 2011. During the first quarter of 2013, Dubai- India total trade was valued at almost Dhs40 billion,” said Hamad Buamim, director general of the Dubai Chamber of Commerce.

For example, as of 2011, Dubai Chamber had around 21,000 Indian companies registered with them. The Sharjah Chamber had 9600, Ajman Chamber around 2600, Ras Al Khaimah over 1700, and the Jebel Ali Free Zone around 700.

AGREEMENTS GALORE

All UAE free trade negotiations are carried out within the framework of the GCC. A Framework Agreement on Economic Cooperation between India and the GCC was signed on 25th August, 2004. In this agreement both parties considered ways and means for extending and liberalising trade relations and initiating FTA feasibility.

The first round of trade negotiations were held in Riyadh in March 2006. During this round, GCC agreed to include services, goods, as well as investment and general economic cooperation in the GCC-India FTA. The second round of negotiations were held in Riyadh in September 2008. The Proposed Tariff Liberalisation Schedule was discussed during this round.

There have been further discussions between the GCC and India regarding free trade.

“A Double Taxation Avoidance Agreement was signed between the two countries in 1992. A high level task force on investments was set up to increase investments from UAE to India. The first meeting of the task force was held in February 2013. A Bilateral Investment Protection Agreement is also on the anvil,” says Verma.

COMMUNITY DEVELOPMENT

Dubai has traditionally been a popular base for many enterprising Indian businessmen and traders. The Indian community is the largest in the UAE, in terms of population as well as business. In turn, Indians have contributed significantly to the economic fabric and business community of Dubai.

The Indian Embassy based in Abu Dhabi estimates that the Indian community in the UAE numbers 1.75 million people, constituting around 30 per cent of the total population. Rough estimates suggest that 50 per cent of these are skilled and semi- skilled workers, and the other half are entrepreneurs, professionals, and service industry support staff.

“The first private hospitals and schools in the country were owned and managed by Indian businessmen. They have also played a role in the arts and culture through their patronage and financial support,” says Dr. Mahate.

For instance, between 2009 and 2012 Dubai Chamber’s Indian membership rose 41 per cent, to 24,566 in 2012, after rising around 12 per cent each year.

“In terms of Dubai Chamber, our Indian membership is one of our largest nationalities. As of May 31, 2013, we have a total of 25,972 Indian partnerships and full-ownership companies among our members,” said Buamim.

“The Indian community has been active in all sectors of the business community, working both to create the physical landscape of the country, as well as behind the scenes. This will be the case for many years to come,” he adds.

Riding on the fact that India-UAE trade is now touching over $1.3 billion a week, with Indians among the biggest investors in the UAE, a new crop of Indian entrepreneurs are adding to the competitive edge that the UAE has begun to enjoy in the region and the world at large.

“Indian entrepreneurs can justifiably take credit for world class business models operating out of the UAE, the areas of private school education, health sector, the retail space and trade. The other areas of excellence brought in by Indian professionals is in banking, education and accountancy,” says Verma.

WAY FORWARD

The UAE and India have a multi- dimensional partnership. While trade and oil continue to lead the economic ties between the two countries there exists emerging synergy in the new investment areas like infrastructure, ICT, and food processing.

With the liberalisation of key sectors in India like telecommunications, housing and real estate, construction, petroleum and natural gas, there
are increasing opportunities for UAE investment into India.

“Now India and the UAE have a huge opportunity to expand on their economic synergies to build even stronger growth momentum. The opportunities extend beyond the buyer seller relationship to a partnership level, involving joint ventures and transfer of technology arrangements, which can benefit both economies immensely,” says Buamim.

This is despite India’s current challenges posed by its fiscal and current account deficit. “We expect the RBI to continue with its calibrated easing of monetary policy and reduce repo rates by 50 bps over the next six months,” says Tim Fox, chief economist and head of research at Emirates NBD.

The recent reforms in India to boost FDI into the retail and aviation sector also offer huge potential for the UAE. Abu-Dhabi based Etihad Airways is already in the process of acquiring stakes in Jet Airways. Additionally, UAE- based retail giants like the EMKE Group and Landmark Group are expanding their presence in India.