Trade ties strengthen between UAE and India

The UAE is now India’s top export destination, accounting for more than 10 per cent of its tangible exports.

India’s trade relations with the UAE date back thousands of years, beginning with the barter of pearls for cotton and dry fruits for grains. The business ties have grown stronger out of centuries of exchange of culture, commodities and ideas.

The next chapter in this long partnership is beginning. Last week, more than 30 government and private sector representatives from both countries met at the Taj Mahal Palace Hotel in Mumbai to agree priority sectors for investment. A key focus is infrastructure, in which about US$1 trillion is needed by 2018 to meet India’s ambitions.

India is on the move. Its young and rapidly growing population is urbanising, increasing the economic power of its cities. Alongside the rise of cities is the rise of an aspiring Indian middle class with improved access to jobs, markets and the urban infrastructure. It is estimated that cities could account for 70 per cent of net new jobs by 2030.

India’s infrastructure needs are huge, but infrastructure investment is falling. The government is taking action. Chaired by the prime minister Manmohan Singh, the cabinet committee on investments (CII) is fast-tracking approvals of key projects, many of which have stalled because of bureaucratic impasse. To date, the CII has salvaged nearly 125 projects .

With about 48 per cent of India’s $1tn infrastructure need coming from the private sector, the government recognises the importance of revitalising investor sentiment.

The Gulf is well placed to help. In 2013 the UAE promised $2 billion for infrastructure in India. In 2012, foreign direct investment (FDI) projects from the Middle East rose 123.3 per cent on the previous year.

The recent decision by Abu Dhabi National Energy Company (Taqa) to purchase two hydropower assets in the northern state of Himachal Pradesh, making it the largest private operator of hydroelectric plants in India, reasserts the logic of growing investments in India from the UAE.

Trade between the two regions has grown quickly, reaching $75bn in 2012-13, up from $43bn in 2009-10. Indeed, the two countries have been selected in the United Nations Conference on Trade and Development list of top 10 most promising investor economies for FDI in 2012-14.

The UAE is now India’s top export destination, accounting for more than 10 per cent of its tangible exports. As compared to this, an estimated $8bn from the UAE is invested in India, a large proportion of which is held passively in company shares and other assets with only $2.3bn in the form of FDI.

Discussions took place at the Taj Mahal Palace regarding expediting the resolution of current challenges associated with existing UAE investments in India, notably those of Etisalat, Emaar and DP World. This is encouraging.

Efforts to improve investor sentiment and strengthen economic ties point to the success of the joint “high-level task force” set up in May 2012 to foster cooperation. The Bilateral Investment Promotion and Protection Agreement signed on December 12, 2013, which serves to protect investments in both countries, also sets out robust framework for bilateral engagement.

While the UAE is an obvious capital partner to help India build the roads, railways and soft infrastructure it needs, deepening economic cooperation is not a one-way street.

The UAE is expected to spend heavily on transport and logistics infrastructure in preparation for Expo 2020. This represents an opportunity for more Indian companies. The UAE is also quickly becoming a global transit point and gateway to India, Africa and Asia.

India is expected to become the UAE’s biggest export destination by 2030, when it is forecast to account for an estimated 14 per cent of goods. Increased inward investment from the UAE could help India create the conditions for growth in the long term.

Over the next 20 years, South-South relationships based on increased economic and strategic cooperation are expected to become more important to the world economy. The relationship between India and the UAE could be a leading example.

Jonathan Robinson is the HSBC head of banking in Mena and Sunil Sanghai the HSBC head of banking in India.

Published: March 12, 2014 04:00 AM

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