Despite the Gulf region being home to the largest Indian expatriate community with long-standing relations, its enormous economic potential remains unexplored. Countries of Gulf Cooperation Council (GCC) consisting of United Arab Emirates (UAE), Saudi Arabia, Oman, Qatar, Kuwait and Bahrain with over 8.5 million non-resident Indians, constitute 65 per cent of total NRIs.
GCC was the source of the largest foreign inward remittances, garnering 30 per cent of total remittances (RBI Bulletin, July 22 p 143). Given India’s rising trade engagement with GCC and its dependency on petroleum products, the importance of pursuing a comprehensive economic cooperation agreement (CEPA) with GCC cannot be overestimated. Eighteen years after India’s signing of a framework agreement on Economic Cooperation with GCC, hardly any worthwhile progress has been made despite holding two rounds of negotiations in 2006 and 2008.
Trade deficit with GCC
India’s trade deficit with GCC soared from $13.4 billion in 2016-17 to $66.8 billion in 2021-22. Among the GCC countries, the UAE is India’s major destination for exports worth $28 billion, followed by Saudi Arabia ($8.8 billion), Oman ($3.1 billion), Qatar ($1.8 billion), Kuwait ($1.2 billion) and Bahrain ( $900 million) in 2021-22.
India had the highest trade deficit (2021-22) with Saudi Arabia ($25.3 billion), followed by the UAE ($16.8 billion), Qatar ($11.4 billion), Kuwait ($9.8 billion), and Oman ( whereas India had a trade surplus of $147 million with Bahrain.
In 2021-22, India had a trade deficit with GCC countries in petroleum products, pearls, precious and semi-precious stones, gold, fertilisers, plastic raw materials, organic chemicals, aluminium products, inorganic chemicals, bulk minerals and ores, dye intermediaries, among others.
India imported 87 per cent of oil consumed during April-September 2022. Petroleum and petroleum products are among India’s top imports from GCC accounting for 66 per cent of its total imports of $119 billion in 2021-22. India is a supplier of agricultural and manufactured products to GCC and enjoyed a trade surplus in agricultural products ($5 billion), engineering goods ($4 billion), textiles ($3.4 billion), electronic and software products ($2 billion) and pharma products ($488 million) in 2021-22.
GCC profile
The GCC countries are leading exporters of petroleum and mineral oils accounting for about 70 per cent share in their exports, contributing to a significant trade surplus of $273 billion in 2021 with their exports of $715 billion far exceeding their $442-billion imports.
Other major GCC exports include derivatives of petroleum by-products, such as plastics (5.2 per cent), organic chemicals (3.3 per cent), and fertilisers (1.4 per cent). However, due to fall in global oil prices, GCC exports declined from $1.1 trillion in 2013 to $650 billion in 2020 whereas its imports reduced marginally from $567 billion to $476 billion during the same period. Consequently, it led to decline in GCC exports’ share in the world market from 5.7 per cent in 2013 to 3.3 per cent in 2021.
However, owing to a revival in oil prices in 2022, the World Bank expects the economies of GCC to expand by 6.9 per cent in 2022, before moderating to 3.7 per cent and 2.4 per cent in 2023 and 2024. The external balance surplus is expected to reach 17.2 per cent of GDP. In a scenario of India’s oil dependency, India’s trade deficit with GCC is expected to rise sharply, mirroring their favourable external balance.
Major GCC imports (2021) consist of electric machinery and equipment (11.2 per cent), machinery and mechanical appliance (11.1 per cent), vehicles (8.4 per cent), and pharmaceutical products (3.1 per cent). Saudi Arabia has the highest exports of $268 billion followed by the UAE ($240 billion), Qatar ($80 billion), Kuwait ($57 billion), Oman ($56 billion) and Bahrain ($12 billion).
For mutual benefit
India offers a lot of complementarities in trade with GCC countries, as these nations provide for India’s energy security, while India ensures their food security.
Besides, India, the world’s fastest growing and vast market of 1.4 billion people, offers immense economic opportunities.
In view of the tremendous potential for trade, India and the GCC need to go beyond the traditional Free Trade Agreement (FTA) and include investments and services as a part of comprehensive economic partnership.
India and the UAE hammered out a Comprehensive Economic Partnership Agreement in record time. The CEPA was concluded was concluded on February 18, 2022, merely six months after the commencement of negotations, on September 2021. Under the CEPA, that came into force on May 1, 2022, Indian merchandise got preferential market access to the UAE on over 97 per cent of its tariff-lines accounting for 99 per cent of India’s exports to the UAE in value terms largely for labour intensive exports, besides enhanced access to over 111 sub-sectors from 11 broad services sector. In a rapidly emerging multipolar world, early and effective implementation of CEPAs would provide a boost to India and GCC countries.
The writer is Director, Indian Institute of Plantation Management, Bengaluru. Views are personal