India and the Arab League: Walking the Trade Talk


India hosted the 4th India-Arab Partnership Conference late last month as part of the Modi administration’s efforts to elevate the level of engagement between the two sides. The conference, organized by the MEA in association with the Federation of Indian Chambers of Commerce and Industry (FICCI) and the League of Arab States (LAS), was inaugurated by Smt. Nirmala Sitharaman, Minister of State for Commerce and Industry.

Sitharaman emphasized the importance of Arab public and private sector investments in India and stated that “the Indian growth story would be incomplete without the participation of friends like the Arab League.” The movement of wealth and economic power from West to East is essential to tap “unexplored potentialities” of these markets and there are numerous opportunities in the areas of pharmaceutical and healthcare, manufacturing and infrastructure, wind and solar energy, as well as shale gas recovery.

The event echoed the Modi government’s agenda of economic reforms and deeper economic engagement globally and regionally, by institutionalizing a platform for raising the volume of trade and investment between India and the LAS. Twenty members of the LAS, including ministers from Saudi Arabia, Kuwait, Palestine and Oman, participated in the conference. MoUs were signed with the Bahrain Chamber of Commerce and the Federation of Arab Businessmen and Saudi Arabia and Jordan participated as partner countries.

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The conference came soon after the India-Arab Cooperation Forum held on November 7, 2014 which gave a boost to the Memorandum of Cooperation (MoC) inked in December 2013. The MoC was a renewal of the Arab-India Cooperation Forum agreement signed in December 2008. Even though the agreements were signed under the aegis of the Congress-led UPA government, little progress was made in implementing their tenets.

The agreements were aimed at structuring Indo-Arab engagement on a range of bilateral, regional and global issues. They outlined action plans for annual ministerial level exchanges, joint ventures in energy cooperation, and media cooperation, among other areas. High-level political engagement was limited during the UPA tenure, and even though trade grew at 15 percent annually, India failed to exploit the full potential of gulf reserves. The Modi government, on the other hand, has displayed diplomatic activism and undertaken a number of policy initiatives to elevate Indo-Gulf economic ties.

The Modi government hosted the first session of the India-League of Arab States Media Symposium in August, just a few months after being elected to power. The symposium brought together media personalities from India and the Arab world and emphasized their role in promoting constructive dialogue between the two sides.

Soon after, Indian External Affairs Minister Sushma Swaraj travelled to Bahrain and the UAE to promote Indo-Gulf economic ties. The government reiterated a transparent and conducive business environment, including reduced FDI caps, to promote Gulf investment in Indian infrastructure development.

The government has also proposed tax incentives for the Investment Infrastructure trust and the Real Estate Infrastructure trust to promote foreign investments. Gulf investment becomes more critical as Indian infrastructure projects require an estimated $1 trillion over the next five years. The conclusion of the 7th Indo-Oman joint commission meeting and the India-Egypt Joint trade committee, in the last few months, indicates the government’s desire to give impetus to trade relations.

Even though total trade between India and the LAS amounts to $185.6 billion, the trade profile lacks diversification and a huge export market remains untapped.

From 2000 to 2014, the FDI flows from the Gulf to India have stood at a modest USD 3.2 billion with UAE accounting for 1.23 percent, Oman for 0.16 percent and Saudi Arabia for 0.02 percent of total FDI inflows into India. Thus, the GCC collectively accounts for only 1.5 percent of total FDI inflows, while accounting for 19 percent of exports and 28 percent of imports.

A burgeoning trade deficit, owing to energy-dominated trade patterns, is not sustainable for India in the long run. Negotiations over the Indo-GCC Free Trade Agreement, launched in 2005, have also not witnessed any real progress.

As the Arab-Persian rivalry increasingly defines the regional environment, particularly in Syria, Bahrain, Lebanon and Yemen, India is confronted with new challenges in calibrating its West Asia policy. However, economic imperatives have informed India’s relations with the Arab League.

India voted in favor of the Arab League’s peace plan for Syria at the United Nations in February 2012, despite close relations with the Assad regime. While New Delhi insisted that the draft resolution did not call for regime change in Syria, the vote followed two previous abstentions that condemned Assad and called for him to step down. Given that the Arab League’s stance on Syria was to the benefit of Sunni regimes, India’s vote underscores the rising importance of its relations with the Gulf petro-monarchies.

In the first high-level Indian visit to the region after the Arab Spring, former External Affairs Minister S.M. Krishna travelled to Cairo in March 2012, to engage with the LAS leadership, representatives from Qatar, Libya and Iraq, and the transitional Egyptian leadership. With Iran, Syria and Afghanistan as central points of discussion, engagement with the LAS allowed New Delhi to assess the Arab-Persian dynamic as critical to its own interests in the region.

The League has sought a larger role for India in the peace and stability of the region. India’s formal ties with the LAS date back to 2002 wherein both sides inked a MoU, institutionalizing regular Arab-India political consultations. India was the first non-Arab nation to be conferred with Observer Status at the League and is invited to attend LAS summits.

At the third round of the India-Arab League dialogue in May 2007, visiting envoy Hashem Youssef stated that India can use “its weight in the international community” and “with other countries to advance Middle East peace.” Youssef also described India as an “emerging power” and expressed support for India’s bid for a permanent seat at the UNSC. The League has also refrained from adopting a position on the Kashmir dispute, alleviating concerns that it would tow the OIC line.

The LAS can serve as a platform for facilitating deeper political and economic ties between India and the region, even though concerns have been raised about its effectiveness.  It offers India an institutional framework for regulating and expanding its influence in the region. Economic and strategic complementarities necessitate that India capitalize on this political space.

Kanchi Gupta is a Junior Fellow at the Observer Research Foundation, Delhi.

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