India-Gulf economic ties

INTERNATIONAL/ ECONOMY

Topic: General Studies 2 & 3:

• Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora. 
• Energy Security

India-Gulf economic ties

The gulf region is facing multiple challenges

• COVID-19 pandemic spreading in this region as well with Iran emerging as hotspot
• Oil price meltdown
• Rising tensions between Iran-US
• Tensions between Russia-Turkey in Syria
• Proxy war between Saudi Arabia and Iran in Yemen
• Prospects of US-Taliban deal emboldening other terrorist & extremist groups

All these leads to challenges in India’s relationship with the countries in the region which needs to be anticipated and managed well.

Do You Know?

• COVID-19 has lowered the world crude consumption by 28 million bpd. 
• OECD has suggested a 20% loss to GDP for India.
• Developing countries’ oil and gas revenues may decline by 50% to 85% in 2020, as per estimates by OPEC and IEA

Impact of Oil Prices on Gulf-region’s economics

• For Saudi Arabia, the fiscal break-even oil price is $85 per barrel
• However, the oil prices have fallen by 55% during March to an 18-year low of $25 
• Even if the countries in Gulf-region (dependent on oil revenues) revives it growth in 2021, the process may be 
  • Slow and less energy-intensive as importing countries would focus on self-reliance and on strategic goods such as pharmaceuticals deterring oil trade
  • Tourism and hospitality sectors, another source of revenue, may take much longer to recover due to erosion of wealth & incomes caused by pandemic

India’s economic ties with the Gulf states is based on two dominant verticals 

1. Economic symbiosis (Trade) – 

• In 2018-19, the India-Gulf trade stood around $162 billion (crude oil and natural gas worth nearly $75 billion) 
• The India-Gulf trade accounted for nearly a fifth of India’s global trade.
• These countries have made (or planned) large investments in India

2. India’s expatriate community

• They number at around nine million
• Contribute nearly $40 billions of remittances to India

Challenges in future vis-à-vis India-Gulf relationship

• • In Short run- India being the world’s third largest importer of crude, decline in oil prices helps its current account. 
  • The Gulf’s lower oil revenues mean decreased long term investments by Gulf States in India
  • Slowing gulf economy means reduction in expatriates’ remittances also

• Impact on Indian diaspora

• • The fresh recruitment stops, 
  • Salaries are either lowered or stalled and taxes raised 
  • Localisation drives launched forcing large scale exodus of Indians workers
  • This creates a logistical nightmare of transporting millions of expatriates back to India
  • Return of expatriates has an added complication of the pandemic
  • There are also issues of getting these people resettled and re-employed.

Way Forward

• India should enhance the capacity of gulf states to handle COVID-19 cases among the Indian expatriates.
• India’s missions in these states need to monitor the situation and try to avoid panic among its nationals.
• Necessary to find new drivers for the India-Gulf synergy which could be
  • Pharmaceutical research and production, 
  • Petrochemical complexes, 
  • Building infrastructure in India and in third countries, 
  • Agriculture, 
  • Education and skilling
• Creation of bilateral free zones along Arabian Sea coast eventually leading to an India-Gulf Cooperation Council Free Trade Area.

Conclusion

• There is a need to sufficiently diversify the India-Gulf economic ties so as to protect them from such shocks.