INTERNATIONAL/ ECONOMY/ SECURITY
Topic: General Studies 2,3:
- India and its neighborhood- relations
- Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.
In pandemic crisis, bridging the gulf with West Asia
Context: The COVID-19 Pandemic has impacted the political, economic and institutional architecture of the world. As a result, the relationship between India and West Asia is also poised to face some turbulence
Impact of Pandemic on West Asia
- Fiscal Pressure on West Asian Governments: The slowdown in Oil demand caused by disruptions induced by Pandemic will reduce the revenues of these countries
- Business Closures: According to a Dubai Chamber of Commerce & Industry survey, more than 70% of businesses classified as small and medium-sized enterprises in Dubai, many owned by Indian nationals, may not survive near future
- Labour Critical industries like tourism, conventions, hospitality and airlines would face immediate brunt due to labour shortage caused by out-migration of blue collar workers to their home countries
- Example: UAE’s hospitality sector itself contributes 4.6% of the country’s GDP, making nearly 600,000 jobs that are mostly fulfilled by foreign workers. Some reports suggest that up to 30% of these jobs could be lost.
- Reduced Consumer Spending: In Saudi Arabia, consumer spending for April 2020, compared to the same time last year, was reportedly down by 34.6%
- Slows the reform plan: Reduced GDP is expected to have a significant blow on the reform plans initiated by Saudi Arabia’s Crown Prince Mohammed bin Salman like opening up the Saudi economy and moving the country’s financial ecosystem away from its overt dependence on petro dollars.
Impact of Pandemic on India-West Asia relationship
- West Asia/Gulf region holds a significant court for strategic, economic and even domestic political agendas, ranging from migration to energy security.
- Reverse migration: The pandemic has initiated a reverse migration of Indian blue-collar workers as projects in oil-rich States has stalled
- Reduction in salaries of Indian workers: The oil price crash will carry massive costs to the West Asian economies, and, by association, to foreign workers employed there.
- Reduction in remittances: Overall, close to nine million Indians work in West Asia, responsible for sending back more than 56% of India’s annual infusion of $80 billion in remittances which will reduce in the wake of reverse migration
Oil and investment – an opportunity for India
- India gets around 60% of its hydrocarbon requirements from West Asia.
- The reduction oil prices have helped cushion the impact of the national lockdown on the India’s balance of payment
- On an annualised basis, India saves up to $1.35 billion for each $1 drop in oil prices.
- India has also taken advantage of the low prices to build up its strategic reserves and is looking at offshore storage options.
- The major sovereign wealth funds and other financial institutions in West Asia have been hit hard by COVID-19 as well. The economic reforms recently announced by India can help attract these funds who are looking for better avenues
- Central government needs to work with the government of Maharashtra to expedite land acquisition for the $50 billion mega-refinery project as Saudi Aramco & the Abu Dhabi National Oil Company have committed to investing $25 billion in the project
- Fast-track resolution of endless litigation that has stopped the sale of a major stake of Mumbai airport by GVK to a consortium that includes the UAE sovereign fund will send out a positive signal to the markets
- Government has set up an empowered group headed by Cabinet Secretary Rajiv Gauba to take necessary steps to attract FDI into India. This mechanism has to take up West Asia on priority.
- To mitigate the problem of return of semi-skilled and skilled workers into an economy already struggling with jobs government has launched the Skilled Workers Arrival Database for Employment Support (SWADES)
- SWADES attempts to capture the skills profile of returning workers and house them in a central portal that can be accessed by Indian and foreign companies. There has to be effective utilization of this initiative