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
- 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
- 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.
