India-UAE Economic Relations Set To Reach New High With Food Security Pact

India and the United Arab Emirates (UAE) are all set to deepen their already warm relationship. The development is bound to have a beneficial bearing on India’s relations with the other countries of West Asia.

Topping the list is a food security cooperation under the I2U2, a new West Asian quadrilateral initiative, including Israel and the US besides India and the UAE. The stage has been set for an agreement on food security cooperation in the wake of India’s External Affairs Minister S. Jaishankar’s talks with UAE Foreign Minister Sheikh Abdullah bin Zayed Ali Nahyan this month. It may be mentioned that a delegation led by the CEO of ADQ, an active investor and a sovereign wealth fund located in Abu Dhabi, visited India in October this year for detailed discussions with the stakeholders.

On its part, the I2U2 leaders’ summit, held in July had decided to harness private capital among the member countries for projects on agriculture, infrastructure, water, energy, transportation and digital connectivity. It is gratifying to note that bilateral relations between India and the UAE had registered an “appreciable growth” ever since the conclusion of a landmark Comprehensive Economic Partnership Agreement (CEPA) in February 18 this year. Subsequently, Prime Minister Narendra Modi had visited Abu Dhabi on June 28 on his way back home from Europe. He was welcomed by UAE Sheikh Mohammed bin Zayed Ali Nahyan. Incidentally, it was Modi’s fourth visit to the UAE.

The headway made is visible in a 24 per cent increase in India’s exports to UAE between April and September in 2022. While India’s exports were in the region of USD 16 billion, imports recorded a 38 per cent rise to touch USD 28.4 billion in the same period. The bilateral talks also concluded that there was scope for further cooperation in the fields of energy, healthcare, defence, space, climate change, skills, fintech and start-ups.

The growing warmth in the ties between the two countries is evident in India’s talks with UAE and Saudi Arabia to allow settlement of trade in Indian rupee. Reports have it that the Reserve Bank of India and the Finance Ministry are working on a mechanism to facilitate trade in the Indian currency.

If the talks fructify, it will be a major gain for Indian businessmen as UAE is a big market for India. There is a rub, however. Since India is a net importer from both UAE and Saudi Arabia, the excess rupee management could prove ticklish. Incidentally, India’s exports to UAE and Saudi Arabia posted a decline in October 2022.

Bilateral ties received a big boost when UAE became the highest contributor to Foreign Direct Investment in India from Gulf countries. UAE invested, between 2017 and 2021, nearly $6,488.35 million in India. Saudi Arabia is also a significant contributor to FDI in India.

India and UAE have a special relationship as close to 35 lakh Indians live there. Not surprisingly, remittances from UAE have recorded a five per cent increase in recent months.

The break-up of major investment in India from Gulf countries is as follows: $6488. 55 million from UAE; $3058.25 million from Saudi Arabia, $223.49 million from Qatar; $181.45 million from Bahrain, $109.25 million from Oman and $37.91 million from Kuwait.

Also, the period between June 2020 and December 2021 saw the return of Indian migrant workers from the Gulf countries. These included 1,52,126 from UAE, 1,18,064 from Saudi Arabia, 51,206 from Kuwait, 46,003 from Oman and 32,361 from Qatar.

Available figures say that the number of people who left India to work in Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the UAE , between June 2020 and December 2021 is 1, 41,172.

It may be mentioned that the RBI had, in July, announced a policy decision to allow trade settlements between India and other countries in rupee. The notification, issued on July 11, said that it had been decided to put in place an additional arrangement for invoicing, payments, and settlement of exports and imports in INR. This has been done to promote global trade with accent on exports from India and to support the rising interest of global trading community in INR.

Significantly, two Russian banks, Sber Bank and VTB, are the first foreign lenders which have secured the RBI’s approval to open special Vostro accounts to trade in rupee. The RBI is learnt to have given approval to the HDFC Bank and Canara Bank to open special Vostro accounts for trade settlement in Indian currency with Russia. Three other banks, Uco Bank, Union Bank and IndusInd Bank, have also managed to get approval for opening Vostro accounts

Vostro account maintains holding of the foreign entity in Indian banks in rupee. The advantage is that traders, irrespective of whether they are exporters or importers, can receive or make payments through this account. (IPA Service)