India-UAE: A Strong Partnership Explore Trade, Investment | UPSC

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Introduction

  • India and the UAE share strong bilateral relations rooted in historical ties, cultural connections, and mutual aspirations.
  • Diplomatic relations between India and the UAE were formally established in 1972.
  • The UAE opened its Embassy in India in 1972, while India established its Embassy in the UAE in 1973.
  • The relationship saw a major shift in 2015 when Indian Prime Minister Narendra Modi made a landmark visit to the UAE.
  • This visit marked the first by an Indian Prime Minister in 34 years, following Indira Gandhi’s visit in 1981.
  • The visit elevated the India-UAE relationship to the level of a Comprehensive Strategic Partnership.
  • Currently, Abu Dhabi Crown Prince Sheikh Khaled bin Mohamed is visiting India, further deepening ties between the two nations.
  • Several key agreements have been signed during the visit, enhancing cooperation in various sectors.

Agreements Signed During UAE Prince’s Recent Visit to India

Nuclear Energy Cooperation:

  • A Memorandum of Understanding (MoU) was signed between Emirates Nuclear Energy Corporation (ENEC) and the Nuclear Power Corporation of India Ltd (NPCIL). This agreement aims to boost collaboration in the operation and maintenance of nuclear power plants, sourcing of nuclear goods, and related services from India.

LNG Supply Agreement:

  • A long-term agreement was finalized between Abu Dhabi National Oil Company (ADNOC) and Indian Oil Corporation Ltd for the supply of liquefied natural gas (LNG).

Strategic Petroleum Reserve:

  • ADNOC and the Indian Strategic Petroleum Reserve Ltd (ISPRL) agreed to cooperate on strengthening India’s strategic petroleum reserves.

Production Concession in Abu Dhabi:

  • Urja Bharat, an Indian consortium, signed a production concession agreement with ADNOC for Abu Dhabi’s onshore block-one, facilitating Indian involvement in UAE’s oil production.

Food Parks:

  • The government of Gujarat and Abu Dhabi Developmental Holding Company PJSC agreed to collaborate on establishing food parks in India to boost food security and supply chains.

Read also: Nutritional Security in India: Challenges and Solutions | UPSC

History of India-UAE Relations

Initial Phase of Engagement:

      • 1966: Relations strengthened after Sheikh Zayed Bin Sultan Al Nahyan became the Ruler of Abu Dhabi.
      • 1971: Federation of the UAE was formed.
      • 1972: Diplomatic relations between India and the UAE were established.
      • 1981: Indian Prime Minister Indira Gandhi visited the UAE, marking a significant diplomatic event.

Phase of Active Involvement:

      • PM Modi’s Visits: Indian Prime Minister Narendra Modi’s visit to the UAE in 2015 marked the first by an Indian PM in 24 years. He has visited six times since then.
      • Sheikh Mohamed bin Zayed’s Visits: The UAE President has visited India four times since 2016, twice as Crown Prince and twice as President.

Major Achievements of India-UAE Relations:

Economic Relations:

      • Trade: India is UAE’s second-largest trading partner accounting for 9% of its total foreign trade and 14% of non-oil exports. Also, the UAE is India’s third biggest trade partner.
      • In February 2022, the UAE became the first country to sign a Comprehensive Economic Partnership Agreement (CEPA) with India.  Indian exporters facing increased competition will stand to benefit under the CEPA. About 90% of the products exported and 80% of lines of trade will attract zero duty.
      • India-UAE trade rose from $180 million in the 1970s to $85 billion in 2022-23. The goal is to reach $100 billion in non-oil trade by 2030.
      • Major exported items from India to UAE include petroleum products, gold , telecom instruments, pearl, precious and semi-precious stones, iron and steel.
      • Major imported items by India from UAE include pearl, precious and semi-precious stones, petroleum products, plastic, bulk minerals and ores, tanning or dyeing extracts. 
      • In 2022, bilateral trade between India and Saudi Arabia surged to US$ 42.86 billion, positioning Riyadh as Delhi’s fourth-largest trade partner and Delhi as Riyadh’s second-largest trade partner. 
      • Saudi Arabia’s Public Investment Fund (PIF) and Aramco’s mounting interest in India are part of a broader strategic plan to transform Aramco from an oil firm into a global industrial conglomerate and make PIF the largest sovereign wealth fund in the world.
      • NPCI International Payments Limited (NIPL), a subsidiary of the National Payments Corporation of India (NPCI), has partnered with Al Etihad Payments (AEP) to implement the Domestic Card Scheme (DCS) in the UAE aimed at boosting e-commerce, digital transactions, and financial inclusion while supporting the UAE’s digitization goals.

Investments: 

      • UAE is the 7th largest investor in India with cumulative FDI inflows of US$ 16.67 billion from April 2000-September 2023.
      • The UAE’s Sovereign Wealth Fund has backed key Indian projects like the NIIF Master Fund and renewable energy projects.
      • Abu Dhabi has invested over US$ 6 billion in big-ticket investments in the Jio platform, Adani, Tata Motors, and Tata Power.

Energy Security: 

      • The UAE is a key energy partner for India, being the 4th largest source of crude oil and 2nd largest for LNG and LPG imports.

Geo-Strategic Relations:

      • Security Cooperation: Both countries collaborate on military exercises like Desert Cyclone (army), Zayed Talwar (navy), and Desert Eagle (air force). India also has access to the UAE’s Al Dhafra airbase for refueling, enhancing strategic reach.
      • Counter-Terrorism: India and UAE have joint initiatives to combat terrorism and piracy, ensuring security in the Indian Ocean and Arabian Sea regions.
      • Economic Corridor: The UAE is pivotal to the India-Middle East-Europe Economic Corridor (IMEC), seen as an alternative to China’s Belt and Road Initiative.

Geo-Political Relations:

      • Multilateral Cooperation: Both nations collaborate in forums like the UN, BRICS, and I2U2 (India-Israel-UAE-USA). 
      • The UAE also supports India’s bid for a seat on the United Nations Security Council (UNSC).

People-to-People Relations:

      • Indian Diaspora: Over 3.5 million Indians live in the UAE, making up about 35% of the UAE’s population. Their remittances significantly contribute to India’s economy, accounting for 18% of total remittances.
      • Cultural and Educational Exchange: Projects like the construction of the BAPS Mandir and the opening of an IIT Delhi campus in Abu Dhabi strengthen ties. Leading Indian institutions like Manipal, BITS Pilani, and Amity University also have campuses in the UAE. The diaspora’s influence on culture, cinema, and education is well recognized.
      • Pravasi Bhartiya Sahayata Kendra:  Pravasi Bhartiya Sahayata Kendra (PBSK) based in the Consulate in Dubai has been functioning to assist the Indian diaspora through 24×7 helplines and a PBSK Mobile App.

Challenges in India-UAE Relations

  • Non-Tariff Barriers (NTBs): The UAE’s technical barriers and sanitary standards have affected India’s poultry, meat, and processed food exports.
  • China’s Influence: China’s financial diplomacy, offering low-interest loans, threatens to outcompete Indian companies in the Middle East.
  • Regional Conflicts: Instability in the Middle East, such as the Israel-Palestine conflict, could pose risks to connectivity projects like the IMEC. The UAE’s normalization of ties with Israel (Abraham Accords, 2020) might also strain India’s relations with Iran.
  • Worker Rights (Kafala System): The Kafala system, which gives employers control over migrant workers, has raised concerns over the welfare of Indian blue-collar workers in the UAE.
  • Pakistan Factor: UAE’s financial support to Pakistan, a country associated with sponsoring cross-border terrorism, remains a security concern for India.
  • Trade Imbalance: Despite growing trade, India faced a $16.78 billion trade deficit with the UAE in FY 2022-23. The UAE’s efforts to reduce reliance on expatriate workers might also impact Indian interests.

Way Forward

  • Addressing Non-Tariff Barriers: Clear and consistent communication on labeling, import requirements, and licensing processes is essential to smoothen trade.
  • Strategic Dialogue: Establishing a 2+2 dialogue (like India has with the U.S. and Russia) would enhance strategic cooperation.
  • Leveraging UAE’s Vision 2021: India should focus on renewable energy, fintech, and startups to deepen its engagement with the UAE as it diversifies its economy.
  • Reforming Kafala System: India should continue pressing for the reformation of the Kafala system to improve the working conditions of Indian expatriates. Qatar’s reforms under India’s influence serve as a potential model.

Read also: Exploring the Magnificent Forts in India A Historical Journey | UPSC

What is the Kafala System?

  • The kafala, or sponsorship, system defines the relationship between foreign workers and their local sponsor, or kafeel, which is usually their employer.
  • It has been used in Gulf Cooperation Council (GCC) countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—as well as Jordan and Lebanon. 
  • The kafala, or sponsorship, system gives private citizens and companies in Jordan, Lebanon, and most Arab Gulf countries almost total control over migrant workers’ employment and immigration status.
  • The system arose from growing demand in Gulf economies for cheap labor, and the desperation of many migrants in search of work and the opportunity to send money home to their families.

 

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