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Thu 9 Nov 2017 04:24 PM

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The ties that bind the UAE and India

How the UAE-India partnership is evolving from already solid foundations

The ties that bind the UAE and India

India and UAE have historically shared close ties, and these are getting stronger as economic upswings in both countries reinforce key pillars in their relationship. Here’s a rundown of those areas for growth.

Pillars of success

Foreign trade between the two countries stood at almost $50bn last year, and this footprint is expected to expand to $100bn by 2020. The UAE is India’s third largest trade partner after China and the United States and its largest trade partner in West Asia.

Furthermore, the UAE is the only country in the GCC with which India has a favourable trade balance as, apart from oil, the India-UAE trade basket is quite diversified, with India exporting goods worth $30 billion to the UAE in 2015-16. That list includes heavy machinery, petroleum products, food and dairy.

Energy security is also becoming an important part of this strategic partnership. The UAE accounts for eight percent of India’s oil imports and was fifth largest supplier of crude oil to India in 2015-16. On January 25 this year the UAE and India signed a second strategic oil reserve deal. This latest one will allow Abu Dhabi National Oil Company (ADNOC) to store six million barrels of crude oil at Mangalore, Karnataka. This is part of India’s strategic petroleum reserve system, an emergency underground storage of 36.87 million barrels of crude oil, the equivalent of 10 days of supply.

Indian businesses have also established a strong footprint in the UAE. Jebel Ali Free Zone is home to more than 800 leading Indian companies and the UAE hosts the largest Indian expatriate community. This comprises more than 2.6 million people, earning $12.8bn annually according to World Bank statistics.

Indians are also the biggest investors in UAE real estate, with $3.27bn of investments and 6,263 buyers from total real estate investments of $24.78bn and 55,928 investors in the emirate, according Dubai Land Department data. Among the attractions for Indian investors are the safe haven status of the UAE and its geographic proximity.

Strong maritime and aviation links further cement relations. There are close to 1,070 flights a week between the UAE and India, with 65,200 seats for Dubai, 50,000 seats for Abu Dhabi, 17,841 seats for Sharjah and 1,400 seats for Ras Al Khaimah.

The Indian government is looking at a new proposal for a unified air service pact with the UAE, instead of the current separate agreements with individual emirates. Indian and UAE carriers have 35,432 and 15,055 unused seats, respectively, which they will be able to allocate if the new proposal is agreed.  Abu Dhabi’s Etihad airways bought a 24 percent stake in India’s jet airways in 2013 after India opened up its aviation sector to allow FDI of up to 49 percent.

On the back of aviation developments, the tourism sector is growing rapidly.  In March this year the UAE Cabinet approved a decision to grant visa on arrival to Indian passport holders holding a valid US visa or Green Card. This is expected to boost Indian tourist numbers that reached 1.6 million in 2016. Indeed, Indian tourists in Dubai alone accounted for roughly 13 percent of all tourists in the first quarter of 2017.

Meanwhile, the UAE’s port operator DP World runs almost 35 percent of India’s container terminals, making it a significant player in India’s maritime transport sector. DP World holds six port concessions in India and this year pledged $1bn of investment in India on top of the $1bn already invested there. DP World says it is interested in exploring opportunities in port-related rail infrastructure, cold storage facilities, intra-coastal waterway systems, coastal economic zones, and free trade zones.

The to-do list

While FDI levels over the last decade were relatively low, these have accelerated since 2015 reflecting a desire from UAE companies to invest in India and to benefit from increasing synergies between the two countries. In the last few years, FDI inflow from the UAE has increased nearly threefold from $350m during 2014-2015 to $1 billion last year, making it the fifth largest source of FDI into India.

For ties between both countries to grow further, there is still a need to address business climate obstacles. The UAE has rapidly risen up the rankings as a global business hub and in terms of the ease of doing business over the past couple of years. India probably needs to take further steps to address some of the administrative challenges inherent in its complex bureaucratic system to make access to its market easier and more attractive to UAE investments.

Tim Fox, Chief Economist & Head of Research at Emirates NBD