From Stress to Strategy: Gulf Capital and India's Development Finance Reckoning

For much of the past decade, Gulf Sovereign Wealth Funds (SWFs) served a quiet but material function in India's infrastructure capital stack. The Abu Dhabi Investment Authority (ADIA) became the first international investor in the National Investment and Infrastructure Fund (NIIF) Master Fund in 2017, committing US$1 billion to a platform explicitly designed to channel long-horizon sovereign capital into Indian logistics, energy, and transport. The relationship reflected an operating assumption that Gulf sovereign capital would be a durable partner in India's infrastructure buildout. That assumption now requires updating, though the revision tells a more complicated story.

The reorientation of Gulf capital is, in the first instance, a rational response to domestic imperatives. Saudi Arabia's Public Investment Fund (PIF) invested more than US$199 billion in new domestic projects between 2021 and 2025, accounting for roughly 10 percent of the Kingdom's total non-oil GDP over that period. Its freshly approved 2026–2030 strategy continues this trajectory, with an emphasis on developing competitive domestic ecosystems and unlocking the potential of strategic national assets. Gulf SWFs collectively deployed US$126 billion in 2025, accounting for 43 percent of total global sovereign investment spending, and their international footprints continue to expand. But the gravitational centre of their allocation may shift in the near future, and India must plan accordingly.

Table 1: Major Gulf SWFs—Assets Under Management (AUM) and Annual Deployment (2024)

Source: Deloitte Middle East, Gulf Sovereign Wealth Funds Report, March 2025

What gives this shift greater urgency is the regional crisis now unfolding. The escalation of the Israel-Iran conflict through 2025, and its widening into a broader regional confrontation in 2026, has introduced a new and serious layer of uncertainty for Gulf economies. With Brent crude prices climbing above US$100 per barrel and the Strait of Hormuz under renewed strain, Gulf Cooperation Council (GCC) governments face a paradox where higher oil revenues are on paper, but higher security costs, supply chain disruptions, and fiscal pressures are pushing SWFs toward domestic stabilisation rather than overseas deployment. For India, a Gulf that is managing its own economic resilience is, for the foreseeable future, a less available source of patient external capital for Indian infrastructure than it was even two years ago.

Gulf Cooperation Council (GCC) governments face a paradox where higher oil revenues are on paper, but higher security costs, supply chain disruptions, and fiscal pressures are pushing SWFs toward domestic stabilisation rather than overseas deployment.

India's exposure is structural. The country's National Infrastructure Pipeline (NIP), encompassing investments of US$1.4 trillion across energy, roads, urban infrastructure, and railways between 2020 and 2025, was predicated partly on mobilising long-term global institutional capital to supplement domestic public expenditure, which cannot reasonably bear the full load. The financing gap has been estimated at more than 5 percent of GDP, and private-sector participation in the NIP has remained below 1 percent as of March 2025.

Capacity Gap Behind the Ambition

The geoeconomic context compounds this with a harder competitive dynamic. China's Belt and Road Initiative (BRI), widely presumed to be contracting, has instead registered its highest engagement levels since inception, with construction contracts and investments across BRI countries reaching US$213 billion in 2025, an 81 percent increase from 2024. Africa, where Gulf SWF engagement is comparatively limited, saw Chinese BRI construction contracts surge by 283 percent to US$61.2 billion.

Figure 1: China's Belt and Road Initiative — Total Annual Engagement, 2021–2025 (USD billion)

Source line: Green Finance & Development Center & Griffith Asia Institute, Annual BRI Investment Reports (various years)

China's state-directed lending model requires neither the risk-adjusted return profiles that constrain Western institutional investors nor is it subject to the domestic-mandate pressures now bearing on Gulf capital. When sovereign capital retreats from a geography, China's development finance machinery is structurally positioned to occupy the resulting space. The G7's Partnership for Global Infrastructure and Investment, by contrast, pledged US$600 billion by 2027 but had mobilised only US$60 billion as of mid-2024, reflecting the persistent gap between intent and execution in private-capital mobilisation models.

India is not a bystander to the development finance question; it is already a practitioner, and a more substantial one than is often acknowledged. Through the EXIM Bank's Lines of Credit programme, India has extended more than US$32 billion in concessional credit since the programme's inception. In Africa, Indian LOCs have funded railways in Tanzania, power infrastructure in Ethiopia, hospitals in Rwanda, and water systems across West Africa. This is not an aspirational posture but an operational track record, built quietly over two decades, covering infrastructure, energy, healthcare, and connectivity across 65 partner countries.

India is not a bystander to the development finance question; it is already a practitioner, and a more substantial one than is often acknowledged.

To be sure, India lacks development finance capacity, but what exists remains undersized, fragmented, and insufficiently integrated with India's broader strategic ambitions. NIIF manages approximately US$4.9 billion in assets and has announced plans to raise US$4 billion in new capital, a welcome expansion that nonetheless remains primarily focused on domestic deployment. EXIM Bank's LOC model is effective for bilateral project financing but has not yet evolved into a co-investment architecture that can compete with Chinese state financing at scale in third-country markets. The moment now calls for building on these foundations to develop a more aggressively capitalised NIIF with an explicit external mandate, a faster-moving EXIM Bank posture that can match Chinese bilateral financing on both terms and execution speed, and a more deliberate use of the US Development Finance Corporation (DFC) partnership as a genuine co-investment platform in markets where India and partner economies share interests.

Crisis as Clarifier

Crucially, the current Gulf crisis does not close the door on the India-Gulf relationship in development finance. It may, in fact, restructure it in more durable ways. As GCC economies navigate regional instability, they are also deepening their interest in economic diversification, third-country co-investment, and connectivity frameworks that reduce their own strategic dependencies. ADIA's new GIFT City office and the UAE's declared investment ambition of US$75 billion in India are not relics of a prior era but foundations for a more mature bilateral arrangement. What India can offer Gulf partners is what it has always offered, a large, stable, high-growth domestic market and, increasingly, a credible co-investor in the wider Indian Ocean and South Asian neighbourhood.

The moment now calls for building on these foundations to develop a more aggressively capitalised NIIF with an explicit external mandate, a faster-moving EXIM Bank posture that can match Chinese bilateral financing on both terms and execution speed, and a more deliberate use of the US Development Finance Corporation (DFC) partnership as a genuine co-investment platform in markets where India and partner economies share interests.

The deeper point concerns the relationship between financing capacity and strategic credibility. India's aspiration to lead the Global South, reinforced through its G20 presidency and embedded in frameworks such as the India-Middle East-Europe Economic Corridor (IMEC) and the Quad, requires institutional tools commensurate with the ambition. The Gulf crisis and the SWF reorientation it has accelerated do not undermine that aspiration but sharpen it. India already has the bones of a serious development finance architecture, but the task now is to build it to the scale that its position in the world demands.

Soumya Bhowmick is a Fellow and Lead, World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at the Observer Research Foundation.

• Developing and Emerging Economies
• India
• Middle East
• gulf cooperation council
• gulf sovereign wealth funds
• gulf swf engagement
• national infrastructure pipeline
• national investment and infrastructure fund
• public investment fund
• us iran war

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