Event ReportsPublished on Nov 03, 2021
India-GCC: Prospects for post-pandemic trade cooperation and economic recovery

Arabian Sea Dialogues

Boasting a gilded heritage of trade ties going back to the Dilmun and Indus Valley civilisations, the Gulf states, united under the umbrella of the Gulf Cooperation Council, and India have emerged as crucial strategic, economic, and cultural partners. The multidimensional challenges posed by the COVID-19 pandemic across the world, however, did not leave the partners untouched. While the Indian economy contracted by over 7 percent in 2020, the GCC, then experiencing bearish growth due to the tanking oil prices, shrunk by nearly 5 percent in the same period. Rapid vaccinations, early containment strategies, an uptick in consumer demand, and comprehensive economic recovery plans have upended the trend, but attaining pre-pandemic robustness in economies and bilateral ties is still a far cry. Given the uncertainty surrounding economic recovery, the long-impending Free Trade Agreement (FTA) negotiations between India and the GCC is also hanging in the balance. In this context, where the Gulf and India are exploring paths to retain dynamism in bilateral ties, the Observer Research Foundation (ORF) and the Arab Planning Institute, Kuwait, convened a webinar on 27 October 2021 titled “India-GCC: Prospects for Post-Pandemic Trade Cooperation and Economic Recovery.” This edition of the Arabian Sea Dialogues featured the participation of distinguished experts in policy, diplomacy, and economics. The webinar began with the welcome remarks of Mr Akshay Mathur, Director, ORF Mumbai; Dr Belkacem Laabas of the Arab Planning Institute moderated the discussions. The panellists were Dr Ila Patnaik, Professor, National Institute of Public Finance and Policy, New Delhi; Dr Abdulaziz Sager, Chairman, Gulf Research Centre, Kingdom of Saudi Arabia; Ambassador Anil Wadhwa, Distinguished Fellow, Vivekananda International Foundation; Dr Hasan Alhasan, Research Fellow for Middle East Policy, International Institute for Strategic Studies, Bahrain; and Ms Jhanvi Tripathi, Associate Fellow, ORF. On the broad theme of COVID recovery policies marshalled by the Indian State, Dr Ila Patnaik observed the encouraging economic indicators in the past two months of the Indian economy, with consumer and business confidence retaining healthy levels, employment in labour-intensive industries on the rise, and real wages in the informal sector, badly hit during the two waves of the pandemic, also showing an increase. Ambassador Wadhwa echoed her sentiment, alluding to the strong performance of the Indian stock market and foreign portfolio investment. Although expressing satisfaction at consumer price inflation coming down, Dr Patnaik flagged the instability and disruption in supply chains affecting the capacity of businesses to meet rising demand. She cautioned that the governments’ massive fiscal and monetary expansion in developed countries, especially the US—where negative real interest rates and unemployment benefits are discouraging people to re-join the workforce—is pushing consumer demand and global inflation. Developing countries like India cannot afford monetary intervention, jeopardising economic recovery. She highlighted climate change as another foreseeable challenge. Though India may achieve its target of having 40 percent of energy needs derived from renewable sources, the tally currently stands at a paltry 10 percent. Amidst pressure to curtail emissions, India cannot impose the burden of its green transition on her population, 8 million of which earns under US $2/day; the developed world needs to step in. While concurring with Dr Patnaik on bright indicators, Dr Abdulaziz Sager cited the slow rate of vaccination in several countries worldwide as the cause of the elusive economic recovery. He agreed that the aviation and hospitality sectors fared the worst in the pandemic and rued the absence of concrete recovery policies. Although every country is executing a different economic recovery policy, he cited the pensive US-China relations to be influencing all of them in unique ways. Cautioning the Gulf States against impatiently moving forward and, consequently, overspending and exposing themselves to debt, Dr Sager remarked that rising oil prices might hardly cover deficits, especially given that FDI inflows haven’t been encouraging in Saudi Arabia or the Gulf. He flagged the growing need for privatisation and meeting the gap of US $20 billion for recovery. He subsequently extrapolated the amplifying Saudi Arabia-India partnership, notably in maritime security and counterterrorism, besides the Gulf State hosting a 2.1 million-strong Indian diaspora. On the pertinent question of reviving the prospects of an India-Gulf FTA, Dr Alhasan elucidated the economic co-dependencies on India’s bilateral relations with the GCC member-states. The most visible amongst them are the remittances accruing from the Indian diaspora networks spread throughout the Gulf, accounting for nearly 50 percent of India’s total remittances. In addition, India is a crucial energy export hub for the GCC. Contrary to speculations, the emphasis on renewable energy is unlikely to undo this co-dependence. Countries like Qatar are one of the biggest exporters of natural gas. Most countries in the Gulf are drifting towards renewable energy themselves, evinced in their participation in the International Solar Alliance. Dr Alhasan saw India-UAE economic co-dependency to have reached an advanced stage. As the UAE meets India’s energy needs, India has opened its agri-business for the Emirates, thus sharing practices, knowledge in building warehouses, transportation, and infrastructure; the UAE, and the Gulf, in general, wish to include India in their energy sector. He emphasised India’s negotiations with the UAE on a Comprehensive Economic Partnership Agreement (CEPA) and its keen interest in the emerging, infrastructure-based Quadrilateral with the US, UAE, and Israel as proof of India’s new “multi-speed trade policy.” However, he mentioned obstacles like regulatory and legislative issues, legacy problems, and the absence of a political and financial apparatus supporting India’s FTA talks with the GCC as factors that may further complicate and delay their materialisation. Ambassador Wadhwa explained that the past 3-4 years had seen complementarities in defence production; however, the most fundamental linkage is apparently in services wherein the Indian diaspora has manifested in skilled and unskilled labour. Arguing in a similar breath as Dr Sager and Dr Patnaik, he discussed prioritising supply chain resilience by investing in shipping and near-shore convergences between India and the Gulf. By engaging with the UAE and Oman in exploring the contours of cooperation, India has portrayed its seriousness going into FTA negotiations with the GCC or the CEPA talks with the Emiratis. Nevertheless, Amb. Wadhwa expressed concern about the lack of one view within the GCC, partly owing to outstanding disputes hampering progress even when India enjoys cordial ties with all member states. Dr Alhasan also reflected on the demographic dominance of the Indian diaspora in most Gulf States being, lately, seen as a national security stressor. Amb Wadhwa saw India and the Gulf coming together on digital trade and renewable energy as well. Moreover, if CEPA were to be concluded with the UAE, movement of people and knowledge, and investment in the two geographies, will benefit exponentially, followed by trade. Ms Jhanvi Tripathi reiterated the economic imperative of an India-GCC FTA. It is vital, she claimed, that India leverages its comparative advantage vis-à-vis China, which has already concluded the Regional Comprehensive Economic Partnership and is knocking on the door of the Trans-Pacific Partnership. CEPA, for that matter, will facilitate merchandise trade by US $100 billion and services trade by US $15 billion. She demonstrated the economic sense in leveraging the existing value chains in the GCC to diversify trade. There’s been a rise in digital, Mode-I trade for which a stable rule-based framework is going to be essential; an FTA will not only create such an apparatus but reduce vulnerability to political risk. In conclusion, reprising the many facets of the relationship between India and the Gulf, ranging from transnational diaspora networks to trade and investment, and placing trade negotiations like the FTA and CEPA in its centre is inevitable. The negotiations between India and the Gulf States are riddled with challenges of legacy, implementation, and unresolved differences; however, by building on the convergences galore, both parties are sure to churn a win-win situation for the regions. An India-GCC FTA, founded on old and novel linkages, will be a pivot around future engagement between the two geographies and create respect for rules-based, open and free trade in the post-COVID world.
Compiled by Parth Seth, an intern at ORF Mumbai.
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