When India celebrated its independence from the United Kingdom on August 15, 1947 the Gulf region was almost unrecognisable from what it is today. The Gulf Cooperation Council did not exist and it would be decades until the modern states of the UAE and Bahrain would be formed.
But while the countries that have emerged on both sides since then are relatively new from a global perspective, the ties that bind their people are much older. It is a relationship that dates back hundreds of years and forms the basis of one of the world’s oldest maritime routes, according to historians.
And perhaps just as importantly it was trade by sea with India and the exchange of goods including cloth, spices and pearls that supported the growth of the Gulf’s coastal communities that would later become its largest cities.
These ties continued to strengthen prior to independence under the British Empire, when the Gulf countries were administered through India and even used Indian rupees and stamps. But it was the discovery of oil that would mark the start of the relationship seen today, with black gold reversing the hitherto mostly one-way flow of goods between the two sides.
“The ties are old and historical and have gained greater importance with the blossoming of the GCC as an energy powerhouse of the world,” says MR Raghu, managing director of Marmore Mena Intelligence.
Today the GCC supplies 60 per cent of India’s total energy imports, according to Indian Ministry of External affairs figures.
“However, the trade pattern between GCC countries and India cannot be painted with a single brush stroke,” adds Raghu.
As well as being its largest energy partner, the GCC countries have also grown to collectively become India’s largest trade partner. Trade with the GCC countries totalled $137.7bn in 2014-15, up substantially from the $5.5bn seen in 2001, according to International Trade Centre calculations.
Alongside this dramatic growth in trade, India’s people have had just as much of an impact on daily life in the Gulf region.
The oil boom marked the start of a major movement of Indian workers to the Gulf with annual migration to the UAE increasing from 4,600 in 1975 to 125,000 by 1985 and nearly 200,000 by 1999, according to 2004 book Culture and Economy in the Indian Diaspora.
There are today close to 8.5 million people of Indian origin in the GCC with the UAE and Saudi Arabia alone hosting three million each, according to Raghu, who notes the changing dynamics of the workforce.
“Starting initially with semi-skilled workers to support the oil boom during the mid-part of the previous century, the profile of Indians in the GCC has moved over time up the professional value chain,” he says.
“Indian expatriates in the GCC now consist of successful businessmen, eminent academics, influential professionals, and so on. Thus, the profile of India in the eyes of investors and policy-makers in the GCC will keep rising, leading to closer trade and political ties.”
This diaspora has become an essential part of the Gulf and Indian economies as shown in several economic indicators. Indians were the largest foreign investors in Dubai property last year at Dhs12bn ($3.26bn) and the Gulf diaspora is estimated to account for more than half of remittance income to India, or over $35bn annually.
Some of the faces behind these numbers can be seen through the dozens of Indian business success stories in the GCC.
Yusuf Ali M.A. leads one of the world fastest growing retailers as the managing director of Abu Dhabi-headquartered EMKE LuLu Group, which had a turnover of $6.9bn in 2016. Micky Jagtiana’s Landmark Group has stores in shopping malls across the region and estimated annual revenue of $6bn, while B.R Shetty owns one of the UAE’s largest hospital chains, NMC Health, and is one of the region’s richest men with an estimated net worth of $3.3bn, according to Forbes.
Then there is of course Sunny Varkey who controls the world’s largest operator of kindergarten to grade 12 schools through Dubai-based Gems Education, with an estimated net worth of $2.2bn.
And many more Indian entrepreneurs are looking to follow in their footsteps.
Ben Samuel, founder and CEO of Dubai-based online fitness and wellness marketplace FitOnClick.com, is among the new generation of Indians looking to make it big in the GCC.
“The Gulf is a growing market and in India everywhere e-commerce and new concepts are coming up in the metro cities like Mumbai, Delhi and Bangalore – to book a taxi, to look for fitness gyms. For every single thing there is a start-up,” he says.
The platform, which recently launched new features to connect users with personal trainers and healthy food options, is now seeking further expansion across the Gulf and $1.5m in funding to support its efforts.
“The first thing we’re trying to do is go to Oman, Kuwait and Saudi Arabia. So we’ll be launching soon in these three countries by January 2018,” says Samuel.
“There are a lot of markets coming up there that are doing really well so we think once we have created a strong base in Dubai these countries will be the next to jump in.”
Sailesh Nathan, chairman and managing director of BuyDoBuy Advertising LLC and regional director of the India GCC SME Business council, says the Gulf continues to remain an attractive place to do business for Indian entrepreneurs and companies, particularly under Indian Prime Minister Narendra Modi’s ‘made in India’ policy.
In recent meetings Nathan says he has hosted dozens of Indian business people in Dubai looking to expand into the Gulf region, with recent investment opportunities discussed in construction and real estate, fast moving consumer goods and the healthcare industry.
He estimates six to seven of every 10 companies he contacts are looking at Dubai to set up a regional base where they can evaluate the environment before expanding further.
Although one noticeable difference from the past, Nathan suggests, is more Indian firms are eyeing the Gulf as an expansion market rather than moving their operation.
“The people or conglomerates or groups who are widely spread all over India are looking for expansion in Dubai,” he says.
At the same time there are Indian companies based in the Gulf moving in the other direction. One example is systems integrator Finesse, which established operations in Dubai in 2010 before extending its presence to India in early 2013.
“From our business perspective India will act as a logical hub for expanding our global operations,” says Sunil Paul, co-founder and COO of Finesse.
“Both the markets are equally important for Finesse and we do an equal amount of business in GCC as well as India.”
The Modi effect
One factor driving Indian businesses to seek opportunities in the Gulf has been the proactive focus on trade, development and harmonisation by Indian Prime Minister Modi, who took office in 2014.
While this has translated into major economic reforms at home including the demonetisation of INR500 and INR1,000 banknotes at the end of 2016 and the recently introduced Goods and Services Tax (GST), abroad it has seen the leader seek to leverage the country’s overseas diaspora.
Raghu believes this can only mean good things for ties with the Gulf Cooperation Council, which is home to huge percentage of the overseas Indian population.
“Under PM Modi, it is reasonable to expect that GCC-India trade will grow further,” he argues.
Signs of strengthening ties were seen in August 2015 when Modi conducted a two-day visit to the UAE – the first by an Indian PM in 34 years – during which he met with senior government officials and addressed a crowd of tens of thousands of Indians.
Among the key announcements during the visit was a $75bn joint fund to invest in infrastructure projects. The fund will aim to raise money to build railways, ports, roads and other projects in India in a sign of expanding ties between the two countries and new areas of cooperation.
The two sides also said they would aim to increase bilateral trade by 60 per cent over the next five years and cooperate on the manufacturing of defence equipment in India.
Following this, in February 2016, Dubai ports operator DP World said it would invest $1bn in India through new and existing terminals with the group having already invested $1.2bn in six port concessions. While a January 2017 trip to India by Abu Dhabi’s Crown Prince, Sheikh Mohamed bin Zayed Al Nahyan, saw a series of pacts signed ranging from defence, trade, maritime cooperation and energy including an agreement for the emirates to fill half of a strategic underground crude storage facility in Mangalore.
However, progress will also be needed beyond these state-level deals to boost business links. Raghu suggests that an emphasis on ease of doing business, infrastructure development, sustainable innovation, entrepreneurship and global supply chain integration will be key to encouraging commercial ties, with particular benefits if SMEs from both sides can take advantage of opportunities.
“SMEs from across sectors—including consumer goods, petrochemicals, critical infrastructure and agriculture or food processing can gain immensely through strategic cooperation,” he says.
These gains could help India, which is estimated to need more than $1 trillion over the next 10 years to address an infrastructure deficit.
It could also help balance a trade relationship that is heavily tilted against the country. John Calabrese, assistant professor and director for the Middle East-Asia Project at American University and Middle East Institute, estimates India’s export earnings from the GCC are less than half the value of its import bill, even if the declining price of oil has had some impact. Indian government data shows the country imported $381bn of goods from the Gulf region and exported $262.2bn to it in 2015-2016, down from $448bn and $310bn respectively in 2014-2015.
One potential way forward could be through an elusive free trade pact.
As Calabrese notes, India has concluded 10 free trade deals over the past two decades with many more in discussion including with the GCC.
The two sides signed a framework agreement on economic cooperation in 2004 and have held several rounds of negotiations. But despite the case for the conclusion of a deal deemed “strong” due to potential benefits including reduced tariffs and duties, greater opportunities for SMEs and investment and more intensive economic engagement, a deal is still believed to be some way off.
“They have thus far been unable to overcome several key obstacles, ranging from India obtaining greater protection for its chemicals and petrochemicals industries, to issues such as differential tariffs and rules of origin,” says Calabrese.
Beyond the oil era
Another potential challenge to the GCC-India relationship is lower oil prices, which have had a “mixed effect” on economic links, according to Calabrese.
“On the positive side, they have helped reduce India’s current account deficit and curb inflation,” he says. But on the negative side they have led to “steep declines” in flows of remittances to India, with the World Bank noting global inflows to the country were down 8.9 per cent to $62.7bn in 2016 from $68.9bn the previous year.
Another side effect has been the impact on the Indian diaspora in the Gulf region, some of which have been forced to return home due to tougher economic conditions.
Last year thousands of Indian labourers left Saudi Arabia, with many having not been paid for months, due to difficulties encountered by construction firms related to delayed government payments. Lay-offs have also hit workers in other sectors across the Gulf region, while rising salaries in India make the job market increasingly competitive.
At the same time, Gulf governments have sought to fast-track diversification efforts, including plans to increase the employment of citizens in the private sector, potentially reducing a reliance on Indian labour.
“If the GCC countries’ ambitious efforts bear fruit, then the answer is unambiguously ‘yes’,” says Calabrese of whether the shift will impact Indian employment in the region.
“However, the extent to which the Indian expatriate workforce will be forced out of the labour market by the process of ‘Saudisation’ and its variants elsewhere in the Gulf will depend upon governments’ ability to restructure the job market itself, including raising wages and persuading citizens to take jobs that until now have been filled by Indians and others.”
Raghu too suggests it is too soon to suggest the Gulf will be reducing its reliance on the diaspora anytime soon, particularly with major infrastructure projects still under way.
“Thus, the demand for professional, skilled and semi-skilled workers from the Indian subcontinent is likely to remain steady,” he says.
But one benefit of the current situation in global energy markets could be an added impetus for expanding the GCC-India relationship beyond its traditional basis of energy and human capital requirements.
“Collaboration between the two can enter new dimensions in keeping with the demands of the digital age,” Raghu says. “The traditional trade and people links can be coordinated to generate the structural frameworks needed for the speedy acceleration of commercial partnerships and economic interactions between the GCC and India.”
And given India’s rising status as a world power and consumer of hydrocarbons, Calabrese believes both sides will seek ways to minimise the adverse affects of rebalancing the workforce as they seek tighter relations in the years to come.