India-UAE Ties: Moving Beyond Oil

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Modi takes a selfie during his 2015 visit to UAE.
Image Credit: Flickr/ Narendra Modi
India-UAE Ties: Moving Beyond Oil
India and UAE have complementary economic goals.

India’s 68th Republic Day celebrations on January 26 will feature His Highness Sheikh Mohammed bin Zayed Al Nahyan, the Crown Prince of Abu Dhabi, UAE as the chief guest. The visit of the Crown Prince, also the deputy supreme commander of the UAE Armed Forces, will give a much needed boost to the cordial and stable relationship shared by India and UAE.

The India-UAE political relationship got a fresh start in August 2015, when India’s Prime Minister Narendra Modi visited Abu Dhabi, becoming the first Indian PM to do so in 34 years. The renewed friendship comes against the backdrop of Modi’s aggressive courting of foreign investments and Abu Dhabi’s new oil diplomacy, underlining economic diversification. In the fast changing global economic and political landscape, strategic bilateral cooperation is the answer to growth and security.

Beyond Oil Revenues

The decline in oil prices motivated Abu Dhabi, the wealthiest of the seven emirates, to seek revenue sources beyond oil money. The Crown Prince’s visit to India comes at a time when the emirate, the capital of UAE, is focused on economic diversification by concentrating on non-oil sector growth and fiscal consolidation.

Business apart, on the political front, Abu Dhabi is wary of the ongoing global political developments and their subsequent impact: Iran’s presidential election in May, upcoming polls in Germany, Brexit, and most notably, President Donald Trump assuming office in the United States. These events are prompting UAE to be ready to renew and revitalize old relationships.

UAE’s economic integration with the Arab world faces its own set of challenges. Countries like Syria, Iraq, Libya, and Yemen are embroiled in conflict, precluding any hope of unified Arab economic development. A high level of unemployment among Arab youth is a matter of concern fueling terrorism in the region. There has been a sharp decline in inter-Arab investments and the developmental disparities between the countries make cooperation and growth within the Middle East a complicated matter. The experiment of the “GCC (Gulf Cooperation Council) model” — a vision for a common Gulf market, customs union, workforce nationalization, and even a common foreign policy and defense policy — is underway but has yet to yield the desired results. Thus UAE is looking farther afield for partners.

New Delhi, on the other hand, is looking for energy security and fresh investments. An emphasis on commerce and economic cooperation is central to Modi’s foreign policy. There are already rich economic links between India and UAE. Trade between India-UAE stood at $60 billion in 2015; both sides aim to increase trade by 60 percent in five years, setting a target of $100 billion by 2020. A $75 billion fund was also set up to develop India’s infrastructure, along with a new task force to push investments under this fund.[/QUOTE

Meanwhile, Indians constitute the largest expat population in UAE, numbering 2.6 million or 30 percent of UAE’s population. Modi’s diaspora diplomacy ensures the increased flow of remittances, which recorded an impressive $69 billion in 2015.

In recent years, oil-price volatility has led emirates such as Abu Dhabi and Dubai to prioritize diversifying revenue sources. The Abu Dhabi Economic Vision 2030, launched in 2008, highlights promotion of non-oil segments, development of the private sector, and adoption of a disciplined fiscal policy. One of the nine pillars of the Vision 2030 aims at the growth of a highly skilled and productive workforce and focuses on development of the knowledge economy.

By end of 2030, Abu Dhabi aims to generate some 64 percent of GDP from non-oil sources. Though the emirate sits on sovereign wealth assets worth $792 billion, the largest in the Middle East, it now feels the needs to expand its economic outreach and integrate globally, diversifying away the petroleum sector.

Even as Abu Dhabi and rest of the emirates are enacting tangible reform measures as envisioned in UAE’s short-term plan, UAE Vision 2021, these steps are being complemented by soft reforms. The recently established Ministry of Happiness, Tolerance, and the Future, aims to create a culture of tolerance among youth, harness their energy productively, and prevent them from falling for fanaticism and extremism through National Tolerance Program. An increased representation of women in the workforce is also being encouraged.

Going forward, UAE has challenges ahead in terms of adjusting its public policies to promote research and innovation and to set up globally competitive industries. To wean itself off oil, UAE will have to develop value-added exports and encourage a thriving private sector to support industries and human capital development.

The Crown Prince’s upcoming visit to India is another sign that the two countries believe their economic goals are interlinked and best achieved through cooperation.