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India and the UAE: Progress towards ‘Comprehensive Strategic Partnership’

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Under Prime Minister Narendra Modi, the UAE has emerged as India’s preferred partner in the Gulf. Since the coming to power of the Bharatiya Janata Party (BJP) government in New Delhi in May 2014, India and UAE have exchanged four high-level visits. These included two by the Crown Prince of Abu Dhabi Mohammed bin Zayed al-Nahyan (who is also the Vice President and de facto ruler of the UAE) in February 2016 and January 2017, and two by Prime Minister Modi in August 2015 and February 2018. Additionally, regular meetings between ministers and officials have been held in New Delhi and Abu Dhabi to discuss issues of mutual interest, especially investments in energy sector, increasing defence and security ties and strengthening counter-terror cooperation.

Indo-UAE relations have reached an extraordinary level of friendship and bonhomie with Modi and al-Nahyan developing deep personal rapport as was on display during their meetings. Both leaders have broken their respective diplomatic protocols to receive the other in person during state visits. In an unprecedented gesture, the Crown Prince agreed to visit India in January 2017 without the customary return visit of the Indian leader, in the aftermath of al-Nahyan’s February 2016 visit to India. The two sides have developed a deeper appreciation of each other as a multi-cultural and multi-ethnic society and important members of the global and regional community, as was reflected in the joint statement issued during the visit of Prime Minister Modi to the UAE in August 2015.1 Notably, the prime minister attended the foundation laying ceremony of the first Hindu Temple in Abu Dhabi during his February 2018 visit.2

In January 2017, during the visit of Crown Prince al-Nahyan to New Delhi as chief guest for Republic Day celebrations, India and the UAE signed a Comprehensive Strategic Partnership (CSP) agreement to give a new impetus to the strong bilateral relations. The focus areas underlined in the CSP were economy with emphasis on two-way flow of investments, counter-terror cooperation and defence ties.3 Since then, the two sides have been working to realize the goals of forging a strong strategic partnership through regular exchange of visits, improve bilateral trade and investments, greater understanding of security concerns and vulnerabilities and readiness to harness on the momentum created due to greater political understanding.

India and the UAE have signed a number of agreements including for a 10 per cent participating interest to a consortium of Indian oil companies in the Lower Zakum offshore oil field in February 2018 and for Emirati participation in operationalizing India’s strategic oil reserve in Mangalore. However, there are concerns about the slow progress in realization of the US$75 billion investment fund from the UAE for infrastructure development in India that was agreed in August 2015. In this context, the June 24-30, 2018 visit of Foreign Minister of the UAE Abdullah bin Zayed al-Nahyan acquires significance.

Abdullah al-Nahyan’s Visit

The visit of Foreign Minister al-Nahyan was his fourth to India in as many years. Mr. al-Nahyan had visited New Delhi in September 2015 soon after the historic visit of Prime Minister Modi to the UAE, the first by an Indian prime minister in 35 years.4 Subsequently, he had accompanied the Crown Prince of Abu Dhabi during his visits in February 2016 and January 2017. While these visits underline the growing bonhomie between the two countries, they also signify the keen interest and confidence of the Emirati leadership in India’s emerging market. In fact, New Delhi too is conscious of the UAE’s exemplary economic development and its emerging regional profile, and hence has prioritized it over other countries in the Gulf.

During the current visit, Abdullah al-Nahyan called on Mr. Modi and held talks with his counterpart External Affairs Minister Sushma Swaraj on June 25. According to the Ministry of External Affairs (MEA), the “two Foreign Ministers reviewed matters pertaining to bilateral, regional and international affairs” and the “talks were held in constructive and friendly spirit.”5 Further the minister held discussions with the Indian Space Research Organisation (ISRO) to explore possibilities of engaging with it on the UAE’s Mars mission. A decision regarding opening of the UAE’s Consulate General in Hyderabad was taken while a MoU was signed for cooperation between Foreign Service Institute of India and Emirati Diplomatic Academy.

The minister was accompanied by a high-level delegation comprising senior officials and business leaders. Clearly, top on the agenda was to explore investment and commercial opportunities. Notably, on his itinerary was meetings not only with the top leadership and opinion makers in New Delhi but engagements with state leaders and officials from Tamil Nadu, Karnataka, Telangana, Maharashtra and Gujarat. Earlier, the UAE had participated in the Vibrant Gujarat Summit in January 2017 as a “partner country.”6 This marks a significant shift in the way the Emirates conducts diplomacy in India as thus far the engagement was confined to the central leadership. However, given the decentralized governance and business model followed in India, many countries, especially Israel, have engaged with chief ministers of different states.7 The UAE seems to have taken a cue out of this decentralized diplomatic engagement in India to amplify and expedite business and investment opportunities.

The highlight of the visit however was the signing of the trilateral agreement between Abu Dhabi National Oil Company (ADNOC), Saudi Arabia’s national oil company Aramco and the Ministry of Petroleum and Natural Gas for the joint development of the Ratnagiri Refineries and Petrochemical Limited (RRPCL) in Maharashtra. Slated to be developed with an estimated cost of US$44 billion, the RRPCL will be one of the world’s largest oil refineries and expected to have a capacity of 60 million metric tons per annum.8 A mega energy project, it will significantly enhance India’s downstream energy sector. An agreement in this respect was signed in April 2018 between Aramco and the Indian consortium of Indian Oil Corporation (IOL), Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL). Aramco had then promised to bring another international oil company on board leading to the singing of the agreement on June 25 with ADNOC becoming a shareholder. As per the agreement, the IOL, Aramco and ADNOC will have 25 percent stake each in the RRPCL while HPCL and BPCL will have 12.5 per cent stake each.9

Strengthening Economic Partnership

The most important and comprehensive aspect of Indo-UAE bilateral ties relates to economic and commercial ties. The UAE is not only the largest trading partner for India in the Persian Gulf and the Middle East but also the third largest in the world. It is the second largest export destination and fourth largest source of imports for India. On the other hand, India is second largest trading partner, second largest export destination and third biggest source of imports for the UAE. The UAE is India’s re-export hub for the markets in Middle East and North Africa (MENA) region.10 The two countries now have agreed to partner to undertake developmental projects in the region. In this regard, the visit of Abdullah al-Nahyan reaffirmed the commitment of India and the UAE to “work together in select countries of sub-Saharan Africa in areas of priority to them, particularly through capacity-building initiatives, joint developmental projects in Agriculture, IT and ITeS, Health, Renewable Energy, Infrastructure, etc. aimed at supporting the achievement of Sustainable Development Goals.”11

Bilateral trade though has witnessed a drop in terms of value since 2013-14 (when it was US$59.5 billion) due to the steep drop in oil prices. It stood at US$49.88 billion in 2017-18.12 Certainly, there exists a potential to improve current levels of trade and this is recognized by both sides. It was in the spirit of enhancing bilateral trade that the joint statement made during the February 2018 visit of Prime Minister Modi to the UAE noted the need for “diversifying non-oil trade.”13 The two sides further “decided to examine various tariff and non-tariff barriers, and agreed to focus on encouraging trade in identified commodities and to expand access of goods and services in both markets.”14 The positive effect of the presence of a number of Indian and UAE companies in each other’s market was acknowledged in the statement and the opening of an office of the Confederation of Indian Industry (CII) in Dubai and of that of the Dubai Chambers of Commerce in Mumbai was welcomed.

Energy

Energy plays a significant role in India’s engagement with the Gulf countries and the UAE is no exception. In fact, since 2014, India and the UAE have made significant progress in terms of cooperation in the energy sector. India is an energy hungry country and depends on imports for more than 80 per cent of its energy needs. The Persian Gulf fulfils nearly 60 per cent of India’s energy imports and the UAE is among one of the leading sources for energy imports, apart from Saudi Arabia, Iraq, Iran and Qatar. In 2017-18, India imported about US$9.08 billion worth of petroleum from the Emirates which constitute 6.86 per cent of India’s total value of energy imports.15 Though UAE’s share in India’s energy import bill has witnessed a drop in 2017-18, it is likely to increase after the signing of the agreements for a 10 per cent share in ADNOC’s Lower Zakum off shore oil field and UAE’s promises to help India shore up its strategic oil reserve.

In fact, the current spurt in Indo-UAE relations has a significant energy component. The two countries plan to expand the current transactional energy relations to a strategic partnership. This will include enhancing two-way investments in energy sectors in both countries. India has shown willingness to invest in the upstream sector in the UAE that will alleviate the market fears and improve UAE’s place in the global energy space. At the same time, the UAE has agreed to invest in the downstream sector in India which will help India shore up its strategic oil reserves and help expand the petrochemicals and petroleum products industry in India that currently contributes nearly 20 per cent of India’s total exports. Emirati investments will help in capacity building, create much needed employment opportunities and contribute toward reducing the negative balance of external trade.

Investments

Attracting global investments has been a priority area of Prime Minister Modi and this has been a major aspect of his diplomatic engagement with global leaders. A number of projects introduced by the Modi government such as Make in India, Smart City, StartUp India etc. are focused on attracting foreign investments. This is true for the Gulf countries as well as the UAE which has promised to bring significant investments in India, including the promised deal of a US$75 billion investment fund. The progress on this investment fund has been sluggish and India’s slow bureaucracy and bottle necks in providing the required administrative clearances are partly to be blamed. Emirati ambassador to India Ahmed al-Banna had alluded to this saying the “ball is in India’s court” when probed by Indian media on the status of the infrastructure fund that was speculated to be signed during the January 2017 visit of Crown Prince al-Nahyan.16

Nonetheless, there is a significant jump in Emirati investment in India since 2014-15. The UAE is the 10th largest global investor in India and the leading country in the Middle East with a cumulative investment of US$5.75 billion between April 2000 and March 2018. In fact, 2017-18 witnessed one of the highest inflow of FDI from the UAE with US$1.05 billion. This was against US$675 million in 2016-17, US$985 million in 2015-16, US$367 million in 2014-15 and US$255 million in 2013-14.17 In addition, many UAE companies have investments in India through sister concerns and joint ventures and according to the MEA, total investments in India from the UAE including the FDI is US$8 billion and this is mainly concentrated in five sectors: services (10.33 per cent), real estate (9.97 per cent), power (9.54 per cent), airline (8.44 per cent) and hospitality industry (7.82 per cent).18

Defence and Security Cooperation

The other area where Indo-UAE relations have witnessed progress is defence and security cooperation. Both India and the UAE are concerned about growing threats from terrorism and radicalism and agree on the need for enhancing cooperation for preventing the spread of extremist ideas. The issue has been noted prominently in the joint statements issued after meetings between Prime Minister Modi and Crown Prince al-Nahyan in New Delhi and Abu Dhabi. They have on several occasions condemned use of religion to promote hatred and in February 2018 again “expressed strong condemnation of extremism and terrorism in all forms and manifestations, irrespective of who the perpetrators are and of their motivations.”19 Further, India and the UAE have “reiterated their condemnation for efforts, including by states, to use religion to justify, support and sponsor terrorism against other countries, or to use terrorism as instrument of state policy.”20

India and UAE have focused on improving military cooperation. In May 2016, Manohar Parikkar became the first Indian Defence Minister to visit the UAE and discussed strengthening of military ties and explored possibilities for joint defence manufacturing and selling Indian military equipment to the UAE.21 This was followed by the signing of a MoU to cooperate in the field of defence manufacturing and technology during the January 2017 visit of Crown Prince al-Nahyan. Another agreement on maritime security cooperation and maritime education and training was singed during the visit. As a follow up, Naval Chief Admiral Sunil Lamba visited the UAE in February 2017 and met with his counterpart and other Emirati leaders to discuss enhancing cooperation on maritime security in the Indian Ocean. In the same month, MoS for Defence Subhash Bhamre visited the UAE to discuss the modalities of expanding bilateral defence cooperation.

The Joint Defence Cooperation Committee (JDCC) formed under the defence cooperation agreement renewed in 2014 has been meeting regularly and the last round of JDCC meeting held in New Delhi in December 2017 decided to conduct the first bilateral Naval Exercise during 2018.22 In addition, the UAE has expressed interest for cooperation in the field of space research. India’s cost-effective and successful space program has been noticed globally and this has evoked significant interest in the UAE, which is working on its own space program. In February 2016, India and UAE signed a MoU on cooperation in the area of space exploration and in February 2017, ISRO launched the Emirati Nano satellite Nayif-I. The two sides are also interested in furthering cooperation in the areas of “remote sensing, space science, satellite navigation, launching services, academic cooperation and industry interactions.”23

Challenges

India and UAE have made significant progress toward achieving the comprehensive strategic partnership signed in January 2017. However, further progress will depend on successfully dealing with domestic and regional challenges. Domestic Indian issues, specifically those relating to economic and administration de-regulation and an inward looking polity, especially as the parliamentary elections are approaching, are a major challenge. Foreign investments are critical for the Indian market and despite the significant pitch to attract investments, the progress has been slow. This is true in case of the UAE in spite of the significant increase in the FDI inflow. Structural economic issues namely small appetite of Indian industries, lack of long-term planning and strategic thinking and procedural issues are cited as problems slowing down the foreign investments. A case in point has been the fate of the US$75 billion infrastructure fund promised by the UAE that got stuck in procedural issues. The UAE has been insisting on formalization of modalities and governance structure for the fund and slow response from India has reportedly delayed the process.

Firstly, despite being a US $2.5 trillion economy, Indian businesses are small in size. In fact, none of the India business giants come close to the big global conglomerates that have the capacity, infrastructure and experience to handle huge investments. On the other hand, the UAE with a sovereign wealth fund of US$800 billion has an appetite for big investments. Indian companies will have to form consortiums, like in the case of RRPCL, which led to a significant joint investment from the UAE and Saudi Arabian national oil companies. Similar efforts in other areas including infrastructure, renewable energy, defence, automobile, aviation etc. industries can attract big investments from the UAE.

Secondly, procedural issues including lack of planning, lack of complete information, bureaucratic bottlenecks continue to remain a challenge for foreign investors despite significant efforts by the government in this direction to make investments easy and convenient. Steps such as the formation of the National Infrastructure Investment Fund (NIIF) and lifting investment caps for foreign investors are important, which need to be further strengthened. Legal problems have in the past dampened foreign investments from coming to India. For example, the investments from UAE’s Etisalat and Etihad had got stuck in legal problems, thus dampening investor enthusiasm. While checks and regulations are needed, better streamlining of the procedures and processes help in avoiding such problems.

Thirdly, there are challenges pertaining to political diversions, especially since an elections year is approaching. India has a tendency to become focused inward and in the process, ignore foreign policy. The UAE with an appetite for large-scale investments needs to be continuously engaged. The week-long visit of the Emirati foreign minister and his meetings with chief ministers/governors of five states shows that the interest in Indian market among the UAE leadership is at all-time high. Prime Minister Modi’s dynamic foreign policy approach towards the UAE has been instrumental in creating this situation and it is important that the same enthusiasm is maintained in facilitating investments so that this opportunity is not missed.

While India has control over challenges emanating from domestic issues, there are regional geopolitical challenges in the Persian Gulf and the Middle East that India needs to deal without having any control over them. Regional turmoil, civil wars, internal strife, geopolitical competitions have become a hallmark of the Middle East and this has complicated India’s options. India has thus far been able to maintain friendly relations with competing regional actors such as Saudi Arabia, Iran, the UAE, Qatar and Israel but given the escalation in rivalry between Saudi Arabia and Iran, the growing tensions and fear of rupture within the Gulf Cooperation Council (GCC), along with calls from Israel and the US to isolate Iran, has made India’s choices difficult.

India’s ability to handle Iran without antagonizing other regional players and the US will be seriously tested in times to come. The US after withdrawal from the Joint Comprehensive Plan of Action (JCPOA) has already started to put pressure on India to stop buying oil from Iran.24 At the same time, Saudi-Iranian tensions are increasing with the two embroiled in bitter competition for regional influence. The UAE has been a major partner of Saudi Arabia in its regional policy and the two are embroiled in a bloody civil war in Yemen against Iran-supported Houthi militias. Riyadh and Abu Dhabi have taken a leadership role to counter Tehran’s expanding regional influence and share this apprehension with Tel Aviv. New Delhi on the other hand sees Iran as an important country as far as India’s energy security and connectivity to Afghanistan and Central Asia is concerned. Nevertheless, irritants in bilateral relations have cropped up over allocation of Farzad B gas field and lacklustre Indian response after the signing of JCPOA. Together with geopolitical problems, this means India will have to handle Iran with utmost care and avoid regional entanglements without appearing to be taking sides.

As if Iran-Saudi tensions were not enough, the political and diplomatic rift within the GCC that threatened the breaking down of the grouping has created serious headache for India. Though the initial anxieties about security and rescue of Indian nationals proved premature, the issue has not been resolved making it a diplomatic problem for New Delhi. India has friendly relations with Qatar, which is the largest supplier of LNG to India and more than 800,000 Indian expatriate workers live in the Emirate. This means that India cannot take risk of alleviating Qatar. New Delhi will thus have to adjust foreign policy with this new reality of rupture within the GCC. It can no longer think of GCC as a block and will have to keep the sensitivities of individual countries in view while dealing while dealing with the other.

Way Forward

While a lot of progress has been made in Indo-UAE bilateral relations, many areas remain untapped. For example, there is potential to improve bilateral partnership in the hospitality, medical, education, renewable energy and research sectors. These areas have been flagged earlier and discussed during the meetings between Modi and al-Nahyan but have not been realized. India has a growing medical sector that offers cost-effective and world class medical tourism services and there is a significant potential to enhance partnership between India and the UAE in this area. Hospitality industry too can be an attractive area and has untapped potentials. The UAE has significantly invested in renewable energy sector and India can seek partnership in this field to be able to harness its own renewable energy sources and move towards a future of sustainable development. Scope for cooperation in education and research sectors too have remained underexplored and can be an important area for enhancing bilateral ties. The defence sector also has potential to enhance bilateral cooperation through joint exercises, training and familiarization program that should go a long way in forging better ties.

In the year and half since the signing of the Comprehensive Strategic Partnership agreement, India and the UAE have made significant progress towards realisation of its goals. A number of promising investment deals, especially in the energy sector, have been signed, counter-terror cooperation has improved and slowly but steadily, the two sides are on course to develop defence ties. However, the progress towards realizing a full-spectrum strategic partnership faces challenges due largely to structural economic and administrative issues in India and worsening regional political situation in the Gulf. Nevertheless, the future of Indo-UAE relations are bright and the way forward for New Delhi is to seize the momentum and develop a greater basis for a strategic partnership to safeguard its core national interests while avoiding regional entanglements.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.

Keywords: Arab, India, India-UAE Relations
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