Explained | Why are India’s economic stakes high in West Asia?

The story so far: The diplomatic fallout from the provocative and communally charged comments made by two erstwhile spokespersons of the ruling Bharatiya Janata Party (BJP), forced the government into firefighting mode earlier this month after several West Asian nations including Qatar, Kuwait, Iran, Bahrain, Oman, Iraq, Saudi Arabia and the UAE as well as the 57-nation Organisation of Islamic Cooperation (OIC) and the six-member Gulf Cooperation Council (GCC) took strong exception to the remarks denigrating Islam and the Prophet Muhammed. In response, Indian officials strenuously asserted that the government stood by the country’s traditional values and respected all religions. It also tasked its diplomats to reach out to individual OIC member states and reassure them on India’s position of an ‘inclusive’ approach to all communities.

What prompted the government response?

India’s cultural, economic and trade ties with the countries of the West Asian region are deep and abiding. Starting with maritime trade, the exchange of goods, services and cultures between the people of the Gulf region including those on the western shores of the Arabian Sea and the people of India’s southern and western States reaches back several millennia and significantly predates even the foundation of the Islamic faith.

The West Asian region also served as a land trade bridge to Greece, Rome and other early European empires and a flourishing trade in spices, cloth, silk and indigo in exchange for gold and silver is well recorded.

In a more contemporary historical context, the British colonial era saw the advent of even a loose common monetary system with the rupee serving as legal tender in several Gulf states till the middle of the 20th century. It was also the discovery and subsequent commercial exploitation of oil in the Gulf region during the colonial era that started to alter the balance of trade flows between India and the countries in the region.

Today, the countries of the West Asian region collectively account for well over a sixth of India’s total bilateral merchandise trade and contribute about three fifths of India’s crude oil supplies. The region is also a major provider of jobs and economic opportunities to Indian workers, professionals and entrepreneurs and houses about 89 lakh Indians. These non-resident Indians (NRIs) annually send home about $40 billion, and account for more than 55% of the country’s total remittance inflows. Investments from sovereign wealth funds and other large investors from the GCC have also climbed steadily in recent years and India, which earlier this year signed a Comprehensive Economic Partnership Agreement (CEPA) with the UAE, is looking to significantly boost trade ties with the region by negotiating more such trade and investment pacts.

It is the sizeable and rapidly growing economic interconnectedness that the government is keen to insulate from any fallout over this sensitive and potentially disruptive issue.

Why is India so dependent on West Asian countries for its energy needs?

Domestic crude production, which has been declining over the years, meets less than a fifth of the country’s oil requirement, forcing India to take recourse to imports to fill the gap of more than 80%. An Observer Research Foundation (ORF) April 2022 paper analysing ‘India’s oil imports: Trends in diversification’ notes that out of India’s total imports of crude oil, the share of the Gulf countries has remained fairly steady at about 60% over the last 15 years. The ORF study observes that in 2020-21, the top oil exporter to India was Iraq, with a share of more than 22%, followed by Saudi Arabia — about 18%. The UAE, Kuwait and Oman were other Gulf countries among the top-10 suppliers of crude oil to India in the fiscal year ended March 2021.

A large proportion of India’s refineries have also historically been predominantly configured to process the sulphur-heavy sour grades of crude that are produced in the Gulf region and with the sweeter (low sulphur) grades of oil such as Brent proving comparatively costlier, India’s crude purchases have over the last two decades gradually shifted to being more weighted towards the Oman and Dubai sour grades, according to data on the composition of the Indian basket of crude compiled by the Ministry of Petroleum and Natural Gas’s Petroleum Planning and Analysis Cell (PPAC). While the ratio of sour grades to sweet grades was 57:43 in the fiscal year ended March 2001, the proportion of sour crude to Brent had increased to 75.62:24.38 in the 12 months ended March 2022.

How reliant is India on the region for non-oil trade?

Over the five years from 2017 through 2021, Iran and the GCC member states comprising the UAE, Saudi Arabia, Bahrain, Oman, Kuwait and Qatar accounted for a 15.3% share of India’s cumulative two-way merchandise trade of $3.98 trillion in that period, according to statistics available on the UN Comtrade database. Of the $609 billion of exports and imports that the seven countries accounted for in this period, the UAE contributed the lion’s share of $277.4 billion, or almost 7%, making it one of India’s largest trading partners. Saudi Arabia was next with $153 billion. The region is today a key market for several Indian commodities ranging from tea and basmati rice to electrical equipment, apparel, and machinery. Reflecting this importance, India and the UAE signed the CEPA in February with the aim of increasing the total value of bilateral trade in goods to more than $100 billion in five years and getting services trade to exceed $15 billion over the same period. The trade pact will provide Indian exporters preferential market access on ‘99% of the country’s exports to the UAE in value terms, particularly from labour-intensive sectors such as gems and jewellery, textiles, leather, footwear, sports goods, plastics, furniture, agricultural and wood products, engineering products, pharmaceuticals, medical devices, and automobiles’, according to a Ministry of Commerce and Industry release. With the CEPA now serving as a framework, the government is actively pursuing a broader FTA (Free Trade Agreement) with the GCC as a whole. With the region serving as a key hub to markets in Africa, India is keen to gain tariff-free access for its exports not just to the Gulf region but also to countries across Africa.

What else is at stake?

The West Asian region provides among the largest number of overseas jobs for Indians, with nearly 89 lakh Indians living and working in the Gulf economies. The UAE, which comprises the seven emirates of Dubai, Abu Dhabi, Sharjah Ajman, Umm Al-Quwain, Fujairah and Ras Al Khaimah, accounts for the largest share of NRIs in the region and is home to more than 34 lakh Indians. Saudi Arabia with close to 26 lakh and Kuwait with over 10 lakh are the other large providers of jobs and economic opportunities for Indians. Indians are today ubiquitous by their presence across a vast range of job categories in the region spanning construction labour to oil industry workers, nurses and doctors in the medical sector to the hospitality industry and finance professionals.

The remittances that they sent back home in 2017, according to Pew Research data, accounted for about 55% of the total $68.97 billion in inward remittances received in India from across the world that year.