India has historically had close economic ties with the Arabian Peninsula, especially the Gulf region along its eastern shores, writes a banking expert.
The first historically recorded maritime trade route in the world was, in fact, between the Indus Valley civilisation and the civilisation of Dilmun, which was located on the island of Bahrain and the adjacent shore of Saudi Arabia. Goods, including cotton and spices, were acquired by merchants from Dilmun.
Through most of history, goods flowed from India toward Arabia. Arabia had little to export to India except the money that was used to buy spices and other goods found in India. Pearls were the only significant export from the Arabian Gulf.
Relations between the Gulf region and India grew even stronger during the British Raj, when they acquired a strategic-military component in addition to an economic one. By the mid-19th century, the British had come to dominate the subcontinent. British influence and control over Arab territory mostly flowed as a consequence of British needs to protect sea lanes.
Aden, where India's own Dhirubhai Ambani started his career, was administered as a part of British India and was an important port till the mid 1950s. The Gulf States even used the Indian Rupee as its currency till the late 1960's. The trade relationship between India and the Gulf states began to reverse with the discovery of oil. The balance of trade began to shift more in favour of the Gulf states that exported oil. Today, India imports about 70 per cent of its oil from the Gulf region (including Iran). The total value of fuel imports from this region in the year 2015 was $56 billion, according to figures released by the World Bank. However, India also exports more to the Gulf region than to the European Union (EU). As per the World Bank, in 2015, India exported $55 billion to the Gulf Cooperation Council (GCC) - mostly consumer goods, jewellery and petrochemicals. About 20 per cent of India's exports go to the Middle East and North Africa. India was also Dubai's largest trade partner until 2013, when China overtook it.
There are an estimated 7.5 million Indians working in the Gulf and many Indian companies are active in sectors like construction and technology. In 2015-16, remittances from Indian workers in the GCC were $35.9 billion. Remittances from the Gulf region are still a key growth engine for states like Kerala, which has seen agriculture in decline till recently and negligible growth in manufacturing. A Kerala government survey in 2015 showed that remittances sent by the diaspora (88 per cent of whom live in the Middle East) support at least 5 million people in the state, which has a population of 31.5 million. In recent years, there has been a concerted effort to take India-Gulf ties beyond oil, trade and expatriates. The starting point is recognising that while a 'new' India and Gulf have emerged during the last two decades, both will again be different over the next decade.
Assuming that the Indian economy grows at the predicted rate of more than seven per cent and the Gulf economies diversify and readjust their economic fundamentals amid low oil prices, India-Gulf ties are headed for interesting economic times. Following are some pointers from post-2000 Gulf-India developments that could be construed as strategic. In the aftermath of September 11, 2001, when the GCC countries adopted a 'Look East' policy, which included India. In putting aside religious ideology and dealing with India as they did with Pakistan, the GCC states conveyed that economic sense is common sense. The late King Abdullah's visit to India in 2006, the first by a Saudi head of state in 60 years, contributed positively to India's image and served as an acknowledgement that the Gulf is also taking note of India's interest in the region.
In the security realm, the 2010 Riyadh Declaration and 2015 Abu Dhabi Declaration strategically elevated the partnership to the next level. The impact of these, in terms of hard security, may take a while to evolve, but in terms of soft security, there is evidence of increased Indian cooperation with the United Arab Emirates and Saudi Arabia in counterterrorism statements and operations. In terms of hard security, the India-Qatar defence cooperation pact stops “just short of stationing (Indian) troops” in Qatar. This and the India-Oman defence cooperation agreement, also signed in 2008, are templates for future security cooperation. Indian Prime Minister Narendra Modi's visit to the United Arab Emirates (UAE) in 2015, the first by an Indian premier in 33 years, followed up by visits of Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed Al Nahyan to India in 2016 and 2017 are of greater political-strategic value to New Delhi's new 'Think West' policy. This is positive because while the GCC countries pursued a 'Look East' policy over the last 15 years, Indian diplomacy has been busier improving relations with Western countries than with neighbors closer home. Secondly, strategic economic engagement may manifest, for example, in how the proposed $75 billion UAE-India Investment Fund is operationalised. Again, for example, investment in the food storage sector could be linked to infrastructure projects, as opposed to the GCC countries' idea of buying cultivable agricultural land to ensure food security.
In the security arena, one needs to link India-GCC strategic ties to the shift away from the GCC's reliance on the decades-old US-centric protection net. Some Indian scholars, have called for exploring possibilities for a new collective security architecture for the Gulf, which would involve both Asian and Western powers, including the United States. The failure of the United States to limit the chaos in Iraq, the nuclear deal with Iran which compromised the GCC countries' perceived security concerns and the inaction in Syria has heightened the region's fatigue with the United States. It is true that though the GCC's ties with Asia are expanding, no other international actor can replace the United States even if it is a weak superpower in the short or even medium-term future. But this could change in the longer term. Simultaneously, a sense of US fatigue with the region is also prevalent. This policy, endorsed by the new US President, Donald Trump, reflects the desire to focus on domestic issues. But India's quest to advance its strategic interests in the Gulf faces major deterrents. First, Saudi-Iran animosity has created schisms within the GCC as can be seen recently with Saudi Arabia, UAE and Bahrain cutting all ties with Qatar and Oman with Kuwait taking a neutral position. Thus, though the Gulf countries are ready to explore alternatives, the fear of Iran and the lack of credible alternatives make them stick with the United States.
India could look beyond anti-piracy and anti-terror cooperation, by diversifying defence cooperation, including investment in defense manufacturing, facilitating interaction between armed forces; organising visits to Indian defence colleges, and laying groundwork for joint exercises. Another might be for both sides to contemplate more defence pacts of the India-Qatar kind. Yet another might be for India to begin conducting naval exercises of the kind involving Oman with other GCC countries. This would help showcase India's naval strength. The dynamics of oil, trade, and expatriates have sustained historic ties between India and the Gulf. The way forward hinges on strategic, political, economic, and security dimensions. With several factors contributing to the rediscovery of the India-Gulf relationship, we are in for interesting times.
Hansel Berboza is Head, M&A, Cards and E-Banking Business at Bank of Muscat.