Indian exports to GCC boom ahead of free trade talks

Reuters/Hamad I Mohammed

• Analysts point to ‘huge’ potential of a deal between the partners
• Benefits could include reduced dependence on dollar
• Bilateral trade stood at $154bn in 2021-22 and growth is accelerating

Indian exports to the GCC are booming, with nearly $30 billion of business in the first seven months of the fiscal year – and analysts are predicting more growth as talks resume on a free trade deal.

The GCC is already India’s largest trading partner bloc, with bilateral trade valued at over $154 billion in 2021-22. Trade has continued to strengthen in 2022-23, with bilateral trade for April to October up by 40.5 percent to $111.7 billion.

Arun Leslie John, chief market analyst at Century Financial Consultancy, said one of the key benefits of an India-GCC free trade deal would be prospective mechanisms for the trade-based currency swap of rupees and Gulf currencies. 

“Such a move will allow the nations to reduce their dependence on the dollar and give more negotiating powers to both sides,” he told AGBI.

• India reaps early benefits from its trade deal with UAE
• Indian families shift wealth to UAE in ‘unprecedented numbers’
• GCC and India agree to resume free trade talks

“The benefits of such a bilateral FX trade swap would be huge for a nation like India, which has always tried to manage its burgeoning dollar-based trade deficit. For GCC, partnering with a significant growth economy like India will only reaffirm its status as a global trade hub.” 

“Moreover, with its diverse demographics and huge prime-age working population, India could become the next significant alternative to China’s low-cost and high-skill manufacturing economy.”

Raghu Mandagolathur, CEO of Marmore Mena Intelligence, a research subsidiary of Kuwait Financial Centre, said the next round of GCC-India trade talks were “set to focus on food security, energy security and technology transfers”, among other topics. As a result, he added, “trade between the region and India is likely to strengthen further.“

India and the GCC agreed last November to resume negotiations on a free trade agreement. Previous talks were held in 2006 and 2008.

The move comes as the Federation of Indian Export Organisations hosted the Super Sourcing Arabia 2023 expo in Bahrain on January 8-10.

Dr Ajay Sahai, director-general and CEO of the federation, said: “Negotiations with GCC countries are at an advanced stage, pointing to a robust growth future and accelerating the pace of growth for regional trade relationships in the Gulf and the Middle East and Africa region.” 

He added that Bahrain was a key focus market for India as it expands its free trade agreements in the Gulf.  

Indian exports to Bahrain reached $454.15 million in the seven months from April, according to federation statistics.  

Sahai said the prospects for Indian exports to Bahrain and the GCC as a whole had been on an “exponential growth curve” and the expo would “further help accelerate the trend”. 

The event aimed to bring together retail and e-commerce businesses with Indian exporters in sectors including food and non-food fast-moving consumer goods, cosmetics, healthcare, home and living, and fashion and lifestyle. 

Sahai said: “The expo is happening at an opportune time of post-pandemic resurgence and rise in retail spending across the markets. There have been robust indications on this front with export volumes continuing to surge.”

According to the federation, Indian exports to the UAE grew by 68 percent in 2021-22. The figure for Saudi Arabia was 49 percent, Oman 33 percent, Qatar 43 percent and Kuwait 17 percent.

Reuters/Adnan Abidi

“We are seeing the growth trend on the upswing this fiscal year too,” he added. 

Figures from India’s Ministry of Commerce and Industry show that its exports to GCC countries were valued at nearly $44 billion in the last fiscal year. Imports totalled around $110 billion. 

Trade in services between India and the GCC countries was valued at around $14 billion. 

GCC countries accounted for almost 35 percent of India’s oil imports and made up 70 percent of its gas imports. India’s overall crude oil imports from GCC countries during this period were worth about $48 billion, while liquefied natural gas and liquefied petroleum gas imports amounted to $21 billion.

Cumulative investments from the GCC in India are currently valued at over $18 billion, according to the ministry.

Of the 13.46 million Indian citizens who live outside the country, more than half are in the GCC. The UAE, Saudi Arabia and Kuwait account for over 7 million.

Last year India signed a comprehensive economic partnership agreement with the UAE. Trade volumes between India and the Emirates are projected to reach $100 billion by 2030.

Dr Bhaskar Dasgupta, head of strategic development MEA at Apex Group, said: “The signing of the UAE-India trade agreement is evidence that removal of trade barriers can boost trade substantially. Other GCC countries have seen the benefits of such trade and bilateral investment treaties, and it completely makes sense for them to also include a GCC-wide coverage of such trade treaty between them and India. 

“GCC is slowly becoming more and more integrated and it will help the GCC to negotiate these treaties from a position of greater strength with India. This will ensure that Indian corporates, firms, families and funds have a bigger incentive to trade with a substantially larger market than just one specific GCC country.”