Analysis
Trade

$112bn of trade with India ‘ready to be tapped’

February 12, 2024, 3:03 PM

Turkey's stall at the India International Trade Fair in New Delhi: trade and investment opportunities between India and the region are increasing, says HSBC

HSBC: ‘Extensive opportunities’
Focus on India’s Tier 2 cities
Energy ‘an important driver’

Untapped trade opportunities between India and the Middle East, North Africa and Turkey could be worth more than $112 billion, research has found.

An HSBC report, which analyses data from the UN/WTO International Trade Centre, estimates that there is a $61 billion export gap for Indian companies in the key markets of the UAE, Saudi Arabia, Egypt, Qatar and Turkey.

Untapped exports in the opposite direction could be worth a further $51 billion. Much of this amount could come from trade with India’s Tier 2 cities – those with populations below 5 million. These include Chandigarh, Coimbatore, Kochi, Jaipur, Nagpur, Mysore and Trivandrum.

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HSBC said trade and investment opportunities were increasing, buoyed by strong mutual interests such as Gulf oil exports and India’s role as a food producer and exporter.

Considerable sums are being invested in food security projects, with $7 billion spent on the India-UAE food corridor since 2019. The UAE also plans to invest $2 billion in “food parks”, centres for food processing units, storage facilities and logistics in India.

Patricia Gomes, regional head of commercial banking, Middle East, North Africa and Turkey, at HSBC, said businesses and investors were looking at “an extensive set of opportunities in both directions”.

The Tier 2 cities could offer Mena corporations “lower operational costs, niches for specific industrial activities, or [locations for] shifting ancillary operations,” she added.

India became the world’s most populous country in 2023 and think tank Asia House believes the growth in its middle class will make it an attractive investment destination for Gulf companies and sovereign wealth funds.

The Indian diaspora in the GCC, about 8.8 million people, is also deepening capital, talent and technology ties, according to HSBC. The UAE and Saudi Arabia are now India’s third and fourth largest trading partners, respectively.

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In Egypt, Indian companies are investing in green hydrogen and electric vehicles, as well as food, chemicals and tourism. India's automobile companies have built a presence in Turkey, as have investors in the packaging materials industry.

Trade in spices, gold and textiles still plays a role but India's global prominence in manufacturing, science and technology is increasing too, HSBC said. More investment opportunities are expected in green hydrogen, electric vehicles, semiconductors and pharmaceuticals.

Free trade agreements are boosting the relationship, observers say.

Ajay Sharma, country head of commercial banking at HSBC India, said: “Global supply chains are being reshaped, and trade policies for the green transition are adapted. Now is the time for corporates and investors along the corridor to explore the latent potential for further collaboration.”

In 2022, the India-UAE comprehensive economic partnership agreement was negotiated and concluded in just 88 days. It reduced or eliminated tariffs in more than 80 percent of product lines. Talks for a free trade deal between India and the GCC are continuing.

Vijay Valecha, chief investment officer at Century Financial in the UAE, said "multiple pathways" could unleash the untapped potential, adding: “India’s strength as an agricultural exporter to the region is key."

Yusuf Mansawala, chief market analyst at CPT Markets in London, pointed to last week’s UAE-India investment treaty, saying it added momentum.

Energy will remain an important driver of mutual trade, according to HSBC's Gomes. India’s oil imports are projected to exceed China’s, making the country an increasingly attractive market for refinery investments.

She added that India's renewable energy market also offered “an enticing opportunity for GCC countries to invest in India’s rising renewable energy market”.