Analysis
Trade

Modi’s UAE visit ‘adds to execution of deals’

February 19, 2024, 3:32 AM

Flower, Flower Arrangement, Plant — India's prime minister Narendra Modi performs a Hindu water ritual at inauguration of the BAPS Hindu temple in Abu Dhabi

Modi’s seventh UAE visit
New MOUs signed
Introducing rupee payment systems

Indian prime minister Narendra Modi deftly blended politics and commerce last week as he opened the Middle East’s largest Hindu temple on a visit to the UAE, a Muslim state that is home to 3.5 million Indian expatriates and a major trading ally.

The temple’s inauguration was widely covered in Indian media, while tens of thousands of Indians gathered in an Abu Dhabi soccer stadium to cheer Modi, who is eyeing a third term in India’s forthcoming elections.

Commercially, the two-day visit – Modi’s seventh to the UAE since becoming premier – produced fresh memoranda of understanding to expand cooperation on trade, investment, energy and technology.

Last year, India and the UAE signed a pact to develop an India-Middle East-Europe Economic Corridor, India’s counter to China’s Belt and Road initiative.

“Opening such corridors is strategic because it can be used as a launching pad for Indian exporters to other countries,” Ashok Sawlani, partner at Royal Traders and former chairman of Textile Merchants Group, tells AGBI.

“Diplomacy is often about the symbolism, and the symbolism here is extremely strong,” Ruchir Punjabi, chair of India’s School of Policy and Governance, and co-founder of Distributed Energy and renewables.org, tells AGBI.

“It’s the UAE saying that not only are we tolerant, which is an important message, but also that they care deeply both about the Indian community here and their relationship with India.”

Earlier, in 2022, the two countries signed a comprehensive economic partnership agreement.

Annual bilateral trade between the two countries has reached $85 billion, according to India’s Commerce Ministry, making the UAE its third-largest trading partner after the US and China.

But, stripping out oil, growth in trade has not been explosive.

Non-oil bilateral trade increased by 2.5 percent in the 17 months following the Cepa, compared with the corresponding period of 2021/22, the UAE minister of state for foreign trade, said earlier this week.

modi uae — Modi, pictured with UAE vice president and ruler of Dubai Sheikh Mohammed bin Rashid Al Maktoum, as he laid the foundation stone for Bharat Mart, a market and trading platform for Indian businesses in Dubai

Rupee-friendly infrastructure

Non-oil trade exceeded $38 billion in the first nine months of 2023 but was flat against the same period in 2022, the minister said.

India is the world’s third-largest oil importer and consumer but currently pays for UAE oil in dollars.

But the UAE is advancing Indian rupee-friendly infrastructure. Efforts include enabling trade settlement in rupees, aiming to reduce transaction costs by bypassing dollar conversions.

The nations expanded their cooperation in the energy sector during Modi’s visit, with agreements to advance deals in hydrogen, solar energy and grid connectivity.

Punjabi says the development could fuel significant capital influx into India’s energy sector, a market that serves a population of 1.42 billion.

India is among the biggest buyers of Emirati oil but is also a big burner of coal and one of the biggest emitters of CO2. Punjabi believes a shift towards renewable energy, in which the UAE has growing expertise, could not only diversify energy sources but also mitigate foreign exchange pressures and increase self-sufficiency.

“The UAE understands how to price energy and how to generate a return out of energy, making it a naturally attractive partnership for UAE to invest in energy in India,” he says.

Modi with UAE president Sheikh Mohamed bin Zayed Al Nahyan

Elsewhere, the Modi administration has initiated radical reforms over the years such as the “Make in India” programme.

This allows for approval of 100 percent foreign direct investment through an automatic route and industrial de-licensing, to shift India away from its protectionist stance of the 1990s. Then, nearly all business activities needed government permission, benefiting a select group of insiders.

Dubai port group DP World, for example, now operates several ports in India and signed further MOUs during Modi’s visit. Dubai-based property developer Emaar also has investments in India.

However, the strategy has not spurred the anticipated scale of growth so far in some sectors, such as manufacturing.

A joint Saudi-UAE oil refinery at Raigad near Mumbai was announced in 2019, for instance. It has yet to be built because of opposition from local residents.

Dubai’s Emirates airline also has ambitions in India but is being frustrated because of opposition from incumbents and new investors, who have taken over Air India.

An investment by Etihad Airways of Abu Dhabi in Jet Airways, alongside others, proved disastrous.

“Execution is what matters, and I think Modi’s visit actually adds to the execution of deals,” Prashant Gulati, a Dubai-based angel investor, tells AGBI.

The establishment of rupee rails (systems for moving money globally) is a “game changer,” according to Gulati, in “reducing friction,” potentially transforming cross-border business and opening up opportunities.

“There have always been challenges of how to take money into and get it back out from India,” he adds. “But when the governments talk this closely, those issues start getting ironed out.”

India’s RuPay payment system has also been linked with the UAE’s Jaywan card.

Suresh Kumar, chairman of the Indian Business Professional Council in Dubai, says the treaties are “certain to build momentum” across sectors and facilitate more partnerships.