Why India Should Keep a Close Watch on Emerging Problems in the Gulf States

Source link

Key Points

• India will need to keep a close watch on developments in the Gulf Co-operation Council countries even as it contends with the coronavirus outbreak at home.
• Lower oil prices have enabled India to augment its strategic reserves and enabled it to come up with a stimulus package to counter the impending economic slowdown as a consequence of the lockdown imposed in a number of cities.
• Indian workers in the Gulf have contributed a large chunk of India’s remittances and their safety cannot be overlooked. It remains to be seen how India will react if the Gulf countries send the labour force home.
• Any layoffs of Indian workers as a result of the slowdown caused by the Covid-19 pandemic, as well as the drop in oil prices, will have an impact on the Indian states that many Gulf workers come from.
• Policies will need to be put in place to rehabilitate those workers if they are forced to return to India. It is not an immediate necessity, but it will need to be addressed in the longer term.

Summary

In recent years, India’s ties with the Gulf Co-operation Council (GCC) states have expanded. The two key drivers of the relationship for long have been India’s energy requirements and the Indian Diaspora resident there. While bilateral ties have strengthened overall, that strengthening has been most prominent with the United Arab Emirates (UAE) and Saudi Arabia.

The total bilateral trade between the GCC and India was estimated at US$121.34 billion ($203 billion) in 2018-19. The UAE is estimated to be India’s third-largest partner with trade in 2018-19 estimated at nearly US$60 billion ($100 billion), while Saudi Arabia is India’s fourth-largest trading partner, with trade in 2018-19 estimated at over US$34billion ($57 billion).

Analysis

India’s Oil Needs

The GCC accounts for 42 per cent of India’s total oil imports (nearly a fifth of India’s crude oil requirements, 18 per cent, is met by Saudi Arabia). India’s dependence on the GCC states has further increased after it was compelled to reduce its oil imports from Iran in 2019, after the US ended the waiver that it had earlier granted to India and other countries regarding the purchase of oil from Iran).

The GCC also provides over 50 per cent of India’s foreign exchange remittances at US$37 billion ($62 billion), which derives from the 7.6 million Indians who live and work in those countries. Of the more than seven million Indians in the GCC, just over 2.5 million are from Kerala state. With so many Keralites in the GCC, Kerala accounts for a whopping 19 per cent of the remittances that flow into India. Other workers hail from states like Uttar Pradesh and Bihar, but Kerala predominates, which makes it very dependent on foreign remittances. More recently, migration to GCC countries has not been restricted to blue-collar workers.

Diversification of the Relationship

India has stated in recent years that it does not want its relationship with the GCC to be restricted to that of an oil importer. The Gulf countries have accordingly made some important investments in India. One such example is the joint investment by the Abu Dhabi National Oil Co. (ADNOC) and Saudi Aramco in a refinery-cum-petrochemical complex at Ratnagiri in Maharashtra; those organisations invested 50 per cent in a US$44 billion project (the remaining 50 per cent being held by Indian state-run companies). Aramco is also in talks with Reliance Industries Limited  to purchase a 20 per cent stake in its oil to chemical business, which is estimated at US$75 billion ($125.5 billion). ADNOC has, moreover, awarded the exploration of Abu Dhabi Onshore Block One to a consortium of Indian state-owned entities including Bharat Petroleum Corp. Ltd and Indian Oil Corp. Ltd.

During the visit of Indian Prime Minister Narendra Modi to Saudi Arabia in October 2019, both sides emphasised the need for “energy security”, as well as “Strategic Petroleum Reserves”. Saudi ARAMCO and Indian Strategic Petroleum Reserve, a company whose purpose is to build strategic storage for India, entered into an agreement, according to which the latter could lease part of Aramco’s storage in Karnataka. The aim of such a move was to build oil reserves in order to counter the volatility of oil prices. India has built up a total of three strategic reserves in Southern India (Visakhapatnam, Mangalore and Padur), to store about five million tonnes in order to deal with any supply disruptions.

The GCC has also invested in developing India’s energy infrastructure. In 2019, the Saudi Ambassador to India stated that Riyadh wished to invest US$100 billion ($166 billion) in India and, apart from energy, refining and petrochemicals, infrastructure was one of the target areas. During Mr Modi’s visit to Saudi Arabia in October 2019, therefore, it was also decided to establish an India-Saudi Strategic Partnership Council, which aimed to deepen the bilateral relationship and be headed by leaders from both.

India has formed “strategic partnerships” with GCC countries on issues such as counter-terrorism, money laundering and organised crime. India and Saudi Arabia signed the Riyadh Declaration in 2010, for example, with a view to countering terrorism and enhancing defence co-operation. That co-operation has worked quite well for India; one of the handlers of the Mumbai terror attack, Abu Jundal, was extradited from Saudi Arabia to India. Under the current government, attempts have been made to further strengthen the strategic partnership and strengthen military co-operation. One outcome of the partnerships has been the joint naval exercises that were conducted between India and UAE, India and Qatar and India and Oman in 2018. The Omani and Indian armies have conducted joint training exercises since 2015. In 2017, the UAE Crown Prince was the Chief Guest at India’s Republic Day function.

Challenges Faced by Gulf Countries and the Effect on India

At this point of time, the Gulf itself is dealing with the twin challenges of the coronavirus, with 611 cases reported in the UAE and 1,453 in Saudi Arabia at the time of writing, and the drop in oil prices (estimated at 40 per cent in March), resulting from the production disagreements between Russia and Saudi Arabia. The drop in oil prices gives India room to manoeuvre, since its oil bill will drop considerably. That would allow India to provide an economic stimulus package if that is required to deal with the impact of the coronavirus.

Indian Diaspora in the Gulf

India’s priority is to respond to its citizens in the Gulf who contract Covid-19. New Delhi needs to respond fast at a time when domestic cases are also rising, with the Ministry of Health and Family Welfare reporting 1,117 confirmed cases in the country as of 30 March. The government has locked down a number of cities, including New Delhi, which will have an impact on the economy, especially on the disorganised, or informal, sector.

India will also need to take care of those workers in the Gulf who are deported. On 20 March, 26,000 workers from the Gulf returned to Mumbai and were quarantined. For the time being, international flights into India have been stopped but workers could return over the next few weeks.

The second challenge will occur over the long term, when large numbers of Indian workers in the GCC will be laid off, and Indian states with large number of workers there will be affected economically. Some states, like Kerala, have been preparing for a slowdown in the GCC and have in place policies to encourage the returning diaspora to become entrepreneurs. Migration from Kerala to GCC countries (with the exception of Qatar) has fallen by around 11 per cent in the last five years. Keralites have sought to acquire skills that are needed in countries like Australia and Canada, and have been moving to those countries. That aside, the GCC economies require a lot of unskilled labour; that requirement is being met by labourers from Uttar Pradesh and Bihar. An estimated 30 per cent of recent migrants are from Uttar Pradesh, which surpasses the number from Kerala, and 15 per cent from Bihar. States like Bihar and Uttar Pradesh could emulate Kerala and implement policies to rehabilitate their laid-off Gulf workers.

Conclusion

While India can take advantage of the drop in oil prices, New Delhi and the state governments will need to work closely to ensure the longer-term safety and well-being of workers. For long, the remittances of such workers have benefitted India; they cannot now be ignored. Unlike the diaspora in other countries that offer citizenship and are reasonably secure, workers in the Gulf do not have those facilities.

The Gulf faces its own challenges, but India’s close economic linkages, which have strengthened in recent years, with many dubbing the GCC as India’s extended neighbourhood, need to be kept in mind. It remains to be seen how New Delhi utilises the opportunity provided by lower oil prices to deal with the challenges that are occurring in the GCC.

 

*****

source https://iranians.global/why-india-should-keep-a-close-watch-on-emerging-problems-in-the-gulf-states/