India-UAE Relations

Syllabus: GS 2   >   International Relations   >    Bilateral relations

REFERENCE NEWS

PM Narendra Modi at the Vibrant Gujarat Summit 2024, stated that the India-UAE relations are ‘stronger than ever’. PM Modi held bilateral talks on the side lines of the summit with the UAE President Sheikh Mohammed bin Zayed, who was the Chief Guest of the summit.

KEY OUTCOMES OF INDIA-UAE BILATERAL TALKS

HISTORY OF INDIA-UAE RELATIONS

MILESTONES OF INDIA-UAE RELATIONS

• India-UAE CEPA: The India-UAE Comprehensive Economic Partnership Agreement (CEPA) became effective on May 1, 2022. This agreement has significantly reduced tariffs on over 80% of products and has provided duty-free access for 90% of Indian exports to the UAE. As a result, trade values have increased, with non-oil trade reaching US$50 billion from May 2022 to April 2023. The goal of reaching a $100 billion non-oil trade by 2030 now appears within reach.
• India-Middle East-Europe Economic Corridor (IMEC): The UAE plays a crucial role in the IMEC, which aims to enhance connectivity and serve as a viable alternative to China's Belt and Road Initiative.
• I2U2 Group: The I2U2, comprising India, UAE, Israel, and the United States, focuses on fostering technological and private sector cooperation in the region, addressing transnational challenges in sectors like water, energy, and transportation.
• Rupee-Dirham Agreement: The Reserve Bank of India and the Central Bank of the UAE have agreed to create a framework for using local currencies in cross-border transactions, reducing dependency on US Dollars and aiding in the internationalization of the Indian Rupee.
• Cultural: Demonstrating religious tolerance, the UAE has permitted the construction of the BAPS Hindu Mandir in Abu Dhabi, the first temple of its kind in the country.

SIGNIFICANCE OF INDIA-UAE RELATIONS

Strategic:

• Security Concerns: The Middle East, with conflicts like the Israel-Hamas war and disturbances in Syria, Iraq, and Yemen, has direct security repercussions for India, such as the rise of ISIS recruitment in regions like Kerala. The India-UAE alliance is thus crucial for reinforcing the security of both nations.
• Combating Piracy and Terrorism: Enhanced India-UAE ties are essential for securing the Arabian Sea and the Indian Ocean against piracy. Additionally, both countries engage in joint military exercises to fight terrorism, including exercises like Desert Cyclone (Army), Zayed Talwar (Navy), and Desert Eagle (Air Force).
• Energy Security: The UAE ranks as a primary energy supplier to India, being its 6th largest crude oil exporter. The UAE is also a pioneer international partner in India's Strategic Petroleum Reserves Program.

Political:

• Collaboration in International Bodies: The UAE backs India's candidacy for a seat in the UNSC and cooperates with India in various international platforms such as UNFCCC, ISA, I2U2, and IMEC.
• Counterbalancing China's Regional Dominance: With China expanding its influence in the Middle East through initiatives like the BRI and mediating peace talks between Saudi and Iran, India's strengthened ties with the UAE are vital to offset China's growing presence in the region.
• Engagement with Regional Alliances: The UAE holds significant influence in organizations like the OIC and the GCC. Enhanced India-UAE relations could pave the way for India's membership in the OIC and a free trade agreement with the GCC.

Economic:

• Remittances: The UAE, home to approximately 3.5 million Indian nationals, is a major source of remittance inflows to India.
• Trade and Investments: As India's third-largest trade partner, with trade nearing ~$60 billion, the UAE's investments in India are substantial, making it the ninth largest investor in the country. Indian firms have established joint ventures and units in the UAE in sectors like cement, textiles, and electronics.
• Access to the African Market: Relations with the UAE facilitate India's entry into the African market and trade partnerships under the GCC and GAFTA, potentially integrating India into supply chains in sectors like textiles and pharmaceuticals.

Cultural:

• Safeguarding Indian Diaspora Interests: A strong India-UAE relationship is vital to protect the economic and socio-cultural interests of the large Indian expatriate community, as evidenced by the establishment of the first Hindu temple in Abu Dhabi.
• Boosting India's Soft Power: Positive relations with the UAE are essential for enhancing India's soft power in the Middle East, as seen in events like the celebration of Diwali in Abu Dhabi and Dubai.

CHALLENGES TO INDIA-UAE RELATIONS

Trade Restrictions:

• The implementation of Non-Tariff Barriers (NTBs) such as Sanitary and Phytosanitary (SPS) measures and Technical Barriers to Trade (TBT) by the UAE has negatively affected the export of Indian goods, particularly in sectors like poultry, meat, and processed foods.
• Technical Barriers to Trade (TBT), like mandatory Halal certification, have been a hurdle for Indian processed food items. 
• As per a report from the Ministry of Commerce and Industry, India, these barriers have led to a reduction in processed food exports to the UAE by nearly 30% over the past few years.

Chinese Economic Influence:

• China's strategy of offering low-interest loans, known as "Cheque Book Diplomacy," is increasingly overshadowing Indian enterprises in the UAE and the broader Middle Eastern region.
• According to the American Enterprise Institute’s China Global Investment Tracker, China’s investments and contracts in the UAE totalled over $30 billion between 2005 and 2020, overshadowing Indian economic ventures in the region.

Kafala Labour System:

• The Kafala system in the UAE, which imposes harsh conditions on immigrant laborers, particularly those in low-wage jobs, poses a significant issue.
• This system grants disproportionate power to employers over the immigration and employment statuses of migrant workers. Cases of passport confiscation, delayed wages, and poor living conditions are common.

Financial Aid to Pakistan:

• The UAE's substantial financial assistance to Pakistan, a nation known for sponsoring cross-border terrorism against India, raises concerns about the potential misuse of these funds in activities that threaten India's national security.
• For example, in 2019, the UAE pledged $3 billion to support Pakistan’s foreign exchange reserves.

Iran-Arab Dispute:

• The ongoing conflict between Iran and Arab nations places India in a delicate diplomatic position, needing to maintain balanced ties with both the UAE and Iran.
• Despite U.S. sanctions on Iran, India continued to import oil from Iran, accounting for approximately 10% of its total oil imports, indicating its diplomatic tightrope walk between Iran and the Arab world.

WAY FORWARD

• Enhanced Clarity in Non-Tariff Barriers (NTBs): It is crucial to establish a framework for transparent and predictable NTB practices. This includes consistent updates and information exchange regarding labelling requirements, licensing protocols, permits, and import monitoring. Such transparency will facilitate smoother trade relations, particularly in sectors affected by these barriers.
• Comprehensive Strategic Dialogue: Similar to India's 2+2 dialogues with nations like the U.S. and Russia, initiating a similar high-level dialogue with the UAE would be beneficial. This platform could address strategic, defense, and political issues, fostering deeper bilateral understanding and cooperation.
• Harmonization with UAE’s ‘Vision 2021’: Aligning with the UAE’s 'Vision 2021', which focuses on economic diversification away from oil, presents an opportunity for India. India can contribute to this vision through collaboration in renewable energy, technology startups, fintech, and other emerging sectors, thereby reinforcing economic ties.
• Advocacy for Kafala System Reform: India should engage diplomatically with the UAE to advocate for the reform of the Kafala labor system. Drawing inspiration from Qatar's reforms, which were partly influenced by Indian advocacy, India can play a significant role in improving the conditions for migrant workers in the UAE.
• Joint Ventures in Technology and Innovation: Encouraging joint ventures and collaborations in cutting-edge technology, research, and innovation can help both nations lead in sectors like AI, biotechnology, and space research.
• Cultural Exchange Programs: Enhancing people-to-people connections through cultural exchange programs, educational scholarships, and tourism can deepen mutual understanding and respect between the two nations.
• Security and Military Cooperation: Expanding security and military cooperation, including joint exercises, intelligence sharing, and defense technology transfers, can help address mutual security concerns, including terrorism and regional stability.
• Investment Incentives: India could offer incentives for UAE-based companies to invest in India, particularly in infrastructure, manufacturing, and services sectors, which would benefit both economies.
• Environmental Collaboration: Collaborating on environmental conservation, sustainable development, and climate change initiatives can be a shared goal, aligning with both nations' commitments to the Paris Agreement.
• Healthcare Cooperation: Given the challenges posed by global health issues like the COVID-19 pandemic, collaboration in healthcare, including research, drug development, and public health initiatives, can be a significant area of mutual interest.

Strengthening India-UAE relations transcends traditional diplomacy, promising to unlock new horizons of mutual prosperity and regional stability, while setting a benchmark for dynamic and forward-looking international partnerships.

PRACTICE QUESTION

Q: Discuss the economic and strategic significance of UAE for India and suggest measures that can be taken for stronger India-UAE Relations. (15M,250W).