India negotiates free trade deal with Gulf countries: Here's why GCC countries are important to India

By: Anshul Vipat

This would be a kind of resumption of FTA talks as earlier two rounds of negotiations held in 2006 and 2008 between India and GCC

After a decade of eschewing free trade deals, India has embarked on an FTA-signing spree that is quickly transforming the country into one of the most FTA-engaged countries in the world. While trade agreements with Australia and UAE are already signed, New Delhi is in the race to conclude bilateral trade agreements with United Kingdom, Australia, Canada, Israel, and the European Union. Amidst this, India is set to begin talks for fresh FTA with the Gulf Cooperation Council (GCC). GCC is a union of six countries in the Gulf region— Saudi Arabia, U.A.E., Qatar, Kuwait, Oman and Bahrain. Both the sides have launched negotiations for a free trade agreement with an aim to boost economic ties between the two regions.

This would be a kind of resumption of FTA talks as earlier two rounds of negotiations held in 2006 and 2008 between India and GCC. Third round did not happen as GCC deferred its negotiations with all countries and economic groups. India has already implemented a free trade pact with the UAE in May this year.

Why are GCC countries important for India?

The GCC has emerged as a major trading partner of India. It has vast potential as India’s investment partner in the future. The GCC’s substantial oil and gas reserves are of utmost importance for India’s energy needs. The GCC countries collectively host a large Indian expatriate community. Around 10 million Indians live across the Gulf, sending remittances of about $45 billion annually on average, according to certain estimates.

India was the largest recipient of remittances in the world in 2021, receiving around $87 billion, approximately 50 percent of which came from the Gulf, according to a World Bank report. This was nearly twice the remittances to the next highest recipient, Mexico, at $42.9 billion.

Data from India’s Ministry of Commerce showed that India’s exports to the GCC countries in 2021-22 increased to about $44 billion as against $27.8 billion in 2020-21, a growth of over 58 percent. This accounted for 10.4 percent of India’s total exports in 2021-22.

On the import front, India witnessed a rise of 85.8 percent compared to 2020-21, with total imports summing up to $110.73 billion, accounting for 18 percent of India’s total imports.

Source: Ministry of Commerce

Among GCC countries, the UAE is India’s largest trading partner overall, it is third after the US and China. Trade with the UAE accounts for more than seven percent of India’s total trade. As per the latest available data for 2021-22, India exported goods and services worth $28 billion, and the import bill totaled nearly $45 billion.

UAE is followed by Saudi Arabia. With total volume of $42.9 billion in 2020-22, the Islamic Kingdom is India’s fourth largest trading partner. While exports were low at $8.76 billion (2.07 percent of India’s total exports), imports from Saudi Arabia were the fourth largest at $34.1 billion (7 percent), up 50% from the previous year. Most of it was crude oil.

Then we have Iraq, India’s fifth largest trading partner in 2021-22 with trade volume of $34.3 billion.

India's dependency on Oil

The share of Persian Gulf countries in India’s crude imports has remained at around 60 percent over the last 15 years.

According to the Union Ministry’s PPAC (Petroleum Planning & Analysis Cell) report, India imported 212.2 million tons of crude oil in 2021-22 from 42 different countries.

Most of the oil that India received during this period was from the Gulf countries, with Iraq being the largest exporter, supplying 22 percent of oil to India.

Iraq was followed by Saudi Arabia and the UAE, with Kuwait, too, emerging as one of the major exporters of oil to India. Qatar is also India’s leading supplier of LNG. In other words, the bulk of India’s energy requirements is taken care of by the six GCC countries.

Way forward

The Gulf region has historical, political, economic, strategic and cultural significance for India. India’s relations with key GCC powers like Saudi Arabia and the UAE have transformed in the past decade. While commentators have often focused on the role of the Modi effect or India’s large economy in the establishment a favorable sentiment about India in the Arab Gulf, this analysis overlooks the strategic rationale behind Saudi Arabia and the GCC members’ growing engagement with India. Improvements in India-GCC ties are driven by not only economic opportunities, but also Saudi Arabia and the Arab Gulf’s regional strategies and interest in countering Iranian influence in South Asia.

This makes the FTA much more strategic and economically beneficial. According to a recent study, India’s trade is more intense with GCC countries compared with its trading patterns with rest of the world. The future for both the blocs is bright and shiny.