The Middle East and North Africa (MENA) area is known as a significant recipient of remittances, with millions of expatriates driving significant financial exchanges. Saudi Arabia, the United Arab Emirates (UAE), Qatar, Kuwait, and Oman are major donors; they are home to a large number of workers from Bangladesh, Pakistan, India, the Philippines, and Nepal.
India is a major importer of Middle Eastern oil, and energy-related transactions have historically dominated the economic ties between India and the Middle East. But in recent times, this partnership has taken on new forms, including investments in renewable energy, technology, infrastructure, and real estate, indicating a growing sense of trust among Middle Eastern investors in the Indian economy.
Increase In Remittances
India received remittances worth about USD 125 billion from the Middle East in the fiscal year 2023–2024. After the United States, United Kingdom, and Singapore, the Gulf countries accounted for the second highest share of these inflows.
In particular, the UAE was India’s second-largest source of remittances after the US, contributing 18% of the country’s overall remittances. Remittance inflows to India have reportedly increased due to robust labour markets and declining inflation in high-income Western and Middle Eastern nations. According to the prediction, these inflows will rise by 8% in 2024 and might total USD 135 billion by the end of the year.
India-UAE Tie Gets Stronger
Over the past ten years, there has been a noticeable increase in the commercial and investment ties between India and the Gulf countries. The substantial remittance contributions made by the Indian diaspora highlight India’s leading position in the world remittance market. Despite this, cronyism and other issues with the business environment, such as ambiguous land rights, hinder Gulf investments in India. Conversely, Indian investments have played a crucial role in propelling the UAE’s growth.
Investors in the Middle East are turning their attention away from conventional industries like gas and oil and toward high-growth, knowledge-driven sectors. The broad use of digital payment solutions, which are transforming the MENA remittance sector by utilising internet and mobile technology to offer quick, safe, and affordable services, is supporting this shift.
Anticipated to greatly boost bilateral commerce, India and the United Arab Emirates signed the Comprehensive Economic Partnership Agreement (CEPA) on February 18, 2022, with effect from May 1, 2022.
A Deloitte analysis states that CEPA, which covers a wide variety of tariff lines and many service sectors and sub-sectors, seeks to increase trade in commodities to over USD 100 billion and in services to over USD 15 billion within five years.
Important Focus Areas
Energy Exports: The GCC nations, in particular Saudi Arabia, the United Arab Emirates, and Qatar, are India’s main suppliers of gas and oil, which is essential to the country’s energy security.
Non-Oil Trade: India imports fertilisers, petrochemicals, oil, and other goods from the Middle East and North Africa (MENA) while exporting textiles, machinery, chemicals, food products, and electronics to the region. The impact of remittances on the Indian economy is substantial, as they sustain numerous families and serve as a major source of foreign cash for India.
Investments: Indian industries like infrastructure, real estate, energy, and technology are a source of capital for MENA’s sovereign wealth funds and private enterprises. On the other hand, Indian businesses invest in MENA, concentrating on retail, telecommunications, construction, and oil and gas.
Future Prospects
Market dynamics, foreign influences, and internal reforms will all influence future trade and investment flows inside the GCC. The UAE and Qatar, which MSCI has classified as emerging economies, are leading the region’s efforts to attract outside investment.
The MENA area is in a good position to draw in foreign direct investment (FDI) from around the world because of its robust infrastructure projects in Saudi Arabia, Qatar, and the United Arab Emirates, as well as its 4-5% regional GDP growth rates and rising consumer expenditure.
The economic relationship is evolving from one dominated by energy trade and remittances to a more diversified partnership. This transformation is marked by increased investments in sectors like technology, infrastructure, and renewable energy, reflecting a growing trust among Middle Eastern investors in India’s economic potential. Remittances continue to play a crucial role, significantly contributing to India’s foreign reserves and supporting millions of families.
The Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE is a testament to the deepening ties, aiming to boost trade and service exchanges. The mutual benefits of this partnership are driving both regions to overcome these hurdles.
As the MENA region shifts its focus from traditional oil and gas industries to high-growth sectors, and India continues to import energy and export a variety of goods, the future of trade and investment flows looks promising. This evolving dynamic not only strengthens the economic bonds between India and the MENA region but also positions both as significant players in the global economy.