As of 2014, almost 40 percent of the Middle East’s total merchandise imports came from Asia, and nearly half of its merchandise exports were sold in Asia. Asia has become the Middle East’s first export destination, far ahead of Europe and North America.18 Trade and investment flows between the two regions are likely to continue expanding. For Mideast firms and investors, Asian countries, with their high and sustained economic growth, relatively low-cost skilled workforces, and dynamic markets have become very attractive export and investment destinations. For example, Israeli exports to Asia in 2015 stood at $11.4 billion (while total Israeli exports stood at $45.7 billion – meaning exports to Asia constituted 25 percent of total exports. Exports to Europe represented 30 percent, and those to the United States amounted to roughly 23 percent.)19
India’s trade with the Middle East has increased remarkably since the beginning of the 21ST century. The total value of trade with the Middle East increased 20-fold between 2001 and 2015 whereas India’s world trade in this period only increased eight times. Trade between India and the Middle East reached an amount of $170 billion for the Indian fiscal year 2014-2015, including over two-thirds of imports.20 Bilateral trade with the UAE (which also acts as a transit for Indian goods) grew from $3.4 billion in 2001 to almost $60 billion in 2014-2015, while trade with Saudi Arabia expanded 30-fold in this same period. Though energy trade constitutes the largest part of India’s total trade with the region, the Middle East is also an import source and export destination for non-energy goods.
India’s trade with the Middle East in 2015 constituted 23 percent of India’s total world trade (trade with the United States constituted 10 percent while trade with China was 9.5 percent). Over one-fourth of India’s imports come from the Middle East. At the same time, the Middle East represents nearly one-fifth of India’s export market, five times more than its China bound exports. India’s trade with Israel, minuscule in comparison, represents approximately 3 percent of India’s Middle East trade. The UAE is India’s third largest trade partner on a global scale, after China and the United States. The UAE is India’s second largest export destination after the United States and third largest import source after China and Saudi Arabia. India’s privileged economic relationship with the UAE goes a long way back. India had close trade ties with Abu Dhabi even before the UAE federation was established in 1971. Indian economic links with the UAE blossomed in the 1970s, as more than 100,000 Indian workers migrated to the Emirates in the wake of the oil boom. They greatly expanded in the 1990s, when Dubai’s rapid development and the UAE’s continuing need for labor coincided with India’s economic liberalization reforms, and paved the way for rising trade opportunities.
The United Arab Emirates (UAE), the main transit hub between the Middle East and India, has become the center of gravity for India’s relationship with the region. The UAE comprises seven oil-rich emirates along the Persian Gulf, with population figures varying widely. 2014 population estimates included approximately 9.3 – 9.6 million people, of whom no more than 1.1 million (11 percent) were actual Emirati nationals. Most sources agree that Indians form by far the largest single contingent of foreigners there (approximately 2.8 million people, or 27 percent of the UAE’s total population and 40-50 percent of the UAE’s total labor force).
Late in 2015, it was announced that Israel, whose relations with India are rapidly expanding, established a diplomatic mission in the UAE’s capital, Abu Dhabi.
India’s trade with all six member countries of the Gulf Cooperation Council (GCC) – Oman, UAE, Bahrain, Kuwait, Qatar and Saudi Arabia – is likely to continue increasing in the coming decade, especially if the two sides conclude a Free Trade Agreement as expected. The GCC is an extremely attractive market for Indian goods, especially in the information technology sector, a result of the population’s youth bulge and high spending power. Additionally, the sustained dynamism of the Gulf construction industry is driving demand for heavy machinery and other construction-related imports from India.
Investments and joint ventures
Indian oil and natural gas firms have acquired equity assets and participating interests in the Middle East’s energy upstream sector. But beyond energy, Indian companies have also set up offices and businesses and undertaken investments throughout the Middle East in sectors ranging from infrastructure development and manufacturing to health care, information technology, education, and telecommunications. Oman hosts India’s largest overseas joint venture, the Oman-India Fertilizer Company. According to the latest figures available, India invested over $1.6 billion in Saudi Arabia between 2000 and 2015.22 In December 2012, the leading Indian firm, Tata Motors, signed a preliminary agreement to establish a factory in Saudi Arabia for the production of Jaguar Land Rovers, at an initial investment estimated at $1.2 billion. Still, the UAE is India’s primary partner for investments and joint venture projects.
In fiscal year 2009-2010, the UAE ranked as India’s seventh favorite destination of foreign direct investment (FDI) in global terms, with FDI outflows amounting to $484 million – nearly 5 percent of total Indian FDI outflows.23 A trend has been detected recently that India has shifted its FDI policy away from resource rich countries in favor of countries offering superior tax benefits.24 In one of Dubai’s largest free economic zones, Indian firms constituted a fifth of the 612 new companies established in the first four months of 2012.25 Birla Institute of Technology & Science Pilani, one of India’s leading higher education scientific institutes, chose Dubai as the location of its only international campus, which has, since its opening in 2007, become the most sought-after engineering college in the Gulf. In 2009, Zee Entertainment Enterprises, India’s leading media firm also chose Dubai to launch Zee Alwan, the first Arabic-language channel exclusively devoted to the broadcast of Hindi Bollywood movies, and is today one of the most popular channels in the Gulf. In 2012, Zee Entertainment announced a $100-million investment in a second Dubai-based Arabic channel, Zee Aflam, which showcases various Hindi programs. India is, therefore, accumulating cultural influence or “soft power” in the Gulf, in addition to its economic weight.
Companies from Mideast countries also invest capital and enter into joint ventures in India, particularly in the energy downstream sector but also in other sectors such as infrastructure, pharmaceutical and chemical industries, and computer software. Again, the UAE stands out. The UAE’s FDI equity into India between 2000 and 2015 amounted to nearly $3.3 billion, making it India’s tenth largest investor worldwide. Apart from the UAE however, Middle Eastern countries are still transferring little capital into the Indian market. In contrast to the UAE, Oman, India’s second largest Middle Eastern investor, invested only $414 million during the same period. Israel’s total FDI equity inflows to India during the same period ($91 million) were higher than those of Saudi Arabia.26
But initiatives to promote bilateral investments and joint ventures between India and the Middle East are on the rise. India is interested in the participation of Gulf countries in expanding and modernizing its domestic infrastructure, while Gulf countries are hoping to attract Indian investments and workers to develop such sectors as information technology and construction. In 2007, India and Oman announced the launching of a joint investment fund, with an initial capitalization of $100 million, to finance projects in both countries. Also, India and Saudi Arabia announced that they would set up a $750 million-joint investment fund that would primarily serve as a channel for Saudi investments into Indian infrastructure projects. There have also been reports of discussions between India and Qatar to establish a similar joint investment fund.
The political and economic environment is favorable to increased investments and joint ventures between India and the Middle East. Politically, the fact that India has good diplomatic relations with the region’s states and has not been a source of military tension there are viewed as guarantees of stability by Middle Eastern investors. In the words of a prominent Kuwaiti political analyst, Arab Gulf countries feel at ease in dealing with India because India, like China, “does not carry any political baggage; it also does not impose its values or preach political reforms or interfere in the GCC’s domestic affairs.”27 Economically, India remains one of the world’s fastest growing economies and it has made substantial progress in improving conditions for foreign investors. It also has the advantage of being an English-speaking country. As for the Gulf, the young age and high spending power of its population – one of the highest in the world – make the region a very attractive investment destination for Indian firms eager to conquer new dynamic markets for their products.
Indian labor in the Middle East
Human flows include, first and foremost, the massive presence and continuing arrival of Asian workers in the Persian Gulf since the early 1970s. Kemp (2010) estimated that there were around 8.5 million Asian workers in the Persian Gulf (not including illegal workers), nearly half of them Indians.28 Recently, Asia and the Middle East have also benefited from the development of bilateral tourism and from increased cultural and educational ties.
More specifically, the phenomenon of large-scale skilled and unskilled Indian labor migration to the Gulf began on the heels of the 1973 oil price jump, which gave rise to a massive investment program by Gulf oil producing states and, hence, a growing demand for foreign labor. Initially, the Gulf countries’ needs were met by labor migration from neighboring Arab countries, but India and Pakistan gradually came to supply most of the unskilled labor. India’s total migrant population in the Gulf increased from under 300,000 in 197529 to around 6 million in 2014 and 7.3 million in 2015.30 These workers are said to support 30 million Indians back home. India has largely overtaken Pakistan and, in the aftermath of the 1990 Iraq invasion of Kuwait, replaced most non-national Arab workers. Labor flows from India to the Gulf have continued to grow rapidly in recent years, nearly doubling both between 2004 to 2008 and 2010-2015.31
These numbers today represent roughly 80 percent of India’s total migrant labor population worldwide.32 Indian migrants are the largest expatriate population of the Gulf and a significant portion of the total population and the workforce. The UAE is home today to 2.8 million Indians (those born in India), while Saudi Arabia hosts, according to 2016 figures put forth by both Indian and Saudi sources, about 3 million. These are followed by Kuwait, Oman and Qatar, who host between 500,000 and 750,000 Indian workers each.33 In the UAE, Indian laborers currently constitute about 27 percent of the total population, and almost half of its workforce. India’s labor migrant population in the Gulf exceeds China’s, although flows of Chinese workers to the region have increased in recent years. Approximately 300,000 Chinese work in the UAE.34
The Indian expatriate community in the Gulf essentially comes from South Indian states, in particular from Kerala, Tamil Nadu, and Andhra Pradesh. Although Indian migrants to the Gulf remain in majority unskilled or low-skilled workers, they also include a growing number of skilled workers as well as businessmen, and professionals.
Mutual benefits of Indian labor in the Gulf
Indian labor migration to the Gulf contributes to promoting trade and investment ties between the two regions. Indians in the Gulf create demand for Indian goods for their own consumption and help popularize these products among the populace of their host countries.
Remittances from the Gulf contribute significantly to the Indian economy. In recent years, Indian workers in the Gulf have sent an estimated average of U.S.$30 billion from their salaries back home annually (in 2014, remittances to India from the UAE stood just over $12 billion, with another almost $11 billion from Saudi Arabia and almost $5 billion from Kuwait),35 which represents far more than the total FDI annual inflows from the Gulf to India. On the macro-economic level, these remittances also provide India with a large amount of hard currency and contribute to leveling out its balance of payments with Gulf countries. On the micro-economic level, labor migration to the Gulf alleviates unemployment, and remittances reduce poverty and improve the standard of living of migrants and their families (and sometimes even of their local community). The impact of remittances is higher in certain South Indian states where a larger section of the local population has emigrated to work overseas.36
Foreign laborers, of which Indian workers form a great part, represent for Gulf countries a cheap and abundant workforce that compensates for the limited number of local workers with required skills and attitudes, and they stimulate domestic consumption and local property markets. Indian skilled workers and professionals have greatly contributed to the economic development of Gulf countries, notably in the fields of information technology and telecommunications.
Drawbacks of Indian labor in the Gulf
India’s concerns over the rights and living conditions of Indian workers in the Gulf may affect ties between India and Gulf countries in the future. India has been sensitive to claims of discrimination and harsh conditions by Indians working in the Gulf, notably in Saudi Arabia and Bahrain. On a different level, the export to India of radical Islamic ideologies might be another undesirable consequence of labor migration to the Gulf. Muslims constitute a high proportion of Indian workers in the Gulf. During their stay in the Gulf, including in countries where the Muslim Brotherhood is influential, they may be susceptible to Islamic radicalization. This could have political and security consequences for India that have not yet received sufficient attention. For example, it is possible that the strong hostility to Israel that can be found in Kerala has partly been imported, and is most certainly encouraged, by the large number of Keralese Muslims who worked in the Gulf.
As for Gulf countries, they need to accommodate the rather high financial cost of foreign labor migration. Heavy expenditures are required to expand the services and infrastructure necessary to accommodate foreign workers. Salaries, which are usually not paid in local currency, significantly deplete the Gulf countries’ hard currency incomes. But the most pressing concern for Gulf countries relates to the large share of foreign workers in their total population. Non-nationals constitute over 20 percent of the total population of Saudi Arabia, the largest Gulf country. It is feared that the expatriate population could threaten the indigenous culture and form a “fifth column” that assists foreign powers in undermining the stability of Gulf countries. This perception may lead to a reduced openness of the region to foreign labor migration, especially when the unemployment rate among Gulf nationals, especially those just entering the workforce, is growing. Kuwait and Saudi Arabia have already started to implement policies aimed at clamping down on labor migration through supply and demand restrictions of foreign workers.37
However, in the short term at least, it is unlikely that Indian labor migration to the Gulf will decline significantly. It is indeed doubtful that the Gulf countries’ efforts to reduce foreign labor and increase the proportion of nationals in the workforce will show rapid success. Changes in attitudes and perceptions of indigenous workers vis-a-vis jobs they have come to see as only appropriate for foreign laborers are very gradual, and some economic sectors – especially the construction industry – would suffer from severe shortages of workers if labor migration were constrained. Second, even if these restricting policies are successful, Indian workers will not be the first of the expatriate population affected. Gulf countries have shown a marked preference for Indian and other Asian workers over their fellow Arabs.38 In addition, although Chinese workers are generally considered more efficient, Indians will likely continue to be preferred. Indian workers share deep cultural commonalities with the local population in Gulf countries, whether in terms of traditional values, religion, food, clothing, or attitudes toward women. In contrast, wide cultural gaps make cohabitation between Gulf nationals and Chinese laborers more problematic.
The necessity for India to ensure the safety of its workers in the region will also remain a primary consideration with respect to the Gulf countries and favor stronger ties. India does not want to repeat the humiliating experience endured during the First Gulf War, when hundreds of thousands of Indian laborers remained stranded in Kuwait after Saddam Hussein’s invasion. India had to lease transport aircraft and ships to organize an evacuation. The recent popular protests in North African and Mideast countries have raised concerns in India over the safety of its nationals working in these countries and the flow of remittances. In 2011, thousands of Indian laborers had to be evacuated under difficult conditions from Egypt and Libya. Again in 2015, India dispatched ships and planes to evacuate its nationals from war-torn Yemen (Operation Rahat).
Other flows of persons, apart from labor migration, have been growing in the last decade and are likely to further strengthen ties between India and the Gulf. Tourism has been increasing rapidly in both directions. There are roughly 500 flights per week between India and the UAE39. In contrast, Israel’s national airline, El Al, the only company offering direct flights between Israel and India, offered just three weekly flights from Tel Aviv to Mumbai in 2015. Educational flows from the Gulf to India have also increased in recent years. A growing number of students from the Gulf are showing interest in enrolling in Indian universities and technical institutions for a combination of reasons, including their excellent quality, lower costs, and less stringent visa requirements than in the United States and Western European countries.