India-UAE Relations | 10 Sep 2024

Source: TH

Why in News?

Recently, India and the United Arab Emirates (UAE) held bilateral talks with the aim to deepen ties and enhance their Comprehensive Strategic Partnership. 

• The crown prince of Abu Dhabi was hosted by India’s Prime Minister at Hyderabad House in New Delhi. Both countries inked several pacts to expand energy ties. 

What are the Key Agreements Signed During the Visit? 

• Civil Nuclear Cooperation: India and UAE signed a Memorandum of Understanding (MoU) for civil nuclear cooperation.  
  • The deal involves the Nuclear Power Corporation of India Limited (NPCIL) and the Emirates Nuclear Energy Company (ENEC) for operation and maintenance of Barakah Nuclear Power Plant. 
  • The Barakah Nuclear Energy Plant is situated in Al Dhafra, within the Emirate of Abu Dhabi in UAE. It is the Arab world's first nuclear power plant. 
• Energy: 
  • LNG Supply: An MoU was signed for long-term Liquefied Natural Gas (LNG) supply between UAE and India. 
  • Strategic Petroleum Reserve (SPR): An MoU was signed with India Strategic Petroleum Reserve Limited (ISPRL) for supply of petroleum. 
    • SPRs are stockpiles of crude oil maintained by countries ensuring a stable supply of crude oil even during times of geopolitical uncertainty or supply disruptions. 
• Food Parks: A MoU was signed with the Government of Gujarat on food parks development in India.  
  • India and the UAE are part of the I2U2 grouping under which food parks in Gujarat and Madhya Pradesh were envisaged.

Why is the UAE Important for India? 

• Strategic Political Partnership: The elevation of India-UAE relations to a ‘comprehensive strategic partnership’ and the establishment of a ‘strategic security dialogue’ reflect the growing political and strategic alignment between the two countries. 
• Bilateral Trade: The UAE is India’s third-largest trading partner.  
  • The Comprehensive Economic Partnership Agreement (CEPA) signed in 2022 has further boosted trade, with bilateral trade having increased from USD 72.9 billion (April 2021-Mar 2022) to USD 84.5 billion (April 2022-Mar 2023) registering a year-on-year increase of 16%. 
• Foreign Direct Investment (FDI): UAE emerges as fourth largest investor in India during FY23. 
  • In FY23, FDI from the UAE to India surged over three-fold to USD 3.35 billion from USD 1.03 billion in 2021-22. 
• Energy Security: The UAE is a key oil supplier for India and plays a critical role in India’s Strategic Petroleum Reserve (SPR) which is vital for India's energy security. 
• Finance: The introduction of India's RuPay card and Unified Payments Interface (UPI) in the UAE highlights the growing financial collaboration.  
  • Both countries agreed for a Local Currency Settlement (LCS) System to promote the use of Indian Rupee and AED (United Arab Emirates Dirham) for cross-border transactions. 
• Space Exploration: ISRO and UAE Space Agency (UAESA) signed an MoU regarding cooperation in the exploration and use of outer space for peaceful purposes . 
• Defence and Security Cooperation: The UAE and India have strengthened their defence and security cooperation, focusing on counter-terrorism, intelligence sharing, and joint military exercises. E.g., Exercise Desert Cyclone. 
  • Additionally, the UAE's interest in Indian defence products such as BrahMos missiles, Akash air defence systems, and the Tejas fighter jet gained momentum during this period. 
• Multilateral Engagements: The formation of the I2U2 grouping (India-Israel-UAE-US) and the UAE’s participation in the India-Middle East-Europe Economic Corridor (IMEC) reflect the strategic and economic significance of the UAE in regional and global multilateral engagements. 
• Regional Stability: The UAE’s role in the Abraham Accords and the subsequent normalisation of diplomatic relations with Israel underline the UAE’s importance in fostering regional harmony and stability. 
  • Stability in the Middle East is crucial for India as India is heavily dependent on Gulf nations for its energy needs (oil and gas imports). 
• Cultural and Diaspora Links: The large Indian diaspora in the UAE, comprising about 3.5 million people, forms a crucial link between the two nations. 
  • Initiatives like the inauguration of the first Hindu temple in Abu Dhabi reflect the shared values of tolerance and coexistence, enhancing cultural ties between India and the UAE. 
• Cooperation During Covid-19: During the Covid-19 pandemic, both countries provided each other with medical supplies, equipment, and vaccines.  
  • This collaboration in the healthcare sector has strengthened their partnership and demonstrated their commitment to supporting each other in times of crisis. 

What are the Challenges in India-UAE Relations? 

• Limited Diversification of Trade Categories: Despite CEPA boosting overall trade, there is insufficient progress in expanding into new categories.  
  • The trade remains concentrated in a few sectors, such as gems and jewellery, petroleum, and smartphones, which hampers broader economic benefits and reduces trade diversification. 
• Rising Import Costs: Imports from the UAE have increased significantly, growing by 19% year-on-year to USD 53,231 million in FY23.  
  • This rise in imports, coupled with the high dependency on certain categories, affects the trade balance and puts pressure on India’s trade surplus. 
• Non-Tariff Barriers: Indian exports face hurdles like mandated Halal certification, which affects the export volume of processed foods. These non-tariff barriers can limit India's market access and competitiveness in the UAE. 
• Human Rights Concerns: Issues related to the Kafala system, particularly concerning the rights of migrant labourers, are a significant concern. 
  • The kafala (sponsorship system) gives citizens and companies in Gulf countries almost total control over migrant workers' employment and immigration status. 
• Diplomatic Balancing Act: The need to navigate regional conflicts, such as the Israel-Hamas war and tensions between Iran and Arab nations, poses additional challenges to India. 
• Financial Support to Pakistan: The UAE's financial assistance to Pakistan raises concerns about potential misuse for anti-India activities.  
  • This support can create friction between India and the UAE, complicating diplomatic efforts. 

Way Forward

• Promote Trade Diversification: Focus on emerging sectors such as technology, renewable energy, and pharmaceuticals to achieve a more balanced trade relationship and harness broader economic benefits. 
• Strengthen Economic Ties: Explore opportunities for joint ventures and partnerships that can enhance economic collaboration and mitigate the impact of high import costs. 
• Enhance Dialogue on Human Rights: Initiate discussions with UAE authorities to address concerns related to the Kafala system. Advocate for reforms that improve the rights and working conditions of migrant labourers, aligning with international labour standards. 
• Focus on Areas of Common Interests: Engage in proactive diplomacy to align on common interests and ensure that geopolitical tensions do not adversely impact bilateral relations.