First, the India-UAE partnership is a unique one, and one that has not only stood the test of time but grown from strength to strength. From the time that Indian labour toiled to build and make the glittering oasis that the UAE is today, to the Comprehensive Economic Partnership Agreement (CEPA) that the UAE signed with India, the first country it signed such a deal with, things have gone a long way.
Today India-UAE trade is booming, investments flowing and the sky is the limit. India-UAE trade stood at USD 85 billion in 2022, making India the UAE’s second largest trading partner while the UAE is India’s third largest trading partner for the year 2022-23 and India’s second largest export destination.
India-UAE Trade Boom
Into a year of the CEPA, the value of bilateral non-oil trade reached USD 50.5 billion, an increase of 5.8 percent from the previous year. In an article for the Dubai-based Gulf News, Dr Thani Al Zeyoudi, UAE Minister of State for Foreign Trade, pointed out that this increase was recorded "as global trade declined in both Q3- and Q4-2022 which supports the contention that the CEPA helped insulate us from tightening economic conditions.”
The CEPA, the minister opines will "…come to be regarded as a significant milestone in the history of the UAE."
It may not be inaccurate to state that today the UAE may no longer be considered as part of India’s “extended neighbourhood” but a part of its neighbourhood. From migration corridor to food corridor to defence, India-UAE integration cuts across sectors.
The country hosts an Indian expatriate community of 3.5 million as recorded in 2021 which is approximately 30 percent of the UAE’s population and constitutes the largest ethnic community in the UAE.
Why Was Modi's Visit Significant
This is Modi’s fifth visit to the sheikhdom in his nine years tenure. If the Middle East/ West Asia region is one area where Modi has been most successful, then it is in the UAE that his mettle was tested. It is under his watch that bilateral ties were elevated to strategic ones, and cooperation, particularly in counter-terrorism and defence was strengthened.
The UAE has conferred on him its highest civilian order – "Order of Zayed” – and from the Balakot strikes to the rescinding of Article 370, the UAE has extended major diplomatic and economic support to the Modi government. As he enters election year it makes for sound optics for domestic consumption to be feted upon.
The visit, however, has yielded agreements that acquire major salience in the current geopolitical and economic churning in the world.
The Reserve Bank of India and the UAE Central Bank signed an agreement for the establishment of a framework to promote the use of local currencies – the Indian Rupee and the UAE Durham for cross-border transactions and another agreement for the bilateral cooperation on interlinking their payment and messaging systems.
The development of the Local Currency Settlement System between India and the UAE is a significant step forward in bilateral relations, something that reflects the robustness of both the economies, and the level of trust between the sides.
The third was the agreement between India’s Ministry of Education and the Department of Education and Knowledge, Abu Dhabi, and IIT Delhi for planning to establish an IIT Delhi campus in Abu Dhabi, UAE.
Impact of De-Dollarisation
In a joint statement issued at the end of Modi’s meeting with UAE President and Ruler of Abu Dhabi – Sheikh Mohamed bin Zayed Al Nahyan said that “The leaders expressed their interest in strengthening cooperation in the payment systems area by enabling integration between their instant payment systems to process cross-border transactions between the UAE and India more efficiently.
Such cooperation will also include the mutual acceptance of domestic card schemes by interlinking national card switches…” But its significance also lies in that it comes at a time when there is already much discussion about de-dollarisation of the international trade system.
The weaponisation of the US dollar, especially in the wake of the Ukraine war, as seen in the sanctions imposed on Russia by the West, is driving more countries to seek alternative payment methods.
While the dollar will continue to hold sway for the foreseeable future, the India-UAE agreement will insulate bilateral trade from fluctuations in the dollar and hedge against any such sanctions regime in the future.
Here, it may not be out of place to note that the UAE is one of the countries which has maintained a neutral position on the Ukraine crisis. In spite of being a close US ally, it has also continued to maintain robust economic relations with Russia, helped to facilitate prisoner exchange with Ukraine, and offered to mediate.
In the recent St Petersburg International Economic Forum boycotted by the West, the UAE was the guest country and none other than its President Mohammed Bin Zayed Al Nahyan participated in the forum alongside Russian President Vladimir Putin. In this, the positions of both India and the UAE also converge.
Therefore, these agreements are not only significant but may also be laying out a new paradigm in how countries will be conducting their foreign and international economic policy.
In preparing for a post-oil economy, the Gulf countries including the UAE are focusing on clean energy and that is another area where India and the UAE are laying a roadmap. With the UAE taking over the presidency of COP28 this year and India hosting the G20 summit to which the UAE has been invited as a guest country, the two countries will be further synergising their strengths and resources in the field.
Finally, the India-UAE economic partnership may also be useful to hedge the country against other intra-Arab rifts that may be developing or may develop where the UAE may no longer be the undisputed trade and tourism hub in the region.
(Aditi Bhaduri is a journalist and political analyst. She tweets @aditijan. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)