2 •India-GCC

India-GCC• 3

6 •India-GCC

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Gulf Cooperation Council (GCC)

Publisher’s Note

Fact File

Growing Indian Stakes in GCC

India & GCC Partners in Progress

New Growth Poles & International Order

The Geopolitical Axis of a New International Order

Aspects of India-GCC Trade Relations

India-GCC Economic Partnership: Partners of Unfolding Potentials in 21st Century

Geoeconomic Axis: New Growth Poles

India-GCC• 7

Published and Produced byDiplomatist Magazine

an imprint of L.B. Associates (Pvt) Ltd in collaboration with Ministry of External Affairs, Govt. of India

Disclaimer: The views and opinions expressed in this magazine are solely those of the authors and do not necessarily reflects those of the editors or publisher. Although all efforts have been made to ensure the complete accuracy of text, neither the editor nor

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GCC and India’s Look West Policy

India & GCC Seeking a broad-based engagement

Opportunities in GCC Education Market

India-GCC: Cultural Exchange

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The Link between Indian Diaspora & Outsourcing in the Online Labour Market 68

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Islamic Banking in India, Role of GCC

PUBLISHER’S NOTE

India and the countries of the Gulf region share ancient civilisational links and enjoy strong bonds of friendship founded on cultural, religious and economic ties that go back to centuries. People-to-people contacts and barter trade have existed between India and

the Gulf Cooperation Council (GCC) countries for generations. In modern times, frequent high-level bilateral visits have further strengthened our growing relations.

The Gulf countries are our largest global trading partner group. Our bilateral trade during 2011-12 was estimated at $167 billion and in the first nine months of the Financial Year 2012-13, the figure has already reached close to $135 billion. Nearly 60 percent of India’s oil & gas needs are met by the oil-rich Gulf countries.

India needs almost a trillion dollars to develop its infrastructure and industry over the next five to seven years to be able to sustain the planned rate of growth of 9-10 percent per annum. In this context, the leaderships in the Gulf countries are also keen to invest their surplus capital in India in mutually beneficial projects and become a part of the India success story.

The presence of a large Indian Diaspora in the region has further strengthened our ties. In recent years, Indians with skill sets in white-collar jobs in areas like IT, accounts and management have increasingly taken up jobs in the Gulf region.

The comprehensive special report by the Diplomatist Magazine not only highlights major aspects of our relations with the GCC but also enumerates the emerging future avenues for mutually beneficial bilateral cooperation. Analytical articles by experts which evaluate India’s overall relations with the region and assess the contours of its future course within the framework of rapidly increasing opportunities that can potentially facilitate a quantum jump in our already close relations are included in the report.

The Special Report will be distributed widely in India and the Gulf countries to opinion leaders and policy makers in governments, business houses and the academia. We believe that this Report will go a long way in spreading the awareness about India-GCC relations and the rapidly emerging opportunities for future cooperation.

LINDA BRADY HAWKE Publisher

8 • India-GCC

H.E. MK LokeshAmbassadorEmbassy of India United Arab EmiratesPlot No. 10, Sector W-59/02, Diplomatic Area,Off the Airport Road, Abu Dhabi,UNITED ARAB EMIRATESTel: +971 24447729Email: ambassador@indembassyuae.org

H.E. Dr Mohan KumarAmbassadorEmbassy of India BahrainBuilding 182, Road 2608, Area 326Behind Ramada Hotel, GhudaibiyaKingdom of BahrainTel: +973 17712785Email: indemb@batelco.com.bh

H.E. Satish C. MehtaAmbassadorEmbassy of India KuwaitDiplomatic Enclave, Arabian Gulf StreetSafat-13015, KuwaitTel: +965 22530600 Email: amboffice@indembkwt.org, psamb@indembkwt.org

H.E. JS MukulAmbassadorEmbassy of India OmanNew Chancery Complex, Jami‘at Al-Dowal Al-Arabiya Street,Al Khuwair, Diplomatic Area, OmanTel: +968 24684500Email: hom@indemb-oman.org

H.E. Sanjiv AroraAmbassadorEmbassy of India QatarVilla No 19, Street No. 828,Area No. 42, Wadi Al Neel,Old Hilal Area,Doha - QatarTel: +974 44255703Email: ambassadorindia@qatar.net.qa

H.E. Hamid Ali RaoAmbassadorEmbassy of India Saudi ArabiaB-1 Diplomatic QuarterRiyadh - 11693, Saudi ArabiaTel: +966 1 4884144Email: ambassador@indianembassy.org.sa

Republic of IndiaCapital: New DelhiChief of State: President Pranab Mukherjee; Vice President Mohammad Hamid AnsariPopulation: 1,220,800,359Area: 3,287,263 sq kmLanguages: English (business), Hindi 41%, Bengali 8.1%, Telugu 7.2%, Marathi 7%, Tamil 5.9%, Urdu 5%, Gujarati 4.5%, Kannada 3.7%, Malayalam 3.2%, Oriya 3.2%, Punjabi 2.8%, Assamese 1.3%, Maithili 1.2%, other 5.9%Currency: Indian Rupee (INR)Time Zone: GMT +5:30

10 • India-GCC

Fact File

Kingdom of BahrainCapital: ManamaChief of State: H.M. King Hamad bin Isa Al KhalifaPopulation: 1,281,332 (Bahraini 46%, non-Bahraini 54%)Area: 770 sq kmLanguages: Arabic (official), English, Farsi, Urdu Currency: Bahrain Dinar (BD)Time Zone: GMT +3

Embassy of the Kingdom of BahrainH. E. Mohamed Ghassan ShaikhoAmbassador Extraordinary and PlenipotentiaryTelephone Number: +91 11 26154153E-mail: bahrainembassyindia@gmail.com

State of KuwaitCapital: Kuwait CityChief of State: H.M. Amir Sabah al-Ahmad al-Jabir al-SabahPopulation: 2,695,316 (Kuwaiti 45%, other Arab 35%, South Asian 9%, Iranian 4%, other 7%)Area: 17,818 sq kmLanguages: Arabic, EnglishCurrency: Kuwaiti Dinars (KD)Time Zone: GMT +3

Embassy of the State of KuwaitH.E. Sami Mohammad S.M. Al-SulaimanAmbassador Extraordinary and PlenipotentiaryTelephone Number: +91 11 24100791-3 E-mail: kuwait_new_delhi@mofa.gov.kw, amboffindia@yahoo.in (Ambassador’s Office)

India-GCC• 11

State of QatarCapital: DohaChief of State: H.M. Amir Hamad bin Khalifa Al ThaniPopulation: 2,042,444 (Arab 40%, Indian 18%, Pakistani 18%, Iranian 10%, other 14%)Area: 11,586 sq kmLanguages: Arabic, EnglishCurrency: Qatari Rials (QAR)Time Zone: GMT +3

Embassy of the State of QatarH.E. Hassan Mohammed Rafei A. Al-EmadiAmbassador Extraordinary and PlenipotentiaryTelephone Number: +91 11 26117988/8787E-mail: newdelhi@mofa.gov.qa

Sultanate of OmanCapital: MuscatChief/Head of State: H.M. Sultan and Prime Minister Qaboos bin Said Al-SaidPopulation: 3,154,134 (Arab, Baluchi, South Asian (Indian, Pakistani, Sri Lankan, Bangladeshi), African)Area: 309,500 sq kmLanguages: Arabic, English, Baluchi, Urdu, Indian dialectsCurrency: Omani Rials (OMR)Time Zone: GMT +3

Embassy of the Sultanate of OmanH.E. Sheikh Humaid Ali Sultan Al-MaaniAmbassador Extraordinary and PlenipotentiaryTelephone Numbers: +91 11 26885622-3E-mail: omandelhi@yahoo.com

12 •India-GCC

Kingdom of Saudi ArabiaCapital: RiyadhChief/Head of State: H.M. King and Prime Minister Abdallah bin Abd al-Aziz Al SaudPopulation: 26,939,583 (Arab 90%, Afro-Asian 10%)Area: 2,149,690 sq kmLanguages: ArabicCurrency: Saudi riyals (SAR)Time Zone: GMT +3

Royal Embassy of Saudi ArabiaH.E. Dr Saud Mohammed A. Al-SatiAmbassador Extraordinary and PlenipotentiaryTelephone Numbers: +91 11 4324 4444E-mail: inemb@mofa.gov.sa

United Arab EmiratesCapital: Abu DhabiChief of State: H.M. President Khalifa bin Zayid Al-Nuhayyan; Vice President and Prime Minister Muhammad Bin Rashid Al-MaktumPopulation: 5,473,972 (Emirati 19%, other Arab and Iranian 23%, South Asian 50%, other expatriates {includes Westerners and East Asians} 8%)Area: 83,600 sq kmLanguages: Arabic, Persian, English, Hindi, UrduCurrency: Emirati Dirhams (AED)Time Zone: GMT +3

Embassy of the United Arab EmiratesH.E. Mohamed Sultan Abdalla Al-OwaisAmbassador Extraordinary and PlenipotentiaryTelephone Numbers: +91 11 26111111E-mail: newdelhi@mofa.gov.ae

India-GCC• 13

14 •India-GCC

Gulf Cooperation Council (GCC)Gulf Cooperation Council (GCC), an oragnisation of seven countries which share their coastline in the Arabian Gulf, is committed towards its substantial growth and mutual cooperation in various fields. GCC encompasses friendliness towards India and both the countries seek their mutual support and cooperation in leading towards a sustainable development

IntroductionThe Gulf Cooperation Council (GCC) was

established by an agreement concluded on 25 May 1981 in Riyadh, Saudi Arabia among Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE in view of their special relations, geographic proximity, similar political systems based on Islamic beliefs, joint destiny and common objectives. Presently, it encompasses a total area of 2,672,700 sq km. The official language is Arabic.

GCC Charter states that the basic objectives are to have coordination, integration and inter-connection between the Member States in all fields, strengthening ties between their peoples, formulating similar regulations in various fields such as economy, finance, trade, customs, tourism, legislation, administration, as well as fostering scientific and technical progress in industry, mining, agriculture, water and animal resources, establishing scientific research centres, setting up joint ventures, and encouraging the cooperation of the private sector.

The GCC members and Yemen are also the members of Greater Arab Free Trade Area (GAFTA). This is unlikely to affect the framework of the GCC in a major way as the GCC has a more prioritised timeframe as compared to GAFTA and it seeks greater integration. GCC comprises of some of the fastest growing economies in the world, mainly due to an increase in oil and natural gas revenues coupled with a building and investment boom backed by reserves etc. Most of these economies which were affected during recent economic downturn have now recovered and are growing at fast pace again. According to the IMF’s latest forecast, the region’s dollar GDP growing by 30 percent to 1.4 trillion in 2011.

Organisation Structure The structure of the GCC consists of the

Supreme Council, the Ministerial Council and the Secretariat General. The Secretariat is located in the city of Riyadh. The constitution of the GCC precisely reflected the importance

of seeking ways to make the unity of Arab States a reality. The constitution required the organisation to provide “the means for realising coordination, integration and cooperation” in economic, social and cultural affairs.• The Supreme Council (the highest

authority of the GCC) comprises the Heads of State of the six member countries. The Supreme Council meets once a year in ordinary session. Emergency sessions can be convened at any time by the heads of any two Member States. The chairmanship of the Supreme Council is held by each Member State in turn. Resolutions are carried by majority vote. The Supreme Council is responsible for determining the overall policy of the GCC and for ratifying recommendations presented to it by the Ministerial Council or the Secretariat General.

• The Ministerial Council comprises the Foreign Ministers of the six member countries. The Ministerial Council meets

India-GCC• 15

once every three months in ordinary session. Emergency sessions can be convened at any time by the Foreign Ministers of any two Member States. The Ministerial Council draws up policies and makes recommendations on means of developing cooperation and coordination amongst Member States in the economic, social and cultural spheres.

• The Secretariat General prepares reports, studies, accounts and budgets for the GCC. It drafts rules and regulations and is charged with the responsibility of assisting Member States in the implementation of decisions adopted by the Supreme and Ministerial Councils. The Secretary General is appointed for a three-year term (renewable) by the Supreme Council on the recommendation of the Ministerial Council.32nd GCC Summit: 32nd GCC Summit was

held in Riyadh from December 19¬20, 2011 under the chairmanship of the Custodian of the Two Holy Mosques, the current Chairman of the Supreme Council. The Summit voiced support against terrorism, pledged support to all regional and international efforts aimed at combating terrorism. The Supreme Council expressed satisfaction over the achievements in the field of defence integration among the GCC countries, stressing the continuation of efforts to build a common defence system.

GCC Monetary Union: GCC Monetary union is ratified by Saudi Arabia, Kuwait, Qatar and Bahrain. Oman had opted out of it in 2006 and UAE did so in May 2009. Although on March 15, 2010 UAE reiterated that it is committed to the concept of a single currency however the free trade in the region should precede single currency realisation. Riyadh is selected as the location for the monetary council and the future central Bank. Nevertheless 30th GCC summit had established a Joint Monetary Council (JMC) who would take necessary steps to issue the GCC single currency. GCC Monetary Union thus remained a long term goal to be preceded by monetary and fiscal policies and creation of an effective regional central bank.

India and GCC- Contours of cooperation

The Gulf region has historical, political, economic, strategic and cultural significance for India. The GCC countries, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE, are moving ahead with their economic integration efforts and offer tremendous potential for cooperation in trade, investment, energy, manpower etc. India has traditional and friendly relation with all GCC member states. With a bilateral trade estimated at $113 billion during 2010-11, GCC is now our largest trading partner in the world. This region hosts nearly 5.5 million Indians who are contributing immensely to the economic development of both India and the countries they reside and work in. GCC countries have mutually beneficial complementarities with India in the field of investments which has already started from these countries both through FDI and FII.

Nearly, forty percent of the India’s crude oil import is met from GCC countries. Gulf region plays a crucial role in our energy security and pace of economic growth. India has successfully bid for oil blocks in Qatar and Oman. Efforts are ongoing to set up joint ventures in downstream petrochemicals, fertiliser and energy intensive industries in the GCC countries and in India. The OMIFCO fertiliser plant in Oman and the Essar steel plant in Qatar are good examples.

With increasing economic and international profile of India, the engagement with the Gulf is on the increase. There has been intensification of high-level interactions. Increasing number of Agreements and MoUs has been signed in last few years in wide ranging areas.

The Gulf countries provide an excellent market potential for India’s manufactured goods and services, especially in project services exports. The trade and investment flows between the two have increased substantially. The oil-rich Gulf States with their massive oil revenues are engaged in an ambitious economic development and modernisation programme, which has created a demand in GCC States for skilled manpower and labour. India, with its surplus manpower resources is a major source of supply.

Chairing the Trade & Economic Relations Committee (TERC)

Hon’ble Prime Minister Dr Manmohan Singh said, “The Gulf region, like South-East and South Asia, is part of our natural economic hinterland. We must pursue closer economic relations with all our neighbours in our wider Asian neighbourhood. India has successfully pursued a Look East policy to come closer to the countries of South-East Asia. We must, similarly, come closer to our western neighbours in the Gulf.”

Visit of Secretary General of GCC to India

H.E. Mr Abdulrahman bin Hamad Al-Attiyah, Secretary General, Gulf Cooperation Council (GCC) visited New Delhi in February 2004 as part of his tour to India. He held wide-ranging discussions with External Affairs Minister and also met Deputy Prime Minister, Deputy Chairperson of Rajya Sabha among others. The Secretary General participated in the first India-GCC Industrial Conference in Mumbai on February 17-18, 2004. The Secretary General voiced GCC’s appreciation for the Indian community in all the Gulf countries for their constructive role and positive contribution based on their skills, expertise, and sense of discipline, integrity and law-abiding nature.

India-GCC Political Dialogue: The first-ever landmark India-GCC Political Dialogue involving EAM with the GCC Chairman, the Secretary General and Ambassadors/representatives from GCC countries was successfully held on the sidelines of the UNGA on September 26, 2003. Both sides recognised the significance of this dialogue, which marked “a new era” in India- GCC relationship. The very first dialogue focused on topical issues like Iraq, Middle East, terrorism,

UN reforms, multilateralism, NAM and OIC. The GCC Chairman stated that UN Security Council should be expanded and India should be a member of the Security Council. The 6th Round of India-GCC Political Dialogue was held in New York on 26th September 2011 on the margins of UNGA. Indian side was led by EAM while the GCC side was represented by its troika of UAE Foreign Minister as current Chair of GCC, Saudi Deputy Foreign Minister, and GCC Secretary General. Wide ranging issues including terrorism, UN reforms were discussed.

India-GCC Industrial Conference The first India-GCC Industrial Conference

comprising ministerial and business delegations from the six member states of the Cooperation Council for the Arab States of the Gulf - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE - and India was held in Mumbai in February 2004. The Conference was co-chaired from Indian side by Minister of Commerce and Industry and from the GCC side by Minister of Trade and Industry of Kuwait. The Conference focused on trade, investment, industrial and technological cooperation. It issued a ‘Mumbai Declaration’. Second India- GCC Industrial Conference took place in Muscat-Oman in March 2006 and the 3rd Industrial Conference took place in Mumbai in May 2007 with a focus on two way investment. This session approved holding regular Senior Officials Meeting (SOM) as a mechanism to discuss develop and bolster cooperation in the field of industry and investment.

Framework Agreement on Economic Cooperation and India-GCC FTA Negotiations

Giving a boost to commercial and economic ties, India and Gulf Cooperating Council signed on August 25, 2004 a Framework Agreement on Economic Cooperation to explore the possibility of a Free Trade Area between them. A three-member GCC negotiating team visited India and held discussions on November 19, 2004 on a broad range of issues, including the possibility of initiating negotiations towards a FTA and non-tariff barriers affecting the Indian exports to the region. The third round of negotiations was held in January 2009 at Riyadh.

The Ministry of External Affairs under the aegis of India-Arab Cooperation Forum supported and facilitated the second India-Arab investments project conclave from 8-9 February 2010 at New Delhi. The event was organised by FICCI. Nine Trade and Industry Ministers and over 280 delegates from 21 GCC and Arab countries and Iraq comprising Government officials, business leaders and investment houses participated with over 250 Indian businesses. Indian investable projects of around $11 billion were tabled. It is expected that the interactions during the conclave with Ministerial level delegations as well as between business to business delegation regarding investment projects would lead to an enhanced business and investment relations between India and the GCC among others.

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Bank of Baroda has always been in the forefront in promoting the SME & Trade Services Sector in UAE and making available a host of value added offerings & services in a seamless manner.SME is the key focus area for Bank of Baroda in its operations all over the world. Therefore, it precisely understands the requirements of Small & Medium Entrepreneurs. In fact, the bank specializes in the area of SME fi nancing. Keeping in view the need to provide timely and adequate credit facilities to the borrowers, the bank has established a SME Loan Factory which is an exclusive outfi t to meet the banking requirements of SME Units. All the credit decisions are taken in a time bound manner and the customer can expect a sanction within 6 working days for limits after submission of all the required papers. Systems & procedures are very simplifi ed and credit facilities are dispensed with in a hassle-free manner.Besides Indian entities the bank has also proactively fi nanced a good number of entities owned by UAE nationals and has also extended support and fi nance to some important

organizations of the UAE Government such as D.P. World, Emirates Airlines, Emaar properties, Meydan etc.The bank through its strategic tie up arrangement with KIZAD, JAFZA, DMCC, RAKIA, Hamriya Free Zone etc provides end to end solutions to the upcoming units in the UAE. The bank also offers trusted fi nancial solutions to complex trade fi nance related necessities of the corporate.

In spite of the global turmoil the Bank has recorded a robust CAGR of more than 28% in business front and has emerged as 3rd largest foreign bank in the UAE.During the last 3 years the total business of the bank has grown more than 3.5 times which is an extraordinary growth by any reckoning, particularly keeping in view the historical fi nancial crisis. The growth strategy of the bank primarily focuses on meeting the enhanced expectations in a responsive & responsible manner.

The bank recently opened its 99th as well as 100th Overseas Offi ces in Dubai Multi Commodities Centre and Dubai International Finance Centre respectively. The 100th global offi ce was unveiled at the hands of Shri P. Chidambaram, Honorable Union Minister of Finance, Government of India on 28.03.2013. With addition of these two offi ces the network of service outlets has gone up to 16 in UAE and 21 in GCC countries. With opening of DIFC branch, the bank now enjoys distinct advantages in comparison to other banks operating in the UAE. It has provided the bank an exceptional platform for business and to reach out to the emerging markets of the region. The customers will also be immensely benefi tted as they will have a blend of experience of both on shore & off shore banking facilities.

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18 •India-GCC

India & GCC Partners in Progress

By Shiv Khazanchi

Economic relations between India and the GCC date back to several centuries. Led by India’s economic liberalisation

after 1990 and the “Look East” policy of the GCC in the recent decade, the trade relationship between the two economies has strengthened over the last decade. With both regions emerging as the fastest growing economies in the world, the mutual cooperation is expected to increase underpinned by the complementary nature of their economic profiles and the rising interdependency. While India’s energy demand is burgeoning and the funding need for infrastructure development is at an all-time high, economic diversification, creating ample job opportunities and food security are the major priorities for GCC countries.

FDI investment from GCC to India has picked up pace in the recent years but remains negligible relative to trade flows in terms of magnitude. It also represents just a small percentage of total FDI from GCC countries to the world. Nevertheless, India has undertaken commendable steps lately to liberalise its investment regime—it now allows investment by automatic routes in numerous sectors. On the other hand, the GCC states have taken rapid strides toward opening up their economies and liberalisation in a bid to diversify their economy away from oil. Establishment of numerous economic zones and incentives continue to attract many industries as well as professionals and skilled laborers from India. While both the

blocks have been unable to reach any agreement on a potential Free Trade Agreement (FTA), they remain committed to take their relationship to a new level.

Trend Analysis & Trade InflowsBilateral merchandise trade between India

and the GCC has grown substantially over the last decade (CAGR of 35.9% over 2001–10 to $88.8 billion). Trade intensity between the regions has also risen led by numerous bilateral trade agreements signed in the recent past. Although the trade relationship between India and the GCC remains largely concentrated around oil, other tradable items are also slowly gaining importance due to the latter’s diversification drive. Amongst the GCC nations, UAE followed by Saudi Arabia continue to remain the largest trading partners for India. Furthermore, the analysis of the development in services trade by both regions globally indicates the demand for India’s services is rising strongly in the GCC.

Capital InflowsApart from developing strong trade

relationships, both regions have also been increasingly investing in each other’s economy to benefit from the attractive returns on investments. Diversification and spectacular economic growth recorded by both the regions

over the recent decade have helped boost cross border investments.

FDI to India from GCCCapital flows in the form of FDI from GCC

to India have gathered pace in recent years, cumulating to $2.6 billion over April 2000 to January 2012. Accordingly, its contribution to total FDI inflows into India (on a cumulative basis) has increased from 0.6 percent in 2005 to 1.7 percent as of January 2012.

Although FDI from GCC to India has picked up in recent years, it remains negligible relative to trade flows in terms of magnitude and largely represents rising investments by expatriates. Cumulative FDI investments (April 2000 to January 2012) represented less than three percent of the annual bilateral merchandise trade flows reported in 2010. Except Oman and UAE, investments from other GCC countries into India remain negligible compared to their global investments. However, India has encouragingly stepped up efforts to attract investments by further relaxing regulatory restrictions and inviting GCC investors to actively participate in India’s robust growth story and benefit mutually. The power, services and construction sectors continue to account for the largest share of FDI inflows from the GCC to India.

Although a number of major companies from Qatar, Kuwait and Bahrain operate in India, a large portion of investments from

India-GCC• 19

which will create employment opportunities as well as increase GDP growth.

In order to promote investments from India, GCC governments and companies need to make frequent visits to the country, hold collaborative talks with Indian firms and the government as well as conduct road shows. GCC countries should also consider long-term visa schemes for investors to encourage participation and promote investments.

With the economic forecasts pointing to strong GDP growth in both the economies, there is ample scope of strengthening economic ties between the two regions. While the GCC needs to promote more industrialisation and SME participation in order to realise its diversification dream and create jobs for its rapidly expanding population, India needs to further improve its basic infrastructure and reduce complexity in the regulatory practices. GCC investors should look to further diversify their investment portfolio by taking positions in the promising Indian investment avenues as the return on investment remain relatively robust. At the same time, due to its locational advantage and abundance of natural resources, GCC has the potential to serve as a manufacturing base as well as an export hub for Indian companies.

Shiv Khazanchi is the Managing Director at Alpen Capital India Private Limited.

these regions has been indirect. Although Qatar Investment Authority has invested about $500 million in India in the past five years, these investments were solely in the stock markets. However, the authority has indicated that it may invest up to $10 billion in India over the next few years.

FDI to GCC from India Although FDI data from India to the GCC is

not widely available, general information from individual country’s investment agencies reveal that India has been one of the major sources of FDI flows into the GCC and is the third-largest investor in the UAE. Indian businesses have been able to establish a strong presence in the GCC due to the huge Indian Diaspora in the region.

Although India’s FDI participation in the GCC is growing strongly, there is potential for further growth as the total investment remains small in comparison to Indian investments in to the rest of the world. Software development and engineering services, tourism, readymade garments, chemical products, agricultural and allied services continue to generate majority of the interest from Indian corporates. Apart from these, a number of Indian companies have collaborated with national players in the areas of designing, consultancy, financial services and software development. Although India’s investments in the GCC have been largely driven by Non-resident Indians who had historically set up businesses in the region, businesses of Indian origin are also increasingly setting up footprint in GCC.

Opportunities for cooperation between India and the GCC

Alpen Capital highlights significant scope for mutual cooperation between India and the GCC given their complementing economic profiles.

Over the years, GCC has developed capabilities and experience in energy, telecom, construction, real estate and infrastructure sectors. These sectors are also growing fast and offer potentially attractive opportunities in India, which has strong expertise and scale in commercial services (financial, ITES) manufacturing, small and medium scale enterprises, food processing, and education, among others. The GCC is relatively lacking in these areas and increasingly looking for technological know-how, managerial expertise and foreign collaborations to build sustainable models for development. Growing Indian businesses could invest in several of high prospect avenues in GCC and use the region as a strategic hub to access regional markets in Africa, Iran, Iraq, and CIS countries amongst others.

As part of the diversification plan, the GCC is prioritising export of high order goods (finished goods). Thus, Indian corporates could participate and use the GCC region as a re-export hub for their refining operations (value added products), mainly as the lower input cost and robust infrastructural support in the block offer favorable investment environment. Moreover, due to strong cultural, historical and bureaucratic familiarities, GCC nations

believe the scope for cooperation with India is better relative to any other Asian economy (including China).

Recommendations With ample funds available for investment,

GCC sovereigns and companies should further diversify their portfolio mix toward high-growth markets such as India which are recording robust growth and offering sound investment returns.

Although the Indian government has undertaken a number of commendable steps to attract FDI, it still has to improve several factors to create a conducive investment environment in India including reducing restrictions on foreign trade regulations and eradicating bureaucracy.

While political stability (in countries such as Bahrain) and eradication of bureaucracy are warranted for investment attraction, the GCC region should establish a competent block level investment authority in each country which can impart transparency and guide investors toward potential investment avenues across the region. Official publication and databases should also be made widely accessible and regularly updated.

In order to realise its diversification initiatives, the GCC should further promote foreign industry involvement by relaxing regulations and encouraging SME participation

22 •India-GCC

India-GCC Economic Partnership: Partners of Unfolding Potentials in 21st CenturyBy Dr Zakir Hussain

In a recent study (February 2013), the National Bank of Abu Dhabi estimated that the combined Gulf Cooperation Council

(GCC)1 economy grew from $1.44 trillion in 2011 to $1.56 trillion in 2012, indicating a share of 2.2 percent in the total world GDP of $71.3 trillion of 200 countries. This is a significant achievement, particularly when the entire world, including emerging economies like India and China, has failed to maintain its growth momentum. Two sectors, namely the export and the sovereign wealth fund (SWF), are the main drivers of GCC growth. The high oil prices in the past few years, around $120 a barrel, enabled these rentier economies to amass huge surpluses. During 2011, the aggregate surplus of GCC was equal to 13 percent of their total GDP. Bulging surpluses allowed the GCC authorities to pursue liberal expenditure policy domestically besides ballooning of the SWF, which is around 35 percent of the total global SWF i.e. $5.2 trillion. (Table 1)

However, beneath the rosy picture of the GCC economy, the International Monetary Fund (IMF), in its special report in 20122,

pointed out that the growth in the GCC countries is not only illusive but also fragile and short-term. Their achievements in two sectors, trade and SWF, heavily depends on abnormally high oil prices, which is a short-term phenomenon. In the short-run, expansionary fiscal policies will feed upon their surpluses. Being predominantly dependent on a single item of export, i.e. hydrocarbons, the classical Dutch Disease has not allowed the GCC to develop other sectors of the economy.

Drivers of Diversification Although the GCC countries have made

multiple efforts to implement the economic diversification programmes, their motivations kept on changing with respect to their changing priorities. In the 1980s and mid-1990s, higher oil prices and the need to expand infrastructure networks incentivised them to concentrate over energy sector diversification, both upstream (exploration and production) and downstream (refining, marketing and distributing). However, thereafter domestic issues such as population explosion leading to high unemployment pressure (magnified by the ongoing Arab Spring), problems of resource-based economy (cyclical boom and bust of oil prices) and excessive dependence on expatriate workers led the GCC authorities to seriously consider developing the other sectors and absorb the shocks.

There are two major factors which could have underpinned their efforts towards diversification.(i) Based on the estimated oil reserves,

approximately 495.2 billion barrels, at estimated price of $100 per barrel, GCC is projected to potentially receive around $40 trillion capital inflows. This might have enabled them to chart out their prospective long term planning. Table 2 provides the estimated reserves and expected oil revenue at $100 a barrel to the GCC countries.

Table 1. GCC’s Sovereign Wealth FundBahrain Kuwait Oman Qatar Saudi Arabia UAE Total

9 296 8 85 478 783 1,659Martin Hvidt, (2012) Economic Diversification in GCC Countries: Past Record and Future Trends, LSE, Kuwait Programme.

Beneath the rosy picture of the GCC economy, the (IMF) in its special report in 2012, pointed out that the growth in the GCC countries is not only illusive but also fragile and

short-term

India-GCC• 23

(ii) Growing oil income has enabled the GCC countries not only to ease out their chronic fiscal deficits but also allowed them to plan and execute their turnkey projects. According to MEED Projects, a $1.6-$1.8 trillion investment plan is underway in GCC, mainly focussing on structural changes and diversification programmes. Pie Chart shows GCC countries’ expected oil capital inflow. Saudi Arabia and UAE cover the 69.3 percent of the GCC expected oil income.

Diversification StrategyB r o a d l y, G C C ’s d i v e r s i f i c a t i o n

programmes can be classified into four categories: (i) Energy-based; (ii) Finance-based; (iii) Resource-based; (iv) Talent-based; and (v) Utility-based. In the energy-based diversification programme, besides upstream and downstream developments, GCC has laid emphasis on petrochemicals, fertiliser, plastic, aviation and other energy-allied industries. Saudi Arabia alone has planned to invest $79 billion in private-public energy sector and $90 billion in petrochemicals. Under the finance-based diversification, GCC countries are poised to emerge as a leader in financial affairs. They are promoting banking and finance, including Islamic banking and finance, stock markets and real estate. In resource-based diversification programme, GCC countries are promoting mining and metal processing industry. For instance, Saudi Arabia wants to become world leader in fertiliser production and has promoted gas sector. GCC countries are now inclined to convert their economies into knowledge-based economy and are massively investing in developing Talent-based human capabilities. According to the EIU report (2010), GCC countries are poised to “convert their oil wealth into intangible human capital, by investing in the education and skills that are needed for a transition from economies based on the primary sector to more diversified economies with more value-added, skilled sectors.” GCC countries are encouraging talent-based abilities, both of native population as well as creating favourable ambience for outside talent. For instance, Saudi Arabia has established King Abdullah University of Science of technology (KAUST) to promote science and technology in the kingdom. R&D, ICT, health, education, and establishment of training centres are major areas of interest. Utility-based diversification primarily provides infrastructure and facilitates the main diversification programme. For instance, multi-billion dollar mega cities, power,

Table 2.Oil Wealth in GCC ($billions)Country Saudi Arabia Kuwait UAE Qatar Oman GCC

Oil (billion barrels)

Reserve 265.5

(72)

101.5

(100+)

97.8

(94)

25.9

(45)

5.5

(17)

495.2

Estimated Income

(US$ trillion)

21.2 8.1 7.8 2.1 0.4 40.0

Note: In brackets are expected shelf lives of the oil reserves.Source: SAMBA Report, 2012

Source: Samaba Report, 2011

desalination and transportation projects are aimed to overcome infrastructure bottlenecks.

India’s Role in GCC’s Development Programme

India has, for long, been one of the significant contributing partners in GCC’s growth, both directly and indirectly. Indian conglomerates have established their units and are supporting the manufacturing base of the GCC countries. India’s growing expertise in pharmaceuticals, cheap and world class medical facilities, including telemedicine, biotechnology, renewable energy, space, education, information technology, ICT, R&D, infrastructure, utility services such as water, power, transportation, financial sectors such as banking, finance, and tourism and catering sectors have significantly attracted the GCC countries.

Some Indian banks and insurance companies such as State Bank of India, Bank of Baroda, HDFC Bank, New India Assurance Company, LIC and ICICI Bank have opened their branches in GCC countries. Further, Indian investors, targeting the trillion plus GCC market, are also eyeing the strategic location of the bloc, which connects three

contents, Europe, Africa and Central Asia. Some member countries like Bahrain, Oman and UAE have offered good economic ambience to Indians to invest their capital and expertise. Besides, India and GCC have already signed a number of co-operative agreements/MoUs including, the Avoidance of Double Taxation Agreement, Bilateral Promotion and Protection of Investments, Establishment on Joint Business Council, Agreement on Customs cooperation, Civil Aviation Agreement, MoU on Scientific and Technological Cooperation and Education.3

Dr Zakir Hussain is a Research Fellow at Indian Council of World Affairs, New Delhi. Dr Hussain is an economist. His research specialisation is on the political economy of the Middle East. The views expressed are

his own. He may be reached at shahabzakir@gmail.com

1. Gulf Cooperation Council (GCC) is a regional bloc formed in 1981, comprises six Gulf states, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE. 2. IMF, 2012, Economic Prospects and Policy Chal lenges for the GCC Countr ies , IMF. 3. Compiled from different sources and annual reports of Ministry of External Affairs.

Advertorial

26 •India-GCC

Growing Indian Stakes in GCCBy Dr Zakir Hussain

The emerging Indian business community is actively searching for investment avenues. Being India’s economic

‘hinterland’ and the ‘extended neighbourhood’, Gulf is a natural choice for them. According to the Saudi Arabian General Investment Authority (SAGIA), around 486 Indian companies are working under SAGIA license, including 39 in industries, 54 in services and 93 in agriculture with a combined investment of more than $1.06 billion.

In UAE, prominent Indian companies such as L&T, ESSAR, Dodsal, Punj Lloyd, Engineers Indian Ltd, TCIL are operating. India and UAE agreed (May 18, 2012) to establish a High Level Task Force to explore new opportunities in each other’s economies. India is now the third largest investor in UAE. Since UAE has emerged as a major re-export centre, the pace of Indian investment in UAE, particularly in the free trade zones like Jebel Ali FTZ, Sharjah Airport, Hamariya Free Zones and Abu Dhbai Industrial City, has significantly gone up.

In Qatar, several Indian companies are engaged in construction and securing contracts in gas and gas-related projects. Voltas, Simplex, TCS, Tech Mahindra, Satyam Mahindra, Wipro, NIIT, etc have set up their offices.

Cash rich Kuwait offers huge opportunities to the Indian companies. Indian PSUs like TCIL, LIC (International), LIC Housing Finance, New India Assurance Company, Oriental Insurance Company, Bridge and Roof and National Aviation Company (Indian Airlines and Air India) have opened their offices in Kuwait, while private companies like Aurobindo pharma, L&T, Punj Lloyd,

Since UAE has emerged as a major re-export

centre, the pace of Indian investment in UAE,

particularly in the free trade zones like Jebel Ali FTZ,

Sharjah Airport, Hamariya Free Zones and Abu

Dhbai Industrial City, has significantly gone up

India-GCC• 27

Kalpataru, KEC International Ltd (subsidiary of RPG Group), Shalimar Valves, etc. are implementing major projects in Kuwait, including in petroleum and power sectors.

Around 140 Indian companies are present in Oman and approximately 1,537 Indian entities are operating in 13 diverse sectors with more than $4.3 billion investment. Oman India Fertilizer Company, a $960 million Joint Venture, is India’s largest overseas joint investment. India’s IFFCO, KRIBHCO are important partners of Oman Oil Company. India’s steel and power giant, Jindal Steel and Power Ltd (JSP) has owned Mona-based Shaheed Iran & Steel Co LLC for $464 million. In the education field, more than 17 Indian schools are imparting education in different parts of the Sultanate.

Some of the dynamics of the growing presence of India in the GCC are:

Labour ForceSince the region executed an ‘open door’

demographic policy in 1973-74, India has been one of most reliable sources of meeting GCC’s labour shortages. The huge presence of Indian expatriates has not only helped these monarchical states to become one of the advanced regions of the world, but, through the non-interfering, law abiding nature, they have also contributed to the region’s peace and stability. Out of the estimated 17 million expatriate workers from more than 100 countries in GCC, India accounts for approximately 40 percent. Indian workers are employed in almost all segments of the GCC economy, including energy, construction, services, manufacturing, finance, banking, and IT. (Table 1)

Looking at the intensification of resource-based diversification, it becomes obvious that the presence of expatiate workers in GCC would be an indispensible reality for foreseeable time. However, the composition would mostly likely transform from blue collar to white collar and professionals and India would be a natural choice.

Trade and Investment:In recent years, India has become one of the

significant trading partners of GCC. Its share in total GCC trade is now 11 percent (2011) up from three percent in 1992; from around $5 billion to $145 billion during the same period. In 2011, UAE was India’s top trading partner with a total bilateral trade of $68 billion, even

Country Overseas Indians

Living Abroad

Non Resident

India

People of

Indian Origin

Bahrain 3,50,000 3,50,000 NA

Kuwait 5,79,390 5,79,058 332

Oman 5,57,713 5,56,000 1,713

Qatar 500,000 5,00,000 NA

Saudi Arabia 17,89,000 17,89,000 NA

UAE 17,02,911 17,000,000 2,911

exceeding China and the US. (See Table 2 and Figure 1). Main items of India’s export to GCC are food, pharmaceuticals, machinery and transport equipment, ceramic products, textile, clothing, plastic and rubber products, essential oils, perfumery and cosmetics and iron and steel articles; while import constitutes mainly energy and energy-related items, minerals, metal scraps, petrochemicals, fertilisers, etc. Realising the trade potential of member

Country2009-10 2010-11 2011-12

Import Export Total Balance Import Export Total Balance Import Export Total Balance

KSA 17.00 3.90 20.90 -13.10 20.30 4.60 24.90 -15.70 31.00 5.60 36.60 -25.40

UAE 19.20 24.00 43.20 4.80 32.70 33.80 66.50 1.10 35.70 35.90 71.60 0.20

Oman 3.40 1.00 4.40 -2.40 4.00 1.00 5.00 -3.00 3.30 1.30 4.60 -2.00

Kuwait 8.20 0.78 8.98 -7.42 10.30 1.90 12.20 -8.40 16.30 1.10 17.40 -15.20

Qatar 4.60 0.53 5.13 -4.07 6.80 0.37 7.17 -6.43 12.90 0.8 13.70 -12.10

Bahrain 0.5 0.25 0.75 -0.25 0.64 0.65 1.29 0.01 0.87 0.439 1.31 -0.43

Total 53.40 30.40 83.80 -23.00 75.00 42.40 117.40 -32.60 100.10 45.30 145.40 -54.80Source: Ministry of Trade and Commerce, GOI.Note: *The above figures include imports of crude oil and petroleum products and are rounded.

countries, India has entered into four rounds of negotiations with the GCC to finalise a Free Trade Agreement.

Energy Although analysts see India’s growing

dependence on Gulf energy as a crucial factor for sustaining its growth, in reality, the growing energy appetite of the Indian economy provides one of the largest secured oil and

Table 1.India’s Manpower in GCC

Source: 11th Pravasi Bharti Divas Report, 2013, Engaging Diaspora: The Indian growth Story, Ministry of Overseas Indian Affairs.

Table 2. India’s Total Bilateral Trade with GCC countries (in US$ billions)*

Figure 1. India-GCC Export-Import, ($bn)

28 •India-GCC

gas markets for the GCC. India is already the fourth largest energy consumer in the world and the second largest in Asia, offering huge scope for GCC countries. Out of the total oil India imports, 40 percent is estimated to be resourced from the GCC counties. Saudi Arabia, which meets India’s 25 percent energy requirements, tops the list, followed by Iraq, UAE, and Kuwait. Since the sanctions imposed on Iran, the significance of the GCC countries has considerably increased. (See Figure 2 & 3). However, growing green fuel crescendo, increasing Russian, Iraqi, and Libyan energy footprints in international market and the shale boom poses a stiff competition in energy market. In such a situation, India is a crucial import partner.

Potential Areas of CooperationBased on their comparative advantages,

there are host of areas where India and GCC can mutually reciprocate and deepen their ties. Areas where India can contribute to GCC’s diversification drive are exploring the possibilities of setting up technical and vocational colleges and coaching institutes for higher education, setting up IT parks, hospitals, hotels and tourist facilities in the GCC member countries; sharing expertise of Indian IT

2008 2010 2012 2014 2016 2018 2020

Bahrain 0.7 0.7 0.8 1 1.2 1.4 1.6

Kuwait 2.3 2.3 2.7 3.4 3.9 4.6 5.3

Oman 2.1 2.1 2.3 2.9 3.1 3.9 4.8

Qatar 1.4 1.3 1.4 1.9 2.3 2.8 3.3

Saudi Arabia 16.7 16.8 19 21.7 27.2 30.9 35.2

UAE 3.8 3.6 4.1 5.1 6.1 7.2 8.4

Total GCC 25.7 25.8 27.2 33.7 39.6 45.9 53.1

Table 3. Estimated Food Bill of GCC (in $billion)

Source: Economic Intelligence Unit, 2010

Table 4. GCC Development Plans ExpenditureCountry Abu

DhabiSaudi Arabia

Qatar Kuwait Oman GCC

Period 2008-13 2010-14 2011-16 2010-14 2011-15 --

Amount ($Bn) 160 385 226 125 31 927Source: SAMBA, 2011

Figure 2. India’s Oil Consumption

Source: Basic Annual Petroleum Statistics, Ministry of Petroleum and Natural Gas.

Figure 3. Share and Projected Demand for Indian Oil

Figure in Million TonnesSource: Source: Vision Hydrocarbon Report.

firms in providing software programmes and services for banks and financial institutions in the region. India can also assist the GCC in the media and entertainment sector.

In recent years, GCC countries have also showed interests in developing space, nuclear

power generation as well as R&D in science and technology. India has enough skills and technological prowess to assist and support them in their objectives.

Being one of the largest food producers in the world, India can also play a key role in ensuring food security to the GCC countries. According to EIU report (2010) by 2020 the total population of GCC is projected to reach around 53.5 million, whereas its capacity to feed them is progressively declining. In 2008, the food price inflation compelled the GCC countries to spend around $25.7 billion, which is expected to increase up to $53.1 billion by 2020. (Table 3)

Table 4 shows the planned allocations of the GCC countries during their respective plans. It stands around $927 billion with Saudi Arabia, around $358 billion followed by Abdu Dhabi (UAE), $160 billion. Among others, transportation and construction sectors occupy the major chunk of the planned development expenditures of the GCC countries.

GCC countries have also allocated huge budget for developing transportation networks around $276 billion. Among them, rail occupies the largest amount, around $119.4 billion. Further, being one of the major rail powers in the world India can also lobby to get projects in the GCC. (See Table 5)

Construction is another sector where India can actively contribute. Table 6 below

The rail budget is passed at a whopping $119.4

billion of the total allocated budget of GCC countries for developing transportation networks for $276 billion

India-GCC• 29

Bahrain Kuwait Oman Qatar Saudi UAE Total GCC

Aviation 4.9 3.4 12.6 15.2 19.6 8.7 64.4

Rail 7.9 14 2.5 36.8 40.7 17.5 119.4

Roads 1.2 8.2 10 7.2 4.1 25.8 56.5

Ports 0.9 2.66 7.9 11.5 9.1 3.8 35.86

Total 14.9 28.3 33 70.7 73.4 55.8 276.16Source: MEED Projects Estimates

Table 5. GCC’s Planned Transportation Projects ($bn)

Table 6. GCC Construction Sector: Key Project OverviewValue of Projects Planned or Underway on 20 July 2009

Key Projects $ billion

Saudi Arabia 578,.398

• Expansion of King Abdul Aziz International Airport

• Mecca Monorail• King Abdullah Economic City• Jazan Economic City

3

52727

Kuwait 267,423

• Silk City (2030)• Refinery at Al Zour• Gas fired power station• Mass rapid transfer

131154371

Bahrain 60,746

• Bahrain-Qatar friendship bridge• North Bahrain new Town Project• Durrat al-Bahrain• Bahrain Bay

4332

Qatar 205,448

• Abu Dhabi- Qatar Causeway• Lusail Housing Project• Al Khor residential Development• New Doha Port Project

135107

UAE 916,515

• Abu Dhabi International Airport Expansion• Masdar City, Abu Dhabi• Dubai Industrial City• Festival City Dubai

722155

Oman 93,126

• Duqm Port• Kish Gas Fields Pipeline• Blue City Resort• Iron Ore Pellet Plant

2012201

provides the estimated size and number of major construction projects in GCC countries. According Deloitte report (2009), total value of GCC projects is around $2,677 billion and construction. Saudi Arabia, Qatar and UAE are expected to exhibit the most favourable growth prospects. For instance, Saudi Arabia plans to spend $400 billion over the next five years, followed by Abu Dhabi (UAE) $275 billion on pipeline projects and $10 billion by on strategic infrastructure project.

Policy Suggestions Although there are many areas where India

can assist GCC, there are also some issues which need to be addressed by both the sides. First is the labour issue. While approximately 6.5 million Indians are working in GCC countries, there have been no efforts to develop a model ‘code of labour laws’. GCC countries have developed their immigration laws in isolation, whereas the issue demands joint efforts. Lack of transparency in labour laws

has discouraged Indian talent from going to the GCC countries, which is quite contrary to the objectives of the talent-based diversification progammes.

Secondly, although most GCC countries have launched the second wave of localisation of the labour policy and are pressuring the private sector, which employs 90 percent of the total expatriate workers, to cut their size, Indian workers would keep playing a crucial role in manning the GCC programmes in foreseeable future. Therefore, GCC authorities should engage resourceful expatriates in their business plans and consider developing expatriate-native partnership and facilitate joint ventures. The Indian expatriates can serve as GCC’s goodwill ambassadors in India and generate confidence among the Indian investors.

Third, any long term deal related to energy, mineral etc., should not be based on personal favourtism. Rather, it should be based on a well defined national policy. Changes in

regime should not abrogate the deal as we have noticed in Iraq and Libya. In addition, GCC countries need to be more transparent and accommodating on the legal front.

Fourth, since the GCC countries are prepared to invite foreign companies in a big way, they should avoid bringing these under the purview of the localisation of labour policy. Foreign companies should not be forced to employ GCC nationals; rather they should be encouraged to either directly impart or bear certain percentage of the budget committed to skill and training programmes for the national labour force planned by GCC countries.

Lastly, GCC countries should not become the sole drivers of diversification programmes. They should encourage foreign companies, including the Indians, to target outside markets by making the bloc as their base. For instance, Bahrain has signed FTA with the US. The Indian companies investing in Bahrain should avail the FTA concessions and enter the US market. Investing in GCC has additional advantages as the bloc offers cheap inputs such as energy, uninterrupted power supply, efficient infrastructure, and cheap labour force, backed by low taxation policy.

GCC has the resources, both financial and natural; its diversification programme can potentially transform GCC into a powerful economic hub both for the region and the outside. After BRICS, GCC could establish itself as the main driver of the Organization of the Islamic Cooperation (OIC), which offers a market of one billion Muslims having the same taste and choices.

Undoubtedly, investing in GCC today would lead to enormous returns in the future.

Dr Zakir Hussain is a Research Fellow at Indian Council of World Affairs, New Delhi. Dr Hussain is an economist. His research specialisation is on the political economy of the Middle East. The views expressed are

his own. He may be reached at shahabzakir@gmail.com

1 . M i n i s t r y o f E x t e r n a l A f f a i r s 2 . P r a d h a n , h t t p : / / w w w. i d s a . i n / s y s t e m /f i l e s / I B _ I n d i a L o o k W e s t P o l i c y . p d f 3 . E x i m B a n k ( 2 0 0 6 ) G C C c o u n t r i e s : a study of India’s trade and investment potential, E x p o r t I m p o r t B a n k o f I n d i a , M u m b a i . 4. EIU (2010) The GCC in 2020: Resources f o r t h e F u t u re , T h e E c o n o m i s t s , E I U . 5. Deloitte Report, 2009, GCC Construction projects: Key Project Overview.

Source: Deloitte Report, 2009, GCC Construction projects: Key Project Overview

32 •India-GCC

New Growth Poles &

International Order

This century witnessed a new global economic order unfolding with the balance of global growth shifting from

the developed countries of the West to the emerging countries of the East. The global fi nancial crisis of the 2008 and subsequent global economic recession further accelerated this historical shift. This sparked a divergence of economic performance between the West and the emerging East. Crippled with fi nancial worries, the developed countries of the West resorted to restrictions on competitive markets and other protectionist measures; but, emerging countries of the East consolidated their synergies and complementarities to

complementarities and strengthen their new economic power. It is pertinent to note that GCC-India economic integration is being propelled by natural economic forces in the absence of any full-fl edged institutional mechanisms, such as GCC’s successful FTA with Singapore. While the virtual GCC-Asia geoeconomic axis is shaping into a concrete form, the two regions’ growing foray into Africa has created another avenue for enhancing interregional economic integration. Going forward, while growth dynamism will intensify economic integration among these nodes (GCC, Asia and Africa), they will seek increasing dependence for skill, knowledge and technology, thereby, providing growth impetus for the developed world as well. Certainly these geoeconomic and geopolitical axes are set to be the major balancing forces behind globalisation of the world economy.

Transition As We See It This transition is particularly evident

in the globalising Asia, where the growth of Asian sub-regions are increasingly becoming mutually reinforcing, paving the way for a new geo-economic force that is reshaping the global economic order. This phenomenon can be substantiated from the proliferation of shallow and deep economic integration among countries and sub regions within Asia in the ambit of WTO+ open regionalism framework. Currently, though dispersed, there is a virtual Asian Economic Community (AEC) which can be mapped from the numerous Preferential Trading Agreements (PTAs) in the form of bilateral Free Trade Agreements (FTAs), Regional Trading Agreements (RTAs), Comprehensive Economic Partnership Agreements (CEPAs), and Framework Agreement for Economic Cooperation (FAECs) in operation at various levels both in scope and dimension. Parallel to this geoeconomic convergence, Asian countries in general and India and the Gulf countries in particular have inclined to intensify political cooperation in line with the emerging security and strategic impulses in the region. While these geoeconomic and geopolitical inclinations are unfolding to take any concrete shape, lack of institutional framework and slow pace of negotiations have resulted in sub-optimal outcome and created a sense of confusion for India and the GCC as well as other Asian powers. Therefore, it is highly imperative to strive towards a pan-regional cooperative paradigm in Asia in order to consolidate the geoeconomic synergies and develop geopolitical convergence for a win-win outcome. In this regard, India and the GCC’s continued thrust on institutionalising economic

further strengthen their new found economic power in the emerging global order. While domestic crisis intervention strategies in the West may lead to ‘deglobalisation’ due to economic conservatism, the economic dynamism and long term growth fundamentals of the East will reaffirm the process of ‘reglobalisation’.

Increasing economic interdependence between GCC and India has been the hallmark of the changing geography of the World economy. While countries on both sides of the Atlantic are struggling to cope with the looming economic disaster, GCC and India are on the way to consolidate economic

By Samir Pradhan

India-GCC• 33

Asia to take any pan-regional form, although there are bilateral political interactions among nations.

The economic relations between India and the GCC region is unique in the sense that it has expanded continuously to reach the pinnacle without any substantive policy thrust from both sides. While both recognise the untapped economic potentials, policy inertia has resulted in institutional deficiencies that not only hamper deeper economic integration, but also failed to address periodic schisms in their economic engagement. Similar trend can be witnessed in the political engagement between the two regions. In this regard, this paper suggests a policy thrust by aligning both economic and political engagements between India and the GCC countries, which would act as a springboard for a pan-Asian cooperative paradigm.

Subdued Political EngagementWhile economic integration is taking

shape between the two regions- GCC, India and other Asia - political engagement between the two regions remain subdued. It has been observed that successful economic integration crucially depend on intense political cooperation. European Union and ASEAN to a less extent are primary reference points for this. Looking at the current state of affairs from a pan-Asian perspective, it is

high time that India and the GCC countries need to reorient and reenergise their political and security cooperation. By doing so, they will provide an alternative cooperative framework for expanding GCC-Asia political and security convergence.

The ‘Look East’ strategy of the Gulf provides an impetus for closer relations. It is therefore necessary that since a sustainable relationship entails multifaceted cooperation, India and the GCC countries should broaden relations on the strategic and political levels. It is in the interests of both the GCC and India to recognise the other’s potential as a serious trading partner, and further strengthen their external relations. Both parties could nurture their relations in a constructive way by finding the right balance between regionalism and multilateralism to excel in today’s fast paced economic arena. Geopolitical and geoeconomic complementarities drive security and strategic aspects of the Gulf region’s Look East Policy towards India. While India’s ambitions, capabilities, experience and interests all suggest that it is capable of playing a major role in the Gulf, the Gulf countries see India as a bridging power to shift their status quo security and strategic imperatives to better align with the changed dynamics. The stakes are formidable, challenges are mutual, potentials are huge and, hence, cooperation becomes imperative. This calls for greater political will.....Cont’d

and political relations could be a stepping stone for a pan-Asian cooperative paradigm.

The fizzling of Cold War vibes, rapid pace of globalisation, proliferation of Preferential Trading Agreements (PTAs), rise of large rapidly growing economies (such as China and India), the ongoing global financial crisis and above all the institutional inclinations to manage new security threats are considerably transforming economic and polit ical relationships in the Asian region. A virtual pan-regional architecture consisting of trade, investment, finance, political, security and strategic impulses are driving bilateral, sub-regional, regional and pan-regional economic and political engagements in Asia. There are two founding pillars of the emerging regional architecture in Asia: the geoeconomic and geopolitical. While the geoeconomic axis is firmly entrenched in mutually reinforcing economic complementarities, the geopolitical axis is underdeveloped and is in a state of flux. The last decade witnessed proliferation of numerous bilateral, sub-regional and regional preferential trading agreements ratified by Asian countries and sub regions in their quest for synergising economic complementarities in a rapidly changing global economy. These institutional approaches have consolidated and propagated the Asian geoeconomic axis into global prominence. However, there are yet to be clear signs of geopolitical convergence in

Source: Author’s calculation based on IMF, Direction of Trade Statistics Database, May 2012

Source: Author’s calculation based on IMF, Direction of Trade Statistics Database, May 2012

Notes: DA = Developing Asia, G7 = Major Advanced Economies, EU = European Union, LAC = Latin American and Caribbean Countries, MENA = Middle East & North Africa, SSA = Sub Saharan AfricaSource: Author’s calculation based on IMF WEO Database, April 2012.

Over the last decade, economic growth in the Developing Asian countries (China, India, ASEAN, and Korea)

and the GCC has surpassed other regions globally. Figure 1 depicts annual GDP growth rates of GCC, developing Asia and other world regions. GCC and developing Asia have registered annual average GDP growth rates of five percent and nine percent respectively between 2000 and 2011 in comparison to world GDP growth rate of 3.7 percent. In fact, the major developed countries’ (G7) share in

Geoeconomic Axis: New Growth PolesSECTION I

led by China and India and the GCC region are expected to register stronger growth giving succor to the deteriorating global economy. Moreover, higher economic growth in the two regions are increasingly becoming mutually reinforcing and are set to be a major balancing factor in the changing global economic order.

Higher economic growth has resulted in increasing economic interdependence between GCC and India. Merchandise trade, financial investment, joint ventures, energy exchanges and manpower bonanza have been the main crystalising forces shaping the geoeconomic axis. This has been supplemented by the changing global economic geography in which the regional production networks and supply chain of the two regions have become complementary. The trends and dynamics of these main economic drivers have been discussed briefly below.

Trade: Reaching New HeightsGCC-Asia trade has grown substantially in

the last decade. In 2011, Asia was the single largest trading partner of the GCC with two way trade between the regions worth of $666 billion (See Figure 2). Over the last decade, GCC’s trade with Asia has registered an annual average growth rate of 31 percent in comparison to 27 percent growth rate of GCC’s total world trade. Asia’ share in GCC’s total exports to and imports from the world was 58 percent and 42 percent respectively in 2011 (See figure 3).

Table 1 depicts GCC’s trade with major Asian Countries. As evident, India continues to be the second largest trading partner of the GCC in Asia after Japan. In 2011, two-way trade between the GCC and India was $135.6 billion in comparison to $151 billion with Japan and $130 billion with China. Trade between the GCC and India has registered a more than threefold increase over the periods 2000-2005 and 2006-2011 (See Figure 4).

world GDP has declined from 65 percent to 50 percent between 2000 and 2011, while that share of GCC and Asia together have increased from 12 percent to 20 percent. This was underpinned by structural changes in the world economy in favour of the emerging economies of Asia and the GCC due to their unique factor endowments; comparative advantages; increasing competitiveness and economic integration with the global economy. While currently both sides of the Atlantic are reeling with deep economic recession, Asia

Higher economic growth has resulted in increasing economic interdependence

between GCC and India. Merchandise trade, financial investment, joint ventures,

energy exchanges and manpower bonanza have

been the main crystalising forces shaping the geoeconomic axis

34 • India-GCC

GCC-India• 35

Importantly, GCC’s import from India has increased nearly five-fold over the period 2000-2005 and 2006-2011. Due to predominance of oil exports in GCC-India trade basket and higher oil prices of the 2000s, GCC’s exports to India has also increased substantially. India’s share in GCC’s world trade has doubled from three percent in 2000 to six percent in 2006 and currently stood at 11 percent in 2011, compared to Japan and China’s shares of 12 percent and 11 percent respectively (See Table 2).

It is important to note that GCC-India merchandise trade is not well balanced in terms of country shares as it is dominated by the trade between the United Arab Emirates (UAE) and India. In 2011, UAE-India bilateral trade stood at $76 billion out of GCC-India total trade volume of $136.5 billion, implying a share of 56 percent. Saudi Arabia’s share in GCC-India trade is 22.2 percent (See Figure 5). These trends indicate that there are huge potentials for enhancing GCC-India trade to make it well balanced and broad-based, which can be further substantiated from the trade composition between GCC and India.

Trade Composition: Dominated by energy, but slowly diversifying

As per data from the UNCTAD Trademap, GCC countries export nearly 100 categories of products to India. However, GCC’s export basket is overwhelmingly dominated by five product categories namely, (i) mineral fuels, oils, distillation products, etc (MOD); (ii) pearls, precious stones, metals and coins, etc

Japan ASEAN China India Korea ROA Asia World

2000 45.9 21.8 9.8 6.1 22.3 6.3 112.2 239.7

2001 42.9 21.5 9.1 5.0 21.2 5.9 105.6 234.9

2002 41.2 21.1 10.2 5.5 19.7 6.7 104.4 235.6

2003 49.1 24.8 15.5 7.9 24.9 7.5 129.8 293.1

2004 60.8 34.5 24.2 15.7 32.0 12.2 179.3 404.7

2005 83.9 51.4 34.3 19.7 43.9 15.4 248.6 555.3

2006 105.0 62.5 44.8 39.8 56.0 18.3 326.4 681.2

2007 115.0 70.3 58.8 60.8 61.9 21.8 388.6 797.9

2008 156.0 97.3 92.3 94.8 93.4 27.3 561.0 1100.7

2009 92.8 64.4 68.7 70.6 57.7 19.6 373.8 749.8

2010 115.1 82.0 90.9 105.7 74.2 24.6 492.5 952.8

2011 151.1 110.7 130.5 136.5 105.8 31.4 666.1 1265.3

Table 1: GCC’s Trade with Asia, 2000-2011, (Values in USD Billions)

Note: Asia refers to aggregate trade of 24 countries. ROA is rest of Asia. Source: Author’s calculation based on IMF, Direction of Trade Statistics Database, May 2012

Source: Author’s calculation based on IMF, Direction of Trade Statistics Database, May 2012

36 •India-GCC

Japan ASEAN China India Korea ROA Asia RoW

2000 19% 9% 4% 3% 9% 3% 47% 53%

2001 18% 9% 4% 2% 9% 3% 45% 55%

2002 17% 9% 4% 2% 8% 3% 44% 56%

2003 17% 8% 5% 3% 9% 3% 44% 56%

2004 15% 9% 6% 4% 8% 3% 44% 56%

2005 15% 9% 6% 4% 8% 3% 45% 55%

2006 15% 9% 7% 6% 8% 3% 48% 52%

2007 14% 9% 7% 8% 8% 3% 49% 51%

2008 14% 9% 8% 9% 8% 2% 51% 49%

2009 12% 9% 9% 9% 8% 3% 50% 50%

2010 12% 9% 10% 11% 8% 3% 52% 48%

2011 12% 9% 10% 11% 8% 2% 53% 47%

Table 2: Direction of GCC’s World Trade (regional share in %)

Note: Asia refers to aggregate trade of 24 countries. ROA is rest of Asia. ROW is rest of the world. Source: Author’s calculation based on IMF, Direction of Trade Statistics Database, May 2012

Source: Author’s calculation based on IMF, Direction of Trade Statistics Database, May 2012

(PPMC); (iii) Organic chemicals (OC); (iv) Plastics and articles thereof (PA); and (v) Aluminium and articles thereof (AA). These five product categories accounted for 95 percent share in GCC’s total exports to India in 2011. Iron & steel, fertilisers, and inorganic chemicals & precious metal compounds were the other important export product category with a share of 3 percent (See Figure 7).

It is notable that product category, Pearls, precious stones, metals and coins, etc (PPMC), account for nearly 29 percent share in the

Source: Author’s calculation based on ITC Trademap Database, 2012

GCC’s trade basket which is confined solely to UAE’s exports to India.

India’s export basket to the GCC is relatively diversified, though, dominated by India’s exports to the UAE. The top 10 product categories in India’s export basket to the GCC are: (i) pearls, precious stones, metals, coins, etc (PPMC); (ii) mineral fuels, oils, distillation products, etc (MOD); (iii) articles of iron or steel (AIS); (iv) cereals; (v) articles of apparel, accessories including knit or crochet (A&A); (vi) machinery, nuclear

reactors, boilers, etc (MNB); (vii) electrical and electronic equipment (E&E); (viii) copper and articles thereof (CAT); (ix) iron and steel (I&S); and (x) inorganic chemicals, precious metal compound, isotopes (ICPI). India’s top-10 export products to the GCC accounted for 81 percent of India’s total exports to the GCC in 2011 (See figure 8 and figure 9). It is to be noted that MOD product category has become India’s second largest export item to the GCC, primarily due to huge refinery expansion and increasing production of petroleum products over the last five years.

The dominance of two product categories in GCC-India bilateral trade basket - pearls, precious stones, metals, coins, etc (PPMC) and mineral fuels, oils, distillation products, etc (MOD) – points to growing complementarity due to converging production and supply chains, but also, highlights the immense potentials for further expansion and diversification of trade basket. This can be substantiated from the trade intensity between India and the GCC countries (See Table 3).

As evident, trade intensity between India and the UAE remain highest followed by Kuwait and Oman. This signifies the existence of huge untapped potentials for trade augmentation between GCC and India.

Apart from trade in goods, there are large potential for enhancing services trade between India and the GCC countries. India is a net exporter of services and ranked 9th globally due to its increasing competitiveness in exporting services such as ITES (information technology enabled services), BPOs, KPOs, healthcare, biotechnology and other allied services. On the other hand the GCC countries are net importers of services and given their policy thrust on economic diversification through

It is notable that product category, Pearls, precious stones, metals and coins, etc (PPMC), account for

nearly 29 percent share in the GCC’s trade basket which

is confined solely to UAE’s exports to India

Source: Author’s calculation based on ITC Trademap Database, 2012

knowledge based industries; there are clear complementarities which can be strengthened.

ConclusionTo accelerate economic cooperation,

India needs to strive towards political and security convergence with the GCC region. India’s preconceived notions and policy formulations towards the regions have become outdated with the changing political and security landscape in the aftermath of the 2003 Iraq imbroglio and the recent Arab Spring period. India’s policy making needs to be pragmatic based on its overarching economic, political and security interests in the Gulf region. Such a strategy would not only give clear signal to all stakeholders in the regional affairs, but also, would ensure stability and further cooperation.... Cont’d

Country Matrix 2008 2009 2010 2011

Bahrain-India 3.7 1.8 3.8 3.9

Kuwait-India 5.8 6.2 6.5 6.7

Oman-India 2.7 2.4 3.8 4.2

Qatar-India 2.9 3.2 3.9 3.7

Saudi Arabia-India 4.5 4.3 3.8 4.1

UAE-India 6.9 7.3 7.8 9.6

GCC-India 4.4 4.2 4.3 5.3

Source: Calculated by author from Trademap Database, 2012

40 •India-GCC

The Geopolitical Axis of a New International Order

By all accounts, the world is moving rapidly towards multipolarity. The post-Cold War era geopolitical, geo-

economic and geo-strategic imperatives underwent substantial changes in the aftermath of 9/11 and the 2003 forced regime change in Iraq. Simultaneously, the growth of emerging economic powers also considerably influenced the process. What one sees now is a hexagonal power polarity with three nodes; Russia, China, and India on the one side and the United States, Japan and the European Union forming the other three points. Moreover, with increasing global interdependence, it appears that the various nodes are striving for greater accommodation of interests and better management of contradictions, despite having divergent security and strategic cultures. With such changes in the global power architecture, reverberations are strikingly evident in the power configurations at the bilateral as well as regional level. Importantly, nation states are increasingly managing their bilateral relations on the basis of a realpolitik assessment rather than ideology alone. A case in point is the contemporary strategic environment in the Gulf region, which is increasingly becoming unpredictable, having local, regional and global implications. With windfall capital and vibrant economic growth, the region is witnessing unprecedented transformation in the social, political, economic, cultural and strategic realms. Importantly, certain favorable and adverse domestic, regional and international factors pervasively influence their security and strategic perceptions and increase their anxiety about the imminent future.

Coincidentally, being a neighbour and an emerging global power, India becomes a reference point for the Gulf countries as a partner in their quest for managing the evolving security equations. The change of perception in the Gulf region is based on a ‘new constellation’ in which India is increasingly viewed as a credible non-partisan global player who can play a constructive role in managing conflicts and restoring peace and tranquility in the region. Thanks to the Gulf’s eastward shifting economic engagements, burgeoning trade and investment linkages, and

SECTION II

India-GCC• 41

by the United States only increases tensions in the region.

It is noteworthy to point out the central role played by the United States as the security lynchpin of the Gulf region . The role and extent of US involvement in the Gulf region has expanded tremendously since it filled the power vacuum following the British withdrawal from the region in 1968. The overarching presence of the US has considerably changed the region’s strategic dynamics. From the initial ‘dual containment policy’ of orchestrating regional countervailing powers against each other, the US has become in a sense the sole superpower in the region as reflected in the forced regime change in Iraq in 2003. At present, nearly 200,000 American troops are stationed in the Gulf region, the majority of course in Iraq but with significant numbers in the GCC, thereby firmly entrenching the US in the Gulf security scenario. Further, given the Gulf region’s real security concerns, the regimes cannot afford to suddenly change the status quo and seek an alternate security arrangement. But while the US is an indispensable security ally and would continue to play a formidable role in the Gulf region’s emerging strategic paradigm, it is increasingly apparent that such an exclusive role in its present scope is neither sustainable nor unanimously acceptable to the Gulf regimes. In a sense, the unilateral strategic dominance of the US in the Gulf region is coming to an end, albeit slowly.

Strategic ShiftThus, a clear strategic shift is in motion

which is primarily due to the increasing internationalisation of the Gulf with other powers from Europe and Asia on the fringe, but also due to a reorientation and self-introspection by the Gulf countries about their place in the international system and the role played by the US within that system. Given the multidimensional security environment in the Gulf region – from the threat posed by Islamic radicalism and Iranian nuclear ambitions, to concerns about the stalemate in Iraq, tensions surrounding the Israeli-Palestinian issue, securing supply lines of oil exports and the role of Gulf finance in world economics – the regimes no longer feel safe in the comfort zone of the American security umbrella. The ambiguity about the US role, either as a source of regional stability or greater instability, entices the Gulf regimes to rethink their national interests amidst volatile regional events. The region is in the throes of a transition which evolves from patterns of interaction that are characterised by power politics and geopolitical concerns to new ones that are marked by the politics of geoeconomics.

Adding to the complexity is the sheer pace of post modernism and its structural spill over as reflected in domestic discontentment and the region’s search of an identity in the increasingly interdependent globalised world in which the parochial projection of the Gulf (especially in the Western world) is not only hampering their commercial pursuits, but also questioning the region’s integrity. As a result,

the civilisational affinities between India and the Gulf region there is the promise of a new era of deepening ties.

Gulf’s Strategic DilemmaThe strategic importance of the Gulf

region dates to the 19th century when three great empires –British India, Tsarist Russia and Ottoman Turkey – confronted each other for power projection. Since then, the region has a tradition of overwhelming security dependence on external powers. With the discovery of oil, the Gulf region became intrinsically enmeshed with the nuances of great power politics.

This process continued until the whole region came under pervasive control of the security cordon provided by the US. Given the small population size of the countries, the regional governments continued to rely upon outside powers to maintain a crude balance

of power in order to maintain sovereignty, domestic identity and regime security. This balance of power was maintained with the direct and extensive contributions from the external powers, either through providing military technology and weapons (Russian sales of missile and arms to Iran) or deploying military personnel in the region (US providing armaments and maintaining military bases in some member countries of the GCC).

Today the strategic environment in the region is in a state of flux. This is due to the crystallisation of several conflicting factors. Iran’s increasing military posture and Israel’s policy in the East Mediterranean region constitute the twin strategic fault lines surrounding the Gulf region. The turmoil in Iraq, which used to be the countervailing power to Iran, further adds to the security risks for the Gulf regimes. Above all, the perception of an Israel-centric foreign policy

42 •India-GCC

there is a growing sense of confidence in the region that has led the GCC states to play an increasing regional political and diplomatic role. Especially in the security domain, the Gulf countries are increasingly re-shifting their strategies from bilateral dependence to multilateral interdependence, sensing that bilateralism will no longer meet the requirements of a multi-polar world in geo-economic terms.

It is certain however, that complete removal of external powers from the region is not at all a possibility in the absence of a regional architecture and the existence of glaring distrust among the states in the region (consider, for example, the continuing problem of border disputes). Besides, given the global strategic importance of the region, outside powers would not simply keep themselves away from developments in the region as formidable stakes are involved. Thus, in the current circumstances, a viable security framework is simply unthinkable at this stage and it is certain that neither a regional solution nor an outside power can counter the wide variety of threats to the region. Thus, the key before the Gulf countries is to multi-lateralise the regional security space with the involvement of other powers, especially an emerging global power like India with whom the future stakes of the region are formidable. Therefore, India can become a natural security ally for the Gulf.

Transforming Strategic Overlap into Partnership

The strategic horizon comprising the Gulf region and India shows the growing interconnectedness in the security space extending from Afghanistan to the Middle East. India’s location at the base of continental Asia and the top of the Indian Ocean gives it a strategic location in Eurasia as well as among the littoral states of the Indian Ocean from East Africa to Indonesia. India’s peninsular projection in the ocean gives it a stake in the security and stability of these waters which is crucial for oil trade – the lifeblood of Gulf economies.

While the overall strategic environment involving India and the Gulf region is in a state of flux evincing uncertainties and dilemmas, there is no doubt that the stakes are formidable. It may be noted that the connection between security and stability in the two regions was first propounded in 1981 by the former Indian Prime Minister, Indira Gandhi and former UAE President Shaikh Zayed bin Sultan Al-Nahyan. From a strategic point of view, the Gulf countries and India share a desire for political stability and security in the region. The emerging common security perceptions create further opportunities for Gulf-India cooperation in the future. In the recent past, several Gulf countries, especially Bahrain, Oman, Qatar and the UAE have concluded a number of bilateral strategic pacts with India. The UAE and India entered into a strategic pact, signed on July 1, 2003 when a high-level delegation led by the then Chief of Staff and now Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, Shaikh Mohammed bin Zayed Al-Nahyan, visited India. That agreement envisages cooperation in security, defense policy, development of defense cooperation, training for the UAE military and military medical personnel, exchange of cultural and sports activities between the friendly forces of the two countries and joint efforts to tackle environmental issues, particularly pollution in the seas.

Saudi Arabia and India have entered into a similar pact. Such pacts confirm the increasing recognition of India as an emerging power by the Gulf countries and simultaneously the common strategic outlook of both. The process of mutual recognition received a major boost with the landmark visit of King Abdullah of Saudi Arabia to India and consequent ratification of the New Delhi Declaration. This inclination of a major Gulf power like Saudi Arabia to deepen and broaden ties with India points to the changing geopolitical dynamics in both regions. One important change has been the successful extradition of several criminals and terror suspects from the GCC region to India in the recent past.

Moreover, Gulf countries are increasingly cooperating with India for military training. Since India’s dependence on Gulf energy and the Gulf’s dependence on India and Asia as a future major market for oil exports will remain significant, the security of Sea Lanes of Communication (SLOC) has become a critical component within the ambit of strategic matters. It is not just oil, but the increasing movement of merchandise imports and exports on the sea route spanning the vast arc of Indian Ocean has also become a critical security concern for India and the Gulf countries. The sheer number of Indian expatriates in the Gulf region’s workforce makes a strong case for deepening ties with India to manage domestic security.

India as a ‘Bridging Power’ India’s credibility and role as a “neutral”

player in Asia may serve Gulf interests in managing their emerging security and strategic objectives. Two crucial factors that can possibly give the Gulf countries policy

flexibility are India’s growing ties with the US and stable ties with Iran and Israel. India’s strategic objectives attest to the fact that the Gulf, South Asia and Central Asia are now strategically interactive and interrelated regions. The objectives of India’s quest for greater influence throughout the Gulf are to prevent proliferation as well as terrorism. As a bridging power, India could possibly leverage its links with both US and Iran to the benefit of the Gulf countries. Unlike the US and other European powers that tie security cooperation with sensitive issues such as human rights, democracy and regime change, Gulf countries view India as a non-interfering partner to align with.

The main objective of this paper is to explore the geoeconomic and geopolitical dimensions of India’s growing economic and political relations with the GCC countries from a pan-Asian perspective. Arguing that India and the GCC countries constitute an integral node in the emerging Asian geoeconomic and geopolitical architecture, both need to institutionalise their relations for an optimal outcome. This paper is based on the central thesis that geoeconomic and geopolitical inclinations complement and supplement each other; therefore, policy strategies for enhancing relations should strive towards amalgamation of the both imperatives. The first section of the paper analyses the geoeconomic drivers that push forward India’s growing economic relations with the GCC countries and describes the scope and depth of integration from a pan-Asian perspective. The second section deals with the geopolitical drivers that are critical to the political, security, and strategic engagement between India and the GCC region and their implications for Asian region. The third section summarises the analysis and suggests a policy thrust to take India-GCC economic and political relations to the next level and how that would act as a catalyst for pan-Asian cooperative framework in the future.

Samir Pradhan is currently working as Senior Consultant, macroeconomics research at a Doha based leading management consultancy. Prior to this he was Senior Researcher, GCC Economics

and Gulf-Asia Programme at the Gulf Research Center (GRC), Dubai. He is a trained economist and obtained his M.Phil. and Ph.D. degrees from the Gulf Studies Programme at the School of International Studies, Jawaharlal Nehru University, New Delhi, India. His main research interests include India-GCC relations, Gulf-Asia economic interdependence, sectoral and macroeconomic analysis of GCC economies, regional trade integration, WTO issues, and energy security in the context of international relations. Dr Pradhan has several peer reviewed publications, opinion articles, industry reports, and research reports to his credit including a book on India-GCC Relations.

It is certain that complete removal of external powers from the region is not at all a possibility in the absence of a regional architecture

and the existence of glaring distrust among the states in the region, consider for example, the continuing

problem of border disputes

Advertorial

Aspects of India-GCC Trade RelationsBy Kumar Rishabh & Rajiv Ranjan

IntroductionThe economic relations between India

and the Gulf Cooperation Council (GCC), comprising economies viz. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates (UAE), have traditionally been founded on migration of workers from India to GCC. According to a World Bank estimate in 2010, out of the total 11.3 million migrants from India almost 43 percent (4.9 million) are settled in GCC countries. Another aspect of this high migration to GCC is that India receives a sizeable proportion of its remittances from GCC. According to the World Bank’s bilateral remittance estimates, of the $55 billion remittance India received in 2010, $24.5 billion came from GCC. (World Bank, 2011)

After India adopted the trade liberalisation in 1990s, as a part of its drive to economic reforms, India’s integration with the world economy has increased considerably. Trade openness, as measured by the trade to GDP ratio, showed an upward trend since 1992 until the recent great recession hit the global economy. Share of exports in GDP almost doubled between 1992 and 2010 increasing from around seven percent in 1992 to 13.5 percent in 2010, and share of imports in India’s GDP rose from around 8.5 percent in 1992 to around 16.5 percent in 2010. Trade, as measured by sum of exports to imports, to GDP ratio stood at around 30 percent in 2010 as against 16 percent in 1992 and at its peak was at 40 percent in 2008 (Table I). India’s trade as a share of total world merchandise trade has also increased as evident in Table I.I. India’s exports, which accounted merely 0.5 percent of world exports in 1992, around 0.8 percent in 2004, the initial year of the Foreign Trade Policy (2004-09), now account for around 1.5 percent of world trade. As far as imports are concerned, India now has a share of round 2.1 percent in world merchandise trade, up from just 0.66 percent in 1992. When compared to other developing countries like Brazil, Thailand, and Malaysia etc. India’s export and import shares are higher. However, these fi gures are signifi cantly lower than China. China’s exports account for around 10 percent of world trade, the corresponding fi gure for imports is around nine percent.

As India’s integration with the global economy has increased, India and GCC countries have become relatively more important economic partners. However, the economic relations between India and GCC have got boost from trade fl ows rather than financial flows. For instance, while GCC

Trade to GDP Ratio India’s Share in World Trade

Export-GDP Import-GDP Trade-GDP Export Import

1992 7.15 8.44 15.59 0.52 0.61

1996 8.90 10.40 19.29 0.61 0.68

2000 8.89 11.11 20.01 0.66 0.77

2004 11.02 14.37 25.39 0.83 1.04

2005 12.41 17.42 29.83 0.95 1.32

2006 13.34 19.62 32.96 1.01 1.43

2007 12.66 18.97 31.62 1.07 1.60

2008 14.53 25.23 39.76 1.21 1.94

2009 13.98 21.06 35.04 1.32 2.02

2010 13.51 16.46 29.97 1.42 2.10

Table I: Trade Openness Indicators for India (%)

46 • India-GCC

accounted for around 18 percent of India’s trade in 2010, its share in India’s cumulative FDI inflows was just 1.8 percent for the period April 2000-December 2010.

Trade relations between India and GCC have also strengthened over time as both have diversified their trade reach geographically with GCC countries bracing “Look East” policy and India ‘Look West’! Looking at the regional distribution of GCC total trade (exports plus imports) since 1992 we find that GCC as a group has been diversifying away from advanced economies to emerging and developing economies. (Figure I). Share of

advanced economies in GCC trade decreased from 73 percent in 1992 to around 50 percent in 2010. A large shift has also occurred in the share of developing Asian countries. India has also gained a higher proportion in GCC trade since 1992, now accounting for above 10 percent of GCC total trade as against three percent in 1992.

As far as the share of GCC in India’s trade is concerned that also has improved substantially since 1992. GCC’s share in India’s trade hovered around 12-15 percent in 1990s but reached around 20 percent in 2010. To put this figure in perspective, the six GCC

countries collectively account for around 74 percent of India’s trade with 19 country Middle East and North Africa (MENA) region. Share of MENA region in India’s trade widened mainly after 2005 largely driven by increase in GCC share in India’s trade.

India’s trade with GCC, in the 1990s grew relatively slow compared to 2000s. India’s exports to GCC, which showed a trend growth of around 10.5 percent between 1992-03, expanded at a trend growth of around 26 percent between 2003 and 2010 while imports grew at a CAGR of around 45 percent in the same period. Higher growth of

48 • India-GCC

imports than exports in 2000s turned India’s trade surplus into deficit vis-à-vis GCC since 2006. (Figure II).

Commodity and Geographical Structure of India’s Trade with GCC

There is a marked shift in the commodity structure of India’s exports to GCC. For example, comparing the data on two digit level (chapter level) in Harmonised System (HS) , Cereals, which contributed around 13 percent to India’s exports to GCC in 1990s, contributed only 5.7 percent in 2000s. India’s exports to GCC have become relatively more concentrated in 2000s as compared to 1990s albeit the concentration is resulting from the new commodity groups in the top ten like mineral fuels, oils, distillation products, pearls, precious stones, metals, coins, etc, and electrical and electronic equipments etc. Top ten commodities in 1990s had a cumulative share of around 56 percent while in 2000s this share increased to around 72.5 percent. The rising concentration is also confirmed by increasing Hirschman-Herfindahl Index (HHI) of degree of concentration for India’s exports to GCC in 2000s compared to 1990s.

As against what witnessed in exports, structure of Imports from GCC to India have

not changed much. As expected, mineral fuels, oils, distillation products, etc have the largest share in India’s imports though it has declined overtime, from 77 percent in 1990s to 68 percent in 2000s. Imports from GCC remain highly concentrated with top two commodities viz. mineral fuels, oils, distillation products, etc and Pearls, precious stones, metals, coins, etc themselves constituted around 87 percent

in 2000s as against around 81 percent in 1990s. Indeed, for GCC imports as well, HHI scores are higher in 2000s than in 1990s. (Rishabh and Ranjan, 2012)

Following the methodology outlined in UNCTAD and WTO (2012), in order to evaluate the extent to which India’s are favourably aligned towards the fast growing sectors favourable in GCC, we construct a scatter plot with (log) shares of commodities in India’s exports to GCC on the horizontal axis and average growth of imports, to GCC from world, in those commodities, on the vertical axis. An upward sloping regression line would imply favourable orientation and as the Figure III shows, India’s export orientation in GCC is favorable. This figure also allows us to get a quick sense of which are the fast growing commodities that may present opportunities for Indian exporters in GCC. For example, picking some of the commodities that have grown at an average of 10 percent and above since 2000 and have relatively lower share in India’s exports (marked in red in the same figure) are railway, tramway locomotives, rolling stock, equipment; cork and articles of cork; nickel and articles thereof; pulp of wood, fibrous cellulosic material, waste etc; cocoa and cocoa preparations; etc.

As against what witnessed in exports, structure of

Imports from GCC to India have not changed much.

As expected, mineral fuels, oils, distillation products,

etc have the largest share in India’s imports though it has declined overtime, from 77%

in 1990s to 68% in 2000s

As far as geographical distribution of India’s trade with GCC is concerned, it is signifi cantly biased towards two big countries UAE and Saudi Arabia. (Table II). UAE’s share in India’s exports has consistently increased over the years and in the period 2004-2010 it accounted for three fourth of India’s exports to GCC, up from around two third in 1998-2004. As far as India’s imports are concerned, it is somewhat less concentrated geographically, but UAE and Saudi Arabia together still account for around 72 percent of India’s imports from the region.

Talking about India’s trade with its largest trading partner in GCC, UAE is also the only

GCC country vis-à-vis which India has a trade surplus. India’s trade with UAE increased from $1.9 billion in 1992 to above $51 billion in 2010 registering a trend growth of around 18 percent. Growth in 2000s (31%), like other GCC countries, was higher than in 1990s (11%). India’s surplus grew at an accelerating pace starting in 2000 and up to 2006; it turned negative in 2008 but quickly recovered 2009 and 2010. At its peak in 2009, India’s trade surplus vis-à-vis UAE was $5.6 billion. Pearls, precious stones, metals, coins, etc and Mineral fuels, oils, distillation products, etc. are the two main commodities of exports from India to UAE. The former has always remained an

important commodity in India’s exports and had a share of around 11 percent in India’s exports in 1990s. India is not a major miner of precious metals and stones such as diamonds but it is the largest processor of diamonds in the world owing to its skilled labour and low cost of processing. Indeed, Dubai in UAE is India’s big re-export market for pearls and precious stones. The commodity accounted for above 50 percent of India’s imports from UAE which was up from around 11 percent in 1990s.

Concluding Remarks: Potential for Further Growth

The two-way trade between India and GCC has reached around $90 billion, the average growth of which, over the past few years have been around 40 percent per annum. The phenomenal growth in Indo-GCC trade, especially in the second half of 2000s may be attributed to the increased bilateral efforts, to enhance trade relationship, that were undertaken during this period. India and the Member States of the GCC signed the Framework Agreement of Economic Cooperation on August 25, 2004 in New Delhi and consequent first round of negotiations happened on March 21-22, 2006. The Framework provided a clear set of agendas for the bilateral trade and economic relationship over the following years. It covers a wide range of activities aimed at improving commercial and policy linkages,

Table III: Country wise Average Share in India’s Trade with GCC (%)

Bahrain Kuwait Oman Qatar Saudi Arabia UAE

Exports

1992-1998 2.6 6.2 4.4 1.5 24.5 60.8

1998-2004 1.8 4.9 3.7 1.5 19.3 68.8

2004-2010 1.3 3.6 3.2 1.9 14.9 75.2

Imports

1992-1998 3.7 21.9 0.5 2.8 38.6 32.6

1998-2004 5.1 16.1 0.8 4.6 31.6 41.8

2004-2010 1.7 15.4 3.2 7.4 34.5 37.9

Source: Authors’ calculations based on data from UN Comtrade

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The Tele-Education solution is based on state of the art technologies and uses diverse communication networks depending on the user requirements. The solution is modular, scalable, expandable and can grow with growth of user organization. The solution envisages data centers, studios & virtual class rooms for management of lectures, lecture content, lecture studios (teacher end), virtual class rooms (student end), programs, courses, teachers etc.

Based on the above architectures, TCIL has implemented a large number of projects for clients in India and abroad. TCIL’s Tele-education Solution is implemented at following locations (in over 50 Countries in Asia and Africa): PAN-AFRICAN e-Network Project with 170 Virtual class rooms in African countries Virtual University Project for University of Madras, with 11 Learning Centers SAARC Telemedicine Network Project in three countries SAARC Tele-education Project ONCONET Project

Tele-Education solution designed & developed by TCIL can be implemented for various State & Central Governments, Public Sectors, Universities and Large organizations for their: State Government Training Networks Corporate Training Networks Virtual University Networks

Awards and Accolades for Projects on Tele-medicine and Tele-education

Pan-African e-Network Project has been awarded the “Best Development Initiative for Africa for the year 2009” by the Africa Telecom People.

Pan-African e-Network Project has been recognized for its contribution in the fi eld of sustainable development with “the Hermes Prize for Innovation 2010” by the European Institute for Creative Studies and Innovation.

50 •India-GCC

Trade Post Workshop Reports, UNESCAP, 2006 Rishabh,Kumar and Ranjan, Rajiv. 2012. ‘Evolution of Indo-GCC Trade Relations: The Last Two Decades’, International Journal of Economics, Commerce and Research (IJECR). Volume 2, Issue 4 (December 2012) Thirlwell , Mark and Bubalo,Anthony. 2006. ‘India Looks West; the GCC Looks East.’ GCC India Research Bulletin, Issue no 2, June 2006. W o r l d B a n k ( 2 0 1 1 ) , ‘ M i g r a t i o n a n d R e m i t t a n c e s F a c t b o o k 2 0 1 1 ’

Kumar Rishabh is Research Officer in the G-20 Division of Department of Economic and Policy Research (DEPR), Reserve Bank of India (RBI). Rajiv Ranjan is Director in DEPR, RBI and is currently on deputation to Central Bank of Oman as Economic Policy Expert. Authors can be contacted at kumarrishabh@rbi.org. in and

rajivranjan@rbi.org.in Views expressed in the paper are personal and do not necessarily reflect the views of the institutions authors belong to.

Authors’ calculations based on data from Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India

We use HS 1992 revision in order to get a sufficiently long data series for analysing the trends post major policy changes in India in 1991-92. The HS comprises approximately 5,300 article/product descriptions that appear as headings and subheadings, arranged in 99 chapters, grouped in 21 sections. HS system classifies commodities into categories up to six digits. We use the two digit classification i.e. at the chapter level which has in total 99 categories of commodities. All the data are from UN Comtrade.

Terms ‘Mineral fuels, oils, distillation products, etc’ and ‘Oil’ are used interchangeably in the article. Both refer to the commodity code HS 27 of the Harmonised System used here.

and delivering improvements to the overall business environment to both countries’ mutual benefit. As a part of the Framework, India and GCC countries agreed to undertake possible negotiation of a bilateral free trade agreement (FTA). Despite the political turmoil in the Arab world, the talks for a free trade agreement (FTA) between India and the Gulf Cooperation Council (GCC) seem to be still on track. India’s trade and economic relations with the GCC countries is kept under regular review through bilateral Joint Commissions. India has such institutional arrangements with all GCC countries. (Pradhan 2006)

India-GCC trade relationship is expected to strengthen further as they mutually become economically more important for each other. This is evident from some broad developments in the recent past. As we described earlier, the traditional trading partners of the GCC i.e. advanced economies, though still maintaining a strong trade relationship with the GCC, have seen their relative importance decline since 1990s with a noticeable shift towards emerging markets. It is expected that among emerging economies, Asia will become the most important region for the GCC with India also assuming a significant role (The Economist, 2011). Further, although, India has gradually tried to widen its trade basket, there is evidence of increasing concentration especially in imports and there exist huge scope to export diversified items from India, as the GCC countries depend on imports for most of the their regular consumption items. Pradhan (2006) identifies another source of potential increase in Indo-GCC trade that emerges from the relatively smaller trade partners from GCC like Oman, Qatar, Bahrain and Kuwait. As discussed above these four countries hold a share of only 14 percent in India’s exports and 28 percent in India’s imports from the region.

Another source for enhancement of the bilateral economic relations between India and GCC comes from investment. It has been shown in several researches, FDI and trade may be positively related as the greater FDI flows between countries have complementary effects on trade. According to the recent data available on ITC’s Investment Map, between 2002 and 2010, the average annual growth of FDI stocks in GCC countries has ranged from a low of 11 percent in Bahrain to the highest of around 55 percent in UAE, with Oman, Saudi Arabia and Kuwait registering 35 percent, 33 percent and 28 percent growth in FDI stocks respectively in the same period. However, India’s share in FDI flows to GCC does not seem to be substantial and there is therefore a potential for Indian investors in the rapidly growing foreign investment avenues in GCC. From the host wise FDI flows available for the three GCC countries viz. Saudi Arabia, Qatar and Oman, in the Investment Map, we find that India’s share in Oman’s FDI varied from seven percent in 2010 to 2.8 percent in 2008 and to 0.4 percent in 2009 while was negligible for the other two countries. As the GCC countries are trying to diversify their economy by setting up new industries, there exists huge scope for Indian outward foreign direct investment in the GCC countries. Moreover, as the oil prices continue to be high, large fiscal surplus in these countries are allowing the Government to spend on inf ras t ructure projec ts where Indian companies can participate.

References: The Economist Intelligence Unit. (2011). ‘GCC trade and investment f lows; The emerg ing-marke t surge’ . EIU Repor t Pradhan, Samir Ranjan (2006). ‘India’s Export Potential to the Gulf Cooperation Council (GCC) Countries: A Gravity Model Analysis’ Asia-Pacific Research and Training Network on

52 •India-GCC

Islamic Banking in India, Role of GCC

Islamic Banking IsBanking, for a layman in India, is the

safest most reliable and way to keep oneself financially stable. When it comes to Islamic banking, there is a legal and political dilemma noticed in the country. However, in the global context, such a concept of banking seems to be at a prominent and significant pace in the GCC (Gulf Cooperation Council) countries.

Islamic Banking is a concept of Banking based on the Sheriah law. Basically it follows a concept of Riba and Mubarahah along with other rules and regulations. No interest (riba) is to be paid or received in such a banking activity. ‘Mubarahah’ refers to the sale of goods at a profit margin agreed by both the parties. India, where the estimated population of Muslims is about 177 million, the largest minority population in the world, a question mark appears on the legalisation of Islamic Banking.

Islamic Banking In IndiaD Subbarao, Governor, Reserve Bank of

India rejects the idea of Islamic Banking in India. He appreciates the idea though and says that the concept is idealistic but states that it is not possible practically in India as there are some “legal complications”. Securities and Exchange Board of India (SEBI) refutes the idea and functioning of Islamic Banking where one cannot invest in bonds, T-bills, and

Islamic Banking - an idealistic approach towards banking is gaining its momentum in the GCC countries as well as few other regions. Such a concept of banking without interest and a marginal profit is still banned in India where the Muslim Community constitutes the largest minority in the world. The Reserve Bank of India spurns the idea of Islamic banking in India and declares it as an impractical way of financial management in the context of the country. On the other hand, various tiny financial institutions which follow the principles of Sheriah, seem to flourish in India, taking an example from the GCC countries, says Pratiksha Srivastava

commercial paper or land to finance inventory or projects for interest. Till now, there are debates going on in the country in order to legalise the functioning of Islamic Banks. The Muslim minority population in India is unable to use the Islamic banks because of the laws covering the finance sector based on interest.

Some Capital market products are already

following the Islamic Equity indices which exclude firms involved in areas forbidden

by Islam such as alcohol and gambling. These stocks are regulated by SEBI. Mumbai-based Taqwaa Advisory and

Sheriah Investment Solutions (TASIS), an advisory firm,

launched one of them in 2010

Some Capital market products are already following the Islamic Equity indices which exclude firms involved in areas forbidden by Islam such as alcohol and gambling. These stocks are regulated by SEBI. Mumbai-based Taqwaa Advisory and Sheriah Investment Solutions (TASIS), an advisory firm, launched one of them in 2010. Bombay Stock Exchange has a Sheriah Index where the leading stock is Reliance with a weight of 18 percent. Bangalore based Amana group which is a Chit Fund organisation is based on Islamic principles and laws. Infinity, established in 2007 in Bangalore is a Sheriah based organisation, too follows the principles of Islamic Banking. Infinity includes professionals with an in-depth knowledge of the business environment in the GCC region. According to the report1, Zayd Chit fund Pvt Ltd is India’s first registered Sheriah-compliant chit fund organisation or ROSCA (Rotating Savings and Credit Association). It was established in 2011. Similarly, Zamzam Capital LLP is a Sheriah compliant investment management and advisory firm based in the country.

According to Reuters, SEBI expects the Sheriah’s compliant funds to be registered under the AIF (Alternative Investment Funds) regulations. This definitely gives some hope to the tiny Islamic banking organisations in India. Asifullah Khan, the current managing director

at Amana chits Pvt Ltd and founder and partner of the organisation foresees his organisation as a hope to help Islamic finance in India in a big way gradually and more wisely.

Islamic Banking In The Context Of Gcc And Globe

In an article, Dr Abdul Majeeb Pasha Shaik, Prof in Finance, Nimra College of Business Management states that in the Middle East and Asia Pacific region, the Islamic Banks are doing well. These banks are open to all whether Muslims or non-Muslims. There are Islamic banks in other countries as well. Philippines Government established Philippines Amanah Bank; Malaysia, in 1963, started “Muslims Pilgrims Savings Corporation” in order to help people to save pilgrimage for Mecca and Medina. In 1969, it was converted to “Pilgrimage Management and Fund Board”. Islamic Banking is allowed in Denmark, Luxemburg as well. According to the Arab News, a regular English-daily newspaper published in Saudi Arabia, the Gulf Finance House (GFH) has signed a one year renewable $90 million syndicated Murabaha facility with a group of nine banks from Europe, Asia and the Middle East.

Islamic banking is prevalent in six of the GCC countries: Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates and the Republic of Yemen. Oman is the only GCC

country where Islamic banking is prohibited. According to a report2, banks based on the Islamic principles are progressing at a considerable pace. In a study made by the International Monetary Fund (IMF) in 2005; the number of Islamic banks was 75 in the year 1975 and it rose to 300 by the year 2005. At the time of the study, the total assets in the Islamic banks were $250 billion worldwide; and were growing at the rate of about 15 percent per annum.

In 2008, before the period of global crisis, the 100 largest wholly Islamic banks, ranked by assets, held approximately $520 billion in assets, 90.8 percent of which were owned by the Gulf nations. The contribution of Saudi Arabia was noted to be 49.5 percent, United Arab Emirates contributed 20 percent, Kuwait owned 17.44 percent and 11 percent was accounted for Bahrain. Now, the same report2 displays the insignificance of the Islamic banks in the global context when the banks are contrasted with the top 50 banks in the world. The total assets of the Islamic banks are not very significant and thus not much accountable for the global market. The assets range of the topmost banks in the world range from $3.483 billion to $1,456 billion.

The report completely states that Islamic banks are scintillating well and are deepening their roots in the GCC countries as well as in the other regions of the globe. But these banks

are unable to cop up with the other banks of the world which do not follow the principles of Sheriah. In the era of neo-liberal economy, the Islamic banks are not meeting the competitive demands.

Islamic Banks in Context of GCC India

Considering the large Muslim population in India and the demands to legalise Islamic banking in the country, the question arises whether to the example of Islamic banks and their success in GCC is exemplary for India or not. Emam Janahi, the chairman of GFH (Gulf Finance House) an Islamic bank with its headquarters in Bahrain, said to the Arab News; “Despite the slowdown in the international, regional and local economies, at GFH we have met the challenges and have continued to maintain its growth momentum and remain profitable. We are committed to providing long-term benefits for our shareholders, our investors and our employees and appreciate the commitment, dedication and support extended towards the growth activities of the bank.”

According to a study made by Kuwait’s Finance House which is the Gulf’s second largest Islamic bank, the assets in the Islamic banks have reached $66.4 billion. This represents an yearly growth of 40 percent and hence the progress in the stability of the

54 •India-GCC

Islamic banks. The Islamic banking in the GCC countries is providing a banking option to the people through which they can maintain the pace with the religion and remain free of greed. Following the example from the GCC nations, many tiny financial institutions which follow the concept of Islamic banking have set their foot in India. However, although there are scopes for Islamic banking in India, until now it remains banned.

Citibank, one of the major international banks and which has its branches in India too, introduced Islamic banking branch in UAE on May 13, 2008. In a report3 to The Islamic Finance Resource, Mohammed Al-Shroogi, Managing Director for the Middle East, Chief Executive Officer for Citi in the UAE, and founding Chairman of the Citi Islamic Investment Bank, said: “Today we move a step forward towards fulfilling our clients’ all-round banking needs by offering Treasury and Trade Sheriah’s-compliant Products suite. We are proud to be a driving force behind the development of Islamic banking methods that meet the needs of the diverse clientele in the UAE.” This is a part of the Middle East where economic strategies of the bank to maintain effective economic relations with the Gulf. Similarly, the HSBC bank, which has its branches in India, is also providing its Sheriah based services in Malaysia since 1994 and in UAE since 1959 through HSBC Amanah. Definitely these two worldwide banks are attracting the Muslim population from the respective regions.

Two of the remarkable private sector banks of India: ICICI and Kotak Mahindra have Islamic products and these are sold exclusively to the clients overseas, as stated in a report4. This shows the interest of the Indian banks too to set their foot in the area of Islamic banking.

Now, the question arises on why Islamic banking is important in India. Definitely with a population of about 177 million Muslims approximately, India can become a hub for the Islamic investment by the GCC and other countries as well. This can help India to strengthen the economic relations with the GCC nations, given a ground-reality that a sizeable number of Muslims in India do not want to invest in non-Islamic banks. There is considerable opportunity for them to invest and save if the Islamic banks are introduced in India. Also, there can be an increase in the

number of Muslims who would like to give their services in the Islamic banking sector in India as well as the GCC countries. This can be one of the most attractive opportunities for Muslim youngsters in India as well as the GCC nations.

Sources: 1. http://www.infinity-consult.com/islamic-finance/india-initiatives 2. www.memri.org/report/en/print3702.htm 2/4 3. http://ifresource.com/2008/05/13/citibank-launches-sharia-compliant-working-capital-products/ 4. http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4462

Considering the large Muslim population in

India and the demands to legalise Islamic banking in the country, the question

arises whether the example of Islamic banks and their

success in GCC is exemplary for India or not

56 • India-GCC

India & GCC Seeking a broad-based engagementBy Dr Faisal Ahmed

Both India and the Gulf Cooperation Council (GCC) are playing a signifi cant role at multilateral level in contributing

to trade policy-making, development initiatives and inclusive growth. GCC’s role was largely evident when Qatar took the lead and hosted the United Nations Conference on Trade and Development (UNCTAD XIII) in April last year. This was because of three reasons: a) UNCTAD conference was organised in the Arab region for the fi rst time; b) it asserted GCC’s commitment to the process of development and inclusive growth, at a time when social unrest was still persisting in some Arab countries; and, c) it gave an assurance of optimism and confidence to investors even in times of fi nancial turbulence. The Conference came out with two outcome documents. One of them was Doha Mandate, which furnished the way ahead for UNCTAD as an organisation in terms of its mandate for development strategies and a rule-based multilateral trading system. While, the other one was Doha ‘Manar’, in which ‘Manar’, an Arabic word, signifi es a strong light visible from a distance that serves to direct travellers. The Manar focussed on achieving prosperity for all through a participatory and inclusive approach to development.

The GCC has emerged as a major trading partner for India and offers tremendous potential for cooperation in areas ranging from trade and investment to energy and manpower. GCC countries also collectively host the largest expatriate Indian community, who have contributed significantly to the evolution and strengthening of India-GCC engagements. They gained prominence in India’s foreign trade in the post-liberalisation trade policy regime initiated in 1991; which

duly helped in the culmination of an enhanced export performance amid easily accessible and implementation-oriented procedures.

In fact, the first India-GCC Industrial Conference in Mumbai on February 17-18, 2004, which issued the ‘Mumbai Declaration’, established a framework of engagement which was destined to sustain. It was in the same year in August that India and GCC states entered into a Framework Agreement on Economic Cooperation. The framework agreement itself refl ects the strong conviction followed by the GCC in their urge for ‘Look East’. And India has been reciprocating it through the ‘Look West’ policy.

Also, India and GCC have been negotiating a Free Trade Agreement (FTA). In 2004,

they started exploring the possibility of a Free Trade Agreement (FTA) between them. Several rounds of negotiations have happened but the Agreement is yet to take its final shape. The proposed FTA would bring about several benefi ts including more intensive economic engagement between the two entities, enhanced market access, removal of restrictive duties, reduction of tariffs on traded commodities and increase in bilateral trade and FDI, among others. The areas of cooperation which will benefi t from the India-GCC FTA includes automobiles, machinery and mechanical appliances; gems and jewellery; agro and food-processing industry; small and medium enterprises; energy, petroleum products and power sector; water treatment plants; tourism; real estate; and infrastructure; aluminium; healthcare and pharmaceuticals; fi nancial services and Islamic banking; services; education; and, information technology.

Furthermore, as far as the trade between the two sides is concerned, it shows an evolutionary trend (see Figure), with close to 15 percent of India’s global exports going to the GCC, while more than 20 percent of India’s global imports coming from GCC alone.

The urge for cooperation between India and GCC, which has already been described as our natural economic hinterland, is not only dependant on trade but involves investment and security issues, as well. In fact, we also need to understand that a constructive interplay of trade and geopolitics could bear the potential to redefi ne India’s engagements with the GCC. It is, therefore, pertinent to analyse some issues which have the potential to provide a direction to this evolving relationship, and thus could infl uence the policy framework of cooperation.

India-GCC• 57

Hydrocarbon Concerns & India’s Agri-opportunities

A major concern is India’s increasing demand and dependence on hydrocarbons. The GCC states have a comparative advantage in this sector with Saudi Arabia, Kuwait and UAE being major oil producers and exporters while Qatar being rich in natural gas. Also, India has gained competitiveness in petroleum products which is among our major exports and revenue earner. In fact, it is imperative that India and GCC can look forward to mutually-beneficial investments in the oil and gas sector to secure advantages of cost, capital and sector-specific infrastructure.

On the contrary, GCC states lack in food grain production and have pertinent food security challenges due to geographic reasons. They are among the major food importers; whereas, India has considerable competitiveness in food production by dint of its abundant land, cheap labour and good agricultural know-how. The GCC can be a huge market for India’s food grains exports and mutual cooperation for food security can be highly beneficial. Even trilateral arrangements like GCC states investing in farmlands in Africa by utilising Indian agricultural technology and know-how could be a model that could be among best practices of South-South Cooperation.

SME & Entrepreneurship in GCCA n o t h e r f o c u s a r e a s h o u l d b e

entrepreneurial development and Small and Medium Enterprises (SME), which have become an urgent necessity for both sides to enhance their global outreach and to create jobs. In fact, the 3rd India-GCC Industrial Conference in 2007 also focussed on India-GCC mutual investment opportunities in SME and small scale industry sectors, however, less has happened in this direction. India and GCC can leverage mutual competitiveness in cost advantages, technology, market access and respective government schemes in this sector. Moreover, mutual cooperation in manufacturing, especially original equipment manufacturing (OEM) sector can also be very relevant for both India and GCC countries who can explore the possibilities of investments based on advantages in cost, quality and efficiency.

The need for an FTAThe FTA is also likely to enhance the

trade in pharmaceutical sector. The Indian pharmaceutical industry has already developed strong competitiveness in research, R&D costs, production technology and clinical trials. However, the bio-medical and pharmaceuticals research is still evolving in the GCC. Mutual cooperation and investments in this sector can help the two countries gain advantages in terms of low-cost medicines and better market opportunities.

Investment PotentialInvestments are also a major area of

cooperation. As per World Investment Report 2012, FDI inflows in India increased from $20,328 million in 2006 to $31,554 million

sewerage line network in Saudi Arabia, setting up of gas turbine stations in Oman, among others.

ConclusionFurthermore, political stability and

security within South Asia and the Gulf are also major concerns that India and GCC share, considering the geo-strategic dimension of the engagement. There is a need for higher degree of mutual cooperation in strategic issues including joint maritime security and law enforcement, strategic dialogues, defence cooperation, and cooperation in ensuring maritime security in the Arabian Sea.

Thus, it is evident that though trade and economic relations are on a trajectory of growth, there exists a need for diversification of trade portfolio between India and GCC. This is because oil, natural gas and petroleum products occupy the major chunk of bilateral trade basket. Moreover, it is crucial that the FTA negotiations are concluded soon so that both sides can leverage the benefit of a higher degree of integration and develop a broad-based and sustainable engagement.

Dr Faisal Ahmed is Associate Professor of International Business at FORE School of Management, New Delhi. Views are personal.

in 2011. Also, FDI inflows in West Asia (including GCC, some Arab countries of Asia, and Turkey) has declined from $67,121 million in 2006 to $48,682 million in 2011. UAE and Bahrain have been largely affected, whereas, Qatar has witnessed an increase during the same period. Also, the GCC countries’ investments in India have not been significant. Together, the GCC countries have invested a cumulative figure of $2800.44 million from April 2000 to December 2012, with UAE taking the lead. Therefore, there is a potential for future investments from both sides in sectors like energy infrastructure, biotechnology, real estate, agriculture, and sub-urban infrastructure. Also, initiatives like India-Oman Joint Investment Fund should be strengthened and replicated at the GCC level.

Moreover, India has a huge potential to engage with GCC in terms of services. The major services category in which India has immense potential includes higher education and training; management consulting; telecommunication services; software services; engineering services; and, financial services. Also, GCC has emerged as a major destination for India’s project exports and turnkey contracts including high voltage overhead transmission line project in UAE, consultancy contract for operating and managing cement plants of Yanbu Cement Company, construction of dams and branch

Flavour of Indian Coffees in Gulf CountriesCoffee in India is grown under a canopy of thick natural shade in ecologically sensitive regions of the Western and Eastern Ghats. This is

one of the 25 biodiversity hotspots of the world. Coffee contributes signifi cantly to sustain the unique bio-diversity of the region and is also responsible for the socio-economic development in the remote, hilly areas. Coffee agro-forestry reduces the burden on natural forests

for fuel wood and other livelihood options of the local population.

Coffees of India are entirely handpicked and completely sun dried and strict quality control measures are adopted for all varieties of coffee earmarked for exports. Coffee is grown in thirteen different geographic regions each with distinct climate and growing conditions contributing to 13 different geographic identities for Indian coffee. Besides, India also produces well known specially processed coffees such as Robusta Kaapi Royale, Mysore Nuggets Extra Bold and Monsooned Malabar.

COFFEE BOARD OF INDIAThe Coffee Board, as the nodal agency for the coffee sector in India, is the friend, philosopher and guide to the coffee sector and carries out

Research, Extension & Development, Quality Control, Market Development and Promotion of Coffee.

COFFEE IN INDIA• India is Asia’s third and the world’s sixth largest producer and exporter of coffee. It accounts for 4 percent of global coffee coffee production.• India is a quality producer of both Arabica (32%) and Robusta coffee (68%) producing about three lakh tonnes. • Indian coffee has been an export oriented commodity. About 70 per cent of the total coffee produced in India is exported while 30 per cent

is used for domestic consumption.• About 600,000 people are employed in India’s coffee plantations.• The country has about 409,690 hectares under coffee cultivation in 2011-12.• Indian coffee is mainly grown in the southern states of Karnataka, Kerala and Tamil Nadu.• Karnataka accounts for about 56.1 per cent (0.30 million hectares) of area and 70.4 per cent of production.• The major coffee producing areas in Karnataka are Chikmagalur, Kodagu and Hassan• Kerala and Tamil Nadu follow with about 21.7 per cent and 5.8 per cent respectively in production.• The major coffee producing areas in Kerala are Wayanad, Travancore and Nelliampathies, and in Tamil Nadu are Pulneys, Nilgiris, Shevroys

(Salem) and Anamalais (Coimbatore).• Coffee is also grown in the states of Andhra Pradesh, Orissa, Assam, Manipur, Meghalaya, Mizoram, Tripura, Nagaland and Arunachal

Pradesh. The coffee development in these states is targeted to prevent jhoom cultivation and provide Tribal communities with sustainable means of livelihood.

• Domestic coffee consumption is showing a sustained increase of 6% per annum since 2000 onwards.

For more information visit www.indiacoffee.org.

INDIAN COFFEE TRADE WITH GULF COOERATION COUNCIL COUNTRIES• The six-nation Gulf Cooperation Council (GCC) which

includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates are not producers of coffee while they show potential for growth in coffee consumption.

• India Exported 13,747 tons of coffee valued at Rs. 240 crores in 2011-12 to GCC countries

• Among the GCC countries, Saudi Arabia, Kuwait and United Arab Emirates are major importers of Indian Coffee.

• Gulf countries mainly import green coffee from India• UAE is showing promising growth in coffee consumption

in recent years.• Considering the promise in the growth of coffee

consumption in the region, Coffee Board of India has been facilitating participation in food and beverages events in Gulf.

KEY EXPORTERS OF INDIAN COFFEE to GCC COUNTRIES• ITC Ltd., NKG Jayanti Coffee Pvt. Ltd., Allanasons

Limited, Harley Carmbel (I) Ltd., Bola Surendra Kamath & Sons, S.P.G Ramaswamy Nadar & Sons, Olam Agro India Ltd., Ramesh Exports Pvt. Ltd., Amalgamated bean Coffee Trading Ltd., TATA Coffee Ltd., OM Shree International, SANA Exports SA Rawther Spices (P) Ltd., Bola Raghavendra Kamath &Sons, Sri Narasu’s Coffee Company Ltd., ECom Gill Coffee Trading Pvt. Ltd., Ruchi WorldWide Ltd., Hindustan Unilever Ltd., SLN Coffee Pvt. Ltd., are some of the major players in the sector exporting coffee to Gulf Cooperation Council countries.

Advertorial

GCC and India’s Look West PolicyBy Dr Khurshid Imam

Globalisation and democratisation of information has deep and profound impact on international relations.

Rapid changes in the geo-political situations resulted in shift in the axis of power as well as in the emergence of new centres of power. In this dynamics of international politics, India too reoriented her foreign policy. The fi rst stage in this orientation was consolidation of her position in South East Asia through what is referred to as Look East Policy (LEP). The second phase focussed on the West Asian region through a policy being termed as “Look West” policy. The look west policy of India coincided with the LEP of Saudi Arabia and other Persian Gulf countries particularly in the aftermath of 9/11.

The countries geographically on India’s west comprising of Iran, Fertile Crescent, North Africa and Persian Gulf countries are considered to be West Asia in the map of India’s foreign policy. Though India has historical connections with this region (5000 years old), the congruence of policy interest has resulted in the consolidation and diversification of political and economic relations of India and GCC countries. The Indian approach also extends this “Look West”

policy to incorporate Central Asian countries as well. The traditional bilateral relations between India and GCC countries has seen a new impetus in the framework of the changed international scenario and driven by mutual

interest at the policy level. This is refl ected in the enhanced bilateral trade and commerce and has created a win-win situation for both the sides.

Western Triggers for West Asia LEPThe American invasion of Iraq, the ‘war

on terror’, the weakening of United Nations, the economic recession, the subsequent fl uctuation in the oil prices, the unprecedented food crisis in the world and the Euro-Dollar crisis has forced the growing Asian economy to restructure its outlook towards the outside world. Moreover, India realised that her unending aspiration to be a member of UN Security Council could be materialised only through its strong bondage with the powerful regional powers like Iran, Saudi Arabia, South Africa, Brazil, Russia, China etc. It is in this context that the head of governments of both Iran and Saudi Arabia were the chief guests for India’s Republic Day parade in 2003 and 2006 respectively.

India’s diplomatic orientation in West Asia was determined by a combination of factors including energy needs, remittances, strategic alliances and religious considerations. India’s West Asia policy operated on political,

The American invasion of Iraq, the ‘war on terror’, the

weakening of United Nations, the economic recession, the subsequent fluctuation in the oil prices, the unprecedented food crisis in the world and the Euro-Dollar crisis has forced the growing Asian

economy to restructure its outlook towards the

outside world

60 • India-GCC

ideological and moral terms based on the underlining principles of non-alignment, support for national liberation struggles and the bondage between Asia, Africa and Latin America till the end of the Cold War era.

Post-Cold War Period EconomicIn the post-Cold War period economic,

energy security related issues have taken precedence over moral and ideological considerations. The major strategic shift in the India-West Asia policy was during Narasimha Rao led Congress government in 1991 when the world politics was entering a new era of American hegemony on world politics and the subsequent emergence of other power centres like European Union, China etc.

The compulsions of the new political realities gradually treaded India away from the Nehruvian socialism, non-alignment and anti-imperialism towards economic liberalisation and moved closer to the US. Henceforth the US factor played a major role in influencing India’s foreign policy orientation. This brought Israel into the core of India’s West Asia policy orientation. Within West Asian countries India’s focus has not been uniform to a particular country and has seen changes in its focus. Initially Egypt, Palestine and Iraq were the focus of India’s foreign policy and later India’s West Asian policy was reoriented towards Israel, Iran and Saudi Arabia.

Historically the West Asia region has always been a comfortable neighbourhood

to the Indian subcontinent. The NDA government operated on a tripartite axis between India-Israel-US, but the United Progressive Alliance – I (UPA – I) government made a strategic shift by adopting ‘Look West policy’ in 2005. In July 2005 Prime Minister Manmohan Singh in a meeting of Prime Minister’s Trade and Economic Relations Committee collectively encouraged the cabinet to pursue the “Look West” policy and kick start India- GCC free trade agreement talks and comprehensive economic agreements with all the GCC countries. In this meeting Manmohan Singh stated that “The {Persian} Gulf region, like South Asia is a part of natural economic hinterland. We want to pursue close economic relations with

all our neighbors in our wider West Asia neighbourhood.”

Strategic relevance of GCC to IndiaStrategic relevance of the GCC countries to

India is to be seen within the wider framework of strategic geographic and economic terms. The GCC is a capital rich region that needs to invest abroad while India is a capital deficient regional power that needs investment. Since 2004 the bilateral engagement has also gathered momentum in terms of high level visits, signing of various MoUs and a remarkable growth of Trade and Commerce between India and GCC. Indian Prime Minister Manmohan Singh visited Qatar and Oman in 2008 and Saudi Arabia in 2010. During his visit in February-March 2010, he signed the most significant Riyadh Declaration with the Saudi King Abdullah bin Abdul Aziz. Indian Vice President Hamid Ansari also undertook a high level visit to Kuwait in April 2009 and signed significant agreements in the field of education, science and technology and cultural exchange programme. Later in November 2010, the then Indian President Pratibha Singh Patil visited UAE and urged the UAE government to invest in the Indian infrastructure.

The GCC States (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) is a major economic hub and key global supplier of hydrocarbon in the world. It contributes 42 percent and 24 percent of the

The compulsions of the new political realities

gradually treaded India away from the Nehruvian socialism, non-alignment

and anti-imperialism towards economic liberalisation and

moved closer to the US

world total oil and gas reserve respectively. India and the GCC states have evolved greatly to touch almost the $20 billion mark in non-oil trade while the oil trade amounted to about $26 billion in 2005-2006. According to the Department of Commerce, Government of India, the total trade between India and the GCC countries for the years 2008-2009 stands at $91.63 billion with total imports of $59.5 billion and total exports of $32.13 billion. The bilateral trade could exceed $130 billion by 2014. Moreover, Indians comprise the largest expatriate community in the Persian Gulf region contributing 35 percent of total inward remittances.

Geo-political churnings in West Asia The GCC countries too, as part of their

‘look east’ policy, are looking for non-Western economies to invest their surplus funds and they are also keen on diversifying their petroleum-based economies by moving into the knowledge industry. It is here that India becomes a natural choice which can play a leading role given its leadership in information technology and skilled manpower. The GCC investment in India has significantly increased in the last few years and is now estimated at $125 billion.

The geo-political churnings in West Asia including strains in the US-Saudi relations in

the aftermath of the 9/11, the war on terror by US led allies has led to some reorientation in Saudi’s foreign policy.

American rhetoric of democracy and the regime change in the Persian Gulf States and its subtle attacks on the Saudi royal family for latter’s alleged involvement in mobilising funds for terrorist outfits have altered the pro-Western perceptions of Saudis to a great extent. Moreover, the fastest economic growth in India and China and the emerging Asian market marked a significant change in the Saudi’s foreign policy towards Asia. It is in this backdrop one should analyse the look east policy of Saudi Arabia and King Abdullah’s historic visit to India and China in 2006. India has reciprocated each gesture by looking west towards West Asian countries.

Signing of the Delhi Declaration in 2006 during the King’s visit gave new impetus to the development of increased understanding and cooperation between India and Saudi Arabia. The declaration stressed on two major issues, energy security and terrorism along with the commitment to work closely in various aspects like health, research and education, IT, agriculture, sports, pharmaceuticals and so on.

Saudi Arabia can be instrumental in providing a platform or a say in Organization of Islamic Conference (OIC), considered

important by India which has the second largest Muslim population in the world. India’s Vice President Hamid Ansari considers an ‘incremental interaction’ with the OIC better for India and that India requires the active support of leading West Asian countries.

Bilateral trade & FDIBilateral trade was facilitated by making

necessary changes in the laws like granting long term multiple entry visas, ratification of Bilateral Investment Promotion and Protection Agreement and agreement on Trade route security and bilateral investments were encouraged and strengthened. Today more than 49 Saudi companies are engaged in joint ventures in India. India is the fourth largest trading partner of Saudi Arabia with a bilateral trade of more than $25 billion. Indian companies are the fifth biggest investors in the country. The Saudi government has promised India an uninterrupted supply of oil for next two decades on “evergreen long term contracts.”

One of the leading FDI investors in India is Saudi Arabia. During 2004-05 to 2007-08 Saudi Arabia had $21.55 million in FDI joint ventures in India. Saudi Arabia is also among the major FDI investing countries in India, it has invested `422.1 million during August 1991 to December 1999 and `690.71 million during January 2000 to August 2008.

It is estimated that more than 3,300 Indian companies have set up manufacturing units or opened local offices in UAE. Some Indian educational institutions are opening fully fledged campuses in medical, engineering and management education. In Sharjah, during the last six to seven years, about 500 Indian firms in diverse verticals have discovered the Hamriyah Free Zone (HFZ) as an ideal place to expand their overseas operations. UAE has emerged as the second largest market for Indian products.

ConclusionIn the last five years many dignitaries

visited GCC countries including the past President Pratibha Singh Patil, Prime Minister Dr Manmohan Sing, the then and current Finance Minister P Chidambaram, former External Affairs Minister Pranab Mukherjee, Deputy Chairman of Planning Commission Montek Singh Ahluwalia to strengthen both political and economic relations. All these efforts have made India the number trade partner of GCC. Indians are the number one expatriate community in every country of GCC and sent an estimated annual remittance of over $32 billion. India-GCC relationship has a turnover of $180 billion and over half-a-million Gulf nationals visit India every year which has excellent air connectivity.

Dr Khurshid Imam is Assistant Professor at Center of Arabic and African Studies, Jawaharlal Nehru University.

62 • India-GCC

India-GCC• 63

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66 •India-GCC

Opportunities in GCC Education MarketBy Anusua Diya Chowdhury

Economists have predicted that despite the global economic recession that has slowed many an economy, GCC’s

collective economic expansion will continue. The GCC economy is currently worth well over a trillion dollars and this is expected to reach $2 trillion by 2020. Non-oil growth sectors will play a sizeable role in fuelling this growth.

Driven by high oil-prices, the GCC states (Saudi Arabia, UAE, Kuwait, Qatar, Oman, and Bahrain) are rapidly engaging in ambitious investment plans to diversify their economies away from the dependence on oil revenues and are meeting the needs and aspirations of growing and fast-changing populations. Education is one such area where the interest and the subsequent growth have indicated a social perception change in regards to primary, secondary and tertiary education in the GCC region. Coupled with the investment opportunities that brought many an off-shore school, university and training entities to these desert shores, perception in regards to private school have boost education quality and availability. Parents play a significant role in accepting private enrollments as a hallmark of quality education for their wards. Other than this, a sizeable expatriate community in the

GCC region has created the need for schools that can cater to the Diaspora children.

The GCC region’s economic expansion is a mark of the investments that it allows across several sectors. As a result, investors in the Middle East looking to add to their regional portfolio may want to consider buying into a private education firm in Saudi Arabia. According to a new study by Booz & Company, A Decade of Opportunity: The Coming

Expansion of the Private-school Market in the GCC paid annual tuition fees for private schools in the Arab Gulf will more than triple to almost $17 billion by 2020.

GCC Education SectorThe GCC education sector is on a growth

trajectory. Alpen Capital, in its survey on GCC education market in 2010 noted, “the industry is poised for unparalleled and consistent growth propelled by increased private sector participation, rising education needs in the region as well as government initiatives to improve the education system. The governments in the region display political will and strong intent to create infrastructure and promote innovation. The governments

The GCC region’s economic expansion is a mark of the investments that it allows across several sectors. As a result, investors in the

Middle East looking to add to their regional portfolio may want to consider buying into a private education firm in

Saudi Arabia

There is high unemployment in the Middle East, particularly among young people with inadequate education. The primary reason for this is a skills mismatch. More than a quarter of respondents highlight the need for improving the current education system and providing high-level cognitive and behavioural labour skills.

India-GCC• 67

have initiated various policies and regulations to attract higher private sector participation. The growing need for quality education and commitment by the governments throws up a number of investment opportunities within this sector.”

Based on this observation a subsequent study of the education market in 2012 suggested that “the GCC member nations have identified sound educational systems as being the cornerstone of economic progress and taken several initiatives aimed at improving the quality (and quantity) of education over the last two decades. As a result of the governments’ thrust, the region has witnessed a marked improvement in the quality of education.”

Furthermore, as part of education sector reforms, the GCC region witnessed an increase in public expenditure on the sector. Government spending on education, as a percentage of total government expenditure, across the Middle East and North Africa (MENA) region increased from 12.7 percent in 1985 to 19.3 percent in 2008 (see Table 1). In the UAE, this percentage increased significantly from 10.4 percent in 1985 to 27.2 percent in 2008; while it increased from 10.1 percent to 19.3 percent in Saudi Arabia during the same period. Though public spending on education in Oman was in line with the MENA region average between 2000 and 2005, it was significantly higher in 2006 at 31.1 percent.

The total students in the region are expected to grow from 9.5 million in 2010 to 11.3 million in 2020 at a CAGR of 1.8 percent. The number of tertiary students is expected to witness the highest growth during this period, as education awareness grows and participation in private sector jobs also rises. Moreover, at primary and secondary education level, enrollment in private education sector is also estimated to experience an increase. It expects to grow from 1.3 million students in 2010 to 1.9 million students in 2020, at a CAGR of 3.3 percent during the period (Alpen Capital 2010). As the total students in the region increase, we expect requirement of around 163,200 more teachers in 2020, compared to 2010 level. This also includes requirements due to attrition and retirement of teachers at 6.5 percent per year.

Demand for Schools: Increasing number of students and teachers will lead to an increase in the demand for additional schools and colleges. Total schools requirement is estimated to grow from 49,500 in 2010 to 55,700 in 2020, with share of private sector schools expected to rise from 11 percent to 14 percent during the same period. This provides investment opportunities for the private sector to take advantage of the need for quality education.

The GCC region governments are undertaking various reforms to improve education quality in the region. They have set-up various regulatory agencies such as Dubai School Councils to monitor the education quality of schools and colleges in the region, as well as, train teachers in tandem with global education standards. They are also promoting education of children with special needs.

Besides these trends, Information and Communication Technology (ICT) implementation in the education sector is also

Source: World BankNote: As per the latest data provided by World Bank. Data for Qatar, Kuwait, Oman and UAE pertains to 2005, 2006, 2006, and 2009 respectively. For all other countries/regions, data pertains to 2008

Exhibit 1: Government Spending on Education as % of Total Government Expenditure

68 •India-GCC

rising. Apart from introducing ICT as a new academic subject, courses are being developed to include computer programming and computer engineering. For instance, the UAE government has introduced several computer-training initiatives such as International Computer Driving License (ICDL) and IT Education Project (ITEP).

Demand for Higher Education: As the quality of higher education across the GCC region is still not on a par with standards in developed nations and some emerging economies; and, a shortage of skilled teachers are the weak links between the higher education market and the labour market. This is one of the primary reasons why students from this region study abroad. Taking cognizance of the problem, most of the GCC nations are inviting foreign universities to open campuses in their countries and private colleges across the region and are also seeking partnerships or affiliations with international institutions. This will drive the demand for a rather underdeveloped private higher education in GCC.

The demand for higher education is not just within the GCC region, but students from foreign countries are increasingly enrolling for education here. Enrollments by foreign students have been steadily increasing in the private higher education sector because the GCC region offers good job opportunities for graduates with strong qualifications, which encourages students from the Middle East, North Africa and less developed nations in Asia to migrate to the region. Countries like the United Arab Emirates (UAE) and Qatar are the most popular among overseas students.

Regulation & Policy Barriers to Education Investment

The education market in GCC is fragmented. It is marred by a shortage of qualified teachers; problematic access to land; lack of scale and professional management; difficult financing environment; lack of public information; and opaque regulations. Enrollment in private schools is currently split largely along lines of nationality, due in part to language barriers but primarily to government statutes that capped the number of expatriates in public schools and barred some nationals from attending private schools with international curricula. As a result, public schools in the region are overwhelmingly attended by national students whereas private schools primarily serve expatriate students. In Saudi Arabia licenses to run higher education institutes are not provided to overseas operators. Instead, overseas players have to enter into management contracts with local Saudi education providers, to participate in the sector.

The Booz & Company report makes some startling observations on government regulatory reform. It says that current regulatory systems create “a degree of ambiguity that has kept many sophisticated, international investors from pursuing opportunities within the region. Importantly, they have prevented some local entrepreneurs from investing in education,” adding, “this may be largely an issue of marketing and perception, governments must

take steps to ensure that regulations are clear, stable, and consistently applied, and that all market participants are able to compete on an even footing.”

It goes on to cite that regulators must provide clarity surrounding property own-ership requirements and zoning. Past attempts to support school operators through the creation of real estate free zones for schools-while well-intended-may have actually damaged the market, by relegating schools to inconvenient geographic locations. Many private schools today are clustered in these zones, far from any residential neighbourhoods, which forces some students to travel several hours between home and school. It emphasises that “education authorities should improve their coordination with urban planning agencies to ensure sufficient quantity, location, and size of plots for education use early in the master planning process.”

Other key concerns cited by Booz & Company are for governments to consider the need to balance consumer needs with operators’ right to increase revenue; as also take extra caution to avoid steps that could undermine the trust of the market. These steps include decisions that can be interpreted as preferential treatment of any party on the market, or rapid changes in key policies.

Change as it HappensYet, a change is taking place. Driven

personal aspirations of GCC nationals, governments are taking a step forward to draft investment friendly policies.

The Saudi Ministry of Higher Education has directed Saudi universities - except for colleges of health - to allocate about 10 percent of their seats to expatriate students residing in the kingdom, according to a report in the local Arabic daily Al-Watan.

The Alpen Capital report also noted some major upcoming higher education projects, including the future establishment of three colleges of Kuwait University City, the UAE-based New York University by 2014 and Qatar-based Northwestern College of Media and Communication by 2013.

Each of the stakeholders in the GCC education system - governments, investors, and operators - has a significant role to play in realising the educational and business potential of the region’s private schools.

Private schools (K-12)Currently valued at $2.8 billion with

private sector enrollment growing at 10 percent, the UAE is among the GCC’s largest education sectors. With Western branded higher education institutions in the UAE growing at 18 percent per annum and UAE parents increasingly favouring international curricula at school level, the opportunities for Western branded schools to outperform the market is significant. This combined with a turnover of $160 million among schools offering Indian curricula and growing demand from South Asian parents sees the UAE education sector ripe for investment. The market size of the private education sector in the KSA and UAE reached $3.5 billion

in the K-12 sector and $1.2 billion in the Higher Education segment according to The Parthenon Group.

The GCC countries are undergoing major reforms across their K-12 education systems. Currently, international assessments such as the Programme for International Student Assessment (PISA) and Trends in International Mathematics and Science Study (TIMSS) indicate that student outcomes in the region fall below international averages, with comparatively high per-student spending compared to other markets. The task of transforming national educational systems to achieve quality in a cost-effective manner will require substantial resources of capital and talent. Private schools can play a key role in K–12 reforms: By increasing student capacity, and enhancing their operational and management capabilities in order to deliver quality education at a fair price, private schools can ease the strain on increasingly overburdened public education systems.

In the next decade, the private-school market in the GCC could undergo a radical and beneficial change, driven by demographic changes, new regulations, and other factors that will increase both the size of the market and the quality of private education throughout the region. This presents a substantial opportunity for all stakeholders. Investors will be able to finance projects with solid growth projections. Education operators in the region will be able to develop economies of scale, increase their financial performance, and develop new comprehensive education solutions to serve children of different backgrounds and expectations. Education ministries and other regulators will more efficiently attract private capital to improve the quality of education in their respective countries.

Investing in Private EducationTo capitalise on this opportunity, however,

stakeholders will need to overcome several challenges. The private-school universe in the GCC is generally fragmented, and most of the schools are stand-alone entities, owned and operated by individual investors. Because they operate in such a diffuse market, schools lack the efficiencies that would come with greater consolidation. In addition, potential new entrants have difficulty accessing suitable land for construction, debt capital for financing, and qualified teachers for their operations. Schools vary widely in quality, ranging from well-established world-class institutions to substandard entities operating in residential buildings. Furthermore, the regulatory systems of the GCC countries are in many cases burdened with a legacy of bureaucracy and lack of transparency.

Overcoming these challenges requires actions from all stakeholders. Governments need to focus on reforming the regulatory system, providing market information; ensuring operators have access to land, and facilitating access to capital. Investors and operators, in turn, should engage regulators in a dialogue, consider consolidation opportunities, and tailor their value propositions to meet the specific needs of GCC parents and students.

India-GCC• 69

According to Sammon Group, which builds educational construction projects, 6,200 schools will be needed across the region to accommodate its future student population. The Parthenon Group, in their report on K-12 and higher education in the UAE and Saudi Arabia have estimated investment opportunities in regional K-12 could near $3.5 billion in 2012, and $1.2 billion in the higher education sector. The Booz report meanwhile suggests that population increases and a lack of quality in government schools will push more students into the region’s private education sector.

India Opportunity in GCC Education Market

According to the Booz & Company study, Asian schools as a group cover a range of Indian, Pakistani, and other Asian curricula. They cater almost exclusively to the needs of expatriate populations from their respective countries and operate almost exclusively in the lowest quartile of the tuition fee range. This segment comprises three distinct subsets. The first is well-established respected community schools operating on a nonprofit basis. The second is large and professionally managed for-profit schools. The third is small, profit-oriented enterprises operating in residential villas.

The large number of Indian expatriates has led to the mushrooming of several Indian schools across the Gulf as early as in the 1970s. Today, close to 125 Central Board of Secondary Education (CBSE) affiliated schools operate in Kuwait, Qatar, Oman, Saudi Arab, UAE and Bahrain. Most of these are private enrollments and have continued to grow in enrollment and branch volume. The number of Indian schools run into a large numbers, with Kuwait at 19 schools, Bahrain and Qatar at seven, Oman at 16, Saudi Arabia and UAE (over 20).

The private sector enrollment in the UAE, valued at $2.8 billion, is among the GCC’s largest education sectors growing 10 percent annually, according to another research by Parthenon Group. “With Western-branded higher education institutions in the UAE growing 18 percent per annum, and UAE parents increasingly favouring international curricula at the school level, the opportunities for Western-branded schools to outperform the market are significant,” Parthenon Group said in its report.

This, combined with a turnover of $160 million among schools offering Indian curricula and growing demand from South Asian parents, makes the UAE education sector ripe for investment. The study identified $5 billion worth of investment opportunities in education in the UAE and Saudi Arabia alone.

towards private education and a preference for international and mixed curriculum schools because students choose education in English at both the secondary and tertiary levels.”

GEMS Education, one of the foremost education enablers in the GCC has announced plans to open 10 new schools in the UAE over the next two years to meet growing demand and quality targets set by the authorities in the UAE. The new state of the art education facilities will accommodate 33,000 students in total and will be located in Dubai, Abu Dhabi and Ras Al Khaimah. The new schools will have British, Indian, International Baccalaureate, American and dual curriculums and will include a range of different fee levels as well as a Leadership Academy and Teacher Training Centre in Dubai. This expansion plan is pegged at $650 million and will see establishment in the MENA region too.

Bits Pilani, SP Jain Business School, IGNOU, Pune University, Manipal University

and several other universities are establishing study centres in the GCC region. Not just this, Indian School Muscat has become a centre for Joint Entrance Examination (JEE), formerly known as AIEEE, for students seeking admission to engineering colleges in India.

Sources: http://www.booz.com/media/uploads/BoozCo-Private-School-Expansion-GCC.pdf; http://www.universityworldnews.com/article.php?story=20120704111415121; http://www.edulink.ae/news.asp?NewsID=41&Type=News&SubLink=News%20and%20Events; http://gulfnews.com/business/features/education-is-big-business-1.948323; http://indiandiaspora.nic.in/diasporapdf/chapter3.pdf; http://www.alpencapital.com/downloads/GCC%20EDUCATION%20REPORT.pdf

Private schools have historically fared better than public schools in English and mathematics tests

Karan Khemka, Partner and Head of the Emerging Markets Practice at the Parthenon Group, says, “We identified several segments of the market that see exponential growth, while other segments might already run at full capacity. There is a clear trend in the region

Qatar Private Schools Outperformed Most Public School on the 2009 PISA Exam

The Private-school Market is Differentiated by Curriculum Groups and Price Points

Source: Booz & Company

J.K. Cement Ltd is an affi liate of the multi-disciplinary industrial conglomerate J.K. Organisation which was founded by Lala Kamlapat Singhania. For over three decades, J.K. Cement has partnered India’s multi-sectoral infrastructure needs on the strength of its product excellence, customer orientation and technology leadership

The Company has over three decades of experience in cement manufacturing. Our operations commenced with commercial production at our fi rst grey cement plant at Nimbahera in the state of Rajasthan in May 1975. Subsequently the Company also set up 2 more units in Rajasthan at Mangrol and Gotan. In the year 2009 the Company extended its footprint by setting up a green-fi eld unit in Muddapur, Karnataka giving it access to the markets of south-west India. Today J.K. Cement has an installed grey cement capacity of 7.5 MTPA making it one of the leading manufacturers in the country.

The Company’s pioneering foray into White Cement in the year 1984 at Gotan, Rajasthan created a new chapter in the history of J.K. Cement. J.K. White Cement Works was the fi rst White Cement facility in India, which was limestone based, and manufactured Cement through the dry process. The plant was set up with an initial production capacity of 50,000 tons. Over the years, continuous process improvements & modifi cations have increased the production capacity to 400,000 tons per annum making it the second largest manufacturer in the country. J.K. White Cement also enjoys demand in the export market including countries like South Africa, Nigeria, Singapore, Bahrain, Bangladesh, Sri Lanka, Kenya, Tanzania, UAE and Nepal. J.K. White Cement Works is accredited with ISO - 9001 and 14001 certifi ed Company by LRQA. Further, the plant is also OHSAS 18001 (for safety and environmental upkeep) accredited.

The Company also has a fully automated plant of White Cement based Wall Putty having a production capacity of 3 lac tons per annum making it the second largest manufacturer in the category.

J.K. Cement was the fi rst Company to install a captive power plant in the year 1987 at Bamania, Rajasthan. J.K Cement is also the fi rst cement Company to install a waste heat recovery power plant to take care of the need of green power. Today at its different locations, the Company has captive power generation capacity of over 100 MWs.

The Company is gearing up to make its fi rst international foray with the setting up of a green-fi eld dual process white cement-cum-grey cement plant in the free trade zone at Fujairah, U.A.E to cater to the GCC and African markets. The proposed plant at Fujairah will have a capacity of 0.6 million tonnes per annum for White Cement with a fl exibility to change over its operation to produce upto 1 million tonnes per annum of Grey Cement.

As a part of its new initiatives, J.K. Cement is planning Brown fi eld expansions of 3 MTPA. An integrated plant at Mangrol, Rajasthan having a capacity of 1.5 MTPA and another at Jhajjar, Haryana with a split grinding unit producing 1.5 MTPA.

Backed by state-of-the-art technology, access to the best quality raw materials and highly skilled manpower against the backdrop of India’s infrastructural growth in an overdrive, we are upbeat about the future. Superior products and a strong Brand name, an extensive marketing and distribution network and the technical know-how represent the Company’s abiding strengths.

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72 • India-GCC

The Link between Indian Diaspora & Outsourcing in the Online Labour MarketEvidence from oDesk

Diaspora-based exchanges have been important for centuries, but the online world reduces many of the frictions these networks solved. A recent study conducted by Ejaz Ghani, William R Kerr and Christopher T Stanton investigates the importance of Indian Diaspora connections on the oDesk platforms for outsourcing. The study, Diasporas and Outsourcing: Evidence from oDesk and India, found strong links between Diaspora and the influence on economic exchanges and establishes its use by the Diaspora as familiarity with the platform increases. It also goes on to establish that with the evidence found on the oDesk platform, the role of Diaspora networks should not be overstated, as such connections were clearly not a driving force in India becoming the top destination for oDesk contracts.

oDesk has increasingly found popularity in the online labour market, processing $30 million per month in contracts (May 2012 data). oDesk, founded in 2005, provides an online platform for companies to post job opportunities. Workers worldwide can bid on these opportunities and workers build public profiles of their past performance on contracts. Odesk provides tool that aid companies in interviewing, monitoring, and paying workers selected for outsourced jobs. The oDesk website says that 2.45 million registered contractors use its services, with 790,000+ jobs posted in the first half of 2012.

Study StructureThe study was undertaken with a view that

ethnic connections and the an integrated world economy allow some countries to leap-frog traditional development stages, even though substantial improvements in connectivity and reduced frictions of the Internet may reduce the importance of Diaspora connections. Today, India is the largest country destination for outsourced contracts with more than a third of the worldwide volume. The study investigates the role of the Indian Diaspora in countries around the world for this performance using both descriptive and analytical techniques. A key feature of the data development identifies company contacts located anywhere around the world who are likely of Indian ethnicity using ethnic name matching procedures. For example, individuals with the surnames Gupta, Desai, Kumar, Sharma and Singh are more likely to be of Indian ethnicity than individuals

with the surnames Ming or Hernandez or Johnson. However, certain names overlap across India, Pakistan, Bangladesh etc and other ethnicities (eg: D’Souza in the Indian context due to past colonisation). To be noted here is the practice at oDesk that does not collect a person’s ethnicity or country of birth. Thus, the study used the names of company contacts and workers to probabilistically assign ethnicities.

The study assesses the role of the company contacts to which it made ethnicity assignments. The company contract is the individual within the firm that is undertaking the hiring and paying for the service. It turned out good for the study as it evaluated the role of ethnic connections in outsourcing decisions, and this structure illuminates the person within the larger firm making the hiring choice. There is a limitation, however, in that oDesk does not link these individual company contacts

India-GCC• 73

into larger firms. Thus, multiple points of contact are separately listed in the data for larger firms. This structure limits the study’s potential to describe the firm size distribution on oDesk, but for most applications this has limited consequence.

Descriptive Features The data used here was analysed between

2005 and 2010. Geographica l d i s tr ibut ion and

Contracts: Geographical distribution of the top 20 countries outsourcing work to India on oDesk was analysed for the study. These being: United States, Australia, United Kingdom, Canada, UAE, Netherlands, Germany, France, Ireland, Spain, Italy, Sweden, Israel, Belgium, Switzerland, New Zealand, Singapore, Denmark, Norway and Hong Kong. The US is by far the largest source of oDesk contracts going to India, with 31,261 contracts over the five-year period. A majority of all contracts on oDesk originate from the US. The distribution of contract counts has a prominent tail. The US is followed by Australia, the United Kingdom, and Canada, which combined equal about a third of the US volume. Spain, the 10th largest country in terms of volume to India, is responsible for 269 contracts, which is less than one percent of the US volume. Hong Kong, the 20th largest source, accounts for 125 contracts. Contracts to India represent a 29 percent share of all contracts originating from the United States and a 33 percent share of cross-border contracts. Across the top 20 countries, India’s share of a country’s contract total volume ranges from 18 percent in Switzerland to 55 percent in the United Arab Emirates (UAE). The UAE is responsible for 989 contracts to India, and India’s 55 percent share of contracts originating from here (UAE) is 17 percent higher than the next highest share of 39 percent for Italy.

Suggested Propensities to Contract: The composition of the countries and their relative propensities to contract with India provide some suggestive insights about the traits of countries outsourcing work to India. First, distance to India does not have a visible role like it would in many international exchanges, reflective of the online labour market platform. Second, most of the countries in the top 20 have high income levels, perhaps indicating stronger potential cost savings from outsourcing to India. Third, it is noticeable that most of the top countries have large Indian Diaspora populations, but there could be other factors that explain this association (e.g., English language proficiency). For the United States, 3.9 percent of all company contacts who use oDesk are ethnically Indian, while the share is 4.6 percent for outsourced work to India. Beyond the 3.9 percent share of US company contacts that use oDesk, ethnic Indians account for 4.6 percent of outsourced work to India from the United States.

The descriptive data suggest a special role for Diaspora connections in sending work to India. Ethnic Indians in the United States only account for about five percent of all of the nation’s outsourced work to India. The average across the top 20 countries is seven percent,

falling to three percent when excluding the UAE. While ethnic Indians are more likely to send work to India, the rise of India to be the top worker country on oDesk has much broader roots than Diaspora connections. With online platforms, Diasporas still matter, but the bigger message may be that they matter much less than they likely did in the past for commencing trade or similar exchanges.

Wages: The average wage paid by companies in the United States on contracts to India is $8.30 per hour. The highest observed average wage is $10.90 per hour for Spain, the lowest is $4.60 per hour for New Zealand, and the average over the top 20 countries is $8.40. As the average wage on oDesk for data entry and administrative support jobs is below $3.00 per hour, the contracts being outsourced to India represent relatively skilled work that involves programming and technical skills. The correlation of India’s share of total contracts originating from country (top 20 mentioned) and average wage in US dollars paid on contracts with worker in India is 0.5, indicating that countries sending more of their work to India are also paying higher average wages. The correlation of share of company contacts hiring with Indian ethnic name and

average wage in US dollars paid on contracts with worker in India is 0.2, indicating that greater ethnic Indian involvement in placing work into India is correlated with higher average wages.

Observations: US-based companies; the 12 largest company contacts in terms of outsourced work to India accounted for 708 of the United States’ 31,261 contracts to India during 2005-10 period. There is substantial heterogeneity in the geographic location of these 12 companies and the degree to which they typically utilise India for outsourcing. The largest US company contact sponsored 118 contracts, is located in Virginia, and 100 percent of the company’s contracts have gone to India. In contrast, the third largest company contact is located in Florida, with 73 contracts to India that represent only 26 percent of the company’s total contract volume. This company contact footprint is thus very dispersed, with the largest company contact accounting for only 0.4 percent of the United States’ outsourced work to India, although on absolute counts the company contact is comparable to the total volume originating from Hong Kong. Finally, only one of the 12 company contacts is of Indian ethnic origin.

The study notes at several points the exceptional performance of the UAE: it ranked fifth on the overall country list, sent half its contracts to India, and over 90 percent of its company contacts were of ethnic Indian origin. This in large part is due to a single company contact that accounted for 906 of UAE’s 989 contracts to India. This one company contact sent more work to India than the sum of the 12 largest company contacts in the United States! The company is the work of an entrepreneur who uses oDesk for placing and managing outsourcing work. The entrepreneur is of ethnic Indian origin, and much of the work is placed into India. The 906 contracts facilitated by this individual alone are responsible for the UAE’s fifth-placed ranking, and this company contact accounts for 2.4 times as many contracts as the Netherlands, the sixth-ranked country. This proves a very important aspect of the study: Studies of Diaspora networks have speculated about the likely concentrated importance of single, and oDesk provides some of the first quantifiable evidence of this concentration.

The next largest company contact sent 68 contracts to India, 36 percent of total company’s contract volume, and was located in the United Kingdom.

Hiring: The study emboldens the fact that ethnic Indians disproportionately hire workers in India, but that Diaspora connections represent a small share of the contract volume between India and the rest of the world. There are 109,722 contracts originating from the United States, and 93,422 of these contracts involve hiring a worker abroad. Ethnic Indians formed 3,516 contracts with workers abroad, of which 1,358 (38.6%) of these contracts involved a worker in India. Company contacts in the United States not of Indian ethnic origin formed 90,906 contracts abroad, with 29,716 (32.7%) contracts outsourced to India.

Skills Vs Salaries: Companies tend to send relatively skilled jobs to India, in line with the higher salaries. The job types in order of salary provided the baseline point of comparison. Administrative support, the lowest skilled task according to average wages, makes up 21 percent of the contracts originating from the United States. Sixteen percent of the contracts that ethnic Indians send abroad are for administrative support jobs, but only 11 percent of the jobs that ethnic Indians send to India involve administrative support. Similarly, 21 percent of the contracts that non-Indians send abroad involve administrative support, but only 10 percent of the contracts sent to India by company contacts of non-Indian ethnic origin involve administrative support. A similar pattern holds for non-American companies.

Type of Work: Much of the work sent to India is technical in nature. Among ethnic Indians in the United States, web development makes up 42 percent of the contract volume sent abroad and over 55 percent of the contract volume sent to India. Web development includes tasks like programming in Perl, PHP, Python, or Java, website database development, and user interface programming and implementation. This tendency to

Even with this increased likelihood of outsourcing to India, Diaspora connections played a very small role in India’s rapid development

on oDesk. For example, ethnic Indians account for 3.9% of oDesk company

users in the United States by contract volume, while 29% of outsourced contracts from the United States go to India

outsource skilled work to India is even more striking for non-Indians in the US who outsource 63 percent of their work to India for web development. The increased likelihood of observing high-end skills-based contracts is also evident for non-American companies, and is similarly extreme for non-ethnic Indians hiring in India.

Collected evidence indicate that ethnic Indians disproportionately select India as an outsourcing destination, yet there is not much evidence that these Diaspora connections shift the type of work being outsourced. Ethnic-based connections appear to follow along the competencies of India’s workers, and company contacts who are not of Indian ethnicity are also hiring at a rapid rate in India for technical tasks that require complex communication and project management.

Closing Observations• Ethnic Indians worldwide are more likely

to contract with India when outsourcing than other non-ethnic Indian company contacts. The increase in likelihood is about nine percentage points, or 32 percent, and it is most prominent for companies outside of the United States. This higher likelihood is evident in multiple types of contracts, including contracts involving companies with varied experience on oDesk and contracts at different points in time.

• Even with this increased likelihood of outsourcing to India, Diaspora connections played a very small role in India’s rapid development on oDesk. For example, ethnic Indians account for 3.9 percent of oDesk company users in the United States by contract volume, while 29 percent of outsourced contracts from the United States go to India. The magnitude of Diaspora-linked connections is too small to have accounted for much of India’s development on oDesk given the overall size of the platform.

• The higher likelihood for ethnic Indians outsourcing to India is increasing with time. This propensity is increasing as

company contacts develop experience on the platform. These patterns suggest that the higher propensity is not due to ethnic connections overcoming uncertain environments. Instead, utilisation of ethnic connections increases with familiarity, suggesting a longer-term complementarity between online platforms and Diaspora connections.

• Diaspora connections occur through the actions of many people in small ways and the extreme concentration of impact due to a few key people. The study documents a fairly broad footprint of Diaspora ties both across and within countries. It also shows how a single ethnic Indian outsourced such a high volume of work that this individual’s operations exceeded that of any country except the top four nations (UAE).

• Diaspora connections provide cost advantages to the company contacts sending work to India relative to the other contracts that these company contacts form on oDesk. On the other hand, the workers in India are paid wages that are typical on oDesk for the type of work being undertaken in India.

• In addition to these analyses that examine evidence on connections within the oDesk data, the study demonstrates how the broader Indian Diaspora in a country (measured as migrants from India as a share of country population) systematically connects to a greater ethnic Indian use of oDesk and a larger share of contracts being sent to India from the country. This background connects studies that consider Diasporas from a macro perspective (e.g., linking trade flows to Diaspora shares by country) with studies that consider micro evidence (e.g., that international patent citations are more likely on ethnic lines).

• As familiarity with a platform like oDesk grows, a longer-term complementarity between Diaspora networks and online tools that may aid the persistence of these networks also grow. The oDesk evidence also makes clear that the role of Diaspora networks should not be overstated. While they contributed to India’s success on oDesk, Diaspora connections were clearly not a driving force in India becoming the top destination for oDesk contracts.

Ejaz Ghani is the Economic Advisor in South Asia region at the World Bank. He may be reached at Eghani@worldbank.org. Christopher T Stanton is an Assistant Professor at Department of Finance, David Eccles School of Business, University of Utah. He may be reached at christopher.t.stanton@gmail.com. William R Kerr is an Associate Professor at Harvard Business School. He may be reached at wkerr@hbs.edu. This is a National Bureau of Economic Research Working Paper (NBER Working Paper No. 18474 I Issued in October 2012). For the unabridged version of the white paper, please visit: http://www.nber.org/papers/w18474 OR write to National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org.

74 • India-GCC

INDIA-GCC: Cultural ExchangeBy Pratiksha Srivastava

India and Gulf Cooperation Council (GCC), two of the world’s unique and powerful entities have been in the process of building a bridge of verve so far which can strengthen their cultural relations with each other. Initiatives have been taken by both the regions to promote each other’s culture, art and traditions. An exchange of art, culture and tradition is velouring a kind of recognition and warmth in both the regions. Recently, many such events took place which showcased and promoted the India-GCC cultural exchange.

Indian Films In GccThe most decisive cultural influence

of India in the GCC region is by and large Bollywood films. Movies have run to packed theatres and played over weeks to hold not just the audiences’ imagination, but of the film makers’ too. The Hindi feature film by late Yash Chopra - Jab Tak Hai Jaan, a Shahrukh Khan, Katrina Kaif and Anushka Sharma starrer movie rocked the theatres in Dubai. According to the report1, the film crossed the $4 million mark in UAE and GCC, making it the highest grossing film ever. The report says that the film has emerged as the third highest grossing Indian film of all times in the overseas circuit. And, it is still running successfully in the theatres in the gulf. However, according to another report2, a horror film- Raaz-3 by Indian director Mahesh Bhatt was ordered by the Government of Qatar and Kuwait, to be pulled out from the theatres due to some objectionable portion in the film. Mahesh Bhatt, expressing his disappointment on this, is willing to resubmit another version of the film.

The influence of Indian film industry on the people in GCC region can be measured through the report3, which states that Dubai is the second home for Bollywood. The report talks about 25 years old Arab singer Wiam Dahmani, who has grown up on Indian films, and can speak Hindi - the national language of India. This shows that it is not just the Indian expatriate population in the GCC region that has been the single base for Indian Cinema in the Gulf, but locals too that is an example of the cultural and ethical similarities between Indian and GCC region.

The Hindi films which have had the Dubai premiers include: Ready, Patiala House, Crook, Break Ke Baad, London Dreams, Karthik Calling Karthik, Jhootha Hi Sahi and Tees Maar Khan.

India And Gcc Endeavour The Admiration To Their Cultural Exchange

GCC has decided to hold a week-long cultural festival in India in 2014 to foster closer ties. Culture, Music and paintings would be displayed during the festival4. The main venue of the festival would be the capital city of India - New Delhi whereas there may be the possibility of taking the festival to some other cities of India namely: Chennai, Mumbai, Hyderabad and Bangalore. The secretary general of GCC, Abdul Rahman H Al-Aattiyah said that this step would help in strengthening

the ties between India and GCC. Also, both the parties are looking forward to organise a tourism promotional programme in future.

Qatar, a member of GCC, had always focussed to promote its art and culture in other countries. In a report5, it is mentioned that Qatar’s longstanding relations with the Indian subcontinent have had an impact on its cultural orientation especially the folklore and popular arts. Qatar’s art and folklore, like those of its fellow GCC countries, are characterised by diversity especially in the musical instruments like the Indian Drum; as stated in the report.

Sahebaan - a UAE based Urdu speaking Muslim community from Mangalore and Udupi districts of Karnataka organised a “grand social and cultural get-together” in Dubai as the report6 says. The famous Sufi singer Adil Hussaini performed in this event along with the maestros of Indian music like Pandit Shiv Kumar Sharma, Hari Prasad Chaurasia, Taufiq Qureshi, Ustad Sultan khan, Louise Banks, Strings, Talat Aziz, late Ghazal singer Jagjit Singh, Sonu Nigam & Shaan etc. Similarly, Indian television shows like Sa Re Ga Ma Pa provide an opportunity to the upcoming talent in the GCC countries to come up and perform in India. Such platforms

give a base and popularity to the young talent from the Gulf in India. Asma Mohammad Rafi al-Belushi, originally from Oman; daughter of a famous Balochi singer Mohammed Rafi al-Belushi, got her first chance to perform in India through the talent hunt show Sa Re Ga Ma Pa 2009 on Zee TV.

India and GCC with their uniqueness have been hand in hand since long in order to promote the cultural exchange through various events and programmes. Both the regions are progressing towards achieving a messianic goal to achieve a sustainable cultural cooperation from each other.Sources: 1. http://www.glamsham.com/movies/scoops/13/jan/14-news-shahrukh-khan-starrer-jab-tak-hai-jaan-resets-uae-gcc-records-011301.asp 2. http://dohanews.co/post/31117630526/qatar-other-gcc-countries-pull-bollywood-horror-film 3 . ht tp: / /art icles .economict imes. indiat imes.c o m / 2 0 1 1 - 0 8 - 1 4 / n e w s / 2 9 8 8 4 4 9 7 _ 1 _b o l l y w o o d - f i l m s - i n d i a n - f i l m s - h i n d i - f i l m s 4 . h t t p : / /www. f i nanc ia l expres s . com/news /gulf-cultural-festival-in-india-next-year/113950 5 . h t t p : / /www.ka tar-bo t scha f t . de /Eng l i sh /C u l t u re _ H e r i t a g e _ % 2 0 P o p u l a r _ A r t s . h t m 6. http://www.daijiworld.com/news/news_disp.asp?n_id=156593

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76 •India-GCC