The Middle East and North Africa (MENA) region stands out as a crucial remittance market, characterized by substantial financial exchanges driven by millions of expatriates. Major contributors include Saudi Arabia, UAE, Qatar, Kuwait, and Oman, which host numerous workers from India, Bangladesh, Pakistan, Philippines, and Nepal.

Historically, the economic ties between India and the Middle East have been dominated by energy sector transactions, with India as a significant importer of Middle Eastern oil. Recently, however, this relationship has diversified, encompassing investments in technology, infrastructure, real estate, and renewable energy, signifying increased confidence among Middle Eastern investors in the Indian economy.

Growth in Remittance Flows

In the fiscal year 2023-24, India received approximately USD 125 billion in remittances from the Middle East. The Gulf countries were the second-largest source of these inflows, following the US, the UK, and Singapore. Specifically, the UAE accounted for 18% of India’s total remittances, ranking as the second-largest source after the US. According to Forbes, strong labour markets and decreasing inflation in high-income countries of the West and Middle East have propelled the rise in remittance inflows to India. The forecast predicts an 8% increase in these inflows in 2024, potentially reaching USD 135 billion by year-end.

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Trade and Investment Dynamics

The trade and investment relations between GCC countries and India have witnessed substantial growth over the past decade. The significant remittance contributions by the Indian diaspora underscore India’s prominent role in the global remittance landscape. Despite this, Gulf investments in India face limitations due to business environment challenges like unclear land rights and cronyism. On the flip side, Indian investments have been crucial in driving growth in the UAE.

Shifting Investment Focus

Middle Eastern investors are shifting their focus from traditional sectors like oil and gas to high-growth, knowledge-driven industries. This transition is bolstered by the widespread adoption of digital payment solutions, which are revolutionizing the MENA remittance market by leveraging mobile and internet technologies to provide fast, secure, and cost-effective services.

India-UAE CEPA

The Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE, signed on February 18, 2022, and effective from May 1, 2022, is projected to significantly enhance bilateral trade. According to a Deloitte report, CEPA aims to boost trade in goods to over USD 100 billion and in services to over USD 15 billion within five years, covering a broad range of tariff lines and numerous service sectors and sub-sectors.

Key Focus Areas

Energy Exports: The GCC countries, particularly Saudi Arabia, UAE, and Qatar, are key suppliers of oil and gas to India, crucial for India’s energy security.

Non-Oil Trade: India exports textiles, machinery, chemicals, food products, and electronics to MENA while importing oil, petrochemicals, fertilizers, and other goods from the region.

Remittances’ Impact on Indian Economy: Remittances are vital for India, providing a significant source of foreign exchange and supporting many families.

Investments: MENA’s sovereign wealth funds and private companies invest in Indian sectors like infrastructure, real estate, energy, and technology. Conversely, Indian firms invest in MENA, focusing on oil and gas, construction, telecommunications, and retail.

Future Prospects

Future trade and investment flows in the GCC will be shaped by internal reforms, market dynamics, and external factors. The UAE and Qatar, recognized as emerging markets by MSCI, are spearheading the region’s outward investment initiatives. With regional GDP growth rates of 4-5%, increased consumer spending, and substantial infrastructure projects in Saudi Arabia, Qatar, and the UAE, the MENA region is well-positioned to attract global foreign direct investment (FDI) flows.

(By Tejas Patil, Founder, Arbour Investments, India’s leading investments firm for real estate)

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