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India-UAE Relations, Challenges and Opportunities

Context: Prime Minister Narendra Modi is scheduled to pay an official visit to the United Arab Emirates (UAE) which will include inaugurating a temple built by the Bochasanwasi Shri Akshar Purushottam Swaminarayan Sanstha in Abu Dhabi.

India and UAE Relations: An Insight

Economic and Trade Relations

  • Bilateral Trade: The trade between India and the UAE has grown to $85 billion in 2022-23, making the UAE India’s third-largest trading partner and second-largest export destination.
  • Comprehensive Economic Partnership Agreement: The India-UAE CEPA aims to boost trade in services to $115 billion within five years, reflecting the ambition to expand economic engagements.
  • Investment: The UAE is a significant investor in India, and the bilateral investment treaty signed in 2024 is expected to further enhance economic engagement, especially in manufacturing and FDI.
  • Fintech and Financial Cooperation: The RuPay card has been accepted in the UAE since August 2019, while from July 2023, the rupee was being accepted for transactions at Dubai’s airports.
    • India and the UAE also operationalised a rupee-dirham settlement system when, in August 2023, the Indian Oil Corporation made a rupee payment to the Abu Dhabi National Oil Company for crude oil imports.

Energy Security and Strategic Cooperation

  • Energy Security: The UAE is a key partner for India in energy security, with strategic oil reserves stored in India and collaborations in the energy sector.
  • Defence and Security: Defence and security cooperation are critical components of the relationship, with both countries collaborating on various fronts.

People-to-People Ties and Cultural Exchanges

  • Cultural and Religious Tolerance: The construction of Hindu temples in the UAE with support from the UAE leadership signifies the commitment to cultural and religious tolerance and harmony.
  • Community Engagement: A large Indian expatriate community in the UAE acts as a bridge between the two countries, contributing to their economic and cultural vibrancy.

Strategic Alignment and Regional Cooperation

  • International Groupings: Both countries collaborate in various international platforms, like the I2U2 (India, Israel, UAE, and the USA) and are involved in strategic projects like the IMEEC, aiming to connect India with Europe through the Arabian Peninsula.
  • Recognition and Honours: The exchange of civilian honours and invitations to key international forums like the G-20 summit reflect the mutual respect and recognition of each other’s roles on the global stage.

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Challenges and Opportunities

  • Regional Conflicts: The ongoing conflict in Gaza and other regional issues present challenges where India and the UAE can work together towards stability and peace.
  • Future Growth: Both nations recognize the potential for growth in their strategic partnership, with expectations of a stronger collaboration in the future.
  • Slow implementation of investments: The establishment of a $75 billion investment fund by the UAE for infrastructure projects in India, announced in 2015, has faced delays in finalizing the modalities and governance structure. This slow implementation hampers the realization of investment commitments.
  • Lack of clarity and transparency: Indian companies operating in the UAE often face challenges due to a lack of clarity in commercial regulations and labor laws. Additionally, a lack of transparency on the part of Emirati businesses adds to the difficulties faced by Indian companies.
  • Issues concerning the Indian diaspora: Indian migrants in the UAE face cumbersome and strict regulations, particularly in relation to Emirati employers. Problems such as favouritism towards workers of other nationalities and a slight drop in remittances inflow from the UAE to India have been observed.
  • Influence of the Pakistan factor: Historical and civilizational ties between India and the Gulf region are strained due to the influence of the Pakistan factor. Political relations are affected by tensions between India and Pakistan, which impact India’s relations with countries in the region.
  • Balancing geopolitics: India’s relations with Iran and the UAE’s relations with China create a dynamic where geopolitical considerations can sometimes challenge the bilateral relationship between India and the UAE.
  • Energy pricing disagreements: As an OPEC country, the UAE has a different perspective on energy pricing compared to India, a major oil consumer. Disagreements over energy pricing, including India’s call for a cap on prices, have led to heated exchanges between oil ministers in the past.
  • Air services agreement: India and the UAE have yet to renegotiate their air services agreement. The UAE seeks to increase the number of flights and destinations to India, while India maintains certain caps to protect its domestic airlines. This issue has been a source of contention between the two countries.

Addressing these challenges through dialogue, negotiation, and mutual understanding will be essential to further strengthen and deepen the India-UAE relationship.

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