Chronicle of the Middle East and North Africa

Middle East Reaps Gains from India’s Economic Boom

India's economic boom brings gains to the Middle East and opportunities for trade, investment, and geopolitical collaborations.

Middle East Reaps Gains
Saudi Crown Prince Mohammed Bin Salman stands next to Indian Prime Minister Narendra Modi. Money SHARMA / AFP

Ali Noureddine

This article was translated from Arabic to English

The countries of the Middle East, particularly those in the Gulf Cooperation Council and Iraq, are observing as India transforms into a prominent and rapidly expanding economic powerhouse.

Currently, India is often likened to the new China, emblematic of its evolution into a promising global industrial cornerstone. This dynamic unfolds vast possibilities for trade and investment collaborations between India and its neighboring economies, encompassing the Middle Eastern nations.

Moreover, Middle Eastern countries stand to seize a pivotal opportunity to increase their geopolitical significance and broaden their global economic engagements, capitalizing on the growth of the Indian economy.

A developmental miracle in India

India is undergoing a rapid and sustained economic upswing, attributed to its strategic public policies alongside pertinent political and demographic factors.

As per the International Monetary Fund, the Indian economy is projected to be the world’s fastest growing in 2023, with a 6.1 per cent anticipated rise in GDP. This rate outpaces the 4 per cent average growth of emerging markets and is five times the 1.2 per cent mean growth of industrialized nations’ markets.

This impressive growth isn’t an abrupt occurrence; rather, the Indian economy has methodically amassed strengths over preceding years, enabling it to rival the world’s leading economies.

A decade ago, India ranked 11th in GDP size among the world’s major economies, while the United Kingdom held fifth place. Progressively, India rose in the ranks, culminating in it passing the United Kingdom in late 2021, claiming fifth place compared to the latter’s sixth.

In short, a notable economic phenomenon, often deemed a developmental marvel, is unfolding in India. Though it entered the scene later than neighboring East and South Asian countries, it is now on par with prominent global economic forces, signifying one of contemporary history’s most substantial economic leaps.

According to the Indian government’s plans, the nation is poised to surge to third place worldwide, following the United States and China, in terms of domestic product size over the next five years. This projection owes much to the rapid expansion witnessed in India’s industrial sector.

Indian demographic strength

India’s diverse economic strengths position it as a formidable competitor to China and other East Asian nations, both in development and in attracting investments in the productive sectors.

Central to these strengths is India’s demographic prowess, intricately tied to its abundant labor pool. According to the United Nations Population Fund, India’s population has now eclipsed China’s, exceeding a staggering 1.4286 billion as of mid-2023, solidifying India’s status as the world’s most populous nation.

Unlike China, whose population has peaked and begun a decline due to demographic aging, India’s populace is expected to continue to grow in the coming decades.

A pivotal facet of India’s demographic advantage lies in its youthful populace in contrast to China’s. With over half of India’s population under 30, China faces a challenge with its youth accounting for a mere 17 per cent of its total. This significant demographic disparity furnishes India with a decisive edge in the competition for foreign industrial investments, which seek access to skilled labor at cost-effective wages.

The advantages of India’s labor force extend beyond its youthfulness and high fertility rates. Contributing to its allure include proficiency in advanced digital and technical sectors, coupled with widespread English language proficiency among Indian graduates. India boasts the world’s largest university education system, encompassing an extensive network of colleges and students, producing a staggering 20 million annual graduates entering the job market.

Collectively, these attributes have made India a sought-after hub for foreign corporations in search of fresh production bases, as a compelling alternative to China.

The impact of Modi’s foreign policies and trade restrictions on China

In parallel with these competitive advantages, Indian Prime Minister Narendra Modi pursued reforms and policies aimed at harnessing the potential of the local labor force and attracting foreign investments.

After Modi assumed power in 2014, during his initial five-year term, Indian power station capacity grew by 66 per cent, rural road networks expanded by 85 per cent and highways extended by 45 per cent. These infrastructure improvements bolstered economic growth and industrial expansion.

Simultaneously, Modi maintained a pragmatic foreign policy, strategically engaging with global powers both economically and politically. For instance, he leveraged sanctions against Russia in 2022, securing a deal with President Vladimir Putin for cost-effective Russian oil purchases, benefiting Indian domestic industries. Concurrently, Modi revitalized negotiations with the European Union, seeking a free trade agreement to unlock European markets for Indian industries.

Internally, Modi introduced a set of incentives and facilities to attract foreign investment, including subsidized loans covering 50 per cent of semiconductor and electronics factory costs, along with 30 per cent coverage for smart screen manufacturing. These measures aimed to encourage investments in fields that complement production chains in technologically advanced sectors, while tax incentives sought to facilitate the integration of production chains from other countries into India.

Subsequently, U.S. sanctions and restrictions on Chinese companies created an environment discouraging foreign investment, particularly in the tech sector. In recent years, India has reaped the rewards of Modi’s policies since 2014, with several major global companies like Apple, Google, Microsoft and Dell shifting significant portions of their production chains from China to India.

These political, demographic and economic factors have collectively laid the foundation for India’s ongoing economic renaissance, expected to sustain growth in the years ahead. However, this transformation raises concerns among East and South Asian nations, such as China, about India potentially diverting foreign investments away from their regions and toward itself.

Opportunities for Middle Eastern countries

All these developments are poised to create significant opportunities for Middle Eastern countries, given the historical interdependence between the Indian economy and the economies of these nations, particularly the Gulf states. Geographical proximity between India and the Middle East further augments these prospects. These opportunities extend beyond mere investment and trade, and include potential political shifts stemming from India’s economic ascent.

Today, India ranks as the world’s third-largest importer of oil and gas, trailing only China and the United States, with annual energy imports amounting to a staggering $119 billion. Despite benefiting from reduced Russian oil prices, the Gulf nations, particularly Qatar, the United Arab Emirates and Saudi Arabia, continue to fulfill 60 percent of India’s energy requirements.

Hence, the expansion of Indian industries will inevitably lead to heightened demand for Gulf oil and gas, securing a reliable market for such exports. Notably, the proximity between India and the Gulf states enables energy supply chains to remain unaffected by security and military tensions that could imperil supplies in other regions.

Furthermore, India’s growing demand for Gulf energy sources is of particular importance in the LNG market, especially for Qatar, which relies heavily on gas exports. The procurement of gas production through long-term contracts stands as a pivotal prerequisite for the development of existing gas fields.

It’s worth noting that Petronet, India’s premier gas importer, expressed its intent in February 2023 to increase its Qatari liquefied gas purchases by around 1 million tons annually. This strategic arrangement complements Qatar’s efforts to expand its North Gas Field operations, thereby augmenting liquefied gas production.

At the same time, India’s burgeoning industrial sectors serve as a magnet for Gulf sovereign investments and funds, which are seeking tempting prospects in South Asian markets to diversify beyond Western markets.

The Indian government’s provision of substantial tax exemptions on sovereign wealth fund profits stemming from investments in India has attracted entities like the Abu Dhabi Investment Authority, the UAE’s Mubadala Investment Company and the Saudi Public Investment Fund. These entities have ventured into long-term investments within India’s infrastructure, energy and industrial sectors.

In addition, Gulf countries’ inclination to invest in India aligns with efforts by leaders like Saudi Crown Prince Mohammed bin Salman to reduce reliance on strategic ties with the United States and Western nations. From this perspective, the reasons behind bin Salman’s move to establish a dedicated council for strategic partnership with India, aimed at bolstering defense, security and oil collaborations, grow apparent.

Meanwhile, as Iraq aspires to become a pivotal regional transportation hub in the Middle East, the growth of Indian exports will spur demand for Iraqi infrastructure, facilitating the northward transportation of these exports toward Europe.

Notably, India currently ranks as Iraq’s second-largest trading partner, with China leading the charts. This reciprocal trade dynamic could transform Iraq into a hub for re-exporting Indian products after the completion of investments essential for its transformation into a Middle Eastern transport hub.

In the coming years, the countries of the Middle East will have to deepen their political and economic relations with India, a formidable global economic force. The Gulf states stand to benefit from shared interests with India in foreign policy, given their balanced and pragmatic relationships with Western powers, Russia and China.

These commonalities will enable India and the Gulf countries to explore avenues of strategic collaboration, untethered from polarizations caused by escalating international conflicts.

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