Aside from ushering in an influx of foreign direct investment (FDI), 2021 represented somewhat of a milestone for both India and the United Arab Emirates (UAE). The year marked 50 years of diplomatic relations between the two countries, an occasion commemorated by the release of an official joint postage stamp during a virtual summit in February 2022.

Relations between the UAE and India have been strengthening in recent years, due in part to the efforts of Indian Prime Minister Narendra Modi, who came to office in 2014. He made his visit first to the UAE in August 2015, and has returned in 2018, 2019 and 2022. Prior to this, no Indian prime minister had visited the UAE in 34 years, since Indira Gandhi in 1981.

The visits seem to be about more than just economic gain, however, and represent a genuine friendship between the two countries. Modi’s visit in 2022 was done to offer condolences on the death of Sheikh Khalifa bin Zayed al Nahyan, who had been the president of the UAE, and to congratulate Sheikh Mohammed bin Zayed al Nahyan on assuming the role.

The UAE is home to one of the largest groups of Indian diaspora, of around 3.5million people, making Indians the largest non-Emirati groups in the UAE. Moreover, in 2020, Indian expatriates made up 39.9% of the total UAE population, while Emirati nationals themselves accounted for no more than 11.9%. The UAE witnessed a surge in Indian migration in the 1970s and 1980s when an influx of workers arrived keen to take advantage of the country’s burgeoning petroleum industry. Despite having no access to citizenship, many Indians have remained in the UAE and have forged strong cultural and familial ties to the area.

According to UAE Central Bank figures, annual remittances sent home by Indians in the UAE amounted to more than $17.06bn (Rs1.4trn) in 2019, with the UAE topping the list of non-resident remittances to India, followed by the US, Saudi Arabia and Kuwait.

In the UAE, Indian expats tend to take lower paid, less skilled jobs, however, although their role in the country is not under-appreciated. Indian workers in construction, retail, manufacturing and transportation are viewed as keeping daily necessities ticking over in the UAE, and there is an awareness in the country that it must first look after its ‘local’ Indians. This support has been acknowledged and praised by Modi, who thanked Zayed al Nahyan “for taking great care of the 3.5 million Indian community in the UAE during the pandemic”.

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Political trust strengthens India-UAE FDI relations

The recent show of political alliance between the UAE and India has done wonders for bilateral trade between the two countries, with FDI from India-based companies to the UAE witnessing a huge surge in recent years. In 2019, GlobalData’s FDI Projects Database recorded 22 projects from India to the UAE. This figure decreased slightly, as expected, in 2020 to 17 due to the Covid-19 pandemic. In 2021, however, Indian FDI into the UAE increased sharply, with 79 projects recorded, representing an increase of 365%.

In 2020, global outbound FDI from India totalled 224 projects, of which the Middle East and North Africa won a 14% market share, behind western Europe (23%), North America (20%) and Asia-Pacific (19%). In 2021, global outbound FDI from India increased by 86% to 416 projects, and this time the Middle East and North Africa was the leading recipient region for this investment, receiving 139 projects. In contrast, western Europe and North America’s market share of India-based FDI remained static between 2020 and 2021, receiving a 21% and 18% market share, respectively.

Software, business and professional services and education were the top three sectors for India-based investment going into the UAE in 2020. While software and business and professional services remained the dominant sectors in 2021, education replaced construction, showing some level of diversification in the make-up of the trade between the two countries. Dubai was the top city for investment from India into the UAE in both 2020 and 2021, winning 47% of inbound FDI from India in 2020 and 80% in 2021. Abu Dhabi, the capital of the UAE, ranked second in both years.

FDI from India into the UAE has not been centred around a handful of high-profile companies, which is frequently the case when a country experiences such an increase in inward investment from a particular country or region. In fact, in 2021, 68 different Indian companies made up the 79 projects in the UAE. Mumbai-based multinational conglomerate Tata Sons was the top investing company by project numbers, with four investments.

FDI from the UAE into India has also witnessed an increase, albeit on a smaller scale. UAE-based companies invested in eight FDI projects in India in 2020, with numbers increasing to 22 in 2021. The UAE’s leading sector for outbound investment to India in 2021 was healthcare, accounting for 13 projects. Construction investments ranked second with six projects, while financial services and food ranked joint third with five projects each. India was by far the UAE’s country of choice for Asia-Pacific-based investment, accounting for 40% of its FDI projects in the region in 2020 and 48% in 2021.

UAE-India relations set to get stronger

The UAE and India mutual appreciation society only looks set to get stronger in the coming years. In February 2022, the UAE-India Comprehensive Economic Partnership Agreement (CEPA) was signed and officially entered into force three months later. The agreement was the first of its kind signed by India in the Middle East and North Africa region, and the first for the UAE with any country globally.

The agreement’s primary aim is to "facilitate trade between both countries by providing immediate and progressive duty reductions on imported goods and transparency in customs procedures for preferential treatment of imported goods". It is no doubt hoped by India that the partnership will encourage further agreements with other Gulf Cooperation Council countries. India also increased FDI project numbers into Saudi Arabia and Oman in 2021 as it broadened its horizons in the Middle East.

India’s Commerce Minister, Shri Piyush Goyal, explained during a press conference that: “The India-UAE CEPA is likely to benefit about $26bn worth of Indian products that are subject to 5% import duty by the UAE, through immediate market access at zero duty, accounting for 90% of India’s exports in value terms to UAE. Overall, the UAE is offering duty elimination on more than 97% of its tariff lines, which account for 99% of Indian exports to the UAE in value terms.”

The enormous economic benefits offered by the agreement will encourage a significant rise in trade between the two countries, a figure which, according to India’s Commerce and Industry Ministry, is projected to hit $100bn annually by 2027. India-UAE initiatives have not only focused on economic issues, however. India has also agreed, for the first time, to set up an Indian Institute of Technology in the UAE to "further encourage and support innovations and technologies".

Through the India-UAE CEPA, both countries have reaffirmed a commitment to each other, and it is clear that enhancing political and economic ties are top of each country’s agenda. The huge Indian diaspora in the UAE undoubtedly reinforces the importance of these strong relations and should guarantee that they will last.

India and UAE-based companies will be poised to take advantage of the attractive economic benefits now on offer, and as a result their economies should continue to thrive. The UAE and India offer a different, yet equally appealing, set of strengths and now that both countries are finally grasping each other's potential, their futures look that bit brighter.