Date: 27/01/2023

Relevance: GS-2: Bilateral, regional and global groupings and agreements involving India and affecting India’s interests

Key Phrases: Gulf Cooperation Council (GCC), Comprehensive Economic Cooperation Agreement (CEPA), Trade deficit, Preferential Trade Access, Largest Indian expatriate community, Largest Foreign Inward Remittances.

Why in News?

• Although the Gulf region is home to the largest Indian expatriate community with long-standing relations, its enormous economic potential remains largely unexplored.
• Even after eighteen years of the signing of a framework agreement on Economic Cooperation by India with GCC, hardly any worthwhile progress has been made despite holding two rounds of negotiations in 2006 and 2008.

Key Highlights:

• Countries of the Gulf Cooperation Council (GCC) with over 8.5 million non-resident Indians, constitute 65 percent of total NRIs.
• GCC was the source of the largest foreign inward remittances, garnering 30 percent of total remittances.
• Given India’s rising trade engagement with GCC and its dependency on petroleum products, the importance of pursuing a comprehensive economic cooperation agreement (CEPA) with GCC cannot be overestimated.

Status of Trade Balance with GCC:

• Trade deficit with GCC:
  • India’s trade deficit with GCC soared from $13.4 billion in 2016-17 to $66.8 billion in 2021-22.
  • India had the highest trade deficit (2021-22) with Saudi Arabia ($25.3 billion), followed by the UAE ($16.8 billion), Qatar ($11.4 billion), Kuwait ($9.8 billion), and Oman (India had a trade surplus of $147 million with Bahrain.
• Trade deficit commodities with GCC:
  • In 2021-22, India had a trade deficit with GCC countries in petroleum products, pearls, precious and semi-precious stones, gold, fertilizers, plastic raw materials, organic chemicals, aluminum products, inorganic chemicals, bulk minerals and ores, dye intermediaries, among others.
  • India imported 87 percent of the oil consumed from April-September 2022. Petroleum and petroleum products are among India’s top imports from GCC accounting for 66 percent of its total imports of $119 billion in 2021-22.
• Trade surplus commodities with GCC:
  • India is a supplier of agricultural and manufactured products to GCC and enjoyed a trade surplus in agricultural products ($5 billion), engineering goods ($4 billion), textiles ($3.4 billion), electronic and software products ($2 billion) and pharma products ($488 million) in 2021-22.
  • Among the GCC countries, the UAE is India’s major destination for exports worth $28 billion, followed by Saudi Arabia ($8.8 billion), Oman ($3.1 billion), Qatar ($1.8 billion), Kuwait ($1.2 billion) and Bahrain ( $900 million) in 2021-22.

GCC Profile:

• Leading exporters of petroleum and mineral oils:
• The GCC countries are leading exporters of petroleum and mineral oils accounting for about 70 percent share in their exports, contributing to a significant trade surplus of $273 billion in 2021 with their exports of $715 billion far exceeding their $442-billion imports.
• However, due to a fall in global oil prices, GCC exports declined from $1.1 trillion in 2013 to $650 billion in 2020 whereas its imports reduced marginally from $567 billion to $476 billion during the same period.
• Consequently, it led to a decline in GCC exports’ share in the world market from 5.7 percent in 2013 to 3.3 percent in 2021.
• In a scenario of India’s oil dependency, India’s trade deficit with GCC is expected to rise sharply, mirroring their favorable external balance.

Need for a Comprehensive Economic Partnership Between India and GCC:

1. Mutual Benefits and Complementarities of Trade: India offers a lot of complementarities in trade with GCC countries, as these nations provide for India’s energy security, while India ensures their food security.
2. Huge Indian market potential: Besides, India, the world’s fastest growing and vast market of 1.4 billion people, offers immense economic opportunities. Because of the tremendous potential for trade, India and the GCC need to go beyond the traditional Free Trade Agreement (FTA) and include investments and services as a part of a comprehensive economic partnership.
3. Preferential Market access: In a rapidly emerging multipolar world, early and effective implementation of CEPAs would provide a boost to India and GCC countries.

Do you know?

• India and the UAE concluded a Comprehensive Economic Partnership Agreement in record time.
• The CEPA was concluded on February 18, 2022, merely six months after the commencement of negotiations, on September 2021.
• Under the CEPA, which came into force on May 1, 2022, Indian merchandise got preferential market access to the UAE on over 97 percent of its tariff lines accounting for 99 percent of India’s exports to the UAE in value terms largely for labor-intensive exports, besides enhanced access to over 111 sub-sectors from 11 broad services sector.

Conclusion:

• The GCC States are going through important changes and transformation along with the widening of the areas for cooperation, investments, trade & commerce, and sharing & development of human resources to security.
• The GCC’s substantial oil and gas reserves are of utmost importance for India’s energy needs offering tremendous potential for cooperation in trade, investment, energy, manpower, etc.
• Thus, CEPA with the Gulf countries will pave the way for India to enter the strategic market and help India to become a part of that supply chain, especially in handlooms, handicrafts, textiles, and pharma.

Source: Hindu BL

Mains Question:

Q. Although the Gulf region is home to the largest Indian expatriate community with long-standing relations, its enormous economic potential remains largely unexplored. Examine. (150 words).