Trade intensity between the regions has also risen led by numerous bilateral trade agreements signed in the recent past. Although the trade relationship between India and the GCC remains largely concentrated around oil, other tradable items are also slowly gaining importance due to the latter’s diversification drive. Amongst the GCC nations, UAE followed by Saudi Arabia continue to remain the largest trading partners for India. Furthermore, the analysis of the development in services trade by both regions globally indicates the demand for India’s services is rising strongly in the GCC.
“Economic relations between India and the GCC dated back to several centuries. However, the two-way trade between the two regions has strengthened over the last decade,” the report added.
The report analyses the development of bilateral trade, both merchandise and services, and investment capital flows over the last 10 years, thereby highlighting key attributes that have helped foster stronger economic cooperation between the two economies. It also covers the future growth potential of trade and capital flows between the two regions.
“This is particularly due to the substantial economic power attained by these regions on the global map following the spectacular economic growth since 2003”, Sameena Ahmad, Managing Director at Alpen Capital, said.
“FDI investment from GCC to India has picked up pace in the recent years but remains negligible relative to trade flows in terms of magnitude. It also represents just a small percentage of total FDI from GCC countries to the world,” she added.
“With the economic forecasts pointing to strong GDP growth in both the economies, we emphasize that there is an ample scope of strengthening economic ties between GCC and India. While the GCC needs to promote more industrialization and SME participation in order to realize its diversification dream and create jobs for its rapidly expanding population, India needs to further improve its basic infrastructure and reduce complexity in the regulatory practices,” Sanjay Vig, Managing Director at Alpen Capital, said.
“We recommend GCC investors to further diversify their investment portfolio by taking positions in the promising Indian investment avenues as the return on investment remain relatively robust. At the same time, due to its proximity and abundance of natural resources, GCC has the potential to serve as a manufacturing base as well as an export hub for Indian companies.”
Apart from developing strong trade relationships, both regions have also been increasingly investing in each other’s economy to benefit from the attractive returns on investments. Diversification and spectacular economic growth recorded by both the regions over the recent decade have helped boost cross border investments.
Capital flows in the form of FDI from GCC to India have gathered pace in recent years, cumulating to $2.6 billion over April 2000 to January 2012. Accordingly, its contribution to total FDI inflows into India (on a cumulative basis) has increased from 0.6% in 2005 to 1.7% as of January 2012.
Although FDI from GCC to India has picked up in recent years, it remains negligible relative to trade flows in terms of magnitude and largely represents rising investments by expatriates. Cumulative FDI investments (April 2000 to January 2012) represented less than 3% of the annual bilateral merchandise trade flows reported in 2010. Except Oman and UAE, investments from other GCC countries into India remain negligible compared to their global investments. However, India has encouragingly stepped up efforts to attract investments by further relaxing regulatory restrictions and inviting GCC investors to actively participate in India’s robust growth story and benefit mutually. The power, services and construction sectors continue to account for the largest share of FDI inflows from the GCC to India.
The report suggest, in order to promote investments from India, GCC governments and companies need to make frequent visits to the country, hold collaborative talks with Indian firms and the government as well as conduct road shows. GCC countries should also consider long-term visa schemes for investors to encourage participation and promote investments.