Modi In UAE: Why the India-UAE partnership is truly a ‘rab ne bana di jodi’

PM Narendra Modi (left) and UAE President Mohamed bin Zayed. (Source: PTI/File)

Beginning today, Prime Minister Narendra Modi is on a two-day official visit to the United Arab Emirates (UAE). This is the Prime Minister's seventh visit to the UAE since 2015. He is slated to hold bilateral meetings with Sheikh Mohamed bin Zayed Al Nahyan, the President of the UAE, and Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister and Defence Minister of UAE. He will also participate in the World Government Summit 2024 in Dubai as Guest of Honour. The highlight will be the inauguration of the much awaited BAPS Mandir, the first Hindu temple in Abu Dhabi.

The fact that this is Modi's seventh visit to the UAE, since the time he made the groundbreaking fist visit there in 2015, is indicative of the health of bilateral relations, which were elevated to a Comprehensive Strategic Partnership in 2017.

These visits have been reciprocated in equal measure by the UAE leadership,  with the most recent being that of President Sheikh Mohamed bin Zayed Al Nahyan to India last month during the Vibrant Gujarat summit. Indeed, the UAE-India partnership is possibly like no other, spanning the entire gamut of relations from labour migration and food corridors to the Comprehensive Economic Partnership Agreement (CEPA) that the UAE signed with India, the first country it signed such a deal with. And economics lies at the heart of bilateral partnership.

With a bilateral trade of $85 billion in 2022-23, the UAE is India’s third largest trading partner, and the second largest export destination of India. India is the UAE's second largest trading partner.

A major impetus in bilateral trade has definitely been the CEPA agreement signed in February 2022. Within a year the value of bilateral non-oil trade reached $50.5 billion, an increase of 5.8 percent from the previous year, even as global trade declined in both Q3- and Q4-2022.

With one of the largest sovereign wealth funds (SWF) in the world, the UAE has emerged as the fourth biggest FDI investor in India. The Middle East 's SWFs have been critical for stabilising international financial system,  particularly during the 2007 financial crisis.

The UAE’s investment in India is estimated to be around $20 billion.

Abu Dhabi Investment Authority (ADIA), the UAE's principal SWF, is an anchor investor in NIIF Master Fund through an investment of $1 billion in National Infrastructure Investment Fund (NIIF). ADIA has also invested $1.8 billion in HDFC Affordable Housing, $500 million inGreenKoi and ReNew (renewable energy) combined and $300 million in Cube Highways.

ADIA has also opened an office in GIFT City in Gujarat. Recent reports indicate that ADIA is setting up a $4-5 billion fund there to invest in India. The zone offers a 10-year tax holiday for companies setting up there, no taxes on the transfer of funds from overseas jurisdictions and closeness to Indian markets.

Mubadala, another UAE SWF, has invested $4 billion so far in India across diverse sectors that include Jio Platforms, Reliance Retail, Tata Power's renewable energy business and India's largest toll road platform, Cube Highways InvIT.

Overall, the UAE has committed to invest $75 billion in India’s infrastructure sector over a period of time.

Indians, in turn, have also invested in the UAE to the tune of $1.6 billion in H1 2023, being one of the major investors in Dubai's real estate sector. The Indian expatriate community in the UAE – 3.5 million strong – is undoubtedly the bedrock of India-UAE ties. With their backbreaking labour they have turned the UAE into the glittering oasis it is today. Their remittances accounted for 18 percent of the total remittances to India in 2020-21.

Yet another historic agreement between India and the UAE was signed in July 2023 between the Reserve Bank of India and the Central Bank of UAE for the establishment of a Local Currency Settlement System to promote the use of the Indian Rupee and UAE Durham for cross-border transactions.

Trade transactions in gold, crude oil and food products have already taken place in local currencies. Coming at the time when much of the world is discussing de-dollarisation, the LCS can insulate bilateral trade from fluctuations in the dollar and hedge against any such sanctions regime in the future.

Discussions are also on to integrate instant payment systems, fintech platforms and products. The UAE became the first Middle Eastern country to launch India's RuPay card in 2019. Modi's current visit, therefore, simply reflects the inevitable burgeoning of ties between two countries organically linked by destiny.