Relevance: GS Paper II

News Excerpt:

The United Arab Emirates is considering investing as much as $50 billion in India, its second-largest trading partner, as part of a broader bet on the world’s fastest-growing major economy.

About

Economic Vision 2030:

• Abu Dhabi’s national aspirations and priorities are outlined in “Economic Vision 2030,” a long-term economic diversification strategy focused on advancing knowledge industries by building a skilled workforce, world-class infrastructure, and an efficient, globally integrated business environment. UAE finds India can fulfill its requirements to achieve the document's objectives.
• Deals could involve stakes in key Indian infrastructure projects and state-owned assets, with some investments potentially involving sovereign wealth funds like the Abu Dhabi Investment Authority, Mubadala Investment Co., and ADQ.
• India and the UAE aim to increase non-oil bilateral trade to $100 billion over the past decade.

Alignment of India and UAE‘s interests

UAE’s significance for India:

• Look West Policy: India aims to strengthen ties with West Asian countries through economic, strategic, technological, and people-to-people cooperation. It aligns with the UAE's policy, allowing India to increase its regional influence.
• Entry in Regional Groupings: India aims to join regional groupings like the GCC and OIC, with UAE's support. The UAE can lobby for India's inclusion, potentially convincing group members, as it holds significant clout in these groups.
• Gateway to Africa and West Asia: The UAE, a strategic transportation hub, can assist India in entering Africa and the Gulf markets, fostering regional development and technology transfer through coordinated diplomacy between the two nations.
• Energy Requirements: India's strategy to diversify crude oil sources is bolstered by UAE's stability and reliability. Both countries have entered long-term contracts and strategic agreements to ensure a stable and reliable crude oil supply.
• Counter-Terrorism and De-radicalisation: India and UAE signed the Extradition Treaty in 1999, aiming to collaborate on counter-terrorism measures, de-radicalization, anti-money laundering, counter-terrorism financing, and countering extremist ideologies through intelligence sharing.
• Pakistan Issue: UAE can be beneficial in maintaining an indirect influence over Pakistan. Also, the UAE has offered to mediate between India and Pakistan several times. Strong relations with the UAE can leverage India to seek a peaceful solution to their dispute.

UAE’s inclination towards India:

• Gulf Cooperation Council (GCC): The GCC faces internal disputes and factions, including Qatar's economic blockade, causing instability. India's non-interference approach has positioned it as a reliable partner for the UAE.
• Failure of Pakistan: UAE sees India as a suitable destination for long-term investments and infrastructure development due to its rapidly growing economy and large market size, despite Pakistan's frequent economic, political, and security crises.
• Competition from Saudi Arabia: ​​UAE and Saudi Arabia are engaged in geopolitical competition in the Gulf region, targeting economic diversification, energy sector, tourism, and infrastructural development. UAE aims to attract India for market catering.
• Sovereign wealth funds: The UAE, with its significant sovereign wealth fund, ADIA, is seeking investment opportunities in infrastructure, start-ups, real estate, healthcare, education, and long-term investments, with India as a potential destination.
• Oil and energy supply: India imports stand at US$17.84 billion from the United Arab Emirates in 2022, making it the third largest oil consumer globally, with a daily demand of 5 million barrels, expected to rise by 7 million barrels in a decade.

BRICS, I2U2, and UAE:

• The expansion of BRICS and the formation of I2U2 (India, Israel, UAE, USA) shows that the unilateral approach is on the way to decay, and an era of multipolarity is emerging.
• The expansion of BRICS brings several of the largest energy producers with the developing world’s biggest consumers. With most of the world’s energy trade taking place in dollars, the expansion could also enhance the bloc’s ability to push more trade to alternative currencies.
• The UAE seeks membership as an opportunity to develop trade and plans to commit more capital to the New Development Bank. Meanwhile, the BRICS would benefit by lending more to development projects in emerging markets.
• As a significant oil producer, the UAE stands to find common ground with BRICS nations in energy collaboration, renewable energy, energy security and sustainable development.

Recent developments:

• Local Currency Settlement System (LCSS): It is traded in local currencies between two countries.
• E.g. an exporter in India can make an invoice in Rupees (INR), and an importer in UAE can pay in Dirhams (AED). Hence reducing the reliance on third-party currency.
• Interlinking of Payment Systems: India’s Unified Payments Interface (UPI) is linked with its UAE-counterpart Instant Payment Platform (IPP). This is alongside the linking of card switches, that is, the RuPay switch and UAESWITCH.
• Comprehensive Economic Partnership Agreement (CEPA): This deal could help increase bilateral trade to about US$ 100 billion in the next five years. About 90% of the products exported and 80% of lines of trade will attract zero duty.
• I2U2 framework: A new quadrilateral forum was established, whose members are India, Israel, UAE, and the US. The forum identifies six areas of cooperation, namely water, food security, health, energy, transportation, and space.
• Under I2U2, both countries are discussing an investment of US$ 2 billion from the UAE to develop food corridors in India and another US$ 300 million for building a 300 GW hybrid (wind and solar) power plant.
• India-UAE are further cooperating in the UAE-France-India trilateral cooperation initiative.

• Skill development programmes:

• TEJAS (Training For Emirates Jobs and Skills) is focused on training, certifying and placing 10,000 Indian workers in UAE in its first year by partnering with some leading employers, such as EFS, Dulsco, TASC, Lulu Finance and more, in the region.
• National Initiative for Promotion of Upskilling of Nirman Workers (NIPUN) envisages training over 1,00,000 construction workers through fresh skilling and upskilling programmes and placing some in gulf countries.
• Strategic Petroleum Reserves: UAE is assisting in filling the strategic petroleum reserves of India. These reserves will provide the emergency supply of petroleum if any unforeseen circumstances happen.

Challenges in the relations:

• Migrant workers: UAE has many workers who have shifted there for low-skilled and semi-skilled jobs. The issues faced by migrant workers are problematic, for example, the kafala system, which gives private citizens and companies almost total control over migrant workers' employment and immigration status.
• Tariff rate: The tariff structure of UAE is bound by GCC. Now that the CEPA has been in place for one year, the tariff structure has been subject to relaxation, but still, it remains a matter of concern. The sanitary and Phyto-sanitary measures are also tightly held.
• Diplomatic ire: West Asia is known for its geopolitical complexities and conflicts. India's engagement with the UAE could attract the ire of other regional nations. Balancing the relations while strengthening the India-UAE strategic partnership is a diplomatic challenge. 
• Investment in green technologies and climate change: The UAE is an oil-exporting economy, so it doesn’t readily want to invest in green technologies. Meanwhile, India has set a net zero target of 2070 and is currently focussing on transitioning to a green economy. The alignment of both nations on this issue is debatable.

Way forward:

• Labour rights and Skill development: India needs to work together with the UAE to ensure workers are provided with rights and proper living conditions. Meanwhile, India is working on providing skills to Indian workers in the UAE; both countries can collaborate to strengthen and diversify the job prospects of migrant workers.
• Climate change and sustainability: India should convince the UAE to work together in environmental sustainability. There should be a massive investment in green technologies to strengthen the mitigation efforts further. Research and development and knowledge sharing should be a part of the measures, ultimately leading to technology transfer.
• Cybersecurity: There is a need to develop robust cybersecurity measures and establish contingency plans for cyberattacks in both countries. Meanwhile, Data Embassies announced in the Union Budget 2023-24 could be set up.

PYQs

Q1. How will I2U2 (India, Israel, UAE and USA) grouping transform India's position in global politics? (UPSC 2022)

Q2. The question of India’s Energy Security constitutes the most important part of India’s economic progress. Analyze India’s energy policy cooperation with West Asian Countries. (UPSC 2017)