India's relations with Saudi Arabia have been incongruent in the past. While political ties have been far from bonhomie as a result of Cold War alignments and Saudi-Pakistani affinity, economic cooperation took a more realistic form and flourished. The assumption that a combination of Indian technology, skilled manpower and Saudi money could work to strengthen cooperation yielded tremendous economic gains during the last 25 years, forcing a rethink on the political front, which could see a new dawn with Custodian of the Two Holy Mosques King Abdullah's visit to India.
Since the emergence of militancy in Kashmir in 1989 and the demolition of Babri Mosque in 1992, India has worked hard to improve ties with the Kingdom. The opportunity to cement that effort came following Sept. 11, 2001, when Saudi Arabia responded to Indian overtures, realizing that both countries face the common scourge of terrorism. Since then, Riyadh has condemned all forms of extremism and terrorism, including the attack on the Indian Parliament in 2001, while making a fervent appeal for peace in the Subcontinent. The healing process was demonstrated by the quick aid dispatched to the victims of the Gujarat earthquake the same year. Further, much of the political rapprochement comes amid the Saudi shift in position on Kashmir over the last five years. Riyadh now emphasizes on the bilateral process to resolve the differences between India and Pakistan based on the existing Shimla and Lahore agreements, which conforms with New Delhi's stand.
Not seeing eye-to-eye on political issues did not, however, deter bilateral trade from acting as the binding force between the two, as demonstrated by the steep growth in figures from about $6 million in 1963-64 to about $2.6 billion in 2004-05, excluding oil imports, which is estimated to be another $6 billion. Saudi Arabia is now the 13th largest market for Indian exports and a source for 5.5 percent of India's total imports. India is the fourth largest market for Saudi goods and ranks 10th in the Saudi imports market list. Further, by exporting half a million barrels of crude oil per day and a total of about 24 million tons annually, which is nearly a quarter of India's total crude oil requirements, the Kingdom has become the largest source of crude oil for India.
Many Indian companies have also taken advantage of 100 percent foreign ownership of companies in the Kingdom and are establishing themselves in ventures dealing with designing, financial services, software and the like. India's information technology software exports to the Kingdom are rapidly increasing, amounting to over $170 million and poised to grow further. At present, 49 Indo-Saudi joint ventures are operational in India and 82 Indian companies - either fully owned or joint ventures - are operating in Saudi Arabia. By April 2005, 42 investment projects from India with an investment of $411 million had been licensed by Riyadh. Further, there were 40 non-industrial projects with an investment of $56.2 million, which took Indian investments in the Kingdom to $467.2 million.
Expanding that relationship, the State Bank of India is to soon begin functioning in Saudi Arabia and a Saudi group - A.K. Saeed - is building a five-star, 500-room hotel in Hyderabad. In addition, the Saudi Embassy will soon open a Saudi school in Delhi and plans are afoot to construct a new embassy in the capital. A high-level Saudi business delegation to India has urged Indian companies and investors to take advantage of the tremendous opportunities in the Kingdom and pump their expertise and resources to develop strategic partnerships with Saudi companies.
While remittances form a good part of the trade bill, India has also been a recipient of loans from the Saudi Development Fund for several projects, including the Srisailam and Nagarjunasagar power projects in Andhra Pradesh; Rajasthan Canal Project; Koel Karo Power Project in Bihar and Ramagundan Thermal Power Project II among others. Saudi tourist traffic to India increased by over 16 percent in 2004 to about 15,000 and was up a further six percent in the first half of 2005 as against the corresponding period last year. Those figures are bound to rise further as Saudis discover India as a viable destination for medical treatment, education and sightseeing. The official international carrier, Air-India, now generates about 19 percent of its revenue from the Gulf, with the Saudi sector accounting for 30 percent of the figure.
While the campaign undertaken by the Saudi Labor Ministry to achieve 100 percent Saudization in the gold and travel agency markets have continued to test Saudi-Indian relations during the last two years, India has to look beyond given that Riyadh is bound to further intensify its unemployment alleviation drive.
India views Saudi Arabia not only as a major economic partner, but also as a major power in the Gulf with substantial influence on the other Gulf Cooperation Council states, as well as the 56-member Organization of the Islamic Conference (OIC) - which has its headquarters in Jeddah - and the Organization of the Petroleum Exporting Countries (OPEC) by virtue of being the largest oil producer in the world at nearly nine million barrels a day.
In the broader context of rapidly improving Indo-US ties, Indo-Saudi relations are likely to be upgraded too. King Abdullah's visit will be marked by signing several key agreements, including those encouraging investment, avoidance of double taxation and security matters. The proposal to sign avoidance of double taxation and investment protection and promotion treaty will facilitate greater flow of investment and joint ventures.
The investment promotion and protection pact includes the protection of intellectual property rights in accordance with the laws and regulations of the country in which the investment is made. The salient features of the Indian draft include extending national treatment and most favored nation treatment for foreign investments and investors. It also allows for repatriation of all returns on investment without undue delay and on a non-discriminatory basis. The agreement also provides for a dispute resolution mechanism, including an international arbitration procedure, in the event of any disagreement.
Based on its new diplomacy of promoting cooperation between importers and exporters of crude, New Delhi and Riyadh are encouraging cross investment in the industry, mining and energy sectors. Giving teeth to the plan, India is inviting Saudi investment in oil refining and fuel retailing and exploring opportunities to invest in developing gas fields in the Kingdom. Two Indian oil companies are in discussions with Saudi Aramco for possible Saudi investment, which is in turn associated with possible investment by Indian companies in Yanbu refinery.
It is also India's long-term vision to make 21st century "the Asian century," with New Delhi-Riyadh as its axis. A beginning in this direction was made with India hosting the first-ever Asian conference on regional cooperation in oil economy in January 2005, and Saudi Arabia is due to host the next. The two countries will cooperate to secure funding and manpower for the International Energy Forum Secretariat in Riyadh to undertake four major studies on Asian petroleum and petroleum products market, interlock investments in the hydrocarbon sector between Asian producers and consumers, establish an intellectual network to strengthen Asian institutions involved in research and development in the hydrocarbon sector, and cooperate on environmental protection and conservation of energy resources.
The two countries are also expected to sign a memorandum of understanding on meeting challenges such as crime and terrorism during King Abdullah's visit.
There is no doubting the change in Saudi foreign policy following the Sept. 11, 2001 attacks in the United States. Riyadh is evidently pursuing a "Look East" policy, which coincides with India emerging as a giant power in Asia, and reinforces Saudi Arabia as the center of the Islamic world. While Saudi Arabia remains important to India as home to two of Islam's holiest mosques in Makkah and Madinah with more than 100,000 Indian Muslims performing Haj every year and several thousands more performing the Umrah - and hosts the largest Indian expatriate community in the Kingdom, King Abdullah's visit has kick-started a process that will look beyond religion and employment, as well as remain completely independent of Pakistan.
(A.K. Pasha is a professor at the Center for West Asian and African Studies, Jawaharlal Nehru University, New Delhi. Dr. N. Janardhan is editor of Gulf in the Media at the Dubai-based Gulf Research Center.)
