Bilateral relations between India and the Kingdom of Saudi Arabia are truly historic, going back more than a millennium. From the middle ages when Arab travelers were the main supply chain of silk, saffron, spices, cotton and other goods between India and Europe through the silk route over 1,000 years of history exist in relations between the two lands. Diplomatic relations were established at the independence of India in 1947 and have strengthened considerably owing to cooperation in regional affairs and trade.
Since the 1990s, India’s economic liberalization has helped bolster trade with Saudi Arabia, which annually supplies to India nearly 175 million barrels (25 million metric tons) of crude oil, or one-fifth of its needs. Today, India is the fifth largest trading partner for Saudi Arabia. Bilateral trade during the fiscal year 2007-08 was $23.11 billion. During the period April 2008-January 2009, bilateral trade stood at $20.75 billion. Saudi Arabia is the 15th largest market in the world for Indian exports and is destination of more than 2.28 percent of India’s global exports. On the other hand, Saudi Arabia is the source of 7.72 percent of India’s global imports. For Saudi Arabia, India is the fifth largest market for its exports, accounting for 4.15 percent (2008) of its global exports. In terms of imports by Saudi Arabia, India ranks ninth and is source of around 3.41 percent of Saudi Arabia’s total imports. While bilateral trade has increased almost threefold over the last five years, India’s export of nonoil products for the same period have also increased three fold from $1.08 billion to $3.70 billion.
India’s major imports from the Kingdom are petroleum and petrochemical products. Main Indian exports include cathodes and sections of cathodes of refined copper, benzene, floating docks, basmati/nonbasmati rice, pipeline for oil and gas, meat, compressors used in refrigerating equipment, tea, manmade yarn, fabrics, made-ups, cotton yarn, primary and semi-finished iron and steel, chemicals, plastic & linoleum products, machinery and instruments, edible fruit and nuts, meat products, etc.
Bilateral economic relations were given a fresh impetus when Custodian of the Two Holy Mosques King Abdullah made a historic visit to India in January 2006 — becoming the first Saudi king in 51 years to do so. The Saudi king and the Indian Prime Minister Manmohan Singh signed the landmark “Delhi Declaration,” which inter alia, envisages strategic energy partnership. The pact provides for a “reliable, stable and increased volume of crude oil supplies to India through long-term contracts. Both nations also agreed on joint ventures and the development of oil and natural gas in public and private sectors. An Indo-Saudi joint declaration described the King’s visit as “heralding a new era in India-Saudi Arabia relations.”
The Delhi Declaration has charted the desired road map for both countries to move forward and also provides an institutional framework for collaborative joint ventures and investments.
With the signing of the Double Taxation Avoidance Convention (DTAC) and the Bilateral Investment Protection and Promotion Agreement (BIPA), investments are on the rise. Indian companies are taking advantage of enormous investment opportunities in Saudi Arabia. Saudi Arabian General Investment Authority (SAGIA) has so far awarded 565 licenses (including 225 industrial and 340 nonindustrial) to Indian companies for establishing either joint ventures or 100 percent Indian-owned companies in Saudi Arabia in different economic sectors. The total Indian FDI (foreign direct investment) into Saudi Arabia from 1990 till 2008 has reached SR9,336.35 million, including SR7,830.60 million, for industrial projects and SR1,505.75 million for nonindustrial projects. These licenses are for projects in different sectors such as management and consultancy services, construction projects, telecommunications, information technology, pharmaceuticals, etc.
Moreover, several Indian companies have established collaborations with Saudi companies and working in the Kingdom in the areas of designing, consultancy, financial services and software development. Saudi Arabia has invested $15.97 million in India in 2009.
The Indo-Saudi bilateral economic relations are on the upswing and with the privatization and diversification of the Saudi economy under way in a big way, Saudi Arabia offers innumerable opportunities for Indian companies and investors. India is well placed to reap benefits of these opportunities, given its expertise, especially in the major thrust areas like construction, IT, steel, aluminum and manufacturing sectors.
Construction industry is growing at an exponential rate after the Saudi government committed huge outlays to various construction projects; in the IT sector, new infrastructure is being created in the Kingdom that will generate more opportunities for new business entities for creative software solutions and also for hardware infrastructure and manufacturing sector, wherein, given low energy costs in the Kingdom, cost of manufacturing steel, steel products and aluminum would be competitive for Indian companies.
Saudi Arabia’s petroleum and petrochemical sector offers numerous opportunities to Indian oil companies, especially in the downstream sector, where Indian companies could explore possibilities of investments, joint ventures with Saudi companies in prospective third countries. Indian companies are well poised to participate in this sector, especially in the operation, upgradation and maintenance of refineries; implementation of pipeline projects from conception to commissioning; operation and maintenance of pipelines, feasibility studies, technical and safety audit, training and consultancy.
Another area where Indian expertise is very relevant is the health sector, where the scope is enormous and Indian companies in this sector are well positioned to build new hospitals, super-specialty hospitals and polyclinics and to offer management services. The new thrust area, which the Indian Embassy has identified for active Indian participation is the pharmaceutical sector and Saudi Arabia is the largest pharmaceutical market in the Gulf region and it is growing at an estimated 18.5 percent annually. The size of the Saudi market is estimated at $1.5 billion. Saudi Arabia is also the largest consumer of pharmaceuticals in the Gulf region. India has an advantage to enter this market, given its high quality products, raw materials and scientific expertise.
Saudi Arabia imports most of its food items. It imports 65 percent of its requirement of high quality basmati rice from India. It is a major importer of Indian frozen meat, but there is scope for increasing India’s share of this market. The ban on marine products from India has been lifted and has translated into a good opportunity for Indian marine companies to enter this large market.
The Saudi gold market is highly fragmented with manufacturing activity dominated by a few companies. The high level of gold consumption in the Kingdom reflects the cultural tendencies along with high purchasing power. Given the expertise and reputation of the Indian jewelry industry, it is well poised to enter this market in a big way.
Mining is a new area that offers immense potential. Indian companies are looking at opportunities with keen interest, given the fact that Saudi Arabia has the largest deposits of phosphates and the sector offers good scope for Indian mining companies.
India and Kingdom both are developing countries and need two-sided flow of investment in infrastructure and development. India is very keen to participate in Saudi Arabia’s mega projects, including the new economic cities being developed at Rabigh, Hail, Jazan and Tabuk, besides the Knowledge Economic City at Madinah and the King Abdullah Financial District at Riyadh. Indian companies can also participate in various projects in the fields of railways, road construction, water treatment, establishment of pharmaceutical industries, real estate and chemicals industries. On the other hand, India needs Saudi investments in infrastructure sector. Saudi investments in India will go up noticeably in years to come since the Public Investment Fund (PIF), the Saudi Ministry of Finance and the Infrastructure Development Finance Corporation (IDFC) of India have planned to set up an investment fund of $750 million for investments in various infrastructure projects in India. The fund will come into operations very shortly.
During the recently concluded Indo-Saudi Joint Commission Meeting (JCM) in Riyadh, both countries emphasized the need to increase investments in the fields of mining, fertilizers, transport, knowledge-based industries, IT and telecommunications in Saudi Arabia and in infrastructure and other sectors in India. At the JCM, both sides agreed to increase commercial exchanges, take measures to organize trade fairs, exhibitions and regular exchanges of business delegations; to activate the role of the Saudi-Indo Joint Business Council and to strengthen relations and interaction between the chambers of commerce in both countries. The two sides also agreed on the exchange of experts, holding training programs, cooperation in the field of consumer protection, combating commercial fraud and protection of trademarks.
That bilateral relations has undergone a qualitative upward change is further evidenced by the fact that Saudi Arabia and India have a number of established, structured and institutionalized mechanisms for bilateral economic cooperation. These mechanisms include the Saudi-India Joint Business Council, the Joint Commission meetings, the Delhi Declaration, Bilateral Investment Protection Agreement (BIPA), Double Taxation Avoidance Convention (DTAC), Joint Working Group on Hydrocarbons, Joint Working Group on Fertilizers, Health Executive Program and the Program on Agricultural Cooperation. Most of these mechanisms are already active, while some of them are under process. These issues were highlighted and discussed at length in the recently concluded JCM. During the JCM, both sides also agreed to find a solution to anti-dumping issues and to start technical cooperation, training and exchange of experts on WTO-related matters between the Technical Affairs Department of the Saudi Commerce Ministry and the Center for WTO Studies at the Indian Ministry of Commerce and Industry. In addition, India is also engaging Saudi Arabia through other mechanisms like the Indo-GCC Industrial Conference and the India-GCC Free Trade Agreement Talks. During the eighth JCM, both sides also agreed to issue six-month multiple entry business visas to businesspersons from both countries.
Saudi Arabia also has immense potential as a major tourist market, not only for its native population but also for third country nationals residing in the Kingdom. Saudi population is affluent and their high per capita income and the large personal disposable income reinforce the position of Saudi Arabia as a large untapped market for tourism. Recently, the Government of India Tourist Office, Dubai, organized an India Tourism Road Show in Riyadh and part of its campaign was to create suitable tour packages to attract Saudi tourists. The Tourism Board has felt the need to offer tailor-made packages for different segments of Saudi society. Medical tourism is an area which needs to be made attractive, as more and more Saudi nationals are looking toward India for cheaper medical care.