For India, Saudi Arabia comes fourth after China, the United States and the United Arab Emirates as its most-important trading partner. Saudi imports of Indian goods stood at SR18 billion in 2008, marking an almost six-fold rise from 2000, according to data of the Saudi Arabian Monetary Agency (SAMA). That positioned India as the sixth-largest source of Saudi imports, accounting for 12.4 percent of the Kingdom's total imports from Asia in 2008.
India's geographic dependence on Gulf oil is likely to become amplified in the coming years due to limited prospects for enhancing domestic energy production.
Aside from trade, Saudi Arabia is a major source of income for India as a result of workers remittances. Foreign workers accounted for 27 percent of Saudi Arabia's population of 25 million in 2008 - and Indians form the Kingdom's largest expatriate work force, working in fields from information technology to construction, with most employed as blue-collar workers. Given this varied web of economic and diplomatic interests, Banque Saudi Fransi regards Indian Prime Minister Manmohan Singh's historic visit to Saudi Arabia this month as decisive to deepening ties between two countries poised to take a greater role in the world economy.
The importance of long-standing trading ties between Saudi Arabia and India has become pronounced this decade, with India's share of total Saudi exports and imports gaining ground since 1990. In 2008, India accounted for 7.3 percent of total Saudi exports, compared with 2.5 percent in 1990, SAMA data show. Over the same period, the ratio of Saudi imports from India rose to 4.2 percent from 1.1 percent.
The two countries have worked to improve bilateral ties since the 1990s, prior to which time their relationship was constrained by Cold War politics and Saudi Arabia's support for Pakistan. Saudi Arabia and India had established diplomatic ties shortly after the latter's independence in 1947. But during the Cold War period, Indian-Saudi relations were confined to energy and labor as a result of India's proximate ties with the Soviet Union and Saudi Arabia's close links with the United States.
Following the end of the Cold War in 1991, India - which maintained a neutral position on the first Gulf War - repositioned its foreign policy more auspiciously toward the Gulf region and wider Middle East. The Kingdom, for instance, supports granting India observer status in the Organization of the Islamic Conference (OIC). It has also worked to expand its cooperation with India in the fight against terrorism and crime under the framework of the Delhi Declaration.
In 2006, Custodian of the Two Holy Mosques King Abdullah became the first Saudi king to visit India in 51 years. During that trip, King Abdullah and Prime Minister Singh signed the Delhi Declaration, a pact designed to ensure that Saudi Arabia would provide reliable, stable and increased supplies of crude oil to India through long-term contracts. The countries also agreed to form public and private joint ventures to develop oil and natural gas. Since that visit, a reciprocal trip by Singh has been anticipated. Prior to Singh, it was Indira Gandhi who last visited the Kingdom as prime minister in 1982.
While trade volumes between Saudi Arabia and India have risen quickly in recent years, export and import flows have centered on only a limited number of goods. The Kingdom mainly exports crude oil (and some petrochemicals) to India, while its main imports are spices, used largely to meet the consumption demands of its large Indian expatriate population.
Saudi exports to India rose almost seven-fold between 2000 and 2008, making India its fourth-biggest export destination in Asia following Japan, China and South Korea. The Kingdom's importance to Indian trade flows is also
significant. Saudi Arabia was India's fourth-biggest trading partner in the 2007- 2008 fiscal year, data of India's Ministry of Commerce & Industry show. India is the fourth-largest importer of Saudi oil after China, the United States and Japan, according to a study by the Gulf Research Center (GRC).
Gulf countries as a whole supply the majority of India's petroleum needs, including nearly a quarter by Saudi alone, while other major suppliers are Iran, Iraq, Kuwait, the UAE and Yemen. Qatar provides about 5 million tons per year of liquefied natural gas to India - a level that rose to 7.5 million tons in 2009. In the 2008-2009 fiscal year, India's total crude imports surged to more than 2.5 million barrels per day, up more than 5 percent from the previous year.
The relationship between India and Saudi Arabia has in many ways been redefined as a result of growing appetite among Asian emerging markets for oil and refined products. To cater to heightened energy demand from Asia, Saudi Arabia is diversifying away from its traditional focus on the West. As it strives to build its nonoil sector, particularly in the petrochemical and fertilizer space, Saudi Arabia increasingly seeks to gain stronghold in Asian countries. A majority of Saudi crude is now exported to Asia, while Asian labor, goods and services are gaining greater market presence in the Kingdom.
India's geographic proximity to the Gulf - the world's biggest oil exporting region - gives regional producers like Saudi Arabia an edge over rival producers in West Africa, Russia and Central Asia. More than 80 percent of Asia's oil imports come from the Middle East, compared with just under a quarter of Europe's imports and 17 percent of US imports. India, meanwhile, exports refined petroleum products, such as gas oil, to Gulf countries seeking to meet demand for power and motor fuels. The Gulf and Indian energy sectors thus complement each other.
Still, India's exports to the Gulf are heavily dependent on the consumption patterns of the estimated 4.5 million Indian expatriates living and working in the region. For India to improve its market share in merchandise exports in Saudi Arabia and the UAE, it must diversify its export profile. The bank regards progress toward free trade negotiations as the best
avenue toward enhancing bilateral trade between India, Saudi Arabia as well as the rest of the Gulf. A move toward more liberal trade could help India gain greater market share for its manufactured goods - including engineering products, textiles and jewelry - which account for roughly 63 percent of India's total exports to the world.
Developing bilateral economic ties is natural given the cultural links already in place between the two countries. India is home to about 170 million Muslims, the world's second-biggest Muslim population after Indonesia. Meanwhile, about 20 percent of Saudi Arabia's expatriate population is of Indian nationality, contributing to the Kingdom's economic development for decades. Dating back to the late 1930s, Indians were recruited for employment in Bahrain and Saudi Arabia, while former Saudi King Abdul Aziz insisted on Indians being paid on par with Arabs employed by Saudi oil giant Aramco.
Indian workers have also formed an integral part of Gulf work forces during the most-recent rally in oil prices, which supported a regional economic boom. According to the World Bank, Saudi Arabia was the world's fourth-biggest remittance-sending country in 2008 after United States, Russia and Switzerland. In November, personal remittances from Saudi Arabia rose 7.9 percent year-on-year, according to SAMA data. India was the largest recipient of global remittances in 2009, World Bank estimates show, although remittance flows fell 8.9 percent from the year earlier largely due to an economic downturn in Dubai and currency fluctuations.
Gulf countries accounted for nearly 27 percent of total remittances to India, according to a study published last year by the GRC and the Nixon Center on India's role in the Gulf. Remittances are crucial for the roughly 65 percent of low-skilled laborers, whose families at home rely almost entirely on money they send. In the 2008-2009 fiscal year, inward remittances to India amounted to $23.1 billion, up 5.5 percent from the year earlier and more than double levels in 2005-2006, according to the latest data of the Reserve Bank of India.
While labor has been a long-standing link between Saudi Arabia and India, given fast and sustainable growth in India, fewer Indian professionals are moving to the Gulf for work than a decade ago. The slowdown in India's brain drain has obvious repercussions, good and bad, for both sides.
Data of India's Consulate General in Jeddah show about 5 percent of expatriates are professionally qualified, working as doctors, engineers, accountants and other skilled positions. About 10 percent of Indian expatriates are employed in Saudi Arabia as white collar staff and 85 percent are laborers and technicians.
An extension of established trading ties and cultural affinity has been the growing investment relationship between Saudi and Indian companies. More than 220 Indian companies received licenses to set up full-owned or joint-venture projects in Saudi Arabia in the past two years, according to the Saudi Arabian General Investment Authority (SAGIA). These companies have pumped more than SR4 billion into the Saudi economy. Gulf countries have also drawn on human resources from India to help them develop many sectors, including information technology, construction, transportation and services.
India, meanwhile, is vying for Gulf states such as Saudi Arabia, UAE and Oman, to participate in its infrastructure expansion plans. A new Saudi-India business council was set up to provide a framework for building bilateral economic ties, allowing Saudi Arabia to tap Indian expertise in fields ranging from information technology and biotechnology to education and small business development. Saudi Arabia also plans to establish an India investment fund primarily to invest in Indian infrastructure projects.
- John Sfakianakis is group general manager and chief economist at Banque Saudi Fransi, Riyadh.
