A double blow for India-Gulf economic ties

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  A double blow for India-Gulf economic ties

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Read more on - Polity | Economy | Schemes | S&T | Environment

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1. The Gulf region is at the epicentre of a perfect storm: apart from the COVID-19 pandemic, it also has an oil price meltdown.
2. India’s relations with the eight Gulf countries needs to be anticipated and managed.
3. Oil prices in a tailspin - The region, especially Iran, has been mauled by COVID-19, and the figures are yet to peak. The pandemic has put nearly a third of the world’s population under some form of lockdown curbing the consumption of hydrocarbons, the mainstay of Gulf economies. The consequent oil glut began depressing the price but the OPEC+ failed to reach a production-curtailing strategy. As a result, OPEC+ unravelled with each producer chasing a higher share in a collapsing market. Consequently, the oil prices went for a tailspin having fallen by 55% during March to an 18-year low on March 30. International Energy Agency (IEA) warned that developing countries’ oil and gas revenues will decline by 50% to 85% in 2020 with potentially far-reaching economic and social consequences. The global economy is expected to have a recession induced by COVID-19 this year.
4. India’s economic ties with the Gulf states have two dominant verticals: the economic symbiosis and India’s expatriate community. 
5. Bilateral economic ties are strong: the India-Gulf trade stood around $162 billion in 2018-19, being nearly a fifth of India’s global trade. It was dominated by import of crude oil and natural gas worth nearly $75 billion, meeting nearly 65% of India’s total requirements. Some of these countries have large Indian investments and some have planned large investments in India. 
6. Second, the number of Indian expatriates in the Gulf states is about nine million, and they remitted nearly $40 billion back home. Both these intertwined pillars of India-Gulf ties have been affected by the recent maelstrom roiling the shared region.
7. India being the world’s third largest importer of crude, a sharp and prolonged decline in oil prices helps its current account. However, this is not an unmitigated blessing. The Gulf’s lower oil revenues also presage decreased bilateral trade and investments as well as expatriates’ remittances — all of them adding to India’s current financial stress.
8. Oil is a cyclic commodity and the Gulf producers have long evolved a pattern to handle its periodic lows. They tend to tighten their belts and dip into their reserves. They also transfer the burden on to the last person in line, viz. the Asian expatriate. The fresh recruitment stops, salaries are either lowered or stalled, taxes raised and localisation drives launched. The net result is that a large number of expatriates return to their homes. 
9. In the longer run, it is quite clear that we need to find new drivers for the India-Gulf synergy.

Read more on - Polity | Economy | Schemes | S&T | Environment

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