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Why backlash from West Asian nations matters for India

India’s ruling party has been thrown into prompt damage control mode as the country’s diplomatic envoys faced music over the weekend from key West Asian trading partners over alleged anti-Prophet remarks by a spokesperson during a TV debate (HT_PRINT)Premium
India’s ruling party has been thrown into prompt damage control mode as the country’s diplomatic envoys faced music over the weekend from key West Asian trading partners over alleged anti-Prophet remarks by a spokesperson during a TV debate (HT_PRINT)

The UAE, Saudi Arabia and Iraq were India’s third, fourth and fifth biggest trading partners in 2021-22. With a significant expatriate population, the region also sends India more than half of its inbound remittances.

India’s ruling party was thrown into prompt damage control mode over the weekend as key West Asian trading partners summoned the country’s diplomatic envoys following alleged Islamophobic remarks by a party spokesperson during a TV debate. The Bharatiya Janata Party suspended one spokesperson and expelled another on Sunday amid rising social media calls for a boycott of Indian products in the Gulf region.

A close look at data on trade and inbound remittances shows why the diplomatic censure may have prompted sudden action, even though Nupur Sharma, one of the spokespeople, had already been booked for her comments a week ago.

In 2021-22, India recorded a total trade of about $189 billion with seven Gulf countries—Saudi Arabia, United Arab Emirates (UAE), Oman, Qatar, Bahrain, Kuwait and Iraq—accounting for 18.3% of its combined value of imports and exports, shows commerce ministry data.

Apart from trade, India’s significant expatriate population in Arab nations lends critical significance to the region, and a backlash could have snowballed into a bigger or formal boycott if not addressed. In 2017, the Gulf Cooperation Council (GCC) countries alone accounted for 55.6% of total remittance flow into India.

Seven Gulf countries account for nearly one-fifth of India's total trade
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Seven Gulf countries account for nearly one-fifth of India's total trade

Most GCC countries have expressed displeasure over the BJP spokespersons’ remarks, and so has Iran, which is not a GCC member. The Organization of Islamic Cooperation, a grouping of 57 Islamic countries, has also condemned the remarks.

“In today’s interconnected world, bilateral trade is not only a function of the relationship between political heads of two countries but is also shaped by public sentiment at large. Moreover, in the Arab world, politics and religion are intertwined, making it a potent mix," said Biswajit Dhar, professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University.

The UAE, Saudi Arabia, Iraq, Qatar, Kuwait, Oman and Bahrain are the seven Arab states of the Persian Gulf. Six of these, barring Iraq, are part of the GCC.

India recorded trade of $154.7 billion with GCC countries in 2021-22, 77% above the muted base of 2020-21 and 28% higher than 2019-20. Notably, these countries are some of India’s biggest trading partners: the UAE, Saudi Arabia, and Iraq ranked third, fourth and fifth, respectively, in terms of total trade with India in 2021-22.

India’s exports to GCC countries stood at $43.9 billion, with the trade deficit amounting to $66.8 billion. At 43.2% of total trade with these countries, the India-GCC trade deficit is higher than India’s overall trade deficit of 18.4%.

“India’s trade relationship with Gulf countries bears two-fold significance: oil dependency and a potentially large export market for India there. We need to be cautious in not offending our major trading partners," said Saon Ray, a visiting professor at the Indian Council for Research on International Economic Relations.

In February, India and the UAE signed a free-trade agreement (FTA), which will allow zero-duty access to 97% of Indian products and 90% of products from the UAE over the next 10 years. It came into force on 1 May and is the first FTA finalized by the Narendra Modi government. India is also considering a wider trade pact with the GCC.

More than half of India's inbound remittances comes from six Gulf countries
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More than half of India's inbound remittances comes from six Gulf countries

Meanwhile, Arab countries host many Indian immigrants (non-resident Indians and persons of Indian origin), and the countries are also a critical source of inward remittances into India. Consider this: 27.7% of overseas Indians stay in the GCC countries. The UAE tops the list in the region with over 3.4 million Indians, followed by Saudi Arabia (2.6 million) and Kuwait (1 million), as per data from the ministry of external affairs.

Consequently, these Indians also send money back home, known as inward remittances. Gulf countries are among the top 10 sources of inward remittances. The UAE is the biggest source as immigrants settled there had sent back $13.8 billion in 2017. Saudi Arabia is third, at $11.2 billion, followed by Kuwait and Qatar at $4.6 billion and $4.1 billion, respectively, shows data compiled by Pew Research Center. This is the latest data available with a country-wise breakdown.

“Trade could still take a hit (as a result of such controversies) as consumers can shift to substitute products, but remittances are unlikely to be unaffected as Indians working in those countries share a long-term relationship with their employers," Dhar said.

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