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India and Kuwait: New Hopes and Aspirations

Zakir Hussain is Research Assistant at the Institute for Defence Studies and Analyses, New Delhi.
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  • April 22, 2009

    The recent three day visit of Indian Vice President Hamid Ansari to Kuwait fills a three decade diplomatic gap between the two countries. The visit was highly successful to the extent that besides interactions in the fields of science and technology, education and emphasizing the relevance of cultural exchanges, it brought international terrorism within the ambit of bilateral discussions. During his meetings with high Kuwaiti dignitaries, the Indian Vice President expressed concerns over rising international terrorism stating that “terrorism is an international plague and it has to be fought at the international level” and that it is a common concern of all countries. He also noted that “India was among the first countries to call for comprehensive anti-terror approach and slowly but surely other countries have seen the logic in it.”

    Significance of the Three Agreements Signed

    During the visit, three agreements were inked between India and Kuwait. The first pertained to cooperation in the field of cultural and information exchanges. The agreement brings closer the nodal cultural agencies, Lalit Kala Akademi of India and Kuwait’s National Council of Culture and Arts, to facilitate exchange of cultural activities. The second agreement related to cooperation in the field of science and technology. Under this both countries agreed to exchange scientists and documentation and set up a joint India-Kuwait committee for scientific and technological cooperation. It is expected that this clause could play a crucial role in transforming the oil-based Kuwaiti economy into a knowledge-based economy. And the third agreement was on educational exchanges, under which three broad areas have been covered: exchange of education materials such as books, newspapers, information, studies, and research materials; exchange of teachers and instructors; and, both countries to adopt subjects that could help develop understanding about each other’s history, culture, tradition and their heritages. They agreed to include these subjects in their respective schools’ curriculums with the aim of nurturing a better understanding about the culture and traditions among their peoples. This would eventually nourish a common understanding and strengthen ‘people-to-people’ relations between Kuwait and India.

    Energy & Economic Relation: Ray of Hope in Recession

    Energy: Modern day economic relations between India, Kuwait and the Arab Gulf is sustained and powered by energy and trade. The Arab region as a whole has 60 per cent proven reserves of global oil and Iran has around 50 per cent of the world’s natural gas reserves. India’s dependence on the region for this crucial resource has gradually risen to a substantial three fourths of its total imports. Kuwait has 10 per cent of world oil deposits, around 101 billion barrels of oil with a shelf life of more than 100 years at the current R/P ratio, and is the source for approximately 12 per cent of the total oil India purchases. After Saudi Arabia (24 per cent), Kuwait is the second largest Arabian Gulf supplier of oil to India. Recently, the IOC (Indian Oil Corporation) renewed its oil contract and purchased 9 million metric tonnes of crude and around 351 trillion cubic meters of gas from Kuwait. According to data provided by the Indian Ministry of Commerce, during the last half a decade the balance of trade has shifted in favour of Kuwait due to the inclusion of petroleum and its derivates. Petroleum Oil and Lubricant (POL) imports account for a significant portion of Indian imports. They accounted for 85 per cent of total trade, approximately Rs 2,557,078 lakhs in 2006-07, which increased to Rs. 2,929,129 lakhs in the year 2007-08.

    Trade: Over the same period, trade between India and Kuwait has been one of the high points of the bilateral interaction. The total volume of bilateral trade has increased from approximately $461.57 million to more than $8 billion between 2003-04 and 2007-08. Besides growth in the volume of trade, the composition of trade has also diversified in recent years; comparatively now more manufactured and value added items are traded between the two countries than previously when traditional agricultural items such as rice, coffee, tea, cereals, pulses, vegetables, edible oils, honey spices, cotton etc. were the major items. Currently around 48 per cent of total trade between the two countries is composed of manufactured items. In terms of India’s export to Kuwait (2008), Iron & steel (17 per cent), electrical machinery & equipment, recorders, TV, etc (7 per cent), nuclear reactors, boilers, machinery, mechanical automotive parts (13 per cent) and vehicles other than railway technologies etc. (5 per cent) are the major items. Excluding petroleum, the major items India imports from Kuwait (2008) are organic chemicals (39 per cent), Iron & Steel (19 per cent), salt, sulphur, cement, etc. (14 per cent), aluminum & fertilizers (8 per cent) respectively.

    Investment: During his visit, the Indian Vice President also underlined the significance of and scope for investment between the two countries, particularly at a time when the world economy is in recession while the Indian economy has remained buoyant. He expressed the view that India’s energy and infrastructure sectors offer long term investment prospects. While addressing the KCCI (Kuwaiti Chamber of Commerce and Industry) the Vice President said “We need to increase our primary energy supply by 3 to 4 times and electricity generation capacity and supply by five to six times to sustain the growth rate of 8 per cent till 2030.” He invited business captains of Kuwait to invest in the Indian infrastructure sector, which has the capacity to absorb $500 billion in the coming years. He also conveyed India’s interest in participating in fertilizer production in Kuwait and desired Kuwait Petroleum International’s (KPI) involvement in the Indian petrochemical sector.

    This is in fact a very opportune time for cash-rich Kuwait which is exploring external avenues to invest and India which provides long term prospects for better returns. By one account, Kuwait has a surplus of $78 billion and wants to invest it in diversified fields such as telecommunications, financial sector/services, banking, agriculture, health, medicine, biotechnology, pharmacy, real estate, R&D, etc. The Vice President expressed an interest in attracting investments into India in many of these sectors. He noted that amidst the global economic gloom, the Indian economy presents glimmer of hope. Addressing the KCCI, he said that the “winds of global recession should not mean erection of new walls and protectionists barriers for trade, investment and free movement of service-providers and professionals.” This is a good time for both countries to invest and harvest from their economic gains. Almost the same issues were on the table when Kuwaiti Emir Sheikh Sabah Al Ahmad Al Jaber Al Sabah visited India in 2006. On that occasion both sides identified information technology, energy, human resources development as well as trade, investment and finance as the pillars of their relationship.

    Several Indian companies such as insurance majors like New India Assurance Company, Life Insurance Corporation (International), Life Insurance Corporation (LIC) Housing Finance, Oriental Insurance Company (OIC) along with industries like Larsen & Toubro (L&T), Bridge & Roof, Punj Lloyd, and Kalpataru are operating in Kuwait’s oil sector. Although the exact volume of FDI coming from Kuwait is not known, it has indeed increased in recent years. The signing of the Avoidance of Double Taxation Agreement and the Prevention of Fiscal Evasion with respect to taxes in Income (DTAA) in 2006 have boosted bilateral economic relations and private investors.

    Indian Community in Kuwait

    The presence of more than half a million Indians in Kuwait is seen as a ‘microcosm’ representing the pulsating diversity of Indian culture, society, economy and polity. During his address to Indians at a gala, Hamid Ansari underlined that “Each of us is an ambassador of the best aspects of India,” contributing to the “global profile of Indians” in Kuwait and in the Gulf as a whole. As a matter of fact, Indian expatriates have greatly contributed through their skills and intellect to the transformation of the desert kingdom into one of the most advance countries in the world. At the same time they have also equally contributed to their homeland by remitting large portions of their hard-earned incomes. At present, approximately five million Indians are living in the Gulf and remit around $20 billion annually, which is almost half of the total remittances India receives annually.

    Looking at the rise in emigration from India, both countries agreed to increase capacity entitlements of the air services of each side from 8,320 to 12,000 seats per week and the designated carriers were granted three additional points of call in India, namely Hyderabad, Kolkata and Bangalore. Today new private airline companies from both countries have joined the market.

    As a community, the Vice President said, “there has never been a word of unhappiness about the Indian community”. At the individual level some complaints and grievances have been noticed on both sides. As is the case with migrant workers, Indian workers, particularly the unskilled and semi-skilled are mostly illiterates and semi-literates, who encounter problems of underpayment, delayed payment, long working hours with insufficient or no welfare schemes. They occasionally become victims of cheating, harassment, and threats to their jobs on complaints. Given the importance of the issue, in 2007, India and Kuwait signed a pact emphasizing issues of labour, employment and manpower development. It also touched upon issues relating to the role of recruitment agencies, Indian workers working in the private sector and also protection and welfare of workers who are not covered under Kuwait's labour laws.

    Exploring New Areas of Interaction

    Agriculture: Like other GCC member countries, arid climatic conditions severely afflict Kuwait. It has only one per cent arable land with very limited fresh water aquifers to irrigate. Almost hundred per cent of food grains are procured through import. The recent food price inflation has exposed the vulnerability of the economy to outside dependence, and affected the country mainly in two ways. One, it has raised inflation to above 7 per cent for the first time in the last two decades. And second, it has raised the cost of living for the cheap expatriate work force, which in turn threatens to cascade through the entire economy. The GCC countries, including Kuwait, have showed an interest in cooperation in agriculture. India can be a good partner for Kuwait in intermediary activities such as assisting in food processing industries, providing quality seeds, technology and expertise.

    Islamic Banking and Finance: Riba (interest)-free Islamic banking and finance is another potential area where both countries can build deep and robust relations. It is estimated that Islamic banking in the Gulf accounts for approximately 10 per cent of total bank deposits, with a considerably higher percentage in Saudi Arabia and Kuwait. In Kuwait, the Kuwait Finance House (KFH), established in 1977, has earned enormous credibility and accounts for around 25 per cent of total domestic deposits. In 2006, the KFH reported net profits of KD 193.2 million, an increase of almost 50 per cent compared with 2005. In recent years, Islamic finance has accommodated ‘equity’ investment with a condition not to invest in haram activities such as alcohol or pork production and distribution. This has massively contributed to its world-wide growth and expansion. For instance, over a period of six years, from 1996 to 2002, the Islamic equity fund has increased from a mere 29 with a capital of $800 million to 105 with total managed assets of $3324 million. In Asia, particularly Malaysia and to some extent Indonesia, have also realized the potential of Islamic banking and finance. This is especially true after the massive wind fall in GCC oil revenues. In India some related developments have taken place particularly in Mumbai. However, more policy steps are necessary to enable India to tap the massive economic resources available in this channel.

    Security: It is notable that the present security structure of the Gulf and its surrounding region is undergoing a transformation. Rise of piracy in the Gulf of Aden which covers a vast region of approximately 6.6 million sq. km, is one of the greatest modern day threats to all trading countries of the Arab region, Asia, Europe, and the US. According to one estimate, around 20,000 ships which transport goods and carry more than 7 per cent of the world oil through these waters annually have suffered from more than 100 hijackings with 200 crew members taken hostage in 2008. The deteriorating security environment in the region and India’s rising stakes mandate India’s naval presence there. Although last year India signed significant defence agreements with Qatar and some years earlier with Oman, given its geographic location India needs to initiate a serious security dialogue with Kuwait. In fact, the situation demands an Indian naval base in the region. This would not only help India but also protect the interests of other oil exporting countries such as Saudi Arabia which had to pay a ransom of $3 million for the release of its $100 million super oil tanker last year.

    Solar and Silicon: India and Kuwait can pool their resources particularly in solar and silicon industries. According to Mr. Khaldoon Tabaza, Chairman and CEO of Riyada, 'This part of the world, with an abundance of sunlight and silica, is a very appealing location for renewable energy, which can leverage the natural resources of the region in the same way we have done with oil and gas.” India and Kuwait can work together and develop modalities for cooperation in this field.

    Investment Opportunities: The region provides huge investment opportunities. In a recent report A.T. Kearney indicated that the Middle East will require an investment of more than $500 billion in energy infrastructure to aid economic growth in the coming years. The Islamic Development Bank recently estimated that Arab countries may need to invest up to $200 billion in water-related infrastructure alone over the next ten years. Being an emerging ‘powerhouse’ of modern technology, India could be of great help to these countries and the agreement on science and technology signed with Kuwait could be a launching pad. This cooperation could be further catalyzed with Kuwait by speeding up the formalities of a Free Trade Agreement between India and the GCC.

    Thus, the prospects for cooperation between India and Kuwait are vast. The recent visit of the Indian Vice President would perhaps help Kuwait to forgive and forget India’s support for Saddam Hussein, and they both can work towards developing a cooperative, constructive and mutually reciprocal and beneficial relationship.