India and the Gulf: ancient trading ties still flourishing today

From dhows carrying spices to tankers carrying oil, trade between South Asia and Arabia has been healthy for hundreds of years, with room to grow further.

India and the Gulf States have a thriving economic relationship.
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India and the Gulf States have a thriving economic relationship.

India and the Gulf: ancient trading ties still flourishing today

In today’s global economic order, India and the Gulf states have a healthy trade relationship, with large volumes of oil, gas, and investment flowing from the Middle East to South Asia, with Indian workers and technology flowing the other way.

Interestingly, this is no recent bilateral relationship, but one that stretches back hundreds of years, with Britain’s East India Company (founded in 1600) acting as a catalyst. Yet even before that, many Gulf travellers lived in India, particularly in the south-western regions, where they traded, attended Indian schools, and married Muslim Indian women. Some established educational and medical centres.

Gulf traders relied on traditional dhows for their maritime journeys to India. These sailing vessels transported Arabian horses and dates, and returned laden with Indian spices, timber, and fabrics. Yet it was the East India Company that turbocharged economic relations between India and the Gulf.

Developing trade

Trading cotton, silk, indigo dye, and tea, the Company used northern Gulf ports and soldiers to combat piracy in the Arabian Gulf. In the early 19th century, the British also fought two major military campaigns against Qawasim pirates based in Ras al-Khaimah and Sharjah (two of the emirates that make up the UAE) who had been spreading terror along the Indian coast to within 100km of Bombay (Mumbai).

The East India Company’s role was so influential that its remit extended beyond commerce and into politics and diplomacy. British Indian colonial authorities protected several Gulf countries through treaties, using the Indian rupee as the national currency in states such as Bahrain and Kuwait.

The East India Company turbocharged economic relations between India and the Gulf, trading cotton, silk, indigo dye, and tea

In the early 20th century, commercial relations between India and the Gulf region experienced remarkable development. Traders from countries like Bahrain, Kuwait, and Oman began to engage in pearl diving, because pearls were in such high demand in the Indian subcontinent. Objects of beauty, pearls were an important source of Gulf income.

Taxes levied on imports and exports were another important source of revenue for Gulf states at that time, with trade mechanisms evolving alongside technological advances, including improved communication and early air travel. Fast forward to the 21st century, and trade is still flourishing.

Economic partners

According to data from the Indian Embassy in Riyadh, India-Gulf trade hit $161.6bn in fiscal year 2023/2024. Of this, $105.3bn was Indian imports from Gulf countries and $56.3bn was Indian exports to Gulf states. Unsurprisingly, a significant portion of Gulf exports to India consists of oil and gas.

Saudi Press Agency
Saudi Crown Prince Mohammed bin Salman meeting Indian Prime Minister Narendra Modi in Jeddah in April 2022.

The UAE is India's most important Gulf trading partner, with India-UAE trade accounting for half the total India-Gulf trade. Saudi Arabia is its second most important by volume ($42.9bn). According to the International Energy Agency, the Gulf exports an average of 12.2 million barrels of oil to India every day, of which 6.4 million barrels are Saudi.

Improved economic performance, rising living standards, and a thriving private sector mean that India is increasing its Gulf carbon demand. Alongside this, New Delhi has deepened its diplomatic engagement with the Gulf states, with a growing number of official visits.

The region is home to a large Indian expatriate community, and many Indian investors own businesses in the commercial, real estate, and financial sectors. These investors also collaborate with Gulf nationals in services, manufacturing, real estate development, and construction. Money flows the other way, too. From 2013-24, Gulf-based funds invested around $24.5bn in India (up from $3.1bn between 2000-13).

India-Gulf trade hit $161.6bn in fiscal year 2023/2024. Of this, $105.3bn was Gulf exports to India and $56.3bn was Indian exports to the Gulf

This surge in Gulf investments in the Indian economy is driven by several factors, including regulatory changes creating a more favourable business environment for foreign investment, India's expanding middle class (now 583 million people, or 41% of the population), and India's economic partnerships with major industrial powers like the US, Japan, and Germany.

Staffing and skills

The most distinctive feature of India's relations with Gulf states is the estimated 9.6 million Indian employees, workers, and their families who live the Gulf Cooperation Council (GCC) countries, with 3.4 million in the UAE, 2.6 million in Saudi Arabia, 1.4 million in Oman, 1.2 million in Kuwait, 700,000 in Qatar, and 300,000 in Bahrain.

Indians have made significant contributions to the Gulf's economic and social development, and helped strengthen cultural ties. Their remittances from the Gulf are also substantial. According to the Reserve Bank of India, between 20-30% of these remittances came from the UAE. Total remittances to India were worth almost $130bn in 2023-24, representing 3.4% of India's gross domestic product (GDP).

Indian and Gulf leaders want to expand their economic relationship, such as with joint ventures benefiting from Indian expertise in renewable energy and the digital economy. In September 2024, delegates held the inaugural meeting of the GCC-India Strategic Dialogue. GCC Secretary-General Jassem Mohamed Al Budaiwi said there were opportunities for cooperation in "technology, innovation, and scientific research could drive development and progress in the Gulf and India".

India's experience in vocational education is also sought by Gulf states eager to enhance their national workforce capabilities, with opportunities to collaborate on the development of educational and training systems in skills areas that are in-demand in the Gulf labour market. In short, the ancient Indian-Gulf economic relationship remains strong and full of possibility. As the pearl divers of yesteryear may have said: the world is their oyster.

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