Whopping results from a tiddler of a trip to India

A crowded political diary – Davos, Iran, Greenland, Venezuela – means an enhancement to a significant relationship for the Arabian Gulf risks slipping under the radar.

The president of the UAE, Mohamed bin Zayed Al Nahyan, visited New Delhi for two hours on Monday, his fifth trip to India in the past 10 years. The visit may have been short but the outcome seems to have been especially fruitful.

We are used to large and outlandish sums being bandied around – thank you, Mr Trump. We also know a good deal about the UAE-India relationship – they signed a comprehensive economic partnership agreement in 2022 – but the intention now is to double trade to $200 billion.

The countries also agreed a 10-year LNG supply agreement and initiatives across food security, space, supercomputing, civil nuclear, national payment platforms and document certification. They signed a letter of intent on a strategic defence partnership. The UAE agreed to invest in a special investment region in Gujarat, the home state of India’s prime minister. Quite a list.

Separately, Etihad Water and Electricity is planning a feasibility study for an undersea power connector between the two countries.

This tightening of relations is important because Indians now form the largest ethnic community in the UAE at about 4.3 million residents, according to the embassy in Abu Dhabi. It also comes at a time of rapprochement between Pakistan and Saudi Arabia.

So far, so good. And from an investor perspective, Narendra Modi’s government has generally been moving in a positive economic direction buoyed by an election victory last year in the important state of Bihar.

The pro-market prime minister has, for example, pushed through a rationalisation of the goods and services tax and updated labour laws.

AGBI has previously noted UAE interest in Indian banks. In October Abu Dhabi’s International Holding Company bought a controlling stake in Sammaan Capital, a specialist mortgage lender, while Emirates NBD, Dubai’s largest lender by assets, is taking a large stake in a mid-tier Indian bank. Indian companies are using UAE subsidiaries to bypass swingeing US tariffs.

But we have also noted the limitations to doing business in India. And this is where it is to be hoped that the UAE can use its good offices to lobby Modi to go further.

Earlier this week India’s capricious legal system ruled that Tiger Global, a US-based investment outfit, is liable to pay taxes in India on the sale of a stake in ecommerce company Flipkart.

Tiger had invested through Mauritius-based entities. Indian law has been changed to capture capital gains on disposal by offshore companies – fair enough – but that was not the case when Tiger invested. The ruling by the Supreme Court thus smacks uncomfortably of retrospective taxation and India’s targeting of such high-profile investors as Volkswagen, Kia and Vodafone.

It is not just tax. Labour laws remain constrictive. General Motors, for one, has had a torrid time of disposing of its business in India.

It is little surprise then that despite a large and youthful population and a growing economy, net foreign investment in India is low. Very low. Indian taxes, for example, are levied at three levels – central, state and local – giving ample room for mischief-making by bureaucrats.

From a Gulf perspective, analysts have told AGBI that India-UAE trade needs to diversify beyond gemstones, jewellery and oil for the relationship to thrive.

Let us hope this proves to be the case. It would also help if Mr Modi and his ministers grip the Indian tax system and reform some labour laws, among other to-do items, thereby encouraging all foreign investors.

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