How are relations between India and the United Arab Emirates improving?

Abu Dhabi Crown Prince Sheikh Khaled bin Mohamed bin Zayed Al Nahyan arrived in India on Sunday to a warm welcome, marking the start of his two-day maiden visit, which aims to strengthen bilateral ties in areas such as energy and connectivity amid rising tensions in West Asia.

Commerce and Industry Minister Piyush Goyal welcomed the crown prince at the airport, where he was given a ceremonial reception, underlining the importance India attaches to the visit.

Ministry of External Affairs Spokesperson Randhir Jaiswal noted on social media platform ‘X’ that the visit marked a new milestone in the historic relations between the two nations, noting the ceremonial welcome accorded to them by Minister Goyal.

The crown prince is accompanied by several UAE ministers and a business delegation. After completing the Delhi leg of his trip, Al Nahyan will travel to Mumbai to attend a business forum that will be attended by leading business leaders from both countries.

The Ministry of External Affairs (MEA) said the visit would further strengthen India-UAE relations and explore opportunities for cooperation in emerging sectors. Prime Minister Modi and the crown prince are scheduled to hold talks on Monday.

Under Prime Minister Narendra Modi’s leadership since 2014, India’s engagement with the UAE has expanded significantly across sectors. The UAE has become a key pillar of India’s engagement in the Gulf region. While India’s “Think West” policy has emphasised engagement with West Asia, its relations with the UAE have surpassed those with other countries in the region. Modi’s seventh visit to the UAE during his 10-year tenure as Prime Minister indicates his personal initiative and commitment to strengthening the relationship. The Prime Minister emphasised the depth of the partnership between the two countries, describing India and the UAE as “partners in progress”.

Defense and security links

Defence and security cooperation between India and the United Arab Emirates has improved significantly. Both countries share similar security concerns in their neighbouring regions. Key issues of mutual concern include terrorism, piracy, security of sea lines of communication, illegal drug and arms trade, and money laundering. Instability in the West Asian region, including the Arab unrest, the spread of terrorism, the rise of the ISIS caliphate and the ongoing civil wars, have played a key role in bringing the two countries closer together, leading to stronger defence and security engagement.

In 2003, an MoU on defence cooperation was signed, followed by another MoU on security cooperation in 2011. Defence cooperation between India and the UAE includes training, joint naval and air exercises, high-level visits and participation in defence exhibitions. During his visit to the UAE in 2014, Prime Minister Modi emphasised the importance of strengthening defence cooperation, including manufacturing defence equipment in India. Both countries also emphasised the need to enhance cooperation in areas such as counter-terrorism, counter-radicalisation, intelligence sharing, cyber security and maritime security.

Close Relations Between India and the United Arab Emirates

India and the United Arab Emirates (UAE) have maintained close relations since the 1970s due to geographic proximity, cultural ties and long-standing friendship. In recent years, these relations have deepened significantly.

Trade relations have strengthened, especially after the Russia-Ukraine war. Several recent developments in trade and culture have ushered in a new era in India-UAE relations.

The central banks of both countries recently approved the use of local currencies — rupees and dirhams — for cross-border transactions, including trade, remittances and investments. In addition, India’s UPI payment system has been linked to the UAE’s instant payment system, Aani, which is used by over 3.5 million Indians living in the UAE and travelling between the two countries. Rupay cards from India are now also accepted in the UAE.

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Multilateral cooperation

Apart from their common bilateral interests, India and the UAE have cooperated effectively on multilateral fronts. The formation of the India-Israel-UAE-US (I2U2) group is an example of a successful minilateral partnership involving both nations. The Abraham Accords, signed in 2020 between Israel and Gulf countries like the UAE and Bahrain, were beneficial to India. This agreement marked a significant change in the historically complicated relations between Israel and Arab nations, leading to the formation of the I2U2 group with Israel and the US.

Under I2U2, the UAE plans to invest $2 billion in India to develop integrated food parks that address food security issues. The I2U2 group emphasizes cooperation in technology, energy, food and water security, and agriculture. Created after the Abraham Accords normalized relations between Israel and the UAE, the I2U2 minilateral is also important for promoting regional harmony and peace.

During its G20 presidency, India invited the UAE as a guest country. The UAE has participated in several meetings in India and is a key participant in the India-Middle East-Europe Economic Corridor (IMEC). This trade and transit corridor connects India, West Asia and Europe, enhancing the UAE’s strategic importance to India. IMEC strengthens economic interdependence and transit links between the two nations. During Prime Minister Modi’s visit to the UAE in February 2024, a Memorandum of Understanding on the Intergovernmental Framework Agreement for the India-Middle East-Europe Economic Corridor was signed, marking progress towards achieving the objectives of the corridor.

Comprehensive Economic Partnership Agreement (CEPA) between India and the United Arab Emirates

The landmark Comprehensive Economic Partnership Agreement (CEPA), signed in February 2022, has given a major boost to trade. The UAE is India’s second-largest export destination after the US, and India is the UAE’s second-largest trading partner after China.

CEPA aims to achieve a bilateral trade target of $100 billion over the next five years by offering tariff cuts, expedited business approvals and access to trade zones. This has led to an increase in trade between the two countries, from $72.9 billion in fiscal year 2022 to $84.5 billion in fiscal year 2023. During the implementation of CEPA (from May 2022 to March 2023), bilateral trade has grown by 14% year-on-year, with 90% of India’s exports to the UAE now enjoying zero duty under the FTA, particularly benefiting sectors such as gems and jewellery, pharmaceuticals, food and energy.

CEPA with the UAE is India’s first agreement with a complementary economy, in contrast to previous agreements with countries like South Korea and Japan.

UAE is the fourth largest foreign investor in India

In fiscal 2023, the UAE became the fourth-largest foreign investor in India, up from seventh place in fiscal 2022. A total of $3.3 billion in FDI flowed from the UAE to India during the period. Moreover, Abu Dhabi Investment Authority (ADIA) is actively involved in the Indian stock market, with investments in 22 listed companies, worth over ₹3,447 crore, spanning sectors like real estate, infrastructure and logistics. Reports suggest that ADIA is raising a $4-5 billion fund to invest in India through GIFT City, Gujarat.

Inspired by Saudi Arabia’s Vision Fund, UAE funds including ADIA, Mubadala and ADQ have also invested in Indian startups. Companies like Jio Platforms, Reliance Retail, Byjus, Greenko and Lenskart are among the beneficiaries of these investments.

UAE: An attractive destination for Indian companies

Several prominent UAE companies such as DP World, Sharaf and Lulu Group have operations in India. Similarly, Indian companies such as L&T, ONGC and Adani Group have operations in the UAE. According to the Dubai Chamber of Commerce, 15,481 new Indian-owned companies joined the organisation in 2023, up 38% year-on-year.

The business-friendly environment in the UAE makes the country an attractive destination for Indian companies, especially those looking to expand into Africa and the Gulf Cooperation Council (GCC) countries.

UAE among top payers of foreign remittances to India

About 30% of the UAE’s population—around 3.5 million people—is Indian. Dubai and Sharjah, in particular, are popular destinations, often described as “India without the hassle.” The UAE’s efforts to build a knowledge economy have also seen the contribution of Indian professionals, including investors, entrepreneurs, doctors, scientists, and creatives, many of whom have benefited from the Golden Visa program.

A recent World Bank report shows that the UAE and other Gulf Cooperation Council (GCC) countries contribute significantly to the inflow of remittances from abroad to India and the use of local currencies in cross-border transactions is likely to further increase this inflow.

UAE among India’s close allies

The two nations have increasingly projected their strengthened relations on the international stage. Prime Minister Narendra Modi has visited the UAE seven times in his 10-year term. In a cultural milestone, Modi recently inaugurated the ₹700-crore BAPS temple in Abu Dhabi, built on land donated by UAE ruler Sheikh Mohamed bin Zayed Al Nahyan. The temple is the third in the UAE and the largest in the Middle East, cementing the UAE’s position as one of India’s closest allies.

Challenges and the way forward

Trade analysts have noted that while CEPA has boosted trade, it has not yet significantly impacted new sectors. Moreover, India’s exports to the UAE are largely dependent on imports, resulting in low value addition.

Analysts warn that while India’s exports to the UAE are growing, imports from the UAE have also increased, rising 19% year-on-year in fiscal 2023 to $53.23 billion. They note that gemstones, jewellery, petroleum and smartphones account for 60% of India’s exports to the UAE, indicating a lack of trade diversification. Exports of value-added jewellery are growing, while a growing market for lab-grown diamonds is expected to drive future growth.

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