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INDIA-SAUDI ARABIA TRADE RELATIONS: SKY IS THE LIMIT

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 C o n t e n ts
IV INDIA & SAUDI ARABIA TIES - ZOOMING AHEAD
Continuity has been an abiding characteristic of Indian foreign policy over the last seven decades.
What this has effectively meant is that any re-orientations acted upon by the diplomatic establishment
in India are seldom radical.

VII INDIA-SAUDI ARABIA TRADE RELATIONS: SKY IS THE LIMIT

India’s relationship with the Gulf Kingdom of Saudi Arabia has been undergoing change
at a scale that is virtually exponential.

XII INDIANS IN SAUDI ARABIA: REINFORCING THE CULTURAL CONNECT

India’s relation with the kingdom of Saudi Arabia is embedded in history. The two nations were
connected by the Indian Ocean some 5,000 years ago.

XVI NEW OPPORTUNITIES FOR INVESTMENTS WITH ‘MAKE IN INDIA’

Launched by Prime Minister Narendra Modi on September 25, 2014, the ‘Make in India’ initiative
catapulted India into the global spotlight as its economy spun into growth mode backed by Government
reforms and positive investment sentiment.

XXI INDIA: THE GLOBAL FDI DESTINATION

The Indian Government has undertaken a slew of reforms aimed at creating a stimulating environment
for domestic and foreign investors.

XXV FRIENDSHIP BEYOND REMITTANCES - A POSITIVIST VISION OF

INDIA-SAUDI RELATIONS
The relationship between India and Middle East, which dates to third millennium of BCE, is
marked with evident traces of warmness and cooperation that is sustained till day...

XXVIII FUTURE OF INDO-SAUDI SECURITY PARTNERSHIP

The West Asian region has always been crucial for India. The relationship with Saudi Arabia
is one of the key pillars of India’s West Asia policy.

Published and Produced by

Diplomatist Magazine
an imprint of L.B. Associates (Pvt) Ltd
in association with the Embassy of India, Riyadh, Saudi Arabia
DISCLAIMER: The views and opinions expressed in this magazine are solely those of the authors and do not necessarily reflect
those of the editors or publisher. Although all efforts have been made to ensure the complete accuracy of text, neither the editors
nor publisher can accept responsibility for consequences arising from errors or omissions or any opinions or advice given.
Email: info@diplomatist.com I Website: www.diplomatist.com
 Ambassador

January 15, 2017

Message

I
am happy to learn that the "Diplomatist" magazine is bringing out this special edition covering
various aspets of bilateral relations between India and Kingdom of Saudi Arabia. The growing
engagements between our two friendly countries certainly need special focus as it is of interest
to both academic and business communities of the two countries.

India and Saudi Arabia enjoy cordial relations reflecting the centuries old economic and socio-cultural
ties. Since the establishment of diplomatic ties, the two countries have been engaged at the highest
levels, raising the bilateral relations to the 'strategic partnership' and enhancing cooperation, inter alia,
in political, economic and security realms. The visit by Hon'ble Prime Minister Shri Narendra Modi
to Riyadh in April 2016 is seen as a turning point in our growing engagements with the Kingdom of
Saudi Arabia, which has further augmented our existing multi-faceted bilateral relations.

I wish the team of "Diplomatist" magazine every success in this endeavor.

 INDIA & SAUDI
ARABIA TIES
ZOOMING AHEAD
BY CAUVERY GANAPATHY

IV
 SPECIAL REPORT

C
ontinuity has been an abiding characteristic of Indian benefits and of guaranteed continuity of a stable buyer-seller
foreign policy over the last seven decades. What this tie. India has been a long-term buyer of Saudi crude supplies,
has effectively meant is that any re-orientations acted while New Delhi has found Riyadh to be and present a critical
upon by the diplomatic establishment in India are seldom guarantee in its strategic energy partnership, a pertinent concern
radical. While the charges of deliberate neglect of any bilateral in the pursuit of its long-term agenda. India also believes that
relationship may not be levelled against New Delhi, the strategic energy cooperation with its largest oil supplier will
fervour of engagements have, however, varied over time and help achieve its objective of maintaining a strategic crude oil
there have been troughs of highs and lows in many ties. Some reserve of five Million Metric Tons (MMT) to meet any future
relationships, however, have enjoyed a persistent vibrance. exigencies. During his visit to Riyadh in 2010, the then Prime
India’s ties with Saudi Arabia is an instance of such lasting ties. Minister Manmohan Singh had proposed a comprehensive
Rhetoric and optics have often overwhelmed narratives in energy partnership between the two countries and moving
the discourse on international affairs, and the focus upon India’s beyond the buyer-seller relationship. Prime Minister Narendra
Look East Policy may well have appeared to have been at the Modi’s visit has further accelerated this movement with the
cost of New Delhi’s focus on the Gulf countries. However, a two countries agreeing to deepen ties in energy infrastructure
closer scrutiny would testify that India’s interests in West Asia and undertake joint ventures in the energy sector. At a time
are so inherent and entrenched, that the relevance of ties like when Riyadh has been losing its market share with countries
the ones with Saudi Arabia would always feature as critical. such as China and the United States, it has emerged as the top
As is the wont of international affairs, the focus on regions supplier of crude oil to India, supplanting Iraq, a significant
and specific countries have waxed and waned depending upon
contemporary realities and the needs of the hour. The bilateral
ties between New Delhi and Riyadh have also represented
such changes, and yet, there exists a continuing interest the
two countries have had in maintaining robust engagements.
Relevance of a country to another is typically based on
one of three factors or various permutations of them, viz., a
shared interest, a need or a concern. India-Saudi Arabia ties
and their growing engagement is based upon a combination
of these three indices. The first two factors have combined
in the fact of the two countries sharing substantive historical
and civilisational ties, which have been built upon to cultivate
crucial economic connections. Saudi Arabia is home to the
largest Indian diaspora in the world. Nearly 2.75 million Indian
expatriates have been making a very valuable contribution to
the Saudi workforce and economy, while also being responsible
for substantive remittances to the Indian economy. Bilateral
trade between the two countries stands at almost $40 billion.
With its holy sites, Saudi Arabia also bears great importance to
a country which houses the second largest Muslim population
in the world. Nearly 400,000 Indians go to the country for Hajj
or ‘Umra’ every year.
As India’s fourth largest trading partner, New Delhi’s
relations with Saudi Arabia have an important economic
dimension to complement the socio-cultural and historical
sinews. Energy still remains a pivotal factor in India-Saudi
Arabia relations. Saudi Arabia supplies over 20 percent of
India’s oil requirements and plays a vital role in India’s energy
security. In 2015, India met 80 percent of its oil demand
with imports and one-fifth of these came from Saudi Arabia
- currently the largest exporter of oil and the second largest
producer of the commodity - which supplied 34.49 million PM Narendra Modi meeting the King Salman bin Abdulaziz
tons of crude oil to India. The relationship between the two Al Saud of Saudi Arabia, at the Royal Court, in Riyadh,
countries with regard to energy trade is one of assured mutual Saudi Arabia on April 03, 2016

V
 SPECIAL REPORT
development in cementing the strategic energy partnership
between the two countries.
Cooperation in the fields of counter-terrorism and anti-
piracy operations has been an important part of India’s ties
with Saudi Arabia in recent years. The extradition agreement
between the two countries has greatly aided the cause of
India’s fight against terrorism with Riyadh handing over
individuals wanted in India. Security cooperation between the
two countries has also been enhanced by way of their efforts
on curbing money laundering and terrorism financing. The
joint statement between the two countries - signed during PM
Modi’s 2016 visit to Saudi Arabia - additionally exhibits intent
to increase ‘exchange of visits of ships and aircraft and supply
of arms and ammunition and their joint development.’
During King Salman’s visit to India in 2014, in the capacity
of the Kingdom’s Defense Minister, the two countries signed an
expanded defence cooperation agreement. The joint statement
demonstrates a considerable increase in cooperation between
India and Saudi Arabia on matters pertaining to defence and
strategic affairs.
Saudi Arabia’s importance to India, over decades (and
centuries in several cases) has been a positive one - because
of trade, religious travel, migrant workers, remittances and oil.
Often a country’s engagement with another - or any change in
the engagement - may be traced to dependent variables such
as the amount of interest being shown by a third country. In
India’s case, China’s recent focus on Saudi Arabia and the
Gulf in general is of relevance and is a factor that must also
be taken cognizance of. The Chinese premier’s visits to Iran,
Egypt and Saudi Arabia in 2016 were emblematic of a renewed
vigour in Beijing’s pursuit of the region, and although it would
be difficult to accord it a causal value, it may be pertinent to
underline in New Delhi’s reading of changing dynamics within
the Gulf.
Saudi Arabia, and the region, in general, has also been
pivoting towards Asia in many ways. The reasons for this are
varied, and may be traced to several changes that have been
occurring in the international system, such as the changes in
the traditional partnerships, changes in energy/hydrocarbon
dynamics and the apparent reduction of Western dependence
on energy resources from the Gulf in light of the shale gas
revolution, the resultant glut in the oil markets, and general
instability in the region. These changes have led to a re-ordering
of the region’s politico-economy in many ways, and have made
it incumbent upon countries of the Gulf such as Saudi Arabia to
actively work towards diversifying their economic identity and
export basket. With this purpose, countries such as India and
China acquire a renewed significance to Riyadh’s future plans.
Saudi Arabia has its own reasons for cultivating Indian
ties. The US-Iran rapprochement is raising anxiety in Arab
states about a resurgent Iran, forcing them to reorient their
diplomacy accordingly. Reaching out to emerging powers
VI
such as India is one way to preserve the balance of power in
the region. As India’s capabilities grow, it might do more in
terms of providing maritime security, intelligence sharing,
evacuating expatriates when necessary, and contributing to
UN peacekeeping operations. It could also potentially do more
in terms of capacity building within these countries with the
support of the host governments.
PM Narendra Modi’s visit to Saudi Arabia was the fourth
by an Indian prime minister following Jawaharlal Nehru in
1956, Indira Gandhi in 1982 and Manmohan Singh in 2010.
During this visit, Prime Minister Narendra Modi signed five
new bilateral agreements with Riyadh, covering intelligence
sharing on terrorism financing, increasing private investment
and enhancing defence cooperation. Moreover, in a move of
some symbolic significance, Saudi Arabia bestowed the King
Abdul Aziz Order of Merit medal, the Kingdom’s highest
honour, on the Indian prime minister.
Saudi Arabia - a country with abundant sovereign wealth
($632 billion) and a keenness to diversify its economy - could be
an attractive partner in developing India’s ailing infrastructure.
Apart from enhancing the ease of doing business, India had
recently relaxed the norms pertaining to FDI in many sectors
- mining, construction, defence, and civil aviation among them
- and it may be of some value to consider New Delhi’s efforts
at courting Riyadh with a view to inviting more participation in
some of these sectors. Apart from being a prospective investor,
Saudi Arabia is already an important trade partner for India.
Saudi has a population of 31 million - roughly 50 percent more
than rest of the GCC states combined - and ranks tenth in the
world in terms of GDP per capita. With a large local market and
considerable purchasing power, the country will continue to be
an important market for Indian goods - particularly precious
stones, agricultural and pharmaceutical products. However,
Saudi investments in India during the last 15 years have totalled
a very conservative $53.37 million, a mere fraction of what
Riyadh could consider investing.
Dependent variables and semantics define many bilateral
ties. It would, however, be a wasted opportunity for both
countries to let the future of their ties be relegated to just
that. With India-Saudi ties, it is imperative that the cushion of
historical and civilisational ties serve as an enduring platform
and not the raison d’être going forward. The bilateral relationship
needs to focus upon more contemporary engagements, which
effectively render both countries as concerned stakeholders in
the welfare of the other. Investments and active cooperation
in a sector like energy and strategic partnerships against the
scourge of terrorism offers such avenues. ■
The author is a Fellow, Global India Foundation, a former
Visiting Fellow, University of Cambridge and also a Fulbright
Doctoral Fellow, University of California, Berkeley
 SPECIAL REPORT
INDIA-SAUDI ARABIA
TRADE RELATIONS
SKY IS THE LIMIT
BY KINGSHUK CHATTERJEE
I
ndia’s relationship with the Gulf Kingdom of Saudi Arabia
has been undergoing change at a scale that is virtually
exponential. Well into the 1970s, New Delhi’s ties with
Riyadh had been essentially limited to the necessary business
of transporting a growing number of pilgrims for the Hajj
and the ‘Umra’ (pilgrimages to the Holy Cities of Mecca
and Medina at times other than that of Hajj), India’s imports
of petroleum and other petrochemical commodities, and a
handful of other commodities of somewhat less significance.
The oil boom of the 1970s changed the face of the Gulf
Kingdom as its financial power increased exponentially, but
India was neither poised to gain from that then, nor appeared
particularly inclined to court Riyadh for investments. So much
so that Saudi Arabia, which has the largest proven reserve of
oil under active exploration, supplied a much smaller share
of India’s oil imports, well behind Iraq and Iran - India’s
principal suppliers of oil in the 1980s and 1990s. In the last
decade or so, however, Riyadh and New Delhi have begun to
engage in a manner that they are among the most important
trading partners of each other.
VII
The Rise and Rise of Bilateral Trade
The Kingdom of Saudi Arabia is India’s fourth largest
trading partner (next to China, USA and UAE), and the
single largest supplier of India’s energy imports, providing
around 20 percent of the country’s requirement of crude oil.
Indo-Saudi trade peaked in 2014, standing at $39 billion, at
a time when the global economic slowdown had reduced
prospects of growth in the Middle Eastern and South Asian
markets. 2015-16, which was not a particularly good year
for Indo-Saudi trade, saw India importing $20.31 billion
worth of crude, while exporting around $6.4 billion worth of
goods. Saudi Arabia today happens to be the eighth largest
destination for Indian exports (nearly 3% of the global total),
and India is the fifth largest destination for Saudi exports;
India is the third largest source for Saudi imports as well.
Indo-Saudi trade relationship was not even remotely this
good for a very long period of time. Even after liberalisation
of the Indian economy from the 1990s, and after Indian energy
policy was revamped so that its costs could be kept within
manageable limits, New Delhi was not keen on increasing its
 SPECIAL REPORT
total share of Saudi crude. This was principally because Indian
oil refineries used to purchase oil mostly from companies
operating in the northern side of the Persian Gulf (Iraq and
Iran), where the crude tended to be less sulphurous, rather
than those on the southern shores, (where the crude tended to
be more sulphurous). Any switchover to Saudi crude would
have required overhauling the country’s refinery technology,
which India was not in a position to bring about at that stage.
But the disturbances in the supply of oil from Iraq (on account
of the Gulf War and the UN sanctions regime that followed in
the 1990s), and Iran (due to the sanctions regime that began
to be introduced in phases from 2003, and peaked in 2010)
compelled India to diversify the sources of its energy imports,
and look towards the Gulf Kingdom, inter alia.
Riyadh was equally keen to diversify its customer base.
Mindful of the search for alternative
energy sources pioneered by the most
important customer of Saudi crude,
the USA, the Saudis reached out for
customers among the rapidly rising The possibilities
economies of Asia. China, with a more
developed oil industry and the one
of further
of the largest emerging economies, expansion of
was understandably among the first
approached by the Saudis; India was a the range and
very close second. So far as the Saudis
are concerned, between the two of them
volume of
New Delhi and Beijing are expected to India’s trading
compensate for the market lost to cleaner
energy options in the developed world. relationships are
Consequently, over the last decade, Saudi
share of India’s net oil imports have
quite considerable
increased from less than 10 percent to
nearly 20 percent.
Oil and Other Things: Imports and Exports from the
Kingdom of Saudi Arabia
India’s imports from Saudi Arabia are, predictably,
dominated by petroleum and petro-products - more than $27
billion worth (more than 90% of commodities). Of this, the
most important commodity happens to be petroleum itself,
standing at $23 billion (nearly 80% of the entire Indian import
basket from Saudi Arabia); also included are natural gases
and hydrocarbon (around 4%), polymers, and other sorts
of products along the downstream of fossil fuel industry,
industrial and organic chemicals and metal.
Riyadh, however, is keen on expanding the commodity
basket, by including non-oil commodities in the kitty. One
of the leading contenders in this regard happens to be the
Saudi automobile industry producing brands such as Renault,
Mercedes and most importantly Volvo under international
VIII
manufacturing licence. Given that the automobile market
in India has a ready demand for such brands, the Saudis are
ambitious enough to think of trying to enter the Indian market.
Indian exports to Saudi Arabia, amounting to around $7
billion in 2015, included refined petroleum (approximately
$2 billion), cereals (over $1 billion), machineries, iron and
steel, automobiles, basmati rice, electronic equipment,
etc. Major areas of trade promotion have been identified
in telecommunications, pharmaceuticals, health services,
information technology, biotechnology, agriculture,
construction projects, energy and financial services. With
regard to the last, a landmark deal was signed during 2016,
as a part of the visit of Prime Minister Narendra Modi to the
Kingdom.
The possibilities of further expansion of the range and
volume of India’s trading relationships
are quite considerable. For a major
oil producing country, Saudi Arabia
has little by way of refinery capacity.
Riyadh’s deepening relationship with
China is in fact premised greatly upon
China’s earmarking a part of its refinery
capacity available to Riyadh. India
already provides such services, and could
expand the range of such services even
further in the future.
What Drives the Caravan: The
Human Factor
For nearly three decades after 1947,
India’s trade relationship with the
Kingdom of Saudi Arabia was not
worth a mention. Till as late as the
mid-1960s, given the stranglehold on
global exploration, production and
distribution of oil enjoyed by the Western oil majors, most
of the oil revenue was taken by the oil companies rather than
the Kingdom itself. Accordingly, Saudi purchasing power
was proportionately much less than it is today. From the
1970s, as Riyadh successfully asserted its sovereign control
over the Saudi oil industry, steadily replacing American and
European functionaries with less expensive Arab and other
Asian counterparts, the dynamics of Saudi engagement with
India also began to change. By the mid-1980s, a substantial
number of Indian expatriates found employment in the
Kingdom, both in the hi-tech oil industry, as well as in civic
and industrial infrastructure expanding at an exponential
pace - in both high- and low-skill jobs. Today, over 3 million
Indian expatriates work in the Kingdom, which is the single
largest group of Non-Resident Indians (NRIs) domiciled
anywhere in the world.
 SPECIAL REPORT
The steady growth in the size of the Indian migrant
community in the Gulf kingdom allows India a major
opportunity to expand the scale of her commercial relations
there. With a huge body of expatriates generating demand
for commodities that are not locally available, India is
uniquely suited to satisfying a large part of that demand - as
the ever increasing volume of exports of Basmati rice and
Indian textiles clearly indicate. Another very good example
in this respect is the trajectory of the entertainment sector.
Unlike elsewhere in the Middle East, there are no theatre
screenings of Bollywood films in Saudi Arabia, on account
of strict implementation of the Shari‘ah injunctions against
‘temptations.’ However, private screenings are not cracked
down upon, allowing Indians (and Pakistani and Bangladeshis
as well) to tune in to films and other means of entertainment
coming out from the subcontinent. Most importantly,
the viewership then extended to Saudi nationals as well,
generating a demand for dubbed versions of Indian films
and TV programmes. At present no less than 35 channels
beam dubbed content generated by the Indian entertainment
industry into Saudi Arabia.
There is considerable scope for collaboration in other
sectors of the industry as well. The Saudi Arabian General
Investment Authority (SAGIA) issued 426 licences to Indian
companies for joint ventures/100 percent owned entities till
2010, projected to bring in total investment of $1.6 billion
in Saudi Arabia. These licenses were for projects in diverse
sectors such as management and consultancy services,
construction projects, telecommunications, information
technology, pharmaceuticals, etc. Moreover, several Indian
PM Narendra Modi with the Saudi Minister of Foreign Affairs, Mr. Adel Al Jubeir,
in Riyadh, Saudi Arabia on April 03, 2016
IX
companies have established collaborations with Saudi
companies and are working in the Kingdom in the areas
of designing, consultancy, financial services and software
development.
Saudi Arabia - Major Source of Energy
The most important component of Indo-Saudi trade
relations even today, however, continues to be in the energy
sector. Being the third largest economy in the world, India
happens to be also the third largest country in terms of total
primary energy consumption in the world, and also the third
largest in terms of total oil consumption (over 200 million
barrels). Energy requirement for the economy is projected
to grow further and is expected to double by 2040. Since
India happens to import over 45 percent of its total energy
requirements, considerations of energy security necessitate
that India obtains steady and economical access to such
energy resources.
Saudi Arabia, on the other hand, is the world’s largest oil
producer, with also the second largest proven reserves ($268.3
billion barrels), all of which are located in easily accessible
wells - hence more cost-efficient than reserves in any other
country. The geographical distance is also not less for India
(by contrast with three of the top five countries, i.e. Venezuela,
Russia, Canada), which brings down transportation costs
considerably. These make the Gulf kingdom a natural choice
for India’s energy security concerns.
There is yet another factor that explains the growing
proximity between New Delhi and Riyadh. The global oil
market went into a tizzy in the last couple of years with the
 SPECIAL REPORT

discovery of shale oil and fracking technology, which has
virtually halved global oil prices, and allowed one of the
largest consumers of Saudi oil - the United States of America
- to reduce its dependence on Middle Eastern oil. Bereft of its
steadiest prop in the world market, Riyadh has turned to China
and India as its replacement for the American demand. As
indicated earlier, Indian refineries were more accustomed to
non-sulphurous crude from the northern side of the Gulf than
the sulphurous sort from the southern
shores. Riyadh began assisting the
gradual switchover of Indian refinery
technology by weaning Reliance
Petrochemicals away from refining
non-sulphurous crude. Riyadh has
If India had actually
also expressed keenness to invest in opened its petroleum
setting up, or investing in, refineries
in India - much like it has in its other sector to Riyadh, as
major partners - viz. China, Japan,
South Korea. If India had actually
it promised in 2016,
opened its petroleum sector to the industry would
Riyadh, as it promised in 2016, the
receive a much
industry would receive a much needed financial boost than it
otherwise would at a time of economic slowdown.
Leaning towards Haramayn:
Delhi and Riyadh Declarations
The progressively deepening relations between Delhi
and Riyadh rest on the Delhi Declaration of 2006 followed
up by the Riyadh Declaration of 2010, which elevated the
relationship to the status of a strategic
relationship.
The Delhi Declaration of 2006,
signed by the Saudi King Abdullah
bin Abdulaziz ibn Saud was the first
agreement ever signed by him in
person with the then Prime Minister
Manmohan Singh. It committed the
two sides to regular exchanges of
high-level bilateral visits to expand the
scope of cooperation; to expand and
diversify mutual trade and investments
in cooperative and joint ventures,

needed financial boost

than it otherwise
would at a time of
economic slowdown

X
 SPECIAL REPORT
both in the public and private sectors, in the upstream and
downstream oil and gas sectors in India and Saudi Arabia as
well as in third countries; it also broached the possibility of
Saudi investments in oil refining, marketing and storage in
India, subject to commercial viability. The two governments
also undertook to encourage and support entrepreneurs in both
countries to harness each other’s strengths. New Delhi and
Riyadh also undertook to work for closer cooperation in the
field of technology, in particular in the field of information
and communication technology, agriculture, bio-technology,
and non-conventional energy technologies. India undertook
to assist Riyadh in upgrading its educational infrastructure,
primarily with reference to technical education and ICT. India
also assured of collaboration in health and pharmaceutical
sector as well. Perhaps the most significant part of the Delhi
Declaration pertained to the mutual
commitments regarding terrorism and
security - with particular reference to
transnational crimes such as money
laundering, drugs and arms smuggling India undertook
in a sustained and comprehensive
manner - a commitment that resulted in
to assist Riyadh
the arrest of the LeT militant of Indian in upgrading
origin, Abu Jundal, from Saudi Arabia
in 2012. its educational
At the Riyadh Declaration of 2010,
made during the then Prime Minister
infrastructure,
Manmohan Singh’s Riyadh visit, the primarily with
two countries decided to raise their
cooperation to a strategic partnership reference to technical
defence and political areas; they also
education and ICT
c o v e r i n g s e c u r i t y, e c o n o m i c ,
undertook to help each other develop
as knowledge-based economies based
on advances in the areas of information
technology, space science and other frontier technologies and
promote further development of information technology and
services, science and technology. The Declaration emphasised
the importance of strengthening the strategic energy
partnership based on complementarities and interdependence,
as outlined in the Delhi Declaration, including meeting
India’s increasing requirement of crude oil supplies. Three
agreements pertaining to transfer of sentenced persons,
cultural co-operation were signed.
In 2016, as a follow up to the earlier Riyadh Declaration
during Prime Minister Modi’s visit to the Kingdom, five
more agreements were signed including those regarding
cooperation in intelligence sharing related to terror financing
and money laundering, as well as a labour cooperation
agreement and another to promote bilateral investments in
the private sector. The two sides also agreed on the need
XI
to intensify defence cooperation through mutual visits by
military experts and joint military exercises.
These three sets of treaties and memoranda of
understanding are clearly suggestive of a close strategic
alignment between New Delhi and Riyadh. Considering the
close ties between Riyadh and Islamabad this would, in the
past, have been anathema to New Delhi. Indeed, Riyadh has
repeatedly assured Islamabad that its intimacy with India
(which is a strategic ally) need not bother Pakistan (which
is a friend). The strength of this new alignment was tested
somewhat when India was invited to be a part of the Saudi-led
intervention force in Yemen, but New Delhi turned it down.
Delhi’s refusal to be a part of this venture was presumably
on account of the need she has of maintaining a tenuous
balance between Riyadh and Tehran. But unlike Islamabad,
which also turned down joining the
intervention force, Delhi’s wriggling
out of the situation did not cause
any flutter in Riyadh, and may have
actually reinforced Saudi resolve to
wean New Delhi away from Tehran,
and might in the future land India with
better terms on other issues as well. In
a similar situation, India might be able
to similarly try to wean Riyadh away
from Islamabad. The deeper a country’s
economic and strategic ties get with
another, their mutual leverage in each
other’s business also increases.
Conclusion
In just about all the various aspects
of India’s relationship with Saudi
Arabia, the two capitals have never
had it this good. India’s economic
connections with the Gulf Kingdom have progressively
expanded in value and volume; Riyadh has become
progressively more amenable to India’s security concerns,
and has begun cooperating in matters of hunting down
fugitives from Indian justice at an unprecedented scale.
Coming on top of the pivotal role Saudi Arabia plays in
India’s energy security, this has overcome the frostiness that
used to characterise the country’s relationship with New
Delhi. Considering that the global economy does not show
any signs of improvement, the burgeoning Indian market
is one of the few certainties available before Riyadh in the
foreseeable future. It is time to make hay while the sun shines
in the deserts of Arabia. ■
The writer is Associate Professor, Department of History,
Calcutta University
 SPECIAL REPORT
INDIANS IN SAUDI ARABIA
REINFORCING
THE CULTURAL CONNECT
BY PRIYA SINGH
I
ndia’s relation with the kingdom of Saudi Arabia is
embedded in history. The two nations were connected
by the Indian Ocean some 5,000 years ago. Trade and
cultural links between India and Saudi Arabia date back to
the third millennium BC. The two nations have enjoyed
special relations based on several millennia of civilisation
and cultural linkages and people-to-people contacts.
There is a protracted history of academic, political and
commercial interactions between the two nations, which
have left lasting impression on both cultures. In the realm of
trade, exchange of food stuffs and cloth in return for dates
and pearls facilitated the evolution of people-to-people
contacts. Indian traders constructed townships along the
Gulf coast and Arab merchants reciprocated by establishing
themselves along India’s western coastline. The Gulf region,
PM Narendra Modi with the prominent Saudi
business leaders at Saudi Chambers of Commerce,
in Riyadh, Saudi Arabia on April 03, 2016
XII
therefore, has witnessed continual maritime contacts with
Gujarat and the west coast.
Arab traders had a virtual monopoly over the spice trade
between India and Europe till European colonialism took
over. In medieval times, the Indian expertise in medicine,
mathematics and astronomy was greatly respected by Arab
scholars who in, due course of time, incorporated it as part
of their own scholarly convention. On the other hand, India
acquired and absorbed a great deal from the Arab culture,
which has subsequently become an intrinsic component of
Indian philosophy. Thus, there was a mutually beneficial
exchange of goods and ideas, enriching their culture
and society. One of the greatest impacts has been in the
realm of language that has left an indelible mark on both
cultures. Islam constituted another binding factor. With
 SPECIAL REPORT
the spread of Islam, Arab traders and Sufi saints from the
Gulf region added another dimension to this relationship.
Indian Muslims, since the time of the Mughal Emperor
Shah Jahan, formed the largest group of pilgrims to Mecca
and Medina. Even to this day, a large number of Indians
undertake religious pilgrimages to the region.
Formal diplomatic relations between India and Saudi
Arabia was established after India gained independence
in 1947. Relations between India and Saudi Arabia took a
new turn in terms of bilateral association and cooperation
based on trust, alliance and mutual benefit permeating all
levels and spheres, be it societal, cultural, and literary,
security/foreign policy related, with political or economic,
orientation. The most significant corollary of the informal
historical connect, which was in due
course of time formalised by the state
machinery after 1947, is best reflected
in the level of comfort and innate
understanding that the people of the Indians in Saudi
two societies and polity display in their
personal interactions.
Arabia have, in
general, adapted
Cementing the Linkages
Until the 1960s, when the Saudi themselves to the
economy was still underdeveloped, the
‘Indian connection’ was regarded as the
host environment
most crucial political, economic and and have been
cultural connect between the people of
the Arabian Peninsula and the rest of well accepted by
the world. In the aftermath of the ‘oil
boom,’ the number of Indians employed
the host country
in Saudi Arabia increased by leaps and
bounds. Today, there are an estimated
three million Indian citizens living in
Saudi Arabia. The Indian diaspora in Saudi Arabia includes
professionals such as doctors, engineers, and chartered
accountants, nurses and paramedics who are employed
both with the government and in the private sector. They
are usually time-bound, contractual employees.
Another category of Indians working in Saudi Arabia are
the non-professionals that encompass white collared jobs
such as clerical and secretarial positions and accountancy
jobs. They constitute the skilled and semi-skilled migrants.
The majority of Indians in Saudi Arabia are blue collared
workers such as the technicians working on project
sites, industrial and agricultural establishments and the
domestic workers. There is the category of businessmen
and entrepreneurs in addition to the pilgrims who come
to perform Haj or Umrah (pilgrimage to Kaaba not during
Haj). It was estimated that more than one and a half million
XIII
Indians participated in the annual Haj pilgrimage in 2015.
India has been home to a sizeable Muslim population, which
has continued with the tradition of making the journey to the
holy cities of Mecca and Medina to perform Haj and Umrah.
Indians in Saudi Arabia have, in general, adapted
themselves to the host environment and have been well
accepted by the host country. The Indian community is
viewed as conducive to the growth and development of the
Saudi economy. By and large, they have also adjusted to
the norms and customs of the Saudi Arabian society. The
Indian community in Saudi Arabia has no political role to
play. However, the Indian diaspora in Saudi Arabia have
been able to maintain its social and cultural identity and in
the process has played the role of a bridge that connects
and deepens cultural bonds between the
host and home countries. A number of
International Indian schools have been
set up in Riyadh, Jeddah, Damman,
Jubail, Taif, Buraidah and Tabuk.
The Indian community in Saudi
Arabia has been able to harmoniously
cope with their multiple identities and
forge a link between the home and
the host countries in their individual
and collective capacities. The Indian
community has played a constructive
role in showcasing India as an effective
and attractive destination for medical
tourism. So beyond the realm of
political strategy as in combating
terrorism, economics and remittances,
there is a crucial role that the Indian
community in Saudi Arabia continues
to enact in the social, educational and
cultural realm as their forefathers had performed in the
annals of history. The community has been rather successful
in cultivating a positive image of India in Saudi Arabia and
in promoting India-Saudi relations.
Prospects and Potentialities
Since the 1990s, there has been a concerted, proactive
effort on the part of the political dispensation to improve
relations between the two nations. Saudi Arabia took the
initiative by supporting the move to grant India an Observer
Status in the Organisation of Islamic Cooperation (OIC)
and by expanding collaboration with India to fight the
infrastructure of terrorism in West Asia. Again in 2006,
King Abdullah of Saudi Arabia paid a visit to India, which
was remarkable in the sense it was the first visit by a Saudi
monarch to India in 51 years.
 SPECIAL REPORT

The Riyadh declaration

of 2010, which was signed
between the then Prime Minister
Manmohan Singh and King
Abdullah of Saudi Arabia,
formulated a roadmap that
envisioned a closer Indo-Saudi
bilateral partnership. In April
2016, Prime Minister Narendra
Modi paid a visit to the kingdom
of Saudi Arabia. The professed
objective was to enhance security
and economic ties between the
two nations. Nonetheless, PM
Narendra Modi interacted with
the Indian community in Riyadh
in two separate but significant
meetings. There was a formal
meeting with approximately
600 prominent Indians in the
Saudi capital and an interactive
PM Narendra Modi with the Minister of Health & Chairman of Board of Saudi Armaco, Eng.
meeting with approximately Khalid Bin Abdulaziz Al-Faleh, in Riyadh, Saudi Arabia on April 03, 2016
1,000 odd blue collar workers, who
constitute around 80 percent of three
million-strong Indian diaspora in politics and economy require India
Saudi Arabia. The significance of and Saudi Arabia to enter into a
the interactions was to appreciate Nonetheless, PM relationship of greater interdependence
and highlight the actual role that the and cooperation. The prospects and
sizeable Indian community plays in Narendra Modi possibilities appear infinite, albeit
the bilateral relationship as well as to
encourage a more proactive role.
interacted with the dependant to a great extent upon the
goodwill and perceptiveness of both
Earlier in the year (January 7-9, Indian community sides. It is in the realm of cultivating and
2016), the Embassy of India in Riyadh fostering goodwill that the role of the
celebrated the Pravasi Bharatiya Divas in Riyadh in diaspora is given credence and assumes
(PBD) in which several members of the
Indian diaspora participated. Eminent
two separate significance.
In addition to the economic, political
members of the Indian community but significant and strategic/security issues, it would
working in different fields in the be beneficial if the Indian state exploits
Kingdom of Saudi Arabia took part in meetings the full potential of the ‘soft power’
the panel discussions on (i) Diaspora at its disposal. In keeping with the
contributing to India’s Social and historical precedence, India could very
Developmental Efforts and (ii) Making well engage with the Kingdom of Saudi
India the Preferred Destination for Holistic Healthcare, Arabia by way of cultural and scholarly exchanges and
organised by the Mission for celebration of PBD. Thus, facilitating greater interface among the students, media
politics and economics shared centrestage with cultural and the diaspora. The initiative should be to look beyond
dynamics. strategy (keeping its primacy intact) in the domain of
Saudi Arabia is vital in the Indian scheme of affairs not reinforcing the cultural dynamics in the Indian-Saudi
only due to reasons of energy security, but also because linkages. ■
the Kingdom of Saudi Arabia offers India with a distinct
and definite platform for greater access to other countries The writer is Research Scholar at the University of Calcutta
in the region. In a nutshell, historical and civilisation and a commentator on West Asian politics; she can be
bonds coupled with the practical reality of contemporary reached at priyasingh70@gmail.com)

XIV
 NEW OPPORTUNITIES
FOR INVESTMENTS WITH
‘MAKE IN INDIA’

XV
XVI
VI
 SPECIAL REPORT
The success of the Make in India campaign is that
it tapped and exploited the potential offered by
the country’s intrinsic strengths; which are India’s
rich demographic dividend, burgeoning demand
and vibrant democracy
L
aunched by Prime Minister Narendra Modi on
September 25, 2014, the ‘Make in India’ initiative
catapulted India into the global spotlight as its
economy spun into growth mode backed by Government
reforms and positive investment sentiment. More than
two years later, the mood about India remains positive
and optimistic despite global economic headwinds. To
quote Christine Lagarde, Managing Director, International
Monetary Fund1, India remains a ‘bright spot’ in a world
economy buffeted by China’s relative slowdown, low oil
prices and tightening financial markets.
The success of the Make in India campaign is that it
tapped and exploited the potential offered by the country’s
intrinsic strengths; which are India’s rich demographic
dividend, burgeoning demand and vibrant democracy. The
3Ds - Demography, Demand and Democracy - along with
effective and efficient governance, improvement in ease of
doing business and commitment to a reform process has led
analysts to conclude that India could well be on its way to
becoming the world’s third largest economy by 2030.2
Since the launch of Make in India, the country has moved
steadily towards dismantling red tape and laying down a red
carpet to welcome investors. The Government has identified
25 sectors where there will be focussed intervention. Foreign
Direct Investment (FDI) policy has been liberalised. There
is a concerted effort to modernise the industrial and urban
landscape to ensure that it is in sync with the country’s
global aspirations. The Make in India campaign envisages
the development of Industrial Corridors and Smart Cities that
will make the Indian hinterland buzz with economic activity.
X IIII
XV
XVII
India’s Potential as a Consumer
India, with 50 percent of its population below the age
of 25 and more than 65 percent below the age of 35, has
the largest youth population in the world3. By 2022, the
average Indian’s age will be 29 years. India’s working
population is expected to rise by 100 million people by the
year 20254. From an investor’s point of view, India thus
represents a market with great consumption potential. Even
more encouraging is the fact that the dependency ratio in
India too is declining. Between 2010 and 2015, India’s
dependency ratio is estimated to have declined from 56.3
to 52.45, further boosting future consumption potential
and demand. The period of decline in India’s dependency
ratio is the window of opportunity when investors can
reap the advantages of the demographic dividend. India’s
demographic dividend has the potential to produce an
additional two percent per capita Gross Domestic Product
(GDP) growth each year for the next twenty years, states a
report by the International Monetary Fund6.
Ease of Doing Business
The objective of ‘Make in India’ is to create 100 million
jobs and raise the share of manufacturing to 25 percent of
India’s GDP. This requires better ease of doing business and
the Government of India has responded to this challenge
with a series of steps to help faster project execution. This
includes reforms in approvals and clearance requirements and
processes. India has also rolled out an online system designed
to speed up approvals for development projects that might
have an environmental impact.”7
 SPECIAL REPORT
Creating New Infrastructure
Industrial Corridors: India is steadily building a world
class infrastructure that will speed up economic growth and
generate incomes and employment. The Government has
launched five industrial corridors that crisscross and connect
the country. The industrial corridors will see the setting up
of high speed rail and road transport; state-of-the-art ports;
modern airports; consolidated industrial parks with logistic
facilities; special economic zones; knowledge parks and
complementary infrastructure such as townships/real estate.
Manufacturing will be the main economic driver in the
industrial corridors. Smart Cities along the industrial corridors
will house the new workforce and decongest India’s urban
housing scenario.
Developing industrial corridors between major cities is
a key economic strategy for the Indian Government. Given
the interdependence in the economy, the ripple effect of a
thriving industrial corridor will have an impact on the entire
country. In conjunction with the Make in India initiative, this
will result in India having an industrial base that is served
by world-class infrastructure. The success of the initiative is
estimated to raise the share of manufacturing in India’s GDP
from the current levels of 15-16 percent to 25 percent by 2022.
Power: India is the third largest producer and fourth
largest consumer of electricity in the world. The country also
has the fifth largest installed capacity in the world. With the
demand for cleaner, greener energy sources, the country has
invested deeply in renewable energy including wind, solar
and nuclear. Wind energy generation is expected to double
to 20 GW, while solar power generation capacity will go up
by five times to 100GW by 2022.
This thrust towards greater energy generation to feed
the power hungry country has been backed by significant
XV
X
XVIII
VII
III
reforms in the power sector. The Government has de-licensed
the electrical machinery industry and also allowed 100
percent FDI in the sector. Efforts have been made to improve
accountability and transparency for investors in the sector. For
example, the Government has launched Tarang (Transmission
App for Real Time Monitoring & Growth), a mobile app and
web portal for electronic bidding for transmission projects.
Other support planned for investors include setting up a
$400 million World Bank fund to protect renewable energy
producers from payment delays by power distribution firms
and two funds of $1 billion each which would give investment
support for stressed power assets and renewable energy
projects in the country.
With an investment potential of $223.67 billion in the
next 4–5 years, the Indian power sector has generated a lot of
investor interest. Around 293 global and domestic companies
have committed to generate 266 GW of solar, wind, mini-
hydel and biomass-based power in India over the next 5–10
years. Between April 2000 and March 2016, the industry
attracted $10.48 billion in FDI. Global power companies/
financiers who have expressed interest in investing in the
Indian power sector include French major EDF Energies, the
World Bank’s International Finance Corporation, Germany-
based KfW Development Bank, CLP India, Canada’s second
largest pension fund, Caisse de depot et placement du Quebec
(CDPQ), Sembcorp Industries, SunEdison.8
Investment Opportunities in Focus Sectors: Among
the 25 ‘focus sectors’ identified for investments are
telecommunications, automotive, textile & apparel, tourism
& hospitality, electronics & IT, food processing, chemicals,
aviation, biotechnology and others. The Government has
offered several incentives to promote greater investment in
manufacturing. These include9:
 SPECIAL REPORT
• Sector specific subsidies for promoting manufacturing.
For example in order to boost manufacturing of
electronics, the Government provides capital subsidy of
up to 25 percent for 10 years;
• Incentives are provided for setting up units in Special
Economic Zones or in special areas like the North East
region and Jammu & Kashmir;
• An investment allowance at the rate of 15 percent is
allotted to manufacturing companies that invest more than
$4.17 million in any year in new plant and machinery;
• Incentives for expenditure related to R&D;
• Under the foreign trade policy exports have been provided
with several incentives like duty drawback and duty
remission schemes;
• Different States in India offer additional incentives for
industrial projects.
These policies have created an enabling environment
for manufacturers in the country and they have responded
positively. A United Nations Industrial Development
Organization (UNIDO) report ranked India sixth among the
world’s 10 largest manufacturing countries. India previously
held the 9th rank. The growth rate of Manufacturing Value
Added (MVA) of India was 5.5 percent in 2014 and 7.6
percent in 2015.10
The Global Response to India’s New Economic Thrust
• World Bank Report: In its annual report, Doing
Business 2016, the World Bank ranked India 130 out of
189 countries, moving up four places from last year’s
adjusted ranking of 134. The report attributes this to
improvement in India’s position in three significant
parameters – starting a business, getting construction
permits and accessing electricity.
• US International Trade Commission: The US
International Trade Commission (USITC) 2015
report acknowledges that policy changes in FDI,
tariffs and customs procedures have helped to
improve India’s investment climate.11
• Transparency International: The introduction
of transparent decision-making process has had
an impact on India’s ranking in the Corruption
Perception Index (2015) released by Transparency
International. India ranks 76 out of 168 countries in
its latest Corruption Perception Index.12
• World Economic Forum: India jumped 16 places,
for the second time in two consecutive years, in the
Global Competitiveness Report 2016-17 released by
the World Economic Forum. India was ranked 39 out
of the 138 countries. The report points out that India
had made significant progress on infrastructure, one
of the pillars where it ranked badly earlier. India led
among South Asian countries and was ranked second
XIX
among the BRICS nations.
• India jumped 13 positions and was placed second in
retail potential in the 2016 Global Retail Development
Index (GRDI). India was rated 15 in the 2015 Global
Retail Development Index.13
• India climbed 15 spots, from 81 last year, to 66 in the
Global Innovation Index (GII) and maintained the top
spot in the Central and South Asia regions.14
India is today strongly committed to the liberalisation
process. This includes providing a transparent ecosystem
for investors. The demonetisation measure announced by the
Government on November 8, 2016 is a step in this direction.
The move is expected to reset the Indian economy with long
term gains in terms of a clean and digital economy, thus giving
a further incentive for foreign investors to move to India. ■
Sources
1 http://economictimes.indiatimes.com/news/economy/
indicators/india-remains-bright-spot-in-global-economy-
imf-chief-christine-lagarde/articleshow/51696717.cms
2 Research report by the UK-based Centre for Economics
Business and Research (CEBR).
3 United Nations Population Fund’s (UNFPA) State of the
World’s Population report
4 Macquarie Research and Global Demographics.
5 UN’s World Population Prospects: 2015 revision.
6 IMF Working Paper, The Demographic Paper: Evidence
from Indian States by Shekhar Aiyar and Ashoka Mody.
7 Make in India: Turning Vision into Reality: A report by
the Boston Consulting Group and CII.
http://www.bcgindia.com/documents/file176705.pdf
8 India Brand Equity Foundation, Power Sector in India
– Solar Renewable and Wind Energy Sectors.
9 http://www.makeinindia.com/article/-/v/direct-foreign-
investment-towards-india-s-growth
10 Industrial Development Report, 2016, UNIDO. http://
www.hindustantimes.com/business/india-ranked-6th-
in-top-10-largest-manufacturers-list-un-report/story-
l15SiTiube3iosINvAKueK.html
11 http://www.businessinsider.in/Ease-of-doing-business-
US-praises-PM-Modi-for-making-India-a-better-
investment-destination/articleshow/49504728.cms
Sources:
www.makeinindia.com
http://www.dmicdc.com/
12 http://www.thehindu.com/news/international/India-ranks-
76-in-Corruption-Perception-Index/article14022729.ece
13 The 2016 Global Development Retail Index, 2016 (AT
Kearney)
14 Global Innovation Index 2016 study by Cornell
University, INSEAD and the World Intellectual Property
Organization (WIPO).
XX
XX
 SPECIAL REPORT
INDIA
THE GLOBAL FDI DESTINATION
“We have transformed India into one of the most open
economies in the world today. Growth is strong and we are
taking steps to keep the momentum going.”
T
he Indian Government under the leadership of Prime
Minister Narendra Modi has undertaken a slew of
reforms aimed at creating a stimulating environment
for domestic and foreign investors. Measures like the Goods
and Services Tax, the Bankruptcy Code, easing the business
environment by cutting red tape, the recent demonetisation
of 86 percent of India’s currency and subsequent stress on a
cashless, digital economy have been hailed as game changing
initiatives that in the long run will reap rich dividends for
the economy.
Over the past two years, the Government has also
initiated moves to open up the economy to foreign investors.
This includes raising caps on foreign holding in domestic
companies in ‘sensitive’ sectors like defence and insurance.
According to the Union Finance Ministry as many as 90
percent of the key economic sectors where FDI is allowed are
on the automatic route.2 The process of setting up business
in India has thus been simplified with several barriers being
pulled down by open and transparent governance.
GST: India becomes a Common Market
The Goods and Services Tax (GST), approved by the
Indian Parliament, is hailed as the country’s biggest reform
in its indirect tax structure. The implementation of the GST,
expected to be done by the year 2017, will create a mechanism
whereby there is one indirect tax for the whole nation,
making India a unified common market. The GST will benefit
manufacturers and investors by making tax compliance easy,
transparent and user-friendly. With a robust online tax system,
registration, returns and payments would become easier.
Secondly, GST will make doing business in the country tax
neutral, irrespective of the choice of place of doing business.
The subsuming of all other taxes in the GST would reduce
XXI
–PRIME MINISTER NARENDRA MODI1
the cost of manufacturing, making Indian-made products and
services globally competitive. The seamless GST imposed
across States and value chains will prevent tax cascading and
thus improve competitiveness.
The Bankruptcy Code: Easy Exit for Distressed
Companies
India’s new Bankruptcy Code is aimed at improving
entrepreneurship and easing the availability of credit.
The Code will make life easier for financially distressed
companies operating in India by providing a framework for
timely revival or resolution. Exiting is now a less cumbersome
process, thus making the Indian market that much more
attractive to investors. The Code sets deadlines for processing
insolvency cases, thereby cutting down the time it takes to
wind up a company or recover dues from a defaulter. It has
proposed a timeline of 180 days, extendable by 90 more days,
to resolve bankruptcy cases. It will also provide a specialised
resolution mechanism to deal with bankruptcy situations in
banks, insurance companies and financial sector entities.
De-licensing and Deregulation: A New Enabling
Environment
New de-licensing and deregulation measures make doing
business in India easier and simpler. The focus is on speed and
transparency in the decision making process. The complex
web of regulations that had discouraged businesses has been
replaced with a new structure that is extremely user-friendly.
The eBiz portal, a single window IT platform for services,
has been streamlined. The process of applying for industrial
license and industrial entrepreneur memorandum is now
online on a 24×7 basis. Twenty services are integrated
with the eBiz portal for obtaining clearances from various
 SPECIAL REPORT
governments and government agencies.
All departments and state governments have been asked
to simplify and rationalize the regulatory environment.
Steps taken include: filing of returns online through a
unified form; uploading a check-list of required compliances
on the ministry’s/department’s web portal; replacing all
INVESTING IN INDIA’S GROWTH STORY
• Chinese technology company Huawei has
invested $170 million to set up a new Research
and Development (R&D) campus in Bengaluru.
The campus, sprawled across an area of 20 acres,
can accommodate 5,000 engineers.
• Magneti Marelli, Fiat’s component manufacturing
arm, started operations for manufacturing of
Electronic Fuel Injection (EFI) in a joint venture
with leading two-wheeler maker Hero Moto Corp
in Manesar, Haryana.
• Hyundai Heavy Industries has partnered with
Hindustan Shipyard Limited, Visakhapatnam to
help build naval ships in India.
• Daimler India Commercial Vehicles Pvt. Ltd
(DICV), a 100% wholly owned subsidiary of
Daimler AG, Stuttgart, Germany, announced
the inauguration of its new bus manufacturing
facility in Oragadam, Tamil Nadu and unveiled
its second wave of products – BharatBenz and
Mercedes-Benz buses as well as a new range of
new BharatBenz high-power engine trucks and
BharatBenz heavy-duty tractors.
• French aircraft manufacturing company LH
Aviation signed a Memorandum of Understanding
(MoU) with Indian OIS Advanced Technologies
(OIS-AT) for manufacturing of tactical drones
in India.
• Mercedes Benz India inaugurated its second
manufacturing facility in Chakan, Maharashtra,
which will double the plant capacity to 20,000
units per annum. The total investment in the
manufacturing facility now stands over $148
million since inception.
• Taiwan’s Foxconn, the world’s largest contract
electronics manufacturer and a key supplier to
Apple Inc, has signed a pact with Maharashtra to
invest $5 billion over five years in a semiconductor
manufacturing facility.
• The electronics manufacturing sector received
a further boost, with Lenovo and Motorola
announcing their plans to manufacture
smartphones in India in a 40,000 square feet
factory in Sriperumbudur near Chennai. The
XXII
registers required to be maintained by the business with a
single electronic register; and many more. Incorporation of
companies is done in a single day instead of ten days; power
connections are provided within a mandated time frame of
15 days; and validity of industrial licenses has been extended
from 2 years to 3 years.
facility currently can create 6 million smartphone
units per year.
• Xiaomi launched local manufacturing in
Visakhapatnam in August 2015 under the
Make in India program. The plant exclusively
assembles Xiaomi phones and is Xiaomi’s second
manufacturing unit outside China.
• Japanese electronics giant, Sony, is getting back
to manufacturing in India after nearly a decade,
with plans confirmed for two models of its
television brand Bravia.
• The world’s largest internet based retailer Amazon
opened a warehouse in Pune in September 2015
taking the total count to over 21 with a cumulative
storage capacity of over 5 million cubic feet.
• Samsung, Bosch, Phillips, LG and Flextronics
have shown a keen interest in creating their
manufacturing bases in India.
• General Electric Transport and Alstom won
contracts worth a combined $5.6 billion to supply
India’s railways with new locomotives. These
foreign companies will help improve the vast
state-owned network.
• Japan announced setting up a $12 billion fund for
‘Make in India’ related projects. This investment
will be in the name of ‘Japan-India Make in India
Special Finance Facility’ that will also strengthen
the relationship between the countries.
• US chipmaker Qualcomm plans to establish an
innovation lab in Bangalore to provide technical
and engineering assistance to the selected
companies. It has launched ‘Design in India’
initiative with the aim to mentor up to 10 Indian
hardware companies that have the potential to
come up with innovative solutions.
• Schneider Electric is preparing to make India its
export hub on the back of Government policies
such as Make in India, Digital India and Smart
City Mission. Schneider Electric has 28 factories,
R&D centres and further plans to invest around
$110 million in the coming five years and will
keep investing in skill development.
(Source: www.makeinindia.com)
 SPECIAL REPORT

Attracting FDI to Key Sectors capital of Indian companies operating scheduled and non-
The Government has taken several steps to attract scheduled air transport services up to the limit of 49% of
and promote FDI in the country. Norms have been eased, their paid up capital;
policies are more transparent and regulations simplified in • In order to provide clarity to the e-commerce sector, the
order to ensure that FDI will supplement domestic capital, Government has issued guidelines for foreign investment
technology and skills for accelerated economic growth. With in the sector. 100% FDI under automatic route permitted
the easing of investment caps and controls in 15 major sectors, in the marketplace model of e-commerce;
including defence, railways and construction, new avenues • 100% FDI under Government route for retail trading,
have opened up for foreign investors. Composite caps on including through e-commerce, has been permitted in
foreign investments have also brought about uniformity and respect of food products manufactured and/or produced
simplicity across sectors in FDI policy. Steps taken include3: in India;
• 49% FDI under automatic route permitted in Insurance • 100% FDI allowed in asset reconstruction companies under
and Pension sectors; the automatic route;
• Foreign investment up to 49% in defence sector permitted • 74% FDI under automatic route permitted in brown-field
under automatic route. Foreign investment in excess of pharmaceuticals. FDI beyond 74% will be allowed through
49% has been allowed on a case government approval route;
to case basis with Government • FDI limit for Private Security
approval in cases resulting in Agencies raised to 74% (49% under
access to modern technology in
the country or for other reasons
For the period October automatic route, beyond 49% and
up to 74% under government route);
to be recorded; 2012-September 2014 Statistics show that the reform
• FDI limit of 100% (49% under
automatic route, beyond 49% (24 months prior and deregulation process have
helped make India a global FDI
government route) for defence
sector made applicable to
to Make in India), destination. For the period October
2012-September 2014 (24 months
Manufacturing of Small Arms FDI inflows stood at prior to Make in India), FDI inflows
and Ammunitions covered under
Arms Act 1959; $72.81 billion; from stood at $72.81 billion; from October
2014 to September 2016 (24 months
• FDI up to 100% under automatic
route permitted in teleports,
October 2014 to post Make in India), the figure had
increased by 47 percent to $106.98
direct to home, cable networks, September 2016 billion. In spite of global economic
mobile TV, headend-in-the-sky
Broadcasting Service; (24 months post Make turbulence, FDI continued to flow
into the country. FDI inflow from
• FDI up to 100% under automatic
route permitted in up-linking of
in India) April 2015 to September 2015 was
$24.49 billion. This increased by
non-news & current affairs TV 18 percent to $29.02 billion during
Channels, down-linking of TV the corresponding period April-
Channels; September 2016.4
• In case of single brand retail trading of ‘state-of-art’ and India continues to be among the top ten countries in terms
‘cutting-edge technology’ products, sourcing norms can be of FDI inflows globally and the fourth in developing Asia, as
relaxed up to three years and sourcing regime can be relaxed per the World Investment Report 2016 by the United Nations
for another 5 years subject to Government approval; Conference for Trade and Development (UNCTAD). ■
• Foreign equity cap of activities of non-scheduled air
transport service, ground handling services increased from Sources
74 to 100% under the automatic route; 1 A quote from a speech by Prime Minister Narendra Modi
• 100% FDI under automatic route permitted in brown-field at the BRICS 2016 Summit in Goa, India
airport projects; 2 http://www.business-standard.com/article/economy-
• FDI limit for scheduled air transport service/domestic policy/india-one-of-the-most-open-economies-today-pm-
scheduled passenger airline and regional air transport modi-116101600373_1.html
service raised to 100%, with FDI up to 49% permitted 3 http://www.makeinindia.com/policy/foreign-direct-
under automatic route and FDI beyond 49% through investment
Government approval; 4 https://drive.google.com/file/d/0B-Tv7_
• Foreign airlines would continue to be allowed to invest in upCKANSkpNdThrdUdaeTQ/view, www.makeinindia.com

XXIV
 SPECIAL REPORT
FRIENDSHIP BEYOND REMITTANCES
A POSITIVIST VISION OF
INDIA-SAUDI RELATIONS
BY DR. SABU THOMAS
T
he relationship between India and Middle East, which
dates to third millennium of BCE, is marked with
evident traces of warmness and cooperation that
is sustained till day with ever increasing volume of trade
between India and the Arab world. Among the Arab countries,
Saudi Arabia is a major trade partner to India with an annual
trade volume of $26.71 billion.
Since its independence, India has sought to maintain
strong ties with Saudi Arabia. In November 1955, King Saud
of Saudi paid a visit to India. During the visit, both nations
agreed to shape their relationship based on the five principles
XXV
of peaceful co-existence. Former Prime Minister Indira
Gandhi visited Saudi Arabia in 1982. The end of Cold War
and the neoliberal policies of Indian government that started
in the early 90s resulted in more rational interactions between
the policy circles. This was followed by accelerated trade and
commerce between India and Saudi Arabia. The growing
demand for energy from the Indian side during these periods
also provided another impetus for the growth trajectory. In
2006, King Abdullah visited India and this was followed
by the visit of the then Prime Minister Manmohan Singh in
2010. The two visits and the resultant declarations inaugurated
PM Narendra Modi in
conversation with King
Salman bin Abdul Aziz Al
Saud of Saudi Arabia
 SPECIAL REPORT

a new era of partnership between the two countries. The communities that accounts for $11 billion in remittances. In
partnership was extended to the areas of security, economics, numbers, the Saudi diaspora comes around 10 percent of the
defence, and politics. total Indian overseas communities spread over 136 countries
across the globe. This diaspora provides a strong emotional
The Modi Visit and its Implications bond between the two states and is a potential venue for
Prime Minister Narendra Modi’s visit in April 2016 more intimate relations. The expatriate community in Saudi
highlights the significance of Saudi Arabia in the economic Arabia evidently contributes for the economic growth of
and strategic spheres of Indian politics. During the visit, their host country. This participation ranges from regular
the two countries agreed upon fostering further bilateral services such as shop keeping and manual labour to expert
engagements that is to be extended to non-oil trade. Five advices and high volume investments. Saudi Arabia is India’s
bilateral agreements/Memorandum of Understanding were fourth largest trade partner with bilateral trade exceeding
signed during the visit. These include: $26.71 billion in 2015-16. Incidentally this shows 31.98
• Agreement on Labour Cooperation between the countries percent fall from the previous years. But the decline may be
• Technical cooperation programme attributed to the declining oil prices.
between bureau of standards During this period, Indian imports
agencies The joint statement from Saudi Arabia stands at $20.31
• Program for Cooperation in the billion, and exports to Saudi Arabia
Field of Handicrafts issued in connection reached $6.40 billion. In the case of
• MoU between Financial
Intelligence Units concerning
with the visit oil imports, Saudi is providing one-
fifth of India’s crude oil supplies.
Cooperation in the Exchange of emphasised the From the Indian side, Saudi
Intelligence related to Money Arabia is an attractive destination
Laundering, Terrorism Financing, commitment to for investments. Saudi Arabia is the
and Related Crimes
• Framework for Investment
fight against global world’s 19th largest economy, with
the third-biggest current account
Promotion Cooperation terrorism and surplus in the world. It is the world’s
The joint statement issued in 16th largest exporter and the world’s
connection with the visit emphasised expressed the resolve 29th largest importer. The World
the commitment to fight against
global terrorism and expressed the
to jointly work Bank 2015 data ranks the country in
the third position in ‘Ease of Doing
resolve to jointly work together in together in security Business’ Index. Since mid-2000, a
security issues. The governments number of Indian firms have taken
also established mechanisms to work issues advantage of the new Saudi laws and
together to find ways and means established joint venture projects in
to substantially increase the flow the Kingdom. According to Saudi
of bilateral investments and growth of trade ties. The joint Arabian General Investment Authority (SAGIA), Saudi
statement also acknowledged the growing presence of Indian exports to India stands around 10 percent of the total exports
and Saudi companies in each other’s market and agreed to (2014) standing fifth in rank. With regard to imports, India
further encourage trade promotion. stands around 5 percent of the total imports with fifth rank.
Saudi government agreed to invest in infrastructure Saudi Arabia is the 8th largest market in the world for
projects in India and there were agreements on joint Indian exports, and is destination to more than 2.46 percent of
investment ventures in petrochemical exploration and India’s global exports. As per the Indian government statistics,
industries in third countries. It is observed that the high-level Foreign Direct Investment (FDI) in India stands at $4612
visit has paved way for more intimate bilateral interactions. million (2016). The share of Saudi in FDI is $1852 million.
There is also a considerable boost for the morale of investors
in both countries since their business concerns were clearly The Potential of Partnership
addressed. It is hoped that this will inaugurate a new era in Growing Indian partnership in politics, trade and
India -Saudi relations. commerce is of significant importance to the growth of Saudi.
This is acknowledged since India is an emerging economic
Thinking beyond Diaspora and political power, and provides a hotspot for Saudi’s energy
Saudi provides home for 2.96 million Indian diaspora exports, foreign investments, and joint venture opportunities.

XXVI
 SPECIAL REPORT
PM Narendra Modi meeting the Saudi Minister of Foreign Affairs,
Mr. Adel Al Jubeir, in Riyadh, Saudi Arabia on April 03, 2016
This coincides with the political and economic turmoil in the
Middle East and the low ebb in India-Iran relations.
Saudi investments in India can be solicited in the Indian
initiatives such as ‘Start Up India’, ‘Make in India’, ‘Smart
City’ and ‘Digital India’. These areas offer unconventional
locations for parking investment since it goes beyond the
simple purpose of national economy, and promotes the case of
political developments and may help to bring more intimacy
between the nations. This intimacy may act as capital to boost
further investments in regular business. With the development
of Indian economy, there exists huge potential for investment
in the infrastructure sector. This may include investment
in fast growing sectors such as railways, roads, ports, and
shipping. For Saudi Arabia, acknowledged as the gas station
for India, petroleum business still remains most promising
arena of future investment. It is estimated that by 2040, the
Indian demand for LPG and other petroleum products will be
more than double. Under this scenario, India has to explore
more long term arrangements with Saudi to secure its oil
and gas supplies.
The acceleration of Indian economic growth also raises
larger demand for energy. With the present rate of growth
of economy, there is an urgent need to double the energy
production by 2019. The estimated power sector investment
in India for the next five years stands at $223.67 billion.
Since this growing energy demand cannot be internally
supplied, Saudi investors got a golden opportunity. This can
be extended to energy explorations and industries that may be
extended to non-conventional sectors also. According to the
XXVII
Government of India estimates, the non-conventional energy
sector has fetched $10.48 billion in FDI between April 2000
and March 2016. Here the Indian expertise together with
Saudi investment can harvest miracles.
Another potential arena of investment is the educational
sector. The Government of India has eased FDI norms in
educational sector, and is keen in foreign investment in this
sector. India has one of the largest education systems in the
world. The country has more than 1.4 million schools with
over 227 million students enrolled and more than 36,000
higher education institutes. At present, higher education
sector witnesses spending of over $6.78 billion and it is
expected to grow at an average annual rate of over 18 percent
in the next 10 years. During the 2015-16 Financial Year, the
Indian education market was estimated at about $100 billion
and is expected to reach $116.4 billion in the next financial
period. Currently, higher education contributes 59.7 percent
of the market size, school education 38.1 percent, pre-school
segment 1.6 percent, and technology and multi-media the
remaining 0.6 percent. In the case of FDI inflow to India in the
education sector, the figure shows $1,256 million during the
period 2000-2016. However, majority of the flow originates
from the western world. This makes India a dear destination
for Saudi investors.
However, it is admitted that the parking of new investments
needs more institutional infrastructure that may range from
rationalisation of business rules to flexibility of bureaucracy.
There should be adequate special economic zones and single
window structures to react quickly with investor needs.
Political regime should also be tuned for the new modes
of business services delivery with better FDI norms and
regulations and zero-tolerance to bureaucratic red-tapism.
The change in institutional structures and attitudinal changes
should be combined with convincing stakeholders about the
measures taken to improve the ‘Ease of Doing Business’.
The new Foreign Trade Policy 2015 of the Government of
India suggests many advanced measures in this direction.
For example, the new FTP has brought about a reduction
in the number of documents required for export and import
from 7 & 10 respectively to 3 each now. The government
also introduced online filing of documents/applications and
paperless trade in a 24x7 environment. A simplified system
for issuance of electronic Importer Exporter Code has been
made operational. It is expected that these measures can build
confidence in prospective investors and boost trade relations
between India and Saudi Arabia. ■
The author is Assistant Professor in Politics, Government
Brennen College Thalasserry, Kannur, Kerala and is currently
a Post-Doctoral Fellow at Centre for Political Institutions
Governance and Development, ISEC Bangalore
 SPECIAL REPORT

FUTURE OF INDO-SAUDI
SECURITY PARTNERSHIP
BY R K ARORA & VINAY KAURA

T
he West Asian region has always been crucial for
India. The relationship with Saudi Arabia is one of
the key pillars of India’s West Asia policy. Besides
being a major source of energy, it is also a sacred destination
for more than 400,000 Indians who go for Hajj every year.
Saudi Arabia is home to a large number of Indian migrant
workers, and the remittances sent by them constitute a
sizeable proportion of India’s foreign exchange earnings.
Riyadh is a major trading partner of New Delhi that supplies
around one-fifth of India’s crude oil imports. During recent
years, India and Saudi Arabia have steadily expanded their
bilateral relationship. Energy needs have long dictated India’s
approach toward Saudi Arabia and other Gulf nations, but
shifting geopolitical scenario has changed this dynamic.
There has been more security cooperation, with Saudi Arabia
regularly handing over persons wanted in India. Resultantly,
Indian diplomacy with the Saudi Kingdom has grown more
diverse and spans a range of diverse issues.
There is a broad strategic consensus in India that
maintaining vibrant ties with Saudi Arabia is imperative to
India’s national interest. The visit of Saudi King Abdullah
to India in 2006 and the visit of the then Prime Minister
Manmohan Singh to Saudi Arabia in 2010 had laid strong
foundations for the Indo-Saudi relationship. Prime Minister
Narendra Modi’s April 2016 visit to Saudi Arabia has further
cemented this burgeoning partnership. During his meeting
with King Salman bin Abdulaziz al Saud, which was full
of diplomatic significance, PM Modi signed wide-ranging
agreements on economic and security cooperation. PM
Modi was also conferred with Saudi Arabia’s highest civilian
honour, the King Abdulaziz Sash.
Counter-Terrorism Cooperation
Prime Minister Modi and the Saudi King emphasised on
the need to further cement bilateral strategic engagement,
including in the areas of security and defence cooperation.
The Modi-Salman joint statement emphasised the need to
increase ‘exchange of visits of ships and aircraft and supply
of arms and ammunition and their joint development’.
However, counter-terrorism has emerged as a key area
Prime Minister Shri Narendra Modi with the prominent Saudi
business leaders at Saudi Chambers of Commerce, in Riyadh,
Saudi Arabia on April 03, 2016
of cooperation between India and Saudi Arabia. Counter-
terrorism cooperation and security as major areas of
cooperation has grown since 2006 when Saudi King Abdullah
had visited India. The ‘Delhi Declaration’, signed between
the two countries during the historic visit emphasised that
terrorism was a scourge, and ‘the governments would closely
and actively cooperate’ to fight it and other transitional crimes
such as money laundering, drugs and arms trade. The ‘Riyadh
Declaration’ signed in 2010 during former Prime Minister
Manmohan Singh’s visit to Saudi Arabia stressed on the need
to cooperate in exchange of information on terrorism.
Riyadh is concerned about the rise of extremism in
the region. Just a few days before PM Modi’s arrival in
Riyadh, Saudi Arabia and the United States imposed joint
sanctions against Lashkar-e-Taiba, the anti-India terror group
responsible for the 2008 Mumbai terror attacks. India’s
growing proximity with the US, Saudi Arabia’s oldest and
principal ally, has also contributed to New Delhi’s warmness
with Riyadh.
During PM Modi’s Saudi visit, both countries vehemently
condemned terrorism and decided to enhance their counter-
terrorism cooperation. A joint statement issued after the talks
said that the two leaders ‘called on all states to reject the

XXVIII
 SPECIAL REPORT
use of terrorism against other countries; dismantle terrorism
infrastructures where they happen to exist and to cut off any
kind of support and financing to the terrorists operating and
perpetrating terrorism from their territories against other
states; and bring perpetrators of acts of terrorism to justice’.
India has been suffering from terrorism, financed and
supported from across the border. Therefore, security
cooperation and intelligence sharing are important elements
of the partnership that the two countries are forging.
Regional Security Outlook
Since the outbreak of the Arab Spring, the West Asian
region has been witnessing chaos, turmoil and political
uncertainty with the emergence of new security challenges.
Being a major player in regional geopolitics, Saudi Arabia
continues to experience internal as well as regional security
challenges. Under increasing attack from the Islamic State
(ISIS) terrorists operating from the neighbouring Iraq
and Syria, Saudi Arabia has formed a Saudi-led military
coalition against terrorism, involving several Arab nations.
At the time of its formation, there were 34 countries in the
military collation against terrorism which has now risen
to 39 including Turkey, United Arab Emirates, Bahrain,
Bangladesh, Tunisia, Sudan, Malaysia, Egypt and others.
Saudi Arabia was not very pleased when it was subjected
to unbridled criticism in Pakistan over its financing of
orthodox madrasas there. Pakistan also turned down Saudi
requests for involvement on its side in the war in Yemen. Due
to these factors, the Saudi leadership seems to have become
less amenable to Pakistan’s sensitivities in relation to India.
Unsurprisingly, the Saudis have put some Pakistani terror
groups on lists of groups deemed a threat to the Kingdom.
XXIX
Nevertheless, despite recent irritants in the Saudi-Pakistan
relationship, India needs to be realistic about the limits of
weaning Riyadh away from Islamabad. Therefore, to balance
the Pakistan-Saudi relationship, India should reinforce its
relationship with Saudi Kingdom. Moreover, New Delhi
should convince other Gulf countries of the immense
benefits of their closer economic connection with India,
whose economy has been doing relatively well compared to
that of other countries and which is an attractive investment
destination. At the same time, India should also ensure
comparable levels of engagement with Riyadh and Tehran if
it wants to maintain its momentum in West Asia.
Conclusion
The political leadership of India and Saudi Arabia
have been focusing on the positive areas in their bilateral
relationship. The increased focus on security and counter-
terrorism cooperation suggests an increasingly maturing
relationship that has moved beyond energy partnership. With
Saudi firms eager to enter the Indian market, the economic
dimension of the bilateral relationship is also poised to
diversify and expand. From the broader perspective of
Indian strategic thinking toward the West Asian region,
Modi government’s outreach to Saudi Arabia is an essential
part of the ‘Think West’ equation. The political attitudes
towards India in Saudi Arabia and United Arab Emirates,
a member of the Saudi camp, are being gradually turned
around.
Bilateral relations have gone beyond the economic realm,
acquiring a strategic sense and pushing India and Saudi
Arabia to boost their security partnership. While recent
achievements in security and intelligence cooperation have
been outstanding, new areas of collaboration need to be
explored in order to further strengthen the relationship. ■
R.K. Arora is a Commandant and Program Coordinator
at the Centre for Peace and Conflict Studies (CPCS) in
Jaipur. He has more than two decades of field experience
as police practitioner with nine years in counterinsurgency
operations in Kashmir. A doctoral researcher in border
security at Banasthali Vidyapith, he has interests in border
security and counter-terrorism. He can be reached at raj@
policeuniversity.ac.in.
Vinay Kaura, PhD, is an Assistant Professor at the
Department of International Affairs and Security Studies,
Sardar Patel University of Police, Security and Criminal
Justice, Rajasthan. He is also the Coordinator at the Centre
for Peace and Conflict Studies in Jaipur. He regularly writes
for academic journals, newspapers and blogs on issues
pertaining to India’s national security and foreign policy. He
can be reached at vinay@policeuniversity.ac.in.
Saudi Arabia
At A Glance
 Prime Minister being received at the Official Welcome ceremony at the Royal Court, in Riyadh, Saudi Arabia on April 03, 2016.

Prime Minister at the signing of agreements between India and the Kingdom of Saudi Arabia, in Riyadh, Saudi Arabia on April 03, 2016.

Prime Minister during the Delegation Level Talks, in Riyadh, Saudi Arabia on April 03, 2016.

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