July 18, 2015    4 minute read

The Indian Trade Corridor

   July 18, 2015    4 minute read

The Indian Trade Corridor

In the last few decades, trade relations between India and the UAE have become stronger, making the UAE the largest export destination for Indian goods. This is mainly due to the fact that for nearly 100 years, highly skilled Indian individuals have been moving to the Middle East, seeking better opportunities for employment.

The main objects of the trading activities have been in the petroleum products and  precious stones space. It is possible to identify a clear trading pattern, according to which raw materials (gems and crude oil) move from the Gulf to India, whilst finished products (jewellery and raw materials) move in the opposite direction .

However, the global economic slowdown has significantly affected the trading volumes between the two countries in the recent years. Moreover, government restrictions on gold imports, together with a fall in the appeal of India’s jewellery industry has led India’s exports to the Middle East to rise by less than 3.0 %, which is considerably low if compared to the 50% increase experienced in 2008.

The emergence of a new global player: Africa

On the contrary, it is possible to notice a sharp surge in India’s trade with Africa, which can partly be attributed to historical reasons. More than a century ago, many Indian families started moving to Africa, especially to its Eastern regions. This region still offers important development opportunities, and the Indian workforce (which was initially employed the in East Africa’s railways) is now playing a crucial role in strengthening trade links between the two areas.

Trade patterns between India and Africa are similar to the ones between the former and the Middle East: India provides Africa with manufactured goods (including transport means and construction equipment) and receives raw materials (mainly African oil) from to latter, in order to face its energy requirements. However, unlike that of the Middle East, Indian trade flows with Africa have not slowed down of late, expanding by more than 10% in 2014.Africa%20India%20trade%202

If we look at the numbers, we can appreciate the considerable per annum growth rate well above 20% in India’s exports to Africa, which have overcome USD 30 billion in 2014 (they were below USD 3 billion only 10 ten years earlier).

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India – Bangladesh activities to boost

The Confederation of Indian Industry (CII) has recently stated that if some issues that today hamper trading activities between India and Bangladesh are resolved (such as barriers and poor infrastructures), trade between the two countries could potentially reach USD 10 billion by 2018. The reasons for this possibility are well explained by the Indian economist A.V. Banerjee, who noted that:

“Bangladesh and India offer natural markets for each other’s exports and have advantages of reduced transaction costs and quicker delivery due to geographical proximity and common language”.

However, there are still some concerns related to the trade imbalances currently favouring India, which could be eliminated through higher volumes of investments of Indian companies in Bangladesh.

Indian companies: interdependence and friendly policies drive growth

It is quite unavoidable that India’s Western trade corridor will widen significantly, due to mutual interdependence between India on one side and Middle East and Africa on the other side: the former will keep on depending heavily on the import of energy while the latter will still express their desire for finished goods.

Furthermore, Africa and the Middle East offer wide scope for development to Indian companies, as long as the current prime minister of India, Modi and his government continue on their business-friendly reformist path.

If this is the case, the India – MENA trade corridor could potentially overcome the EU-US one as to the value of goods traded therein, which could reach the impressive amount of USD 3 trillion by 2030.

UAE’s development and new role

Dubai has the largest port in the Middle East (Jebel Ali) and Indian goods are highly likely to pass through it, when shipped to the MENA region. If it is clear that this represents value for the UAE, it is also possible to appreciate the change in its role: from a destination for manufactured goods to a key transshipment epicentre.

As often happened throughout the history of mankind, a simple migration of people looking for better opportunities, is now giving birth to one of the world’s most important and fastest-developing trade corridors, creating exceptional opportunities for both importers and exporters.

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