Not Just Oil

Syllabus: GS2/ India & Foreign Relations

In Context

• Recently the state visit to India by the Crown Prince of Saudi Arabia, Muhammad bin Salman was concluded in conjunction with the G20 Summit in New Delhi.

Recent MoUs & Agreements

• About:
  • The India-Saudi bilateral meet immediately after the G20 summit saw the conclusion of eight major MoUs involving vigilance, financial regulation and exim banks, desalination technology.
  • Several other minor understandings ranging from IT, petrochemicals, pharmaceuticals, new “clean” energy technology, manufacturing and defence were also concluded.
• India-Middle East-European Corridor:
  • Both the countries proposed a grand IMEC (India-Middle East-European Corridor), creating a port-railroad connectivity to link India, the Gulf countries, and the European Union (in which India and Saudi Arabia are to be two nodal countries).
  • The corridor is said to rival China’s Belt-Road-Initiative.
• India-Saudi Arabia Strategic Partnership Council: 
  • Saudi’s Crown Prince co-chaired with the Indian PM the first meeting of the India-Saudi Arabia Strategic Partnership Council. 
• Potential investments:
  • Both the countries reconfirmed Saudi intention of investing another $50 billion and setting up an office for the Saudi Sovereign Wealth Fund in Gujarat International Fin Tech-City.
  • They also discussed the possibility of trading in local currencies, and expediting negotiations for a free trade agreement between India and the Gulf Cooperation Council of which Saudi Arabia is a member.

India Saudi Arabia Relations

• Establishment:
  • The two countries established diplomatic relations in 1947. 
• Delhi Declaration & Riyadh Declaration:
  • The royal visit of 2006 resulted in the signing of the Delhi Declaration, which was followed in 2010 by the Riyadh Declaration that elevated bilateral ties to a strategic partnership.
• Highest civilian honour:
  • Prime Minister Modi’s visit to Riyadh in April 2016 captured the spirit of enhanced cooperation in the political, economic, security, and defence realms. 
  • King Salman conferred on the Prime Minister the kingdom’s highest civilian honour, the King Abdulaziz Sash, indicating the importance Saudi Arabia attached to its relationship with India.
• The Strategic Partnership Council (SPC) Agreement:
  • The Strategic Partnership Council (SPC) Agreement was signed during the 2019 visit of the Indian PM to Riyadh, which established a high-level council to steer the Indo-Saudi relationship. 
  • The SPC now has separate subcommittees on Political, Security, Social and Cultural Cooperation, and on Economy and Investments. Twelve pacts were signed during the PM’s visit.
• Economic Ties:
  • India is Saudi Arabia’s second-largest trade partner; Saudi Arabia is India’s fourth-largest trade partner.
    • Bilateral trade in FY 2022-23 was valued at $52.76 billion. 
    • Trade with Saudi Arabia accounted for 4.53% of India’s total trade in FY23.
  • The bilateral trade has increased to more than US$52 billion in 2022-23, marking a growth of more than 23%.
  • As of January 2022, there were 2,783 Indian companies registered as joint ventures/ 100% owned entities with investments worth approximately $2 billion in the kingdom. 
  • Saudi’s direct investments in India amounted to $3.15 billion (as of March 2022).
• Energy Cooperation:
  • Saudi Arabia is a key partner for ensuring India’s energy security, and was its third largest crude and petroleum products source for FY23. 
  • India imported 39.5 million metric tonnes (MMT) of crude from the country in FY23, amounting to 16.7% of India’s total crude imports.
  • India’s LPG imports from Saudi Arabia stood at 7.85 MMT, and 11.2% of its total petroleum product imports, in FY 23.
• Defence Partnership:
  • The defence partnership has witnessed tremendous growth in recent years.
  • There is extensive naval cooperation between India and Saudi Arabia, and two editions of the bilateral naval exercise, Al Mohed al Hindi, have been concluded so far. 
  • Both sides also cooperate closely in the domain of defence industries and capacity-building.
  • The Saudi navy was recently found taking exemplary measures for the safe extraction of Indian expatriates caught up in Port Sudan.
• Indian diaspora in Saudi Arabia:
  • The Indian community in the kingdom is more than 2.4 million strong, widely respected for its contribution to the development of Saudi Arabia, and seen as a living bridge between the two countries. 

Significance

• India-Middle East-Europe Economic Corridor:
  • The prospective collaboration of both the countries on the new proposed port and railroad corridor of IMEC is likely to integrate the two countries in a way to the global supply chain that has not happened since the Portuguese discovery of the sea route to India in the 15th century. 
  • The India-Middle East-Europe Economic Corridor will deepen India’s strategic engagement with the Arabian peninsula. 
  • It breaks Pakistan’s veto over India’s overland connectivity to the West.
• Saudi Arabia’s permanent membership of BRICS:
  • India’s support for the induction of Saudi Arabia as a permanent member of BRICS seems just the kind of game changer Saudi Arabia needs to materialise Muhammad bin Salman’s vision of Saudi Arabia 2030, a post-oil economy.
• Addressing India’s energy security:
  • Saudi investment would provide India with a kind of foreign capital that may not be as susceptible to knee-jerk reactions as Western capital often has been. The issue of India’s energy security will also be addressed in a big way. 

Challenges

• Relations surrounding energy: The core element in Indo-Saudi relations continues to revolve around energy, especially Saudi export of crude oil. 
• Aid to Pakistan: India and Saudi Arabia have stressed the importance of strengthening security cooperation in the field of combating terrorism and its financing.
  • Contrary to which, Riyadh still helps Pakistan with economic aid, even while strategically engaging with New Delhi.
• Role of China: The country is also engaged with China, moving towards rapprochement with Iran and Israel, and is also now consolidating the Saudi partnership with the US, India, and Europe.
  • Many have thus already described this engagement as a power shift, with China emerging as a significant player in the Middle East.
  • Increasing Chinese influence in the Middle East may indirectly help Pakistan, both economically and strategically. 

Way Ahead

• If India’s relations with any country have gained exponentially in momentum, it is the Kingdom of Saudi Arabia. 
• The recent developments also provide a window of opportunity for India to embed itself as a significant player in the Middle East.