In the last one week, there have been countless editorials and columns suggesting the imminent disaster that awaits the Indian economy due to the 'ire' of gulf countries over the Nupur Sharma issue. This column is not intended to be about the controversial statement per se. Instead, it will focus on this economic gloom and doom narrative painted by motivated anarchists.
Given its economic size, the strength of its macroeconomic indicators and record-high forex reserves, India will not be impacted if any of the Arab states decided to jeopardise economic ties. On the contrary, India, which supplies wheat to UAE, Yemen, Afghanistan and Qatar, could evaluate diverting its wheat stock to other nations. If New Delhi does undertake such a move, food security of several Arab countries will be severely hit at a time when global wheat supply is already under extreme pressure.
The argument of severe economic reprisal by nations in the Middle East rests primarily on two aspects: stoppage of export of oil to India and the collapse of remittance earnings.
The latter is assumed on the ground that all 8.5 million Indians residing and working in these countries would be deported.
Improbable as this may seem, let's examine this dire economic scenario.
Firstly, even if the entire remittances from Gulf were to dry up, India’s Balance of Payments situation will not be impacted. When Covid outbreak began and most workers came back to India, the impact on overall remittance earnings was a mere 1.7 per cent.
Money sent back by NRIs living in America made up for the fall. As per latest World Bank data, remittances from USA now account for highest single source country (20 per cent). Hypothetically, if all GCC nations were to sack all Indians living in these six countries, the collective hit on remittances will be about 52 per cent of the annual remittance earnings.
So, going by the fear mongering by some sections, even if we assume the worst, annual remittance earnings may shrink to about $40 billion from $87 billion.
Balance of Payments is the difference between the government’s earnings and expenses. While earnings from remittances may reduce, for the sake of argument, let us assume there is no change in other source of income (like FII or FDI) and expenses. So, if crude continues to be at the current high levels, India’s monthly trade deficit will remain at $20 billion ($240 billion annually).
This simplistic assumption, which doesn’t take into account even linear growth in exports, highlights that India’s $600 billion forex reserves can absorb the twin shocks of high trade deficit and fall in remittance earnings comfortably. It will take 25 months for the forex reserves to be depleted to the level of 1991.
So, economically the shock will not derail the Indian economy, as some naysayers seem to be predicting.
On the humanitarian aspect of such a coordinated attack against India, both the working class and professionals would find employment in other economies, particularly those struggling with ageing populations. Post pandemic, doctors and nurses are now even more valuable and will be absorbed by the global economy. Millions of hard-working Indians who support their families in Kerala, UP and Maharashtra would continue to do so and will become an asset for some other economies.
But what will happen to the economies of the Gulf countries after they provoke India in such a manner? Will these nations be able to survive without the skill sets of Indian professionals, without their consumerism which is driving domestic demand in all these countries? And will they not face any reciprocal action, at the sovereign level?
When Covid struck Kuwait, India sent a 15-member team of virologists and epidemiologists to help train Kuwaiti personnel in testing and building immediate medical response. This followed Kuwaiti head of state’s phone call with PM Modi. Much as India-haters may wish, it is unlikely that a country with such a limited pool of medical practitioners will deport highly-qualified Indian doctors.
Early this year, India inked a trade pact with Saudi Arabia as both nations envisage bilateral trade at over $100 billion. Will Riyadh as the region’s largest economy, jeopardise its economic future, more so as it hopes to diversify from oil?
Let me also bust the myth of India’s energy needs facing headwinds. As its second-largest oil supplier until recently, India does rely heavily on Saudi Arabia. But global trade is never a one-way street.
Riyadh’s economy runs on its oil earnings. Petroleum accounts for more than 86 per cent of budget revenues, 42 per cent of GDP, and 90 per cent of export earnings. If radical elements in Saudi Arabia force its government to stop sale of oil to India, Riyadh’s economy will collapse. There is no other buyer that’s large enough to buy Riyadh’s oil basket, more so since Russian crude is now a cheaper alternative.
Gulf countries, which buy wheat and rice from India, have been deeply affected by the Russia-Ukraine conflict due to reduced supply of wheat in global market. Riyadh’s top import from India is rice which accounts for 16 per cent of its total imports. If oil is essential, food security is paramount.
Similarly, UAE imported more than 3 lakh tonnes of wheat from New Delhi in 2021. This accounts for nearly 7 per cent of India’s wheat exports. Qatar, which first summoned Indian envoy over the Nupur Sharma controversy, receives almost 1.7 per cent of Indian wheat exports. This also explains that despite radical elements in Bangladesh, there has been very little noise on the issue. Dhaka imports more than 40 lakh tonnes of wheat from New Delhi annually.
What started as an unfortunate controversy has now snowballed into a global campaign to corner India. But what most fail to realise is that the combined GDP of the economies of the six nations of the GCC stands at $3.5 trillion, as much as India’s economic might.
(Gaurie Dwivedi is a senior journalist and author).
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