Indian companies are flocking to the United Arab Emirates

Standing in the middle of Dubai’s bustling Meena Bazaar, it’s not hard to imagine you’re 1,200 miles across the Arabian Sea in Mumbai. The alley is full of names such as Biryaniwalla & Co, Mini Punjab Restaurant and Tanishq jewelry. Arabic as a form of communication; the same goes for Hindi and Malayalam. Perhaps the most high-profile financial institution looming over Dubai Creek is the Bank of Baroda, which is controlled by the Indian government.

Meena Bazaar is not just an ethnic enclave, but a visible corner of a vast and growing network of Indian businesses – including many of the most important companies in the United Arab Emirates (Uae). To live in Dubai is to be involved in Indian business. The local chamber of commerce reported adding about 11,000 Indian companies to its records by 2022, bringing the total to 83,000. Trade ties between the two countries are growing stronger.

Behind these companies is a huge diaspora: 3.5 million Indians live in the UAE, compared with 1.2 million in the UAE. Together, these expatriates repatriated $20 billion in 2021, second only to remittances from the US to Mexico (see chart). Many people in Mumbai joke that Abu Dhabi and Dubai are now the cleanest cities in India. For the UAE, India is a source of food, gems, jewellery, leather, population, medicines and investment opportunities. For India, the UAE is an important source of capital and increasingly a place where Indian businesses can effectively connect with global markets, away from the debilitating red tape, paralyzed traffic, stalled airport immigration of their home country Lines and punitive taxes.

This relationship was unthinkable in 1973 when a shop selling Indian sarees named Meena Bazaar Meena Bazaar. Abu Dhabi is extremely poor. Inadequate desalination means the water is often brackish. An Indian rupee known as the “external rupee” was the currency of the region until 1966. The UAE only emerged in 1971 from the so-called “Trucial States”, tribal areas held together by old treaties. Almost all international trade (before oil) consisting mostly of diamonds, pearls and gemstones, passed through Mumbai. Half a century later, the situation has changed dramatically. The crowded Mall of the Emirates shines with the world’s finest products. Indian gem merchants crowded the 68-storey Almas Tower in Dubai, and restaurants on the ground floor include Delhi Darbar Express and Mumbai Masala.

story continues

Travel between the two regions is very frequent and increasing. Emirates, Dubai’s flag carrier, is limited by Indian authorities to 66,000 seats a week; it wants another 50,000, arguing that higher limits would benefit other operators as well. Mumbai businessmen often travel to the UAE for day trips. Many choose to stay longer, often on ten-year “golden” visas. A survey by the Indian embassy in the UAE found that 60% of the chief financial officers of major companies are Indian. According to Pankaj Gupta, a fund manager who moved to Dubai from Delhi 25 years ago, Indians are ubiquitous in top jobs across industries in the UAE. Nominal trade between the two countries has grown 16% over the past year, buoyed by a trade deal that took effect in May.

This has implications for the geography of India’s success. As The Times of India puts it, “wealthy India has a new address to live in”. India’s richest man, Mukesh Ambani, bought a property for $80 million in August, breaking Dubai’s house price record (with ten bedrooms, indoor and outdoor pools, a beach and a private The spa, which is located at the end of Dubai’s palm-fringed archipelago). He then broke that record in October with a $163 million sale (details are scarcer). All told, Indians spent $4.3 billion on housing in Dubai last year, double what they will spend in 2021. Figures on commercial property purchases are harder to dig up, but interest is just as strong, one banker reported. These are driven by strange provisions in India’s tax code that push people who want to move cash abroad to invest in real estate.

The UAE’s tax system does what it does: there are no personal taxes. In contrast, India’s income tax is close to 40%, on top of ever-increasing excise taxes. Not only is India’s corporate income tax high, but it’s also bewilderingly complex.

There are other important legal differences as well. Technically, the UAE operates under strict Sharia law. In fact, it now has commercial courts that operate according to international standards and with a view of tolerance for vice. It also encourages religious pluralism. Abu Dhabi recently built a huge Hindu temple and Muslim-Christian-Jewish center. India is technically secular with an established common law. But in practice, it has provided crowded courtrooms, strictly enforced anti-alcohol and drug laws, and growing religious conflict.

Stronger ties with the UAE will also benefit those doing business in India. Beginning in 2020, when Mr Ambani raised billions of dollars from the UAE’s many sovereign wealth funds, the country was increasingly seen as an important source of capital. Consultancy Bain & Company estimates that the UAE sovereign wealth fund and other private equity firms have invested $34 billion in India from 2018 to 2022, and the amount has risen steadily.

The range of investments is impressive. Some of India’s leading banks, manufacturers and startups have direct stakes. Abu Dhabi is widely believed to be a key source of funding if India’s second-richest man, Gautam Adani, recapitalizes his businesses and has already invested in several of his companies billions of dollars. All this shows that the UAE is developing into the financial capital of India.

However, this evolution has not been without obstacles. Last March, the UAE was placed on a “grey list” by the Financial Action Task Force, an international body fighting money laundering and terrorism financing. Routine cash transfers have come under scrutiny since the designation, locals said. Some wealthy Indians who wanted to open family offices in the UAE decided to make foreign investments through Singapore and London, which are three and four times further away respectively.

Another hurdle is that the visas of most Indians eventually need to be renewed. The current openness and progress in the UAE has come because the monarchy supports the direction of travel. This allows for decisiveness and substantial investment, but for many it is also a reason for caution. What if local leaders change their minds? That said, Indian merchants also worried about their own rulers, who often seemed to act in a monarchical manner according to their whims and preferences.

Yet the current optimism is so heady that many see these obstacles as mere wrinkles. They argue that Abu Dhabi and Dubai’s relationship to India will increasingly resemble Singapore’s relationship to Southeast Asia: small, orderly city-states serving as financial and commercial conduits to sprawling, unruly states with diminished economic dynamism and potential. Neighboring countries adopt chaotic governance and corrosive rules. Without exception, the strongest statements of this kind come from Indians who arrived in Abu Dhabi or Dubai before the millennium and witnessed the extraordinary rise of these cities. They point to large buildings and remember that their features were only lines drawn in the sand.

For more expert analysis on major economic, financial and market events, sign up Money can turn ghosts aroundour weekly subscriber-only newsletter.

© 2023 The Economist Limited. all rights reserved.

From The Economist, published with permission.Original content can be found at https://www.economist.com/finance-and-economics/2023/04/27/indian-firms-are-flocking-to-the-united-arab-emirates