UAE to invest another $25 billion in India, eyes energy bets

The deepening India-UAE relationship highlights a shift from a traditional transactional partnership based on oil and diaspora remittances to a strategic partnership emphasizing investments and energy security. The Comprehensive Economic Partnership Agreement (CEPA), negotiated in a record 88 days and signed in 2022, serves as the cornerstone of this enhanced economic engagement. This FTA eliminated tariffs on nearly 80% of goods, aiming for a bilateral trade target of $100 billion, which has already been achieved. The new target of$200 billion by 2032 reflects growing mutual confidence. The UAE's commitment to invest $100 billion in India positions it as a critical source of Foreign Direct Investment (FDI), crucial for India's infrastructure development and domestic manufacturing goals under Make in India. The growing use of the Local Currency Settlement System (LCSS), allowing trade in INR and AED, is a significant geopolitical move to reduce dependence on the US Dollar and shield bilateral trade from global currency fluctuations.

The proposed investments highlight India's emergence as an attractive destination for sovereign wealth funds. The UAE is already the seventh-largest source of FDI for India. These investments are likely to be channeled into critical sectors like infrastructure, renewable energy, and technology. Furthermore, India’s ambitious target to reach $1 trillion in total exports (merchandise and services) this year is heavily reliant on securing favorable trade terms and robust supply chains, which agreements like the CEPA facilitate. The robust 15% growth in merchandise exports in the first half of the year signals positive momentum. The exploration of an underwater gas pipeline is a massive infrastructure undertaking that requires immense capital and technological expertise, emphasizing the scale of the proposed economic integration. This project, if realized, would not only ensure energy security but also boost industrial growth by providing a reliable and potentially cheaper source of energy.

The concept of 'energy bridges,' particularly the proposed subsea pipelines to transport gas from the UAE to India, represents a significant geostrategic and infrastructural endeavor. Such a pipeline would traverse the Arabian Sea, requiring careful consideration of the Exclusive Economic Zones (EEZ) and continental shelves of involved coastal states, governed by UNCLOS. This direct link would bypass volatile chokepoints like the Strait of Hormuz, enhancing India's energy security resilience against geopolitical shocks in West Asia. Furthermore, the expansion of Strategic Petroleum Reserves (SPR) in India, potentially funded by the UAE, is crucial for mitigating supply disruptions. Currently, India's SPR capacity is limited, covering only a few days of national requirement. Integrating UAE investments into expanding these reserves strengthens India's buffer against global oil price volatility and supply chain vulnerabilities, aligning with the strategic necessity of maintaining energy sovereignty amidst global uncertainties.