Bilateral sticking points in the Indo-Saudi relations include obstacles to business investment; poor treatment of Indian labourers; differences of opinion regarding Israel and Pakistan; and concerns that Saudi funding could promote extremism in India.

224156 9/9/2009 7:36 09RIYADH1170 Embassy Riyadh SECRET 09JEDDAH297|09RIYADH861 "VZCZCXRO1211RR RUEHDHDE RUEHRH #1170/01 2520736ZNY SSSSS ZZHR 090736Z SEP 09FM AMEMBASSY RIYADHTO RUEHC/SECSTATE WASHDC 1532INFO RUEHIL/AMEMBASSY ISLAMABAD 4792RUEHNE/AMEMBASSY NEW DELHI 0502RUEHDH/AMCONSUL DHAHRAN 0214RUEHJI/AMCONSUL JEDDAH 0309" "S E C R E T SECTION 01 OF 02 RIYADH 001170

SIPDIS

E.O. 12958: DECL: 08/22/2019 TAGS: ECON, ELAB, KTFN, PREL, PGOV, IN, PK, SA SUBJECT: INDIAN CHARGE IN RIYADH ON SAUDI-INDIAN RELATIONS

REF: A. 09 JEDDAH 297 B. 09 RIYADH 861

Classified By: CDA Ambassador Richard Erdman for reasons 1.4 (B) and (D )

SUMMARY

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1. (C) According to Indian Charge d'Affaires Rajeev Shahare, the Saudi-Indian relationship has blossomed since King Abdullah's visit to India in 2006. The economic relationship has made great strides, and India hopes the political relationship will eventually follow suit. Bilateral sticking points include obstacles to business investment; poor treatment of Indian laborers in the Kingdom; differences of opinion regarding Israel and Pakistan; and concerns that Saudi funding could promote extremism in India's large Muslim community. A stronger Saudi-Indian relationship can bolster U.S. interests insofar as it enhances regional stability, supports political moderation, and advocates for more open investment and economic development. END SUMMARY.

NOTICEABLE GROWTH SINCE 2006

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2. (C) During an August 19 meeting with Poloff, Indian Charge d'Affaires Rajeev Shahare trumpeted recent progress in the two countries' bilateral relations. ""King Abdullah's visit in 2006 was a watershed moment,"" he said, and agreements signed during that visit, including the Delhi Declaration, provided a framework for continued cooperation. Saudi Arabia hoped to follow India's example and create a knowledge-based economy that could provide jobs for large numbers of unemployed youth, while Indian businesses saw the potential for significant profits in helping the Saudis achieve this goal. (NOTE: Saudi Commerce Minister Alireza also highlighted this goal during his discussion with Charge Ambassador Erdman on August 9. He explained that India had growing importance for Saudi Arabia's next five-year plan, which focused on creating a ""knowledge economy"" (ref A). END NOTE.) Although a planned PM visit scheduled for August 2 and 3 had recently fallen through, Shahare hoped that this visit would take place in the near future.

3. (U) The statistics support Shahare's assessment. According to a Saudi Gazette article marking India's national day, Saudi-Indian trade has risen threefold over the last five years, to over $23 billion in 2007-2008. Indian investments in Saudi Arabia have doubled over the last five years, to over $2 billion. Approximately 1.8 million Indians reside in the Kingdom, a 10% increase from last year. India is now Saudi Arabia's fifth-largest trading partner, and the fifth-largest market for Saudi exports.

OBSTACLES TO INVESTMENT REMAIN

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4. (C) Shahare acknowledged the relationship was far from perfect, noting a ""disconnect"" between lofty aspirations and the reality on the ground. Indian companies still faced an unsatisfactory regulatory climate, he said, and the so-called ""one-stop shop"" for investors, the Saudi Arabian General Investment Authority (SAGIA), had not delivered on its promise. He cited Saudi requirements for maintaining large local bank balances, particularly in the case of foreign-owned trading companies, and ""Saudiization"" of the work force, as specific impediments to further growth and investment. For example Bank of India, which hopes to open a branch in Jeddah in 3-4 months, was currently balking at a requirement that its entire front office staff be Saudi.

TREATMENT OF INDIAN NATIONALS REMAINS A CONCERN

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5. (C) Labor issues and treatment of Indians resident in the Kingdom also remained a bilateral sticking point. Despite the increased emphasis on technology in the Saudi-Indian relationship, Shahare estimated that over 80% of Indians working in the Kingdom remained unskilled or semi-skilled laborers. Professionals who chose to work in the Kingdom were largely ""second or third-tier,"" as the current Indian labor market provided ample opportunities and adequate salaries for skilled professionals. One notable exception was the IT sector, which still attracted high-caliber Indian workers to the Kingdom. Unskilled laborers were sometimes mistreated by employers, and suffered from restrictive Saudi

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foreign-labor practices. The Indian government had on several occassions expressed interest in a bilateral agreement protecting the rights of Indian workers, but ""the Saudis refused this out of hand.""

ECONOMICS FIRST, POLITICS LATER

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6. (C) Saudi Arabia's post-2006 bilateral focus on economic concerns has, according to Shahare, begun to blunt Saudi criticism of India on the political front. The Saudis have traditionally viewed India through a Pakistani lens, and have been highly critical of India's role in Kashmir and treatment of Indian Muslims, most notably via their role in international fora such as the Organization of Islamic Communities (OIC). While these bilateral sore points remain, they are now (to some extent) politely ignored in the context of greater economic cooperation. Shahare described India's policy as aimed at strengthening the economic relationship, to the point where it becomes the dominant factor in the political relationship. The Indian Charge remarked that while India and Pakistan were often lumped together when discussing politics, Pakistan was ""not a real counterpart"" to India on the economic level.

SUPPORT FOR BOTH ISRAEL AND THE PALESTINIAN CAUSE

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7. (C) The Saudis remain critical of India's good relations with Israel, and the Indian government finds it necessary to re-explain its position on its frienship with the Jewish state. ""We repeatedly remind them we were among the first to recognize a state of Palestine, with Jerusalem as its capital,"" and that the Indian commitment to the Palestinian cause remains unwavering. However, India must put its national interest first, and there are compelling pragmatic reasons for its relationship with Israel. ""We have 1.2 billion people to feed,"" Shahare said, noting Israel's expertise in the field of dry-land farming as an incentive for cooperation. He pointed to the Saudi media's description of an Indian-launched Israeli communications satellite as ""a spy satellite that would watch Arabs,"" as unfortunate.

INTOLERANCE UNACCEPTABLE

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8. (C) India also remained concerned that Saudi funding for religious schools and organizations contributed to extremism in both India and Pakistan. ""Indian Islam is a tolerant Islam, and we cannot abide by the spread of extremist views."" The GOI remains concerned about charitable contributions from Saudi sources to South Asia.

COMMENT: WHAT'S GOOD FOR THE GOOSE...

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9. (S) India has signficant economic and political incentives to cozy up to Saudi Arabia, chief among them access to Saudi oil and markets, as well as support from an Arab-Muslim ally willing to back them -- or at least not actively criticize them -- in their international disputes with Pakistan. The Indians have made a clear economic and political commitment to strengthening their bilateral relationship with Saudi Arabia since 2006, and recent strains in the Saudi-Pakistani relationship (ref B) may have helped accelerate progress towards this goal. As the Indian Charge noted, there are some significant sticking points in the bilateral relationship, not the least of which is the complicated labor issue. Nevertheless, to the extent that an emerging partner like India echoes our concern on issues such as terrorist finance and openness to investment, this will enhance our ability to engage the Saudis.

END COMMENT.

ERDMAN