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Is India losing the Gulf to China?

By C. Raja Mohan

MUSCAT FEB. 13. "You snooze, you lose." India is in the danger of becoming a big loser in the Persian Gulf if it does not quickly respond to the economic changes taking place in the region.

India's concerns in the Gulf have had a rather narrow mercantile focus on oil purchases, labour exports and remittances from expatriates. But as the Gulf states move towards regional economic integration and seek to globalise, India could easily squander the many natural advantages it has in the region.

While the Gulf states are looking towards greater economic cooperation with India, which they see as a big future market, New Delhi may not be doing enough to tap the new opportunities that are opening up in the Gulf.

If India is dozing at the wheel, China is rapidly raising its economic presence in the Gulf. Chinese consumer goods are already flooding the markets. For Chinese business, the rich Gulf area is a new and important destination.

China, with its more open economic environment is also drawing huge investments from the region. With deepening economic links to the region, it is inevitable that Beijing's political influence in the Gulf will begin to grow. The slow pace of India's reforms and an unwillingness to devote political energies to exploit economic possibilities in the Gulf are giving a relatively free hand to China which could emerge as a future player in an area of vital concern to India.

Cultural affinities and historic relations make the Persian Gulf a natural economic partner for India. If India continues to dither, it could well find China outflanking it in the region.

While war and its uncertain consequences loom large over the Persian Gulf, the Arab states of the region are taking important steps that could transform their economic profile over the next decade. Foremost of these is the accelerated progress towards regional integration.

The six states of the Gulf Cooperation Council — Saudi Arabia, Oman, the United Arab Emirates, Kuwait, Bahrain and Qatar — had launched at the beginning of this year a customs union. Under the agreement, the Gulf states have avoided multiple taxation on imports, harmonised customs duties and allowed freer movement of goods across the six countries.

This is the first step towards binding the economies together with a common Gulf currency and a free trade area in the coming years. All the present currencies in the region are linked to the dollar and a monetary union is on the cards for 2010.

The Gulf Arab states are also looking at an early free trade agreement within the region and have plans for tying up with the larger Arab world that includes nearly 300 million people. A Greater Arab Free Trade Area could be a reality by the end of the decade.

Recognising the urgency of coming to terms with globalisation, Oman joined the World Trade Organisation at the end of 2000 and Saudi Arabia is negotiating for a similar entry. The Gulf countries realise that deepening their own regional economic integration will help them better negotiate with the other major players in the great trade game.

Oman's Minister of Commerce and Industry, Maqbool Ali Sultan, told visiting Indian reporters that the "future is with the markets in India and China". "We had neglected Asia in the past and focused far too much on the West," he conceded.

Mr. Sultan, who has strong personal links with India, is enthusiastic about economic cooperation with New Delhi, despite some bitter experience over the last decade.

Oman was among the first countries to respond positively to India's economic reforms in the early 1990s and spent nearly $80 million promoting projects in India. But it was badly burnt by the bureaucratic delays that stymied planned investments in India.

The one success story has been the Omani investment in the fertiliser project at Bina in Madhya Pradesh. It took nearly a decade for this project to materialise. This has not deterred Mr. Sultan who says, "Oman is keen to invest in India".

Mr. Sultan has been trying to sell the idea of a free trade agreement between India and the GCC countries for years now. Oman has also sought to work with India in promoting economic cooperation in the Indian Ocean region.

Neither initiative has taken off, thanks to the lackadaisical Indian approach to economic cooperation with the region. Mr. Sultan is, however, confident that things might begin to move now. He pointed to the recently set up Indo-Gulf Council that is expected to promote a free trade agreement between India and the Gulf.

Oman with its great maritime tradition sees its own economic future lies in full exploitation of its geostrategic position at the centre of the Indian Ocean littoral. It is building ports and special economic zones along its coast to emerge as vital link in the economic interchanges in the region.

Influential sections of the establishment here hope that India will recognise its own interests in emerging as a dominant economic and political player in the Indian Ocean littoral.

But is India ready to take the political initiative towards free trade in the littoral? Oman, like the rest of the region, keeps its fingers crossed and wonders if the sleeping giant in India will ever wake up to its potential.

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