During a visit to India in 2019, the Saudi Crown Prince announced that the kingdom would be investing $100 billion in diversified sectors in India, writes N. Chandra Mohan for South Asia Monitor
During the last decade, India’s relations with the kingdom of Saudi Arabia have grown infinitely stronger attaining the level of a strategic partnership. No doubt, energy is the bedrock of the bilateral engagement considering India’s high import-dependence on oil and gas. Saudi Arabia is one of the largest suppliers, accounting for 18 percent of the country’s oil imports and 30 percent of its LPG requirements.
The strengthening ties are also reinforced with the presence of a nearly three million-strong diaspora from India which is contributing to the infrastructure boom in the desert kingdom, including the building of new cities.
The crucial marker in this deepening bilateral relationship was the visit of the Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz Al Saud to India in 2006, which laid the basis for a strategic energy partnership according to the historic Delhi Declaration inked during that visit. Saudi Arabia undertook to provide a reliable, stable and increased volume of crude supplies, through “evergreen” long-term contracts. There were to be joint ventures in upstream and downstream oil and gas sectors in India and Saudi investments in oil refining and storage.
The reciprocal visit of India’s Prime Minister Manmohan Singh in 2010 resulted in a Riyadh Declaration, which raised the level of bilateral engagement to a multi-faceted strategic partnership.
Strategic Partnership Council
Besides energy, Indo-Saudi ties in recent years have also incorporated a rapidly growing defence and political component. PM Narendra Modi visited Riyadh in 2016 and 2019 resulting in several MoUs and agreements for energy supplies, security, building strategic petroleum reserves, etc.
On the sidelines of a G-20 summit in June 2019, Crown Prince Mohammad bin Salman bin Abdulaziz Al Saud met PM Modi and discussed furthering the relationship. Both agreed to transform a buyer-seller relationship in energy to a strategic partnership focusing on investments and JVs in petrochemical complexes.
A Strategic Partnership Council agreement that was signed in 2019 is increasing cooperation in key areas of trade, investment, security and defence. India was only the fourth country to have signed such an agreement with Saudi Arabia.
The high-level engagement is reflected in the bilateral economic trajectory. Two-way commerce amounted to $24.9 billion in 2021-22 (April-November), compared to $22 billion for the whole year in 2020-21. Trade numbers during the pandemic are of course anomalous and do not reflect the underlying trends. According to Saudi embassy sources, India is the kingdom’s second-largest trading partner after China and the kingdom is the fourth largest trade partner of India.
India typically exports electrical machinery and equipment, vehicles, mineral; oils, organic chemicals, apparels, ceramic tiles among others while importing mostly crude oil and LPG from Saudi Arabia. During 2020-21, for instance, India imported $10.7 billion of crude from the kingdom. For such reasons, Saudi Arabia registered a balance in its favour amounting to $13.4 billion in 2021-22 (April-November).
Energy and investment diversification
India has to enhance its energy security amidst the volatile geopolitics of oil, in which producer nations have the power to influence prices. This has led India to source its growing energy needs from several geographies to ensure security of supplies. The prospect of short-term disruption to supply of oil is bound to be worrisome to a country that imports 84 per cent of its requirements. Any spike in international crude oil prices implies a higher import bill and inflation. India thus has sought to mitigate the risks of dependence on crude oil from a single region. This is reflected in the fact it is also sourcing supplies from Iraq, West Africa and the US. Even so, the kingdom remains the second largest supplier for India after Iraq.
Closer ties in recent years - much of it due to the relentless efforts at building bridges of the Saudi Ambassador in India, Dr Saud bin Mohammed Al Sati who is leaving his post after a decade - have also resulted in the prospect of big-ticket investments. There are 476 Indian companies, registered as JVs or wholly-owned ventures, worth $1.5 billion in the kingdom as of March 2020, working in projects in diverse sectors such as management and consultancy services, construction projects, telecommunications, information technology, financial services and software development, pharmaceuticals, etc.
Saudi Arabia is the 17th largest investor in India whose cumulative equity investments from April 2000 to September 2021 was $3 billion. In June 2020, Saudi’s sovereign investment fund PIF announced an investment of $1.5 billion in Reliance Jio, besides another $1.3 billion for a stake in Reliance Retail Ventures Ltd. Saudi Aramco has plans for a refinery project in Maharashtra. During a visit to India in 2019, the Crown Prince announced that the kingdom would be investing $100 billion in diversified sectors in India.
Looking ahead, the Indo-Saudi relationship will continue to be energy, not fossil but renewable-based. Saudi Arabia’s royal family is looking for a future beyond oil. So, too, is India which is ramping up capacities for solar and wind power, including green hydrogen. An MoU on cooperation in renewable energy was in fact signed when Modi visited Riyadh. Aramco’s chairman, Yasir Al Rumayyan, is now on the board of Reliance Industries which has big plans in the renewables space, including green hydrogen.
As Saudi Arabia aims to become the world’s cheapest green hydrogen producer, there is bound to be great synergies with India and the likelihood of a different strategic energy partnership than envisaged under the Delhi Declaration.
(The writer is an economics and business commentator based in New Delhi. His views are personal. He may be contacted at firstname.lastname@example.org)