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HomeBusinessMint Explainer: India-Saudi Arabia deals - A bull-run in the making?

Mint Explainer: India-Saudi Arabia deals – A bull-run in the making?

Information technology, agriculture, pharmaceuticals, petrochemicals, and human resources are among the sectors that could benefit. Companies like Essar are already capitalizing on these agreements by expanding their steel operations in Saudi Arabia, particularly in areas requiring technology to reduce carbon emissions.

Mint brings to focus sectors and companies that could benefit from this.

A closer look at the deals signed

During a state visit on 11 September 2023, Saudi Arabia’s crown prince Mohammed bin Salman and India’s Prime Minister Narendra Modi inked multiple MoUs aimed at deepening their countries’ strategic relations. These include agreements on energy cooperation, digitization, anti-corruption measures, and bilateral investment, among others. 

– MoU in the field of Energy between the Ministry of New and renewable energy of India and the Ministry of Energy of Saudi Arabia

– MoC (Memorandum of Cooperation) between the Ministry of Communication and IT of Saudi Arabia and MEITY of India in the field of Digitization and Electronic Manufacturing

– MoU between the CVC of India and the Saudi Oversight and Anti-Corruption Authority

– MoC between the National Archives of India and King Abdulaziz Foundation of Saudi Arabia in the area of archival cooperation

– Framework of Cooperation on Enhancing Bilateral Investment between Invest India and the Ministry of Investment of Saudi Arabia

– MoU between Saudi EXIM Bank and EXIM Bank of India

– MoU for Cooperation in the Technical Field & Establishment of the Small and Medium Enterprises Bank between SIDBI and SME Bank of Saudi Arabia

– MoU on Seawater Desalination between National Institute of Technology of India and Saline Water Conversion Corporation of Saudi Arabia

There were also more than a dozen MoUs between private companies facilitated by Invest India and the Ministry of Investment of Saudi Arabia.

Additionally, both the countries plan to channel $100 billion in investments pledged by the Saudi Prince in 2019. Of this, $50 billion is earmarked for the West Coast Refinery in India.

They have also decided to expedite negotiations of the Indian-Gulf Cooperation Council (GCC) FTA (Free Trade Agreement). The two nations agreed to strengthen the fintech field to explore the opportunity to trade in local currencies and abate the use of the greenback.

Companies and sectors likely to benefit

These MoUs signed are concentrated on energy cooperation between the countries – the hydrocarbon relationship, digitalization, electronic manufacturing, and desalination. Other different areas in which the two countries could cooperate are defence, security, education, transportation, health care, tourism, and culture. Both sides also identified space and semiconductors as other areas of cooperation.

The MoU of energy signed by both the nations will cover renewable energy, energy efficiency, hydrogen, electricity, petroleum, strategic petroleum reserves, circular carbon economy, and other fields.

The MoUs signed between private companies include Serum Institute of India, HP, VFS Global, ICICI Bank, Al Jomaih Energy and Water and Avaada Energy Private Limited, Petromin and HPCL, Desert Technologies and Goldi Solar, Alshalan Co and D.D. and AMDD Foods Ltd, ARCO Indian Personal Export Promotion Council and the Association of Overseas Recruiting Agents.

The deals will help boost the stocks of the Indian-listed companies that are vying to expand via collaborations in the cash-rich Middle Eastern region of the world. Middle East healthcare is continuously evolving, the region faces unique challenges in providing accessible, affordable, and high-quality healthcare services, a good time for Indian companies to come in. India is the largest provider of generic medicines and a pharmaceutical hub for the world.

Railmakers would be looking for the opportunity to source the India-Middle East-Europe Economic Corridor (IMEC). Hindalco on Tuesday announced that the company under its 2,000 crore investment plan has signed a strategic partnership with an Italian firm to bring aluminium extrusion tech to India, to be sourced for lightweight high-speed rail wagons, especially the Vande Bharats.

Steel manufacturers are looking to decarbonize the process of steel manufacturing, and the Middle Eastern countries are renowned for the green steel tech. Companies like Essar have already started their collaboration for green steel with a local manufacturer Dessert Technologies.

Will trade deficit improve?

The trade deficit between India and Saudi Arabia stood at a stark $31.3 billion at the end of FY23, mainly due to petroleum imports. However, this gap is evolving. While petroleum and crude products still account for a significant portion of the trade, their share has dropped to 78.9% in 2022-23 from 90% in 2009-10. In contrast, Indian manufactured goods have increased their footprint, accounting for nearly 60% of exports to Saudi Arabia in 2022-23, up from 45.9% in 2009-10.

The plethora of deals and the strategic focus on non-oil sectors could represent a turning point in addressing this trade imbalance, while simultaneously providing a tailwind for Indian-listed companies seeking to expand their horizons in the Middle East.

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