Investments on hold, PM's Modi's UAE trip is really about three things: oil, FDI and terrorism

Prime Minister Narendra Modi has begun a stand-alone bilateral visit to the United Arab Emirates (UAE), a near-abroad country so important for India today that deserves a special attention from New Delhi that it has not been getting. The real importance of the UAE for India lies in its mind-boggling investment potential but it is a high-hung fruit which proved to be impossible for the Manmohan Singh government to pluck and is well impossible even for the Modi government. [caption id=“attachment_2394840” align=“alignleft” width=“380”]  Crown Prince of Abu Dhabi Sheikh Mohammed Bin Zayed al Nahyan welcomes Prime Minister Narendra Modi on his arrival in Abu Dhabi on Sunday. PTI[/caption] Abu Dhabi, the UAE capital where Modi is currently camping, has a sovereign wealth fund of about $800 billion. This fund is parked with the Abu Dhabi Investment Authority. Dubai, where PM Modi will be reaching on Monday, has a similar fund with Dubai Investment Authority boasting of around $500 billion in its kitty. Put together, the two sovereign wealth funds amount to a staggering $1.3 trillion. Not many countries in the world can boast of this kind of whopping sum set aside solely for the purpose of investment. Two other Arab world countries – Saudi Arabia and Kuwait – too have long and deep pockets and have similar sovereign wealth funds. Saudi Arabia is believed to have sovereign wealth funds in excess of $671 billion while the figure for Kuwait is $592 billion. PM Modi will be visiting Saudi Arabia in near future and though, as of now, a visit to Kuwait does not seem to be in the works, but Kuwait too may be roped in his itinerary in coming months. Before we talk about why it will be very difficult for PM Modi to sink his teeth into sovereign wealth funds of foreign countries, the purpose and the nature of these funds need a little elaboration. Sovereign wealth funds invest globally in such areas like stocks, bonds, real estate, precious metals, or in alternative investments such as hedge funds. These funds are typically created by such countries which have budgetary surpluses and have little or no international debt. Clearly even to think of having such a mechanism is a luxury for poor developing countries like India, which have budgetary deficit year after year. At best, New Delhi can eye these funds and persuade countries having such plush funds to invest in India. PM Modi’s just-begun two-day visit to the UAE should be looked at from this perspective. Seeking investments from the cash-rich country like the UAE, which Modi rightly described as a “mini India” with 2.6 million Indian expatriates accounting for 28 percent population of the UAE, has to be obviously very high on the Indian prime minister’s radar screen. The reason why Modi may not be able to get a slice of the cake of UAE’s enormous sovereign wealth funds is because of inherent structural weaknesses in Indian taxation and investment climate. India desperately needs uniform taxes and that’s why the Goods and Services Tax (GST) legislation is of crucial importance for India. This legislation will ensure uniform tax across the length and breadth of the country. But practically all 29 Indian states and seven union territories have their own taxation structures. The Modi government was not allowed by the opposition to even introduce the GST bill in the just concluded monsoon session of parliament. Added to this is the woe of land acquisition. Any foreign company which is desirous of parking its investments in India would need to set up a manufacturing unit for which it would require land. But the land Acquisition Bill too has been hanging fire. The two principal political parties, the BJP and the Congress, have been working at cross purposes for years with respect to these two legislations. When Congress was in power, the opposition BJP stalled these legislations and now when the tables have been turned the Congress is paying back the ruling BJP in the same coin. This kind of political scenario is poison for international investments in India. Having said that, PM Modi will surely be pitching for the UAE investments in India, both during his Abu Dhabi and Dubai legs of his visit. However, it is not just investment alone that makes the UAE a key country for India. The UAE has the world’s seventh largest oil reserves and the seventeenth largest gas reserves. UAE is India’s biggest investor with total FDI from UAE to India pegged at three billion dollars. On security front, the importance of UAE for India has grown even further in the wake of the Islamic State (IS) entrenching itself in the region. That is why PM Modi today made a strong pitch in Abu Dhabi for closer partnership between the two countries and counter terrorism jointly. Against this backdrop, no wonder that PM Modi has chosen to pay a stand-alone bilateral visit to UAE. He doesn’t do that very often. So far, he has paid stand-alone bilateral visits to Bhutan, Nepal and Bangladesh only. Also, this is his first visit to an Islamic country outside SAARC, the first being Bangladesh. One only wonders how and why no Indian prime minister found time in last 34 years to pay a bilateral visit to an important country like the UAE.