India and the Gulf Cooperation Council (GCC) have renewed their long-dormant negotiations on establishing a free trade agreement (FTA), signing a Terms of Reference (ToR) for these negotiations on February 5, 2023. These negotiations were frozen for more than three years due to disagreement over the intended scope of the agreement. The GCC consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, and therefore represents one of India’s most strategically significant groups of trading partners.
The ToR provide the framework and modalities for negotiating and concluding the proposed FTA, and officials believe that this FTA will facilitate India’s deeper engagement economically and strategically with the Middle East. Furthermore, the signing of this ToR represents a political reset of the previous negotiations, which occurred in 2006 and 2008 under the previous government, but which did not produce an agreement because the discussions collapsed.
India and Saudi Arabia De-Link Investment Issues in India–GCC FTA Talks
Most importantly, India and Saudi Arabia have decided to separate the Bilateral Investment Treaty (BIT) from the Free Trade Agreement (FTA), removing the largest obstacle to achieving an agreement. Both countries previously disagreed about investment protections, such as Most Favoured Nation (MFN) clauses, as well as how investors from outside the country would resolve disputes with the country in which they were investing.
India is committed to securing foreign investment, but requires a legal framework that will protect investors under domestic law. Conversely, Saudi Arabia prefers to have fewer restrictions on investing in other countries and is primarily interested in engaging with other countries through trade. Consequently, the two nations have decided to continue working on aBIT as a separate matter from the GCC FTA, while at the same time accelerating the discussions on the GCC FTA, thereby enabling officials to continue negotiations without putting the two agreements on hold.
India–GCC FTA Coverage Nears 90% of Gulf Tariffs
Once negotiated and ratified, the GCC Trade Agreement will comprise about 90% of the common tariff rules that currently apply among the member nations. As of now, India has existing agreements with the UAE and Oman, which means India has only limited gaps in their trade relations with two of these nations — Qatar and Bahrain. India continues to hold parallel discussions with Qatar and Bahrain to conclude any outstanding trade issues.
India-GCC total bilateral trade volume during FY25 was $178.56 USD billion and represented more than 15% of Total Trade by India’s total trade with other countries. Exports from India to GCC nations amounted to $56.87 USD billion, while imports from GCC nations —primarily including crude oil —amounted to $121.66 USD billion. In addition, members of the GCC have invested over $31 USD billion in India, providing the GCC Members with the overall significance of their strategic and economic clout in relation to India.
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