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Country Profile: Saudi Arabia

• Saudi Arabia is India’s fourth largest trade partner (after China, USA and Japan) and is a major source of energy as India imports around 18% of its crude oil requirement from the Kingdom.
• India’s exports to Saudi Arabia increased by 2.61% in 2018 and imports grew by 29%. Major products exported by India include rice, cyclical hydrocarbons, petroleum oils, cars, ceramic tiles, carbon electrodes, barium sulphate and bovine meat.
• The world’s biggest oil exporter, Saudi Arabia is looking at investing US$ 100 billion in India, majorly in the areas of petrochemicals, infrastructure, agriculture and mining.
• Saudi Arabia is working towards transforming its economy and looking at a post-oil age of world-class technological research, start up and entrepreneurial vigour.

Saudi Arabia is the 14th largest economy in the world in GDP terms (P-P-P basis). It is principally dependent on crude oil, ranking second in terms of petroleum reserves and also being the largest exporter of petroleum in the world. It also has the fifth-largest proven natural gas reserves and is considered as an “Energy Superpower”. With a total estimated worth of US$ 34.4 trillion, Saudi Arabia has the second most valuable natural resource base in the world.

This biggest Arabian economy is gradually recovering from the 2014 oil-price crash and a swing of policy changes that hit businesses hard, including subsidy cuts and a value-added tax. Private-sector confidence was also hurt by a declared crackdown on administrative efficiency.

Saudi Arabia has many adorable attractions, the most popularly visited of which is the holy city of Islam – Mecca – though only Muslims are allowed to enter the city. The city is visited as part of a religious pilgrimage called Hajj. There are several sacred sites to visit at Mecca, including the Sacred Mosque, Kaaba, and historic religious sites. The other holy city of Islam is Medina, which is often visited as part of the Hajj, during which Muslims visit the Prophet’s Mosque – Masjid Nabawi.

Saudi Arabia became a member of the World Trade Organization (WTO) in 2005. Since that time and pursuant to its commitment to the WTO, Saudi Arabia has been developing trade-related policies and legislations. Moreover, foreign investment has been highly encouraged recently with the announcement of the Saudi Vision 2030 as it promises better economic diversification.

 

Saudi Arabia is India’s fourth largest trade partner (after China, USA and Japan) and is a major source of energy as India imports around 18% of its crude oil requirement from the Kingdom. In 2018-19 (as per DGFT), India-Saudi bilateral trade has increased by 23.83 % to US$ 34.03 billion. During this period, India’s imports from Saudi Arabia reached US$ 28.47 billion, registering an increase of 29.04 % over previous year (US$ 22.06 billion) whereas India’s exports to Saudi Arabia reached US$ 5.55 billion registering an increase of 2.61% over previous year (US$ 5.41 billion). The current bilateral trade (April-August, 2019 provisional figures) is valued at US$ 14.06 billion.

Structural and economic reforms have started showing to yield positive results. Non-crude oil growth has started surging since last six months. The successful implementation of the value-added tax has underpinned an escalation in non-oil fiscal revenues. Also, energy price reforms have helped reduce per capita consumption of gasoline and electricity, measures have been introduced to compensate low and middle-income households for higher costs resulting from reforms, and fiscal transparency has increased. Reforms to capital markets, legal framework, and business environment are progressing well. Challenges, however still remain for the government to tackle in the coming time period.

Government expenditure has burgeoned, corroborating growth but raising medium-term fiscal vulnerabilities to lower oil prices. Fiscal consolidation is needed to reduce these vulnerabilities. More generally, the economic footprint of the public sector is still large. The unemployment rate of nationals remains high. Job creation is a key challenge identified under the government’s reform program. To deliver a diversified, productive and competitive economy, reforms need to make Saudi nationals more competitive for private sector jobs, raise foreign direct investment, and increase the availability of finance for young and growing companies.

Macroeconomic aggregate of Saudi Arabia

GDP at Nominal Prices, in 2019 US$ 783 billion
GDP at Purchasing Power Parity US$ 1.857 trillion
GDP per capita at Nominal Prices and PPP US$ 25,450 & US$ 56,337 respectively
Human Development Index Score 0.853 and the category is Very High
Unemployment Rate 12.1%
Inflation Rate 0.2%–0.5%
Contribution to GDP sector wise Agriculture (2.6%), Industry (44.2%) and Services (53.2%)
Ease of doing business rank 92

Source: Collected from various sources including World Bank

Top Exporting Destination of Saudi Arabia, in US$ billion

S.No. Country Value exported in US$ billion
1 World 294.5
2 China 29.1
3 Japan 25
4 India 19.4
5 South Korea 17.7
6 US 17.3

Source: OECD

Top importing sources for Saudi Arabia, in US$ billion

S.No. Country Value imported in US$ billion
1 World 294.5
2 China 18.3
3 US 7.6
4 Germany 7.2
5 South Korea 5.2
6 France 5.1

India-Saudi Arabia trade (in US$ billion)

Year
(April– March)
Imports from Saudi Arabia Exports to Saudi Arabia Total trade % increase in bilateral trade % increase in Indian imports % increase in Indian exports
2014-15 28.10 11.16 39.26 -19.24 -22.79 -8.65
2015-16 20.32 6.39 26.71 -31.97 -27.70 -42.71
2016-17 19.94 5.13 25.08 -6.12 -1.85 -19.70
2017-18 22.06 5.41 27.48 +9.56 +10.50 +5.88
2018-19 28.48 5.55 34.03 +23.83 +29.04 +2.61

Source: Ministry of Commerce

India’s exports to Saudi Arabia increased by 2.61% in last year and imports by 29%. Major products exported by India includes rice, cyclical hydrocarbons, petroleum oils, cars, ceramic tiles, carbon electrodes, barium sulphate and bovine meat. On the other hand, India’s imports from Saudi Arabia majorly includes crude oil, petroleum gas, chemical fertilizers, acyclic alcohols, polymers of ethylene, scraps of aluminium, polymers of propylene.

Saudi Aramco signed an MoU with Mumbai-based Gum Pro to set up a drilling fluids facility. Reliance Industries has also announced that Saudi Aramco plans to acquire 20% share in the RIL Oil and Chemical business at an enterprise value of US$ 75 billion. Several Saudi companies have invested in India through their non-Saudi subsidiaries.

Saudi Arabia and India enjoy strong diplomatic relations. After a recent meeting between National Security Adviser Ajit Doval and Saudi Crown Prince  Mohammed Bin Salman, Saudi Arabia affirmed that it understood India’s “approach and actions in Jammu & Kashmir”.The world’s biggest oil exporter, is looking at investing US$ 100 billion in India majorly in the areas of petrochemicals, infrastructure, agriculture and mining. Saudi Arabia is working towards transforming its economy and looking at a post oil age of world-class technological research, start up and entrepreneurial vigour.

According to Saudi Arabian General Investment Authority (SAGIA), there are currently 322 Indian companies as joint ventures or 100% owned entities of worth US$ 1.4 billion operating in Saudi Arabia. Services sectors such as construction project, pharmaceuticals, management and consultancy services, telecommunications, information technology, financial services and software development have a major presence. Top Indian firms present and operating in Saudi includes Tata, Wipro and L&T. Estimated at 2.6 million in August 2019, Indians form the principal expatriate community in the nation and are the ‘most preferred community’ due to their peace-loving nature expertise, sense of discipline and law abiding nature. India is a crucial partner in Saudi Arabia’s vision to reduce its dependency on oil trade, and the two are looking at increased cooperation in a number of areas. This is bound to increase bilateral trade and investment in the coming years. 

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