Enhancing UAE Wealth Fund Incentives: India’s Strategic Boost for Investment & Relations 2023

Enhancing UAE Wealth Fund Incentives: India’s Strategic Boost for Investment & Relations 2023

India, one of the world’s fastest-growing major economies, has been continuously evolving its investment landscape to attract foreign investors. In a strategic move to deepen its ties with the United Arab Emirates (UAE) and attract more investments, the country is mulling over introducing additional incentives for UAE’s sovereign wealth funds.

The United Arab Emirates, especially its major emirates like Dubai and Abu Dhabi, have significant sovereign wealth funds accumulated from decades of oil and gas revenues.

These funds, such as the Abu Dhabi Investment Authority (ADIA) and the Mubadala Development Company, have vast portfolios spanning across various sectors globally.

India, with its demographic dividend, large market size, and reform-oriented approach, has become an attractive destination for these funds. Historically, both nations have shared strong trade and cultural ties.

In recent years, diplomatic and economic relations have further strengthened, with investments playing a pivotal role.

On Thursday, India and the United Arab Emirates (UAE) discussed measures that would entice more sovereign wealth funds from the Middle East nation to invest in India.

Government tax exemptions for dividend, interest, and long-term capital gains from investments made in India in businesses engaged in the construction and maintenance of infrastructure were already included in the budget for 2020.

The Abu Dhabi Investment Authority (ADIA) and its companies were expressly listed for the exemption in the budget. Other sovereign wealth funds needed to have a separate approval and notice in order to be eligible for the exemption under the Finance Bill.Investments made before March 2024 with a three-year minimum lock-in are free from the ADIA.

The Indian side urged sovereign wealth funds to set up shop in India during the 11th meeting of the India-UAE High Level Joint Task Force on Investments. Progress on it was also reviewed during the conference. ADIA has previously declared plans to have an office in Gujarat International Finance Tec-city.

Sheikh Hamed bin Zayed Al Nahyan, the Managing Director of ADIA, and Commerce and Industry Minister Piyush Goyal co-chaired the meeting.

The summit also reviewed the status of the bilateral investment treaty talks between India and the UAE and emphasised the need to move the negotiations along quickly in order to reach a fair deal.

Also examined was the status of the Fast Track Mechanism, which facilitates Indian investment in the UAE. The Indian side also extended an invitation to the UAE to invest in the fields of semiconductors, asset monetisation, health, and renewable energy.

An estimated $20–21 billion from the UAE would be invested India, of which $ 15.18 billion will come via FDI and the rest from portfolio investments. In terms of FDI, it is the second-largest investor in India.

UAE has promised to make a cumulative investment of $75 billion in India’s infrastructure. ADIA contributed $1 billion to the National Investment and Infrastructure Fund (NIIF) as an anchor investor in the NIIF Master Fund.

The Comprehensive Economic Partnership Agreement (CEPA) between the UAE and India, which took effect in May 2022, was reviewed by the co-Chairs during the meeting. The trade agreement has aided in lowering tariffs on more than 80% of product categories, removing obstacles to trade, and opening up new avenues for joint ventures and investment.

Bilateral non-oil trade increased by 5.8% during the first year of the CEPA to reach $50.5 billion, up from the same time a year earlier. By 2030, the two nations hope to trade $100 billion in non-oil goods.

It was also considered to establish the Abu Dhabi-India Virtual Trade Corridor, which aims to boost total trade volumes by creating data interchange platforms to enable paperless trade between the two nations.

The co-chairs also assessed the status of important initiatives, such as the I2U2 Framework investment tied to the food security corridor in India. In order to improve the supply of necessary foodstuffs and build a robust value chain between the two countries, the initiative will be crucial in tackling issues with food security.

An MOU for cooperation in the areas of industry and advanced technology was signed in front of the Joint Task Force by the UAE Ministry of Industry & Advanced Technology and the Ministry of Commerce and Industry.

The MOU will encourage collaboration in a variety of fields, including artificial intelligence, space exploration, healthcare, and renewable energy. The two parties want to further their efforts at collaboration and create an institutional framework for advancing and expanding bilateral cooperation.

The two most well-known sovereign wealth funds in the UAE, aside from ADIA, are Mubadala and International Petroleum Investment Company. During 2020 and 2022, they invested $10 billion in India together.

India’s infrastructural needs are vast, given its urbanization rate and the need to upgrade existing facilities. By attracting more investments from UAE’s wealth funds, India hopes to finance big-ticket infrastructure projects.

With the global shift towards renewable energy, the UAE is looking to diversify its investment portfolio. Investing in a diverse Indian market provides an excellent opportunity for risk mitigation and better returns.

This move goes beyond just economics. Strengthening investment ties also solidifies the strategic partnership between the two nations in various areas, including defense, technology, and energy.

Offering favorable tax regimes for sovereign wealth funds can make India an even more attractive destination for long-term investment.Streamlining approval processes and reducing bureaucratic red tape can significantly improve the ease of doing business.

Offering exclusive investment opportunities in sectors like renewable energy, technology, and pharmaceuticals can be a lucrative proposition for UAE funds.

An influx of investments can boost various sectors, leading to job creation and economic growth. India’s diverse and growing economy can offer stable returns, especially when global markets are volatile.

Economic interdependence can further strengthen diplomatic relations, promoting peace and cooperation in the broader South Asian and Middle Eastern regions.

India’s move to consider more incentives for UAE’s wealth funds is both timely and strategic. In an era of global economic uncertainties, such partnerships can be the bedrock of stability and growth. If executed well, this initiative can set a precedent for how nations can collaborate economically for mutual prosperity.