Islamic Leasing Finance Structure - Ijara

 Ijara Financing

Ijarah Financing                                   

Ijarah has huge potential as a financing mode for Islamic banks. It can be used for meeting the needs of retail, corporate and the public sectors and can also play a crucial role in promoting Islamic finance industry. Leasing is an attractive mode of investment for Islamic banks for the following reasons:

a) Assets acquired under these contracts are usually of high quality, marketable, maintain their market value well above book value, are movable and are easily disposable for cash in case of default.

b) Because of the good quality of the asset, the bank, as lessor, does not have to depend so much on the creditworthiness of the lessee, since it always has the recourse of selling the asset in case of default.

c) It is possible for the banks to get variable and floating return on long term investments.

Ijarah can be used directly for plants a machinery, autos, housing and consumer durables and indirectly for sukuk issues by the corporate and the government sectors. It can be used to develop different contracts and sukuk that may suit different purposes of issuers and the sukuk holders. Public and private sector corporations can use the securitisation on the basis of ijarah as alternative tool to interest based borrowing provided they have durable and useable assets. Ijarah is conducive to the formation of fixed assets and medium and long-term investments in an economy. Ijarah Sukuk will be discussed in detail in the Module on Treasury and Capital Market Operations dealing with Islamic Financial Markets.

Leasing and investment

As an asset-based lending is a permitted form of debt-financing in Islam, ijarah provides an alternative to interest-based investment in assets for the Islamic banks. The goods in which the investment is to be made are not purchased by the actual user, but by the bank or a finance company, and are made available to the contracting partner for commercial use subject to payment of a lease rental which is the investment return. This form of financing offers Islamic banks various benefits, such as:

• Secured investment, thus reducing credit risks. Because of the good quality of the asset, the bank does not have to depend so much on the creditworthiness of the lessee client, since it always has the recourse of selling the asset in case of default.

• Assets acquired are usually of high quality, marketable, maintain their market value well above the book value, are moveable and are easily disposable for cash in case of default.

• Although it is a longer-term financing instrument, a leasing contract can be reviewed periodically. The financing party thus not tied down to a fixed return that may not be in its investment goals. The rent can be tied to any type of index agreed to.

• Clear basis of calculation returns over the term of the lease period

• Scope for new investments

• Tax benefits for both parties

Islamic banks are able to offer leasing certificates to their depositor clients as specific investment certificates as a form of declining equity. Lease payments include two elements: capital repayments and profit. If both of these are refunded to the certificate holder, net of bank costs, the depositor client recoups part of the capital (the client’s deposit) as the lease gets closer to the end of its term. But it is possible to design certificates which pay the holder dividends only; so that the bank can reinvest the incoming capital repayments in other lease contracts.

 

Ijarah Muntahia-bi-tamleek (Ijarah wal Iqtina)

Ijarah Munahia-bi-tamleek (Ijarah-wa-iktana) is variation of the leasing method and similar to ijarah except that, included in the contract, is a promise from the lessee to buy the leased asset at a pre-agreed price; rentals paid during the lease term constitute part of the purchase price and the final sale being for a token sum. Ijarah shares many common features with lease financing and operating lease / hirepurchase arrangements. It involves a lessor (usually a financial institution) purchasing an asset and renting it to a lessee for a specific time period at an agreed rental and at the end of the lease period transferring the ownership of the asset to the lessee.

Islamic banks are using Ijarah Muntahia-bi-tamleek as an alternative to a hire purchase and finance lease. It is an arrangement in which leasing is the real and the major contract that is subject to all rules of an ordinary operating ijarah contract where the standard Shari´ah principles of lease, its terms and essential prerequisites of the contract have to be observed. The transfer of the asset ownership to the lessee at the end of the lease term is kept separate. It does not comprise two contracts in one bargain; rather, the real bargain is only one whereby the lessor leases the asset and fixes the rentals in such a way that during the lease period the repayment of the cost of the asset and the rental for leasing the asset are received.

Both parties agree on this nature of the transaction; and the other part of the deal is only a unilateral promise not binding on the promissee and as such it is not a transaction until actually entered into by the parties. Further, this arrangement is fair and based on justice for both the parties in that the lessee, who has paid the cost along with the rentals, is able to get ownership title of the asset at the end of the lease period, while the lessor recovers cost of the leased asset and also the profit in the form of rentals. However, the lessee is under an obligation to buy the asset at the end of the lease term.

As owner of the asset, the bank should take out takaful cover to insure the leased assets. Islamic banks normally include the takaful expenses in acquisition cost of the asset for determining the rental. Shari´ah scholars allow this on the ground that rentals in leases are subject to mutual consent of the two parties and if the lessee agrees to the amount of rental, the contract would be acceptable from a Shari´ah perspective. As regards the insurable interest, it rightly belongs to the bank as lessor.

However, the AAOIFI recommends that in case the transfer of ownership becomes impossible without any cause attributable to the lessee (the client), the lessee must be protected from the loss by the lessor paying to the lessee (client) the difference between the rent received as per the lease agreement and the market rentals of such assets.

If the asset is destroyed, and there is proof for lack of observance of the conditions of the takaful policy that bars the bank as lessor from recovery of an insurance claim from the takaful company, the lessee client is held liable. In the absence of any fault or negligence on the part of the lessee client, the bank bears all responsibility for damage to or loss of the leased asset. If the claim paid by the takaful company is less than the loss incurred by Islamic bank, the uncovered loss cannot be charged to the lessee and the bank would bear the loss.

In this way, Islamic banks and financial institution have tried to transform the conventional lease structure to make it Shari´ah compliant. The arrangement, broadly speaking, comprises two contracts entered into at different times: One contract is an ordinary lease contract, where the Shari´ah principles of defining the asset to be leased, its terms and essential prerequisites of contracts are observed. The lessee pays, in addition to the rental, a sum which goes towards buying the leased property.

The other subsequent contract is a contract for gift or sale of the leased asset at the end of the lease period and is independent of the earlier lease contract. Although the rentals to be stipulated in the lease agreements have to be clearly known and fixed, but the actual and net rental income of the banks might not be fixed and predetermined. The Shari´ah principle is that risk cannot be separated from ownership; hence, as the leased asset remains in bank’s ownership, the bank must remain liable for the asset. Furthermore, the lease and sale transactions are contracts of two different nature; they must be kept separate and independent of each other to avoid the prohibition of two inter-dependent / conditional contracts that also has the connotation of a sale and buy back arrangement. If the above two aspects are taken care of, the Islamic banks can adopt any procedure for leasing the assets, mitigating the risks and transferring ownership to the lessee through any of the approved methods.

 

Jobs and Employment in United Kingdom London

 Immigration and Employment Opportunity in United Kingdom, London

United Kingdom is going through multiple challenges simultaneously. This is happening almost after a century. Last time UK faced challenges of similar magnitude was in First World War. Now UK is at the cross road of history. Two major incidence has happened simultaneously which has change UK completely. 1. Brexit 2. Covid-19 UK a developed economy and world’s second biggest market is facing challenges from all sides. The Brexit and covide-19 has impacted it. 1. More than 1.4 million people left UK in last one year, most of them permanently. 2. 700,000 people left London. UK has another problem, and that is ageing. UK needs new age Value drivers for economy who will keep UK growing and helping the ageing population.

The Knowledge driven economy is facing Threat and Challenge not seen in last 100 Years. This has created huge scarcity of right skilled Human Resources. 1. Less than 1% in agriculture 2. 16% manufacturing 3. 70% in services Financial Sector, Tourism, Research and Information Technology UK suffers worst annual economic slump since the Great Frost of 1709, a 9.9% decline There is need of new age value drivers for the economy, with Europe borders closed and new immigrations rules implemented this is right time to enter UK How to enter 1. Best Opportunity is Higher Education with scholarships, specially in Pure Sciences and Information Technology will be best sectors. 2. Healthcare, wellness, home care 3. Skilled worker’s IT 4. Agriculture Labor 5. Hospitality and Retail 6. Financial Sector There will be huge gap for rightly skilled people in UK Get ready to move to the UK #UnitedKingdom​ #London​ #Employment​ #Jobs​ #Covid​ #Brexit

Islamic Finance Different Methods

 

Mode of Financing by Islamic Banks

The selection of mode in Islamic financing depends upon the nature, purpose and size of the transactions involved, essentially these are:

a) Selling on profit: This mode implies the purchase of goods by banks and their sale to clients at appropriate mark-up in price on deferred payment basis, without levy of mark-up on mark-up; it encompasses the purchase of a property by banks from their clients with a buy-back agreement.

b) Shared-risk financing and sharing of profit and loss: This mode implies the sharing profit and the risk of loss among the investors, i.e. the bank on the one hand and the client on the other hand.

c) Renting of assets (leasing)

d) Benevolent Loans

The modes which are closest to the spirit of Islamic finance are Musharakah (shared risk partnership or joint venture) with Mudarabah (profit-and-loss-sharing, also a form of partnership). However, some practical difficulties which had sometimes hindered their application and adoption led Shari’ah scholars to allow the use of other modes such as ijarah (leasing), and murabaha (cost plus mark-up). These latter modes are comparatively easy to understand and apply, however the mark-up in murabaha and lease rental in ijara suffer from having a resemblance to some of the conventional banking interest-bearing products. Shari’ah advisors have expressed a desire to encourage the use of products based on the concepts of musharakah and mudarabah as early as possible.

Debt Type Instruments include:

o   Murabaha (cost-plus profit mark-up)

In its simplest form, murabaha, is a trading mode and refers to a purchase and resale transaction involving an asset whereby the cost of the purchase and profit margin (mark-up) on the resale is known and the mark-up agreed by the parties involved. Another general and regular kind of sale is musawamah, in which the price of goods to be traded is negotiated between seller and buyer. Musawamah is usually used where the seller is not in a position to ascertain precisely the costs of commodities offered for sale or does not want to disclose the cost price; all other conditions relevant to murabaha are valid for musawamah as well.

Under murabaha, the Islamic bank purchases, in its own name, goods from a third party (the supplier/seller) that are required by their clients, and then re-sells the goods to their clients, on spot or deferred payment, with an pre-determined mark-up.

The difference between the bank’s purchase cost and its sale price forms the profit available to the Islamic bank on this transaction. The ownership of the goods being sold to a client at a mark-up price on deferred payment terms remains with the bank.

o   Salam (advance payment for goods)

Salam is a trading mode allows a buyer to make payment in advance for goods to be delivered on a specified future date at an agreed price. Salam is also defined as a forward purchase of specified goods for assets or a full forward payment (i.e. a forward contract). In normal circumstances, a sale cannot be affected unless the goods / assets are in existence at the time of the bargain. However, this type of sale is an exception, provided the goods / assets are defined and the date of delivery is fixed. The objects of the sale must be tangible goods/ assets that can be defined as to quantity, quality and workmanship

 

o   Istisna’a (contract to manufacture)

Istisna’a is a trading mode where specific goods or an asset is made against a purchase order for delivery at a specified future date. An order to manufacture goods or assets requires various expenses including expenditures on raw materials, utilities, labour, and direct and indirect over-heads; these types of expenses may not be suited to murabaha financing which is primarily focused on the trade in commodities.

As a mode of finance, Islamic banks frequently use istisna'a to finance construction projects that may also involve the manufacturing of industrial equipment and various capital goods. Under this mode, the client will request and the bank will agree to construct and to sell the project to be constructed at the bank’s selling price (cost plus profit margin) on deferred payment terms and thereafter the bank will request another party (a contractor) to construct the project and the bank will purchase the project to be constructed at the bank’s purchase price (cost price/facility amount).

o   Tawarruq (Reverse Murabaha)  Bai Al Ajel

Tawarruq as an Islamic banking product is a recent introduction. It may be considered as a reverse form of commodity murabahah. Tawarruq is a debt instrument that many Shari’ah scholars have approved allowing Islamic banks another way financing individuals and businesses in need of cash or liquidity without contravening the rules of the Shari’ah. Under a tawarruq contract, Islamic banks sell any saleable goods or assets a client on deferred payment at cost plus profit, and the customer then sells the goods or the asset on a spot basis to a third party for cash.

There is a view that tawarruq is prohibited because the structuring resembles bai` `inah, a mode used in Malaysia, whereby an Islamic bank and a client (in need of cash) enter into a transaction between themselves involving a buy-back arrangement. It involves the bank buying goods or an asset from a client for immediate cash and then selling it back immediately same client for a higher amount on deferred payment.

o   Qard Hasan (Benevolent Loan)

Qard Hasan is a non-interest bearing loan or benevolent loan that may not collateralised. It refers to a loan given by a person (the lender) to another (the borrower) without any expectation of any return for the use of the funds. The borrower is obliged to only repay the original amount to the lender within the agreed stipulated period of time. The borrower can pay more than the amount borrowed so long as it is not required by the contract. Qard Hasan is granted on compassionate grounds free of interest and/or service charge. It is repayable as and when the borrower is able to repay. Under this mode of financing many Islamic banks are providing Qard Hasan to clients who are in need, for example for education and medical treatment. Other Islamic banks give interest-free loans only to the holders of investment accounts with them; some extend Qard Hasan to all the bank’s clients; some banks restrict the loans other economically weaker sections of society; and some provide interest-free loans to small producers, farmers and entrepreneurs who are unable to obtain finance from other sources. Qard Hasan is also in Islamic microfinance.

Quasi - Debt Type Instruments include:

o   Ijarah (leasing)

Ijarah is one of the simplest asset-based financial instruments. Under Islam, leasing began as a trading activity and then much later became a mode of finance. As a mode of finance, under an ijarah contract, the Islamic bank purchases an asset or equipment at the request of a client and leases / rents it to the client a price that includes a fair return for the bank. The lease contract specifies the leasing period, the amount and timing of lease payments and the responsibilities of both parties during the life of the lease. Lease can be simple rental or more elaborate contractual arrangements committing the parties to future action. The bank can, by agreement with the client, re-negotiate the quantum of the lease payment at agreed intervals.

The risk in Ijarah principally revolves around the fact that the Islamic bank is the owner of the asset / equipment being financed. This ownership is helpful from the point of view that there is comfort for the bank who may rely more on the high quality of an asset than the credit risk of the client, which allows a client of relatively weak credit rating to obtain Ijarah financing.

Under the standard ijarah contract, the client does not normally have the option to purchase the leased asset in instalments but may purchase the asset at the end of the lease period. Subject to fulfillment of certain condition, this object may be achieved by means similar to a hire purchase agreement, known as an ijara wa iqtina (equivalent to a leasing and instalment loan), whereby each lease rental payment includes a portion of the agreed asset price and can be made for a term covering the asset's expected life. The optional purchase price declines over the period of the lease agreement, but as the client is not obliged to purchase, the

Profit-And-Loss-Sharing Instruments include:

o   Musharakah | Diminishing Mushrakah (partnership or joint venture)

Musharakah implies an arrangement of business or its financing based on the concept of profit-and-loss sharing in which all parties contribute capital or labour skills or a combination of all three in a venture. The profit of the venture can be shared in any agreed proportion but any loss is shared in strict proportion to the capital contributed by each party. As a participatory mode with profit-and-loss sharing musharakah is considered to be the most desired mode of Islamic financing.

It a form on equity participation and also widely regarded as the purest form of an Islamic financial contract, conforming to the underlying partnership principles of sharing in, and benefiting from, risk. All key Shari’ah essentials are promoted in a musharakah contract, such as

(a) Absence of profit

(b) Sharing in the risk

(c) Sharing in the profit-and-loss (profits can be divided up in any agreed ratio, while losses must be shared in strict proportion the investment)

(d) Direct link between capital investment and underlying asset-backed transactions

As a form of financing, an Islamic bank enters into a partnership with a client in which both invest in the equity capital required to finance a transaction or project, perhaps even participate in the management ; both share in the profits according to a pre-determined basis or in losses according to their investment. As such, musharakah is an equity participation arrangement which works like a partnership, normally for a limited duration. It can be conveniently adopted by Islamic banks for single transactions. Musharakah may also be adopted to finance new projects, or to provide additional funding for existing ones.

A variant of the musharakah is Diminishing Musharakah (DM).

The DM arrangements, as in the case of musharakah, allow equity participation and sharing of profits on a pro-rata basis, but also provide a method through which the bank keeps on reducing its equity in an asset against periodical payments, ultimately transferring ownership of the asset to the client. Over and above the payment against the bank’s share in the equity held by the bank, the client also makes rental payments based on the level of equity held by the bank, with each payment, the bank’s equity reduces followed by a reduction in the rental calculated on the reducing equity. Thus, by the capital repayments the client purchases the bank’s equity, progressively increasing the client’s equity and reducing (diminishing) the bank’s equity until the bank has no equity and thus ceases to be a partner and the client has acquired complete ownership. Likewise, the rental payments to the bank reduce with the bank’s diminishing equity in the asset until no further rental payment has to be made. The real estate, housing and construction sectors increasingly use DM.

o   Mudarabah (profit-and-loss sharing partnership)

Mudarabah, also a participatory mode and a form of investment partnership, ranks alongside musharakah as one of Islamic finance’s preferred financing modes, musharakah being the most desired form of financing. Mudarabah also embodies the spirit of profit-and-loss sharing partnerships and the encouragement of trade, as well as an active management of capital linked to assets. Unlike musharakah, in mudarabah one party provides the capital while another other party, as the managing partner, provides the labour and skills to manage the venture. Profits are shared between the parties according to a pre-agreed ratio; however losses are borne by the capital provider only.

As a financing mode adopted by Islamic banks, it is a contract in which all the capital is provided by the Islamic bank and the business, or a project, is undertaken by the client. The profit is shared in pre-agreed ratios, and loss, if any, is borne by the bank only, except in the case of misconduct, negligence, or violation of the conditions agreed with the bank. While many banks are providing mudarabah financing for various business activities, they may also make mudarabah investments in the small budding entrepreneurs in the form of venture capital finance transactions.

Hybrid or Combination Modes

Frequently there are projects which call for the use of a variety of, or a combination of, modes within an Islamic financing transaction. In such a situation, the prudent Islamic banker basically describes the transaction and breaks the transaction into its constituent parts, using some modes as building blocks where it appears to be most appropriate, but they must all be independent of one another. Islamic banks may use these modes with accessory contracts, such as:

• Jua′alah (Wages, pay, stipend, or reward in exchange for a service provided by the bank)

• Wakalah (Whereby the bank acts on behalf of a client for a fee)

• Amanah (Trust)

• Hawalah (Assignment of debts)

• Kafalah (Whereby the bank acts as guarantor)

Combinations modes are allowed by Shari’ah scholars based on the general principle of necessity provided they “make something forbidden as permissible or something permissible as forbidden”. Some scholars have raised objections to certain types of modes being combined as in such cases all rights and obligations will be seen as inseparable and dependent on each other. “What is at dispute is not the validity of combination contracts in principle. The concern is with the nature and form of such combinations” (A Guide to Islamic Finance, by Munawar Iqbal, 2007).

 

WhatsApp Is Finally Inviting Businesses Onto Its Massive Network This Year

WhatsApp co-founder Jan Koum just dropped several pieces of big news about his messaging giant today during a rare appearance at the DLD conference in Munich, Germany.

Here’s the roundup of news, and you can skip to No. 3 for the meaty stuff:

1) WhatsApp is just days away from reaching 1 billion active users: it’s currently got 990 million, Koum said today. He was hoping for 10 million more before his appearance but you can’t have everything. The company has previously said it was growing by about 1 million users a day.

2) WhatsApp is going totally free, dropping the 99 cent subscription that it applied to certain users after a year of free use. Note that WhatsApp never made much money from this; only around $20 million in 2013 revenue to help cover costs. Up until 2014, when Facebook FB -3.56% bought WhatsApp in a landmark $19 billion deal (950 times its 2013 revenue), WhatsApp was only charging the fee in a handful of countries like the United States and United Kingdom, where most people had credit cards and were more likely to pay for things on their mobile phones. Elsewhere like the Netherlands, WhatsApp dropped the fee because while half the country used the app, mobile payments were still uncommon. Now that WhatsApp has all costs covered and then some thanks to Facebook’s tutelage, it can afford to drop the subscription.

3) Since its acquisition by Facebook, WhatsApp has batted away questions about justifying its $19 billion price tag by making more money, saying it needed to focus on growing its user base. During deal talks, Zuckerberg had told WhatsApp’s founders that he’d give them the freedom to focus on growth alone for the first couple of years under Facebook. But that was two years ago, and now that it’s about to hit 1 billion users (equal to one-seventh of the world’s population) WhatsApp is finally going to start inviting businesses onto the network and will probably trial new ways of charging them.

Businesses have been flooding WhatsApp with emailed enquiries over how they could access the network for some time but the company has ignored all of them, according to a person close to the firm.

Many businesses have also tried setting up shop on WhatsApp in a more basic form. It’s common in Hong Kong, for instance, to book a table at a restaurant by simply texting it on WhatsApp. You can text the BBC on WhatsApp if you have a news tip. You can WhatsApp diamond experts at one forward-thinking diamond seller in London if you’re in the market for an engagement ring.

Yet none of these interactions are any different from how regular people communicate on WhatsApp, and businesses want more: analytics, infrastructure for sending messages to large numbers of customers at once, automated messages or “bots” which are fast becoming a tool for businesses on other messaging apps like Facebook Messenger, Kik, Telegram and in particular WeChat.

WeChat is the standard bearer for bringing businesses into the world of messaging. It started inviting businesses onto its network in 2013 with official accounts, and over the years has expanded the kinds of features that those businesses can use to reach out to users, including payments, advertising and automated bots for responding to questions.

Today, WeChat (or more precisely its Chinese-focused product Weixin) has more than 10 million of these official accounts, including McDonalds, Asian healthcare store Watson’s, media organisations and even the Chinese Communist Party. Around 80% of WeChat’s more-than 600 million users are now estimated to follow at least one official account.

WeChat’s broad engagement with businesses goes well beyond anything that other big messaging apps in the West have managed to achieve.

Facebook first announced it would invite businesses onto Messenger with in March 2015, with retailers Everlane and Zulily its first beta users, and since then it’s also partnered with Uber to let Messenger users track and hail a ride from the Messaging app. But Facebook’s masses of users have yet to embrace businesses through Messenger, and it’s unclear when and how much Facebook will be able to make money from giving businesses deeper access to the platform.

Earlier this month TechCrunch reported that Facebook was also releasing a toolkit that would allow developers to build bots on Messenger. Bots are the simpler cousin of apps, and right now they’re blowing up on chat services like Kik (where companies like Skullcandy and Burger King can hold automated chats with its teen user base) and on app stores as standalone digital-assistant apps like Luka and Magic.

In sum, WhatsApp has several examples it can look to for how to set up its first integrations with businesses: the features WeChat gives corporate customers for its official accounts, Facebook Messenger’s SDK and Kik’s more simple chat bots used by around 70 brands as a marketing tool.

Given its founders’ hatred of advertising, WhatsApp will probably steer clear of the marketing-focused features that Kik initially introduced, and even the broad breadth of bot and advertising features that WeChat offers, and limit its early corporate user to simple, focused services. It’ll probably do this by opening its API to a select few customers and at some point down the line, charge them for access.

How much it charges, and how many customers it gets, will help determine how much money it can make from the whole venture.

Economic Cost of Hate

Economic Cost of Hate

India has seen gradual increase of hate against its Muslim Minority. This gradual increase of last 6 years has suddenly spiked in last 8 months, which is noticed by global human rights groups and Governments.

The countries and international organizations has started discussions and so are governments. This discussion has now coming to the point it will start damaging India’s Economy and will have serious implications.

US Congress has already issued statement and so is USCIRF and Congress Members, and Bernie Sanders has raised serious questions on India’s handling of Racism, Hate and Violence against its minorities.

UK Parliament has already discussed the matter.

EU Parliament will take up the issue once opened. It has 3 resolutions on the matter.  

OIC – Organization of Islamic Cooperation is world’s second biggest group of countries has already issued statements and requested government of India, to protect the life and properties of Muslims.

GCC – Gulf Cooperative Council is world’s smallest but richest group with substantial exposure and relations with India and with very good say across the worlds, is started serious talking about Islamophobia and Hate in India. This will have serious economic impact.

US, Europe and UK, number of Muslim countries has echoed their concern for the Hate Crime and Islamophobia in India.

 

Notably among them are Turkey, Iran, Malaysia, Indonesia has come out with their statements.

The real question is How is the cost or economic impact of all this hate mongering.

I will start with GCC.

1.      GCC hosts 9 million Indian – This number can vary between 9 million and 12 million depending upon how you view or calculate.

2.      The total of 79 billion USD, 55 Billion comes from GCC countries or 70%, more importantly India is single largest recipient of foreign remittances.

Among countries, the top remittance recipients were India with $79 billion, followed by China ($67 billion), Mexico ($36 billion), the Philippines ($34 billion), and Egypt ($29 billion). World Bank

3.      More than 80% Indian working in GCC are low wage earners or labor which are easy to replace.

4.      India’s Export – Fresh Vegetables and Meat

5.      GCC is single biggest market for Fresh Vegetables, and Fruits, Agriculture Products.

6.      GCC is single biggest market for Fresh Meat Exports – Caracas – Goat and Sheep

7.      GCC is single biggest market for Beef Exports.

8.      GCC is single biggest trading partner for Agro Commodities.

GCC countries account for 15 percent of India’s total import and 12 percent of the country’s total export basket in value terms.

Among the GCC countries, UAE accounted for the major chunk of India’s exports and imports with $30.08 billion and $29.77 billion respectively in FY19.

 

This is despite a negative growth in both imports and exports of gems and jewelry, a major item in the product basket between India and UAE.  India’s imports of gems and jewelry from UAE have seen a decline of 13 percent, while its exports of these products to UAE have fallen by 3 percent in FY19 over the previous fiscal.

UAE accounts for 9 percent of India’s total export basket and 5.80 percent of India’s import basket by value.

UAE is the major destination for India’s jewelry exports, accounting for about 80 percent of India’s exports.

Energy, Expatriates and Economy

Indian National make up the Gulf states’ largest expatriate community, with an estimated 9.6 million Indian nationals living and working in the region; especially in Saudi Arabia (2.8 million) and the UAE (2.6 million.

The GCC is India’s largest regional-bloc trading partner, which accounted for $104 billion of trade in 2017–18, nearly a 7 per cent increase from $97 billion the previous year. This is higher than both India–ASEAN trade ($81 billion) and India–EU trade ($102 billion) in 2017-18. Two of India’s top five trading partners, the UAE and Saudi Arabia, are from the Gulf. The GCC also provided over $55 billion in foreign-exchange remittances from Indian expatriates in 2017, accounting for over 70 per cent of India’s total.

The total bilateral trade between the GCC and India was estimated at US$121.34 billion ($203 billion) in 2018-19. The UAE is estimated to be India’s third-largest partner with trade in 2018-19 estimated at nearly US$60 billion ($100 billion), while Saudi Arabia is India’s fourth-largest trading partner, with trade in 2018-19 estimated at over US$34billion ($57 billion).

They aim to increase bilateral trade by 60 per cent over the next five years and have set a target of $75 billion for UAE investments into India’s infrastructure development, spanning ports, airports, highways and construction, as well as petrochemical projects.

India expected to attract large-scale investment from the GCC to India, following the recent announcement of the development of a $44 billion oil refinery to be built by Abu Dhabi National Oil Company (ADNOC), Saudi Aramco and Indian counterparts.
The announcement comes a few months after Emirates Group announced a $4.23 billion (INR300 billion) aircraft maintenance, repair and overhaul (MRO) project in Andhra Pradesh in February this year.
Aramco is also in talks with Reliance Industries Limited  to purchase a 20 per cent stake in its oil to chemical business, which is estimated at US$75 billion ($125.5 billion).

The GCC has also invested in developing India’s energy infrastructure. In 2019, the Saudi Ambassador to India stated that Riyadh wished to invest US$100 billion ($166 billion) in India

Foreign Direct Investment (FDI) in India increased to $61.96 billion in 2017-18, according to Indian Government’s Department of Industrial Policy and Promotion (DIPP). Total FDI reached $ 61.96 billion in the last four years, it said.

India: An investment gateway

Yusuffali predicts that an investment to the tune of $150 billion will flow into retail, aviation, tourism and manufacturing sectors from Gulf countries.

This will have a mutual benefit for both the countries as India faces 30 per cent wastage in the Indian farm sector due to bottlenecks in storage, packaging and transportation, and investment by Saudi Arabia would benefit both the countries.

 

 

 

 

Why GCC Matters

And with an average GDP per capita of US $ 61,559 in terms of purchasing parity, most GCC nation rank in worlds top ten richest countries.

 

Indonesia and Malaysia account for 85% of the world's palm oil output while India is the biggest buyer of edible oil.

Indonesian crude palm oil has sold at a premium to Malaysian oil since India this month placed curbs on imports of refined palm oil.
The trade ministers of India and Indonesia, which want to more than double their bilateral trade to $50 billion by 2025, met in Davos on Thursday and agreed to fast-forward trade between them, one of the informed sources
An Indian government document, reviewed by Reuters, said that Indonesia had "informally agreed" to double the annual quota for Indian bovine meat exports to 200,000 tonnes.
Indian-Indonesian trade was worth $21.2 billion in the  2019.

Indonesia imported 94,500 tonnes of Indian buffalo meat worth $323 million in the 2018/19 fiscal year. It is the third biggest buyer of Indian buffalo meat after Vietnam and Malaysia.

India’s Tourism Sector

The Foreign Tourist Arrivals in India is small compared to global standards. The lack of enough and quality infrastructure is one reason, the culture and social environment is second factor.

The arrivals are divided as Foreign and NRI, we will discuss only Foreign Arrivals.

The single largest arrival is Bangladesh Nationals. Then come US and Europe. The Bangladesh alone constitute more than 20% of total arrivals, USA and Europe together constitute another 25%.  The remaining 55% is scattered over countries. North Africa, GCC and Malaysia together is above 10%. Other Muslim Countries has another 3% arrivals in India.

Tourism is one of very important employment sector for India. The present environment of hate will directly affect sentiments of Tourist and their arrivals. Not only the Muslims but all arrivals will be affected.

We see more than 50% reduction in Tourist arrivals from Muslim World to India. The NRI arrival will also be heavily affected because of Job loss.

The arrivals from USA and Europe will be affected by 15%, as sentiments go negative. This will affect India’s direct foreign currency income and employment.

 

Services Sector – India’s services sector is more dependent on USA and Europe. IT, ITES are mostly catered to developed world. In last few years, there is substantial growth and Opportunities are generated from GCC. This growth is steady and remain double the average growth of India’s services sector exports. This nascent sector will face challenge to survive in GCC, North Africa and Malaysia, Indonesia.

The Effect of Hate on FDI and PPP and other projects

As Result of Increase of Hate in India, India will see substantial losses in terms of financial loss. Remittance will be down by 30% or 17 Billion Dollar, direct commercial loss or loss of business will be 55 billion and overall Indian economy will be take hit of 1.5 percent.

 

The sentiment in GCC particularly and worldwide in general will be negatively impacted. The investors look for safety of their amount and social conditioning. Peace is most important to drive growth anywhere in the world. Without peace and harmony, it is impossible to find growth and development. Hate will not only drag down the growth of particular community but it will have drag down effect on everyone. These negative sentiments will persist for the long time. GCC human rights activist and global Human Rights activist particularly in EU and USA will have substantial impact on FDI in India.

 

Data Source - 

India Tourism Statistics 2019 Ministry of Tourism Government of India

Annual Report 2018 -2019 Department of Commerce Government of India

GCC Stat

World Bank Remittances Report

IMF Economic Review

Venture Art Economic Projections