After US President Donald Trump imposed a 50 percent tariff on India, the buzz in the market is that many Indian firms may attempt to relocate their units to the Gulf countries, including the UAE and Saudi Arabia, where the tariff is pegged at 10%.
While the Gulf is emerging to be a sought-after destination for many jewellery companies, the latest being Titan, for both manufacturing and exports, the Trump decision might prompt other sectors, especially Indian textile and garment makers, to follow suit.
While textile companies with substantial US orders face the highest pressure to relocate production capabilities, fast-moving consumer goods manufacturers can also opt to do so. Perfumery and beauty product manufacturers already demonstrate successful Gulf-to-US export models.
“No one believes tariffs on India will be at 50% - there is room for negotiation with the US,” a top official with an Indian consumer goods company told Gulf News, adding that even if final tariff on India is at 15%-20%, Indian manufacturing companies with US clients still would have reasons to shift to the Gulf.
Even now, Dubai is one of the top destinations for Indian companies to invest, with over 73,000 Indian companies registered with the Dubai Chamber of Commerce. The Comprehensive Economic Partnership Agreement between India and the UAE, for instance, has significantly enhanced bilateral trade, especially in gems and jewellery. Many firms hope to leverage the region's strategic location and business-friendly environment to expand their reach and offset tariffs.
While the UAE's import duty for Indian shipments in most cases is just 5 per cent, it is zilch for many commodities under CEPA coverage. Use of UAE free zones for re-export can help avoid this duty.
Though many would be interested in using the Gulf countries as transshipment hubs, like how Vietnam has emerged as a significant transshipment hub for Chinese goods, experts say it is better to start manufacturing units in the UAE or Saudi Arabia, as the US will target transshipments at some points.
Several Indian businesses have announced investment commitments in Gulf locations, with Dubai Industrial City turning the major beneficiary of Indian manufacturing investments.
