Squaring the Circle at the India-Egypt Circle

Why in News?

• After the successful US state visit, the Prime Minister of India is scheduled to visit Egypt on 24th and 25th
• However, there is a danger that after the consequential bilateral meeting in the US, PM’s visit to Egypt may appear to be a bit underwhelming.

 

Historical Ties Between India and Egypt

• Both enjoy the oldest civilisational link.
• In 2750 BCE, the Pharaoh Sahure sent ships to the “Land of Punt”, which historians identify with peninsular India.
• By the middle of the second millennium BCE, Egyptian mummies were wrapped in muslin dyed with indigo, both from India.
• Ashoka’s edicts refer to his relations with Egypt under Ptolemy II.
• Mahatma Gandhi and Saad Zaghloul shared common goals on the independence of their countries, a relationship that was to blossom into an exceptionally close friendship between Gamal Abdel Nasser and Jawaharlal Nehru.
• This led to a Friendship Treaty between the two countries in 1955.
• The Non-Aligned Movement, led by Nehru and Nasser, was a natural concomitant of this relationship.

 

India-Egypt Relationship in Present Scenario

• Less Substantial Relationship Despite Good Historical Ties
  • While the past century of contacts produced plenty of goodwill customs and principles from decolonisation to non-alignment and from Egyptians’ Bollywood-frenzy to the addition of Egyptian music in Indian scores, they have delivered little of substance.
• Less Trade and Bilateral Investments
  • India’s trade with the most populous Arab country stood at $6,061 million in 2022-23, having declined by 17% over the previous year.Nearly a third of it was petroleum-related.
  • India was Egypt’s sixth largest trading partner, while Egypt was India’s 38th.
  • Indian investments in Egypt were spread over 50 projects totalling $3.15 billion, half of the sum contributed by a single company.
  • Egypt has invested only $37 million in India.
• Negligible Number of Indian Expats in Egypt: There are less than 5,000 Indians in Egypt, nearly a fifth of them being students.

 

Reason Behind Underperformance of Bilateral Ties

• The underperformance of bilateral ties is not due to a lack of bilateral institutional mechanisms, but their efficacy and sense of purpose.
• India has a Joint Commission, Foreign Office Consultations and at least nine joint working groups.
• Its Defence and External Affairs Ministers visited Egypt during the past year. It had a bilateral summit less than five months ago when the Egyptian President, Abdel Fattah El-Sisi, visited India. 
• All these points attest that both India and Egypt have formidable bureaucracies and public sectors that indulge in pointless discussions and meetings rather than engaging in result-oriented actions.

 

Opportunities for India in Egypt

• A Big Market
  • Egypt is a large country (population 105 million) and economy ($378 billion). It is politically stable and its socio-economic conditions are quite similar to India.
  • These conditions present an opportunity for India to boost bilateral trade and investments.
• Export Opportunities
  • Egypt’s largest imports are refined petroleum, wheat (world’s largest importer), cars, corn, and pharmaceuticals.
  • India has the potential to supply each of them.
• Infrastructure Projects
  • The Egyptian government has an ambitious infrastructure development agenda, with 49 mega projects including the construction of a New Cairo ($58 billion), a $25 billion nuclear power plant and a $23 billion high-speed rail network.
  • From India, Egypt is seeking investments in infrastructure including Metro projects, a Suez Canal economic zone, a second channel of the Suez Canal.
  • India can deliver on these projects.
• Defence Sector
  • During 2015-19, Egypt was the world’s third-largest arms importer.
  • The Indian defence sector can benefit by exporting indigenously developed arms and ammunitions.

 

Challenges - Egypt Economy Crisis

• Egypt’s economy has been in chaos over the past few years due to the pandemic and the Russia-Ukraine war which impacted its supply of food as almost 80% of Egypt’s grain imported from Russia and Ukraine and impacted Egypt’s foreign exchange reserves.
  • In 2022, despite restrictions on the export of wheat, India allowed shipments of 61,500 metric tonnes to Egypt.
• Annual inflation is above 30% and the currency has lost more than half its value since February 2022.
• Foreign exchange scarcity has forced the deferral of payments for such essentials as wheat.
• While a $3 billion bailout package was negotiated with the International Monetary Fund, it is conditional on the tough economic reforms.
• Egypt’s foreign debt is over $163 billion (43% of the GDP) and its net foreign assets are minus $24.1 billion.
• The acute forex situation compelled the government to issue in January 2023 an order for the postponement of projects with a large foreign currency component and cuts to non-essential spending.

 

Pitfalls India Should Avoid During Dealing with Egypt

• Need to Balance Exposure to Egypt
  • Given the status of Egypt's economy, Indian delegates in Cairo may need to carefully balance their exposure to Egypt with the prospects available.
  • India may face manageable eco-political risks to partake in Egypt's lucrative opportunities through various innovations such as the EXIM line of credit, barter, and rupee trading. 
• Avoid a repetition of Experience of Iraq 
  • India should avoid a repetition of its experience of Iraq in the 1980s and 1990s of having to defer its hard-earned construction project dues until they had to eventually be paid off by the Indian taxpayer. 
  • It implies India should not commit to long-term Infra projects. Since the country is in a fragile state, there is a possibility India will not be able to reap the benefits from the projects.
  • Moreover, such an arrangement may set a precedent other similarly placed friendly countries may cite. 

What should be India’s Strategy under these conditions?India may consider trilateral funding arrangements for such projects in Egypt or elsewhere with its partners in the Gulf, the G-20, or the multilateral financial institutions.

 

Conclusion

• Egypt, the most populous country in West Asia, occupies a crucial geo-strategic location, 12% of global trade passes through the Suez Canal and is a key player in the region.
• Considering Egypt’s geo strategic location, it is important for India to engage Egypt but considering Egypt’s economy India should also be cautious.

 

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Q) What is EXIM Line of Credit? 

Exim Bank was established by the Government of India, under the Export-Import Bank of India Act, 1981 as a purveyor of export credit, mirroring global Export Credit Agencies. Exim Bank extends Lines of Credit (LOCs) to overseas financial institutions, regional development banks, sovereign governments and other entities overseas, to enable buyers in those countries to import developmental and infrastructure projects, equipment, goods and services from India, on deferred credit terms. 

 

Q) What is the benefit of Rupee Trading? 

The greatest benefit of rupee trade is its potential to increase trade flows among nations that prefer to settle international trade in rupees instead of dollars. Domestically, businesses that export and import in rupees can be better protected from exchange rate fluctuations.

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Source: The Hindu