The Ambanis have always worked with overwhelming the public. Whether it be Akash and Isha’s wedding or the recent Saudi Aramco deal, they always do things with a bang. So with the recent announcement for Reliance Industries as well they have surprised one and all. Reliance Industries Limited has decided to sell 20% of its oil and chemical stakes to Saudi state-owned and one of the most profitable companies worldwide, Saudi Aramco; (officially called the Saudi Arabian Oil company).
Being one of the largest companies by revenues, this deal will mean one of India’s largest foreign direct investment deal to date. There are a lot of implications of this move for India in general and ofcourse, the Ambanis in particular.
What Does This Collaboration Mean?
The primary reason for this collaboration is the Reliance industries looking to reduce its net debt to zero by March 2021. This sounds very reasonable, especially since RIL has recently divested from the telecom sector. Add to that the oil and petrochemical business seeing major upheavals ever since the Iranian sanctions by the USA and the Venezuelan crisis. Also, with China’s vision of the hydrocarbon market, it is possible that there could be a Chinese dominance in the area as well.
Therefore, a decent pullout will only help the industry. Moreover, India’s internal policy is brimming with new structural reforms especially vis-a-vis electric vehicles (as highlighted by NITI Aayog numerous times) and reduction of carbon emissions (in alignment with the Paris Agreement). There is a very high chance that the demand for petrochemicals will be reducing further.
But there is more to the deal than just this. With ripples in the global economic activity (as pointed out in the World Economic Outlook report by International Monetary Fund) and further intensification of the ongoing trade war, Ambani may have realised that the slowdown is here to stay. Although India is not very well integrated with the global supply chains, yet, it might not be that effected with the ongoing trade war. However, the clouds of grimace still surround us. Going for a zero net debt target might help Reliance to survive the global shocks that are yet to come.
India And West Asia
Dealing with Saudi Arabia brings a lot of policy shuffling. When you deal with Saudi Arabia, you automatically shift the balance away from Iran. And given Iran’s stiff situation, right now it may seem a correct thing to do. However, policymakers should not leave Iran behind. Given India and Iran’s historic ties and also the fact that Iran has the potential to become a regional superpower; should be incentive enough for us to align with Iran. If not aligned, then at least maintaining a clear balance between Iran and Saudi, is necessary. There is a fair chance that the USA’s hegemony is going to be challenged and might even get defeated. Therefore, simply aligning with US allies will do us no good.
However, this deal brings good news in as far as India’s West Asia policy is concerned. India has a long-standing interest in West Asia due to its mineral resources and strategic location. With this deal coming through, it will give a boost to India and the Middle East ties. Also, this might serve as a buffer for India in the wake of the J&K question in the United Nations; as “the Muslim world” solidarity will increase with India. Given OPEC’s invitation to former External Affairs Minister Sushma Swaraj in 2019 and conferring of the Zayed Medal by UAE to Prime Minister Modi, it will be tough for Pakistan to keep India away from West Asia.
Economically, this seems the first correct step towards kickstarting India’s plan of increasing Foreign Direct Investment as highlighted in the Budget and the Economic Survey. Whatever the final word be, it seems like a good move. With a little caution, India can achieve being a $5 trillion economy by 2024. Let us hope for the best in this scenario.