The risk of a multi-billion-dollar debt default by Dubai World will have an extremely limited impact on the Indian economy, a report said.
"The overall contribution of the region in foreign investment flows is small and no significant impact on portfolio investments can be discerned. Overall the impact on India is not expected to be significant in the long-term," a report from Credit Analysis and Research (CARE) Limited, said.
Among the sectors which have a significant portion of their exports going to the UAE are gems and jewellery (38.38 per cent of total gems and jewellery exports), processed petro products (17.53 per cent), man-made yarn fabrics (16.34 per cent), rice basmati (29.4 per cent) and non-ferrous metals (17.42 per cent), the report said.
While the region contributes about 7 per cent of portfolio investments, the crisis may not affect institutional inflows significantly. In fact there could be a re-channelisation of capital flows from the Gulf to more stable emerging economies like India, the report said.
An important characteristic of the export demand to the UAE is the low proportion of internal consumption of Indian goods within the seven Emirates themselves, it said.
The share of the UAE in India's total exports which was just 2.6 per cent in FY 04 has increased to 13.1 per cent in FY 09. In FY 09, the UAE was India's second-largest export destination after China, the report said.
The impact of the crisis on the wider Indian economy, however, appears quite limited due to the strong revival in domestic demand in certain sectors witnessed recently and the relatively weak link between economic activity in the UAE and general world demand for Indian products, the report said.
The state-run Dubai World stunned the global financial world when it announced it would need to restructure its debt, estimated at $59-billion, to preempt default and asked creditors for a six-month deferment.
