UAE deal offers timely financial backstop as foreign investors pull out

A short visit by UAE President Mohamed bin Zayed has resulted in investment plans linked to GIFT City and infrastructure, offering a confidence boost amid sustained foreign fund outflows

Over a quickfire 90 minutes on Monday evening, the United Arab Emirates (UAE) offered the Indian financial sector sizeable support to backstop pressures from a sustained withdrawal of foreign investment.

 

Less than two weeks ahead of India’s Union Budget, UAE President Sheikh Mohamed bin Zayed Al Nahyan flew into New Delhi for one of the shortest-ever visits by a head of state to meet Prime Minister Narendra Modi. The meeting itself was announced as late as Sunday evening, as per a Business Standard report.

 

Over the course of the one-and-a-half-hour meeting, the two leaders signed an expansive agreement that includes plans for First Abu Dhabi Bank to open a branch in GIFT City to promote trade and investment ties, while DP World will operate from the financial hub, including for the leasing of ships for its global operations.

 

DP World moves about 10 per cent of global trade volumes; for GIFT City to capture a part of it is likely to be a big plus for the financial centre, which has been Modi’s brainchild since he was chief minister of Gujarat.

 

For now, the expectation is that DP World will route some of its substantial ship-leasing business to India’s International Financial Services Centre. A team from the Ministry of Ports, Shipping and Waterways had been working for the past several months to iron out the tax creases for this agreement to come through.

 

First Abu Dhabi Bank, the UAE’s largest bank, will also set up shop in GIFT City, which will make it the first financial entity from West Asia to do so. As of now, of the 28 banks operating in GIFT City, most are domestic, with only a handful from the US and Japan.

 

The India-UAE agreements also include projected cooperation for the development of the Special Investment Region in Dholera, Gujarat. “The envisioned partnership would include the development of key strategic infrastructure,” noted a government release, adding that the tie-up will also include a greenfield port and a smart urban township.

Why UAE backing matters amid pressure on foreign investment flows

This is the second time such global underwriting of India’s ambitions has been supported by the UAE. In 2022, the two nations had signed the India-UAE-Africa connectivity initiative for food security to offer Indian cereals in a large food transfer deal for the desert kingdom. The deal later morphed into the I2U2 grouping, bringing in Israel and the US as new partners, and finally crystallised as the India–Middle East–Europe Economic Corridor, which former US President Joe Biden termed a “big deal”.

 

Monday’s agreement also has the potential to transform into a major financial partnership bringing in new participants. For now, the most crucial aspect of the deal is the promise of a raft of foreign investment into the economy. Foreign investors have sold ₹22,500 crore of Indian equities in January alone. In 2025, net outflows stood at ₹1.67 trillion.

Budget constraints, global risks and the need for foreign capital

In the Union Budget for FY27, Finance Minister Nirmala Sitharaman is expected to continue with the prudent fiscal road map the government has followed since FY22, the year after the pandemic. However, this leaves her with limited resources to finance the economy’s investment needs, a challenge compounded by global uncertainty unleashed by US President Donald Trump’s wave of tariffs cascading through global trade.

 

“Highlighting the success of the first NIIF Infrastructure Fund, the Prime Minister of India invited UAE sovereign wealth funds to consider participation in the second Infrastructure Fund, scheduled for launch in 2026,” noted a release issued after the meeting.

 

The impact of a sustained flow of capital from the UAE for the wide range of investments signed by the two countries is likely to be viewed as a positive signal in this context. A government official said it was too early to assess the size of foreign investment inflows but agreed that the list of proposed investments was substantial and could eventually shore up investor confidence in the Indian market.

How UAE investments align with its diversification strategy

For the UAE too, the investments make strategic sense as it seeks to diversify away from a reliance on the US dollar. The country’s sovereign wealth fund, the Abu Dhabi Investment Authority (Adia), has an India presence through the National Infrastructure Investment Fund, but it remains modest at less than $5 billion. The limited exposure was due to a perceived lack of investment avenues in India, according to several interviews with officials connected with Adia.

 

Sovereign funds typically act as anchor investors in financial centres, but India has lacked such backing so far. The UAE’s presence could also translate into renewed interest from neighbouring Saudi Arabia. Riyadh has long sought to invest in a refinery project in India—the West Coast refinery—but has not seen progress.

 

India hopes to change this picture through the long list of investment plans signed with the UAE, betting that these agreements will help trigger a turnaround in the equities market in FY27.