Dubai is an important economic experiment in a strategically vital region. The story of upliftment of Dubai started when Sheikh Mohamed Bin Rashid Al Maktoum, the ruler of Dubai, wanted to transform it into a brand name, a financial centre and a tourist resort in record time. He wanted to have an open economy that has diversified well beyond energy. Dubai World, the state-owned holding company whose bail-out plans triggered the current crisis, has liabilities of about $60bn, though only part of that is debt. The main problem is its real estate subsidiary Nakheel, which has huge bonds coming due, including an Islamic bond for $3.5bn in December. It is important to note that Dubai is part of the United Arab Emirates, seven city-states which have separate ruling families, separate budgets, but security, immigration and foreign policies in common. Abu Dhabi has nearly all the UAE’s oil.
In the meantime time, the world’s tallest building was inaugurated. The $1.5-billion tower reaches 828-metres (2,717 ft), 200 storeys into the sky, exceeding the next highest structure by some 300 metres. Dubai’s ruler Sheikh Mohammed bin Rashid al- Maktoum renamed the tower Burj Khalifa after the president of the United Arab Emirates and the ruler of the neighbouring emirate of Abu Dhabi, Sheikh Khalifa bin Zayed al-Nahayan.
Causes:
1. Dubai had borrowed $80 billion to fuel a four-year construction boom, was badly affected by the global recession.
2. On the other hand the Dubai government has categorically made it clear that it will not bail out its debt-stricken companies, insisting that although Dubai World is owned by the government, legally it is a separate business entity.
3. The old investors are not satisfied with the present system of rules and want to have a stable set of laws and regulations that govern the UAE.
4. With real estate prices rising at a double-digit annual clip, investors benefited after buying apartments with low deposits and quickly flipping them. But due to recession, the liquidity crunch started and buyers fled and developers saw their cash flow dry up. Nakheel, a subsidiary of Dubai World that created the iconic palm island real estate development off the coast, was adversely affected. It has about $8 billion in debt and $13 billion in other liabilities such as bills from
suppliers
What it meant to India?
1. About 4.5 million Indians work in the Gulf region and remit more than $10 billion annually. In fact 1 million Indians work in Dubai and other states of the United Arab Emirates. Most are employed in the real estate and construction business.
2. Of the $52 billion of inward remittances Indians working abroad send their families in India. 10 to 12 per cent of India’s total remittances originate from the Dubai itself.
3. Dubai is the gateway for India’s exports to the Middle East and this is unlikely to change in the near future.
4. 8 per cent of India’s non-oil exports go to Dubai. 3.5 per cent of India’s nonoil imports come from Dubai.
5. The Construction companies who had gone to Dubai to carry on contract jobs would also be affected, since payments would get delayed and project sizes will be curtailed, thereby affecting their bottom-line. Those involved in construction in Dubai include Nagarjuna Constructions, Larsen & Tubro, Omaxe and BSEL Infra.
6. The UAE was India’s top destination for exports for the year ending March this year, displacing the US. The country’s total exports to the UAE grew by a phenomenal 53 per cent to US$23.92 billion this financial year from US$15.63 billion in 2008.
7. DP World, part of Dubai World, runs five container terminals in India, accounting for 40 per cent of India’s container traffic. The company has invested over US$2 billion in India and had said it would spend US$12 billion more in the next five years.

8. The Bank of Baroda has an exposure of about $2.1 billion (9,800 crore) in the UAE. The World Bank Group President Robert Zoellick has said the Dubai debt crisis is manageable and it would not affect India.
Impact and remedial measures:
1. The $10 billion aid package from the wealthiest emirate Abu Dhabi to rescue of Dubai after state-owned conglomerate Dubai World asked creditors for a delay on payments of debts totaling some $26 billion.
2. The exposure of international banks to Dubai seemed relatively small and limited. HSBC, the biggest lender, had assets of just about $17 billion, Standard Chartered, the second biggest, a modest $7.8 billion. Therefore, the impact at the global level would be marginal. But considering the strong foundations and infrastructural developments, these problems are not going to last longer. It is important to recall that Singapore, which has served as an inspiration for Dubai, learned from the crash of 1997-1998 and emerged much stronger from it. This crisis is purely commercial in nature and it happens in construction sector as it has happened already in Japan. The construction sector needs massive investment and only after a certain period it provides return on investment.
Dubai World
Dubai World, is basically an investment company that manages and supervises a portfolio of businesses and projects for the Dubai government across a wide range of industry segments and projects that promote Dubai, was established under a decree ratified on 2 March 2006 by Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai. It came to light when the company took over six US ports. Nakheel, its property arm is a real estate developer in Dubai and creator of several land reclamation projects, including the Palm Islands, the Dubai Waterfront, The World and The Universe Islands. Its residential projects include The Gardens, International City, Jumeirah Islands and Jumeirah Lake Towers. Its shopping projects include the Dragon Mart (At International City) and Ibn Battuta Mall. Its main competitor in residential development in Dubai is Emaar Properties.