In a significant move to enhance economic cooperation, India and the United Arab Emirates (UAE) have recently signed an agreement that allows trade settlements in rupees, eliminating the need for dollar conversions and reducing transaction costs. The deal, which was finalized during Indian Prime Minister Narendra Modi’s visit to the UAE, aims to streamline cross-border transactions and payments between the two nations.
The Reserve Bank of India issued a statement highlighting the importance of the agreement in facilitating smooth cross-border transactions and promoting enhanced economic cooperation. India, being the world’s third-largest importer and consumer of oil, has traditionally paid for UAE oil in dollars. However, with the recent framework established by the Indian central bank for settling global trade in rupees, this agreement paves the way for a shift towards using the Indian currency for bilateral trade between the two countries.
The significance of this agreement is evident in the substantial bilateral trade between India and the UAE. From April 2022 to March 2023, the total trade volume between the two nations amounted to a staggering $84.5 billion. By enabling trade settlements in rupees, the transaction process becomes more efficient and cost-effective, benefitting businesses on both sides.
Furthermore, the Reserve Bank of India announced that the central banks of India and the UAE have agreed to establish a connection between India’s Unified Payments Interface (UPI) and the UAE’s Instant Payment Platform (IPP). This real-time payment link aims to simplify and expedite cross-border money transfers, aligning with the growing trend in Asia where similar arrangements have proven successful in reducing payment costs.
The potential impact of this agreement extends beyond trade settlements. An official familiar with the matter has revealed that India may initiate its first payment in rupees for UAE oil to the Abu Dhabi National Oil Co (ADNOC), signifying a significant shift in payment methods for crucial commodities.
The strategic partnership between India and the UAE continues to strengthen, and these recent developments mark another milestone in their bilateral relationship. By embracing the use of the rupee for trade settlements and establishing a real-time payment link, both countries are taking significant steps towards enhancing economic ties, fostering greater financial cooperation, and opening doors for further collaborations in various sectors.
As these agreements come into effect, it is expected that the use of the rupee in bilateral trade will grow, offering numerous benefits to businesses and further solidifying the economic relationship between India and the UAE.