India and UAE Sign Agreement to Settle Trade in Rupees

Table of Contents

Boosting Economic Cooperation

India and the United Arab Emirates (UAE) have recently signed an agreement that allows trade settlements in Indian rupees instead of US dollars. The move aims to reduce transaction costs by eliminating the need for dollar conversions. During Indian Prime Minister Narendra Modi’s visit to the UAE, the two countries also agreed to establish a real-time payment link to facilitate seamless cross-border money transfers. These agreements are expected to enhance economic cooperation between the two nations.

Shifting Trade Settlements to Rupees

The Reserve Bank of India issued a statement highlighting that the agreements will enable “seamless cross-border transactions and payments.” By settling trade in rupees, India aims to reduce costs associated with currency conversions and promote smoother business transactions. Currently, India, being the world’s third-largest oil importer and consumer, pays for UAE oil in US dollars. However, this agreement opens the possibility for India to make its first rupee payment for UAE oil to Abu Dhabi National Oil Co (ADNOC).

Strengthening Payment Systems

To facilitate efficient cross-border money transfers, the central banks of India and the UAE have agreed to link India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP). This real-time payment link will enhance the speed and convenience of financial transactions between the two countries. Such arrangements, increasingly prevalent in Asia, generally lead to reduced payment costs and improved efficiency.

Bilateral Trade Figures and Economic Cooperation

Bilateral trade between India and the UAE has been steadily growing, reaching $84.5 billion during the period from April 2022 to March 2023. This substantial trade volume highlights the importance of streamlining payment systems and reducing transaction costs. The recent agreements are expected to further enhance economic cooperation between the two nations, opening up new avenues for trade and investment.

Prime Minister Modi’s Visit

Prime Minister Narendra Modi’s visit to the UAE emphasizes the significance of strengthening bilateral relations. During his one-day visit, he met with President Sheikh Mohamed bin Zayed Al Nahyan and discussed various aspects of cooperation between the two countries. The agreements signed during the visit demonstrate the commitment of both nations to foster closer economic ties and explore new opportunities for collaboration.

Conclusion

The signing of the agreement allowing trade settlements in rupees between India and the UAE marks a significant step in reducing transaction costs and enhancing economic cooperation. By eliminating the need for dollar conversions, India aims to streamline cross-border transactions and foster seamless
trade with the UAE. Additionally, the establishment of a real-time payment link between the two countries’ payment systems further strengthens the financial infrastructure supporting their economic ties. As bilateral trade continues to flourish, these developments are poised to benefit businesses and facilitate increased economic engagement between India and the UAE.