India and UAE Sign Landmark Agreement to Settle Trade in Rupees, Cutting Transaction Cost

India and UAE Sign Agreement to Settle Trade in Rupees, Boosting Economic Cooperation

India and the United Arab Emirates (UAE) have signed an agreement that will allow trade settlements between the two countries to be conducted in Indian rupees instead of US dollars. This move aims to reduce transaction costs by eliminating the need for currency conversions. During Indian Prime Minister Narendra Modi's visit to the UAE, both nations also agreed to establish a real-time payment link to facilitate seamless cross-border money transfers.

The Reserve Bank of India issued a statement highlighting that these agreements will promote greater economic cooperation and enable smoother cross-border transactions and payments. Currently, India, being the third-largest oil importer and consumer globally, pays for UAE oil in US dollars. However, with this new agreement, India may make its first payment for UAE oil in rupees to the Abu Dhabi National Oil Co (ADNOC), according to an official familiar with the matter.

Bilateral trade between India and the UAE amounted to $84.5 billion from April 2022 to March 2023. The agreement signifies a significant step in India's efforts to settle global trade in rupees, as outlined by its central bank's framework introduced last year. The collaboration between the two countries' central banks involves linking India's Unified Payments Interface (UPI) with the UAE's Instant Payment Platform (IPP). Such payment arrangements, increasingly common in Asia, typically reduce the costs associated with transactions.

Prime Minister Modi's visit to Abu Dhabi focused on strengthening ties between India and the UAE. He met with President Sheikh Mohamed bin Zayed Al Nahyan during his one-day visit. The agreement to settle trade in rupees not only bolsters economic cooperation but also reflects the growing importance of India-UAE relations. This step aligns with India's broader goal of enhancing trade partnerships and reducing dependence on the US dollar for international transactions.

The new payment link and the ability to settle trade in rupees are expected to streamline business transactions between India and the UAE, further facilitating economic growth and cooperation between the two nations.

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