India, UAE sign pact to use local currencies in bilateral trade

MUMBAI (ICIS)–India and the UAE have signed a memorandum of understanding (MoU) in Abu Dhabi to set up a framework to promote use of their respective local currencies in bilateral trade.

Under this scheme, exporters and importers of the two countries to invoice and pay in their respective domestic currencies.

The Reserve Bank of India (RBI) and Central Bank of UAE signed the agreement on 15 July, during Indian Prime Minister Narendra Modi in the UAE.

“The MoU aims to put in place a local currency settlement system to promote the use of the Indian rupee [Rs] and the UAE dirham [Dh] bilaterally,” the RBI said in a statement.

The MoU covers all current account transactions and capital account transactions, it added.

Modi said that the deal and other agreements signed in Abu Dhabi are “very important aspect of India-UAE cooperation”.

“It paves the way for enhanced economic collaboration and will make international financial interactions simpler,” he added.

The central banks of the two countries also signed a deal to link their fast payment systems which will “enable users in either country to make fast, convenient, safe and cost-effective cross-border funds transfer,” the RBI said.

India is the third-largest consumer of crude oil globally and currently pays for the oil in US dollars, with the UAE as its fourth largest supplier of crude oil.

India could make its first rupee payment for crude oil to Abu Dhabi National Oil Co (ADNOC) under the scheme.

In May 2022, India and the UAE signed a Comprehensive Economic Partnership Agreement (CEPA).

This free trade agreement helped reduce import duties on many products, including chemicals, traded between the two countries.

Total bilateral trade between India and the Middle Eastern country grew to $84bn in the year ended March 2023 from $73bn in March 2022 after the CEPA agreement, official data showed.

CEPA is expected to boost the total bilateral trade in goods to more than $100bn and trade in services to over $15bn within five years.

There has been a significant growth in exports of chemical products mineral fuels, electrical machinery, gems and jewelry, automobiles, cosmetics, among others, since May 2022, as per data from the commerce ministry.

India exports to the UAE include precious metals, stones, gems & jewelry, refined petroleum products, food items including vegetables, meat, tea fruits, seafood, textiles, chemicals, and engineering & machinery products

From the UAE, India’s major imports include petroleum and petroleum products, minerals, chemicals, precious metals, stones.

Among chemicals, the south Asian country imports toluene, methyl alcohol, ethylene, phosphoric acid, acyclic alcohols which are used in the production of solvents as well as pharmaceuticals, according to data from the Indian commerce ministry.

Focus article by Priya Jestin

($1 = Rs82.05; $1 = Dh3.67)