India and UAE Sign Agreement for Rupee-Based Trade Settlements

In a significant development aimed at enhancing economic cooperation, India and the United Arab Emirates (UAE) have signed an agreement allowing trade settlements in rupees, reducing transaction costs and eliminating the need for dollar conversions. The deal was sealed during Indian Prime Minister Narendra Modi's recent visit to the UAE. Furthermore, both nations have agreed to establish a real-time payment link to streamline cross-border money transfers.

The Reserve Bank of India issued a statement on Saturday highlighting that these agreements will facilitate smooth cross-border transactions and payments, promoting enhanced economic cooperation between the two countries. Being the world's third-largest importer and consumer of oil, India has traditionally paid for UAE oil in dollars. However, with the new framework introduced by the Indian central bank, which enables settling global trade in rupees, the agreement signifies a shift towards using the Indian currency for bilateral trade.

During the period from April 2022 to March 2023, the total bilateral trade between India and the UAE reached a substantial amount of $84.5 billion, reflecting the deep economic ties between the two nations. With the signing of this agreement, trade settlements in rupees are expected to further strengthen these economic relations.

According to reports, an official familiar with the agreement stated that India might initiate its first payment in rupees for UAE oil to Abu Dhabi National Oil Co (ADNOC). This move marks a significant step in leveraging the potential of rupee-based transactions in the energy sector and underscores the growing economic partnership between India and the UAE.

In addition to the trade settlement agreement, the Reserve Bank of India has announced that the central banks of both countries have agreed to establish a connection between India's Unified Payments Interface (UPI) and the UAE's Instant Payment Platform (IPP). This linkage is in line with the growing trend in Asia, where similar arrangements have proven to reduce payment costs and enhance efficiency in cross-border transactions.

The establishment of a real-time payment link between UPI and IPP will enable faster and more secure money transfers between individuals and businesses in India and the UAE. This move aligns with the global shift towards digital payments and reinforces both countries' commitment to fostering a seamless and robust financial ecosystem.

The agreement between India and the UAE for rupee-based trade settlements and the establishment of a real-time payment link mark significant milestones in strengthening economic ties between the two nations. By reducing transaction costs and streamlining cross-border payments, this strategic partnership sets the stage for enhanced trade and investment opportunities, benefiting businesses and individuals in both India and the UAE.