India has signed an agreement with the United Arab Emirates that will allow it to settle trade in rupees instead of dollars, boosting India's efforts to cut transaction costs by eliminating dollar conversions.
During a visit by India's Prime Minister Narendra Modi to the UAE yesterday, the two countries also agreed to set up a real-time payment link to facilitate easier cross-border money transfers.
The two agreements will enable "seamless cross-border transactions and payments, and foster greater economic cooperation", said a statement from the Reserve Bank of India yesterday.
India is keen to push similar local currency arrangements with other countries, as it looks to boost exports amid slowing global trade.
India, the world's third biggest oil importer and consumer and whose central bank last year announced a framework for settling global trade in rupees, currently pays for UAE oil in dollars.
Bilateral trade between the two countries was $84.5 billion in the year from April 2022 to March 2023. UAE was India's fourth largest oil supplier in the year to March.
The oil-rich gulf states import as much as 80-90% of their food and want to secure their supply chains.
United Arab Emirates has pledged $2 billion to help develop a series of "food parks" in India to tackle food insecurity in South Asia and the Middle East.
India and the United Arab Emirates have mutually agreed to raise non-petroleum bilateral trade to $100 billion by 2030, India's trade minister said last month.
The UAE also acts as a trading hub for further access into markets in Africa and Europe.
First rupee payments to ADNOC
An official with knowledge of the details of the agreement said India could make its first rupee payment for UAE oil to Abu Dhabi National Oil Co (ADNOC), Reuters reported on Friday.
The Reserve Bank of India said the two central banks agreed to link India's Unified Payments Interface (UPI) and UAE's Instant Payment Platform (IPP). The Indian central bank will release the full guidance for banks on rupee trade in two to three days, another official said on Friday.
Such arrangements, which are a growing trend in Asia, typically lower the cost of payments.
Modi landed in Abu Dhabi earlier yesterday for a one-day visit and met President Sheikh Mohamed bin Zayed Al Nahyan.