India and UAE sign agreement to boost trade settlement in rupees, eliminating dollar conversions

India and the United Arab Emirates have entered into an agreement that enables trade settlements in rupees instead of dollars, thereby reducing transaction costs and eliminating the need for dollar conversions. The deal was signed during Indian Prime Minister Narendra Modi’s visit to the UAE. Additionally, both nations have agreed to establish a real-time payment link to streamline cross-border money transfers.

According to a statement issued by the Reserve Bank of India, the two agreements will facilitate “smooth cross-border transactions and payments, promoting enhanced economic cooperation.” As the world’s third-largest importer and consumer of oil, India has been paying for UAE oil in dollars.

However, with the recent framework established by the Indian central bank for settling global trade in rupees, the agreement allows for a shift towards using the Indian currency for bilateral trade between the two countries. In the period from April 2022 to March 2023, the total bilateral trade between India and the UAE amounted to $84.5 billion.

According to report, an official familiar with the agreement stated that India may initiate its first payment in rupees for UAE oil to Abu Dhabi National Oil Co (ADNOC).

In addition, 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 follows a growing trend in Asia, where such arrangements have been shown to reduce payment costs.