India, UAE agree to settle trade in local currencies  

• The two countries will set up a real-time payment link to facilitate easier cross-border money transfers 
• Bilateral trade between the two countries was $84.5 billion in the year from April 2022 to March 2023 

RIYADH: India has signed an agreement with the UAE 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 on Saturday, 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 on Saturday. 

The RBI and the Central Bank of UAE signed two memorandums of understanding in Abu Dhabi for “establishing a framework to promote the use of local currencies” for cross-border transactions; and cooperation for interlinking their payment and messaging systems, the statement added.  

“The MoU on establishing a framework for the use of local currencies for transactions between India and UAE aims to put in place a Local Currency Settlement System (LCSS) to promote the use of INR and AED bilaterally,” it added.  

The MoU will cover all current account transactions and permitted capital account transactions.  

The RBI said the creation of the LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, “which in turn would enable the development of an INR-AED foreign exchange market.”.

It added that the arrangement would also promote investments and remittances between the two countries. 

During his one-day visit, Modi met President Sheikh Mohamed bin Zayed Al Nahyan. 

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. 

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., Reuters reported on Friday. 

The oil-rich Gulf states import as much as 80-90 percent of their food and want to secure their supply chains. 

The UAE 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 UAE 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 to markets in Africa and Europe. 

(With input from Reuters)