Shift to Rupee Settlement: India has signed an agreement with the United Arab Emirates (UAE) to settle trade transactions in Indian rupees instead of US dollars, aligning with India’s strategy to reduce transaction costs by eliminating the need for dollar conversions.

Expansion of INR Settlement: Following successful implementations with countries like Russia, Sri Lanka, Nepal, Bangladesh, and Bhutan, India aims to extend rupee-based settlements to 22 countries worldwide, simplifying bilateral trade processes.

Real-Time Payment Link: During Prime Minister Narendra Modi’s visit to the UAE, both nations agreed to establish a real-time payment link, facilitating smoother cross-border money transfers and enhancing economic cooperation.

Benefits of Agreements: These agreements are expected to streamline cross-border transactions and payments, fostering greater economic collaboration between India and the UAE, as highlighted by the Reserve Bank of India in its statement.

Oil Trade Implications: Despite being the world’s third-largest oil importer and consumer, India currently pays for UAE oil in dollars. The shift to rupee-based payments could mark a significant change in bilateral trade dynamics.

Trade Volume: Bilateral trade between India and the UAE reached $84.5 billion in the fiscal year from April 2022 to March 2023, underscoring the substantial economic ties between the two nations.

Rupee Payment for UAE Oil: There are indications that India may make its first rupee payment for UAE oil to the Abu Dhabi National Oil Co (ADNOC), marking a potential milestone in the adoption of rupee settlements for critical commodities.

UPI-IPP Link: The agreement also involves linking India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP), a move aimed at enhancing payment efficiency and reducing transaction costs.

Growing Trend in Asia: Such arrangements align with the growing trend in Asia to establish direct currency settlements, which typically result in lower transaction costs and greater efficiency in cross-border payments.

High-Level Diplomatic Engagement: Prime Minister Modi’s visit to Abu Dhabi and his meeting with President Sheikh Mohamed bin Zayed Al Nahyan underscores the importance of high-level diplomatic engagement in strengthening economic ties between India and the UAE.

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