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UAE, India soon to ink dirham-rupee trade pact

Countries seek to more than double their non-oil trade target to $100 billion by 2030

Discussions between the central banks of the UAE and India on conducting bilateral trade in dirham and rupee are making tremendous headway and an agreement to commence this game-changing initiative is expected to be inked soon.

The long-anticipated rupee-dirham trade pact, which is aimed at reducing transaction costs, is expected to give the flourishing two-way trade a major fillip as the two countries seek to more than double their non-oil trade target to $100 billion by 2030 from a previously projected $48 billion.

The Reserve Bank of India and the Central Bank of the UAE have been in a very active dialogue. They are discussing the standard operating procedures and modalities, India’s Commerce and Industry Minister Piyush Goyal has said. Both countries have made significant progress in their discussions that started in March 2022, Goyal said, adding that since “leaders of both countries are decisive, we can imagine good outcomes very soon."

Goyal said oil trade with the UAE also would be given a major thrust with India seeking to import more crude and export more refined products. He was speaking to the media after the first meeting of the India-UAE Comprehensive Economic Partnership Agreement’s (Cepa) joint committee in Delhi that was attended by UAE’s Minister of State for Foreign Trade Thani bin Ahmed Al Zeyoudi along with a large delegation of government and industry leaders from both sides.

"I am sure that given the high level of engagement on both sides, not only on rupee-dirham trade but also on other digital technologies becoming part of the India-UAE framework. I think we have very good things, which will be offered to both the nations in the coming months," Goyal said.

“Both central banks and the relevant authorities have been in discussions. We reached a level where it has been concluded. The details will be announced by the Central Banks after signing the agreement. It shows how flexible, how agile this (bilateral) relation is,” Al Zeyoudi said at a joint press conference with Goyal.

India and the UAE implemented the Cepa in May last year to give a boost to bilateral trade and economic ties. Several working groups have been set up to further increase trading ties under Cepa by resolving issues that have been raised by businesses on both sides..

In the first 12 months of the Cepa, the bilateral non-oil trade had reached $50.5 billion, a 5.8 per cent increase year-on-year. The two countries have set a target to double the non-petroleum bilateral trade and touch $100 billion by 2030.

With their currencies coming under great pressure in the wake of Russia’s invasion of Ukraine in February 2022 and the US sanctions on Russia hampering trade, several countries made efforts to move away from the dominance of the dollar in global trade. The Indian government announced in July 2022 that it would be setting up of a mechanism to settle international trade in rupees.

The mechanism for international trade settlements in rupees at market-determined exchange rates means that Indian importers can now make payments in rupees, which will be credited to a Vostro account (special rupee accounts in Indian banks) of the corresponding bank of the partner country, while Indian exporters will be paid from the balances in the designated Vostro accounts. The surplus rupee balance in the Vostro accounts can be used for investments in government securities, payments for projects and investments, and export-import advanced flow management.

The RBI in March granted approvals to foreign banks in 18 countries to open Vostro accounts to settle international trade in rupees. The central bank has allowed Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Russia, Seychelles, Singapore, Sri Lanka, Tanzania, Uganda, and the UK to open Vostro accounts as of now.