India, UAE Forge Historic Trade Deal: Rupee and Dirham Replace USD

India, UAE Forge Historic Trade Deal: Rupee and Dirham Replace USD

India and the United Arab Emirates (UAE) have sealed a historic trade deal, allowing trade settlements in their respective currencies, the rupee and dirham. This significant move signals a departure from reliance on the US dollar. During his visit to the UAE, Prime Minister Narendra Modi announced the integration of the UAE's Instant Payments Platform (IPP) with India's Unified Payments Interface (UPI).

Landmark Agreement to Boost Trade in National Currencies 

India and the UAE signed a memorandum of understanding on Saturday to boost trade settlements in national currencies. The bilateral pact between India and the UAE aims to boost trade settlements using rupees and dirhams. Indian Foreign Secretary Vinay Mohan Kwatra described Prime Minister Modi's visit to Abu Dhabi as a "landmark" in the partnership between the two nations. Apart from facilitating trade in their native currencies, the countries will also establish a connection between India's UPI and the UAE's IPP systems.

“This is a very important aspect of India-UAE cooperation. It paves the way for enhanced economic collaboration and will make international financial interactions simpler,” Prime Minister Narendra Modi said.

In addition to the trade deal, India and the UAE unveiled plans for the Indian Institute of Technology to establish a campus in Abu Dhabi in collaboration with IIT-Delhi. This initiative aims to strengthen technological innovation ties between the two nations. Prime Minister Modi conveyed his gratitude to Sheikh Mohamed bin Zayed Al Nahyan, the UAE's president, and Abu Dhabi's ruler, stating, "You have played a significant role in the expansion of our countries' ties. Every person in India considers you a true friend."

Indian Refiners Embrace UAE Dirham for Trade Transactions

Before this agreement between India and the UAE to settle trade payments in rupees and dirhams, Indian refiners were obliged to purchase US dollars to buy oil. For nearly 48 years, international buyers were required to pay for Saudi Arabian crude exclusively in US dollars. However, the situation has been evolving. In January, Saudi Arabia's finance minister,  Mohammed Al-Jadaan, expressed openness to trading in currencies other than the US dollar.

Although the recent agreement between Modi and Al Nahyan streamlines transactions, several Indian refiners have already begun to shift away from the US dollar, opting for the UAE's dirham when purchasing Russian crude oil. Companies such as Reliance Industries, Bharat Petroleum, and Nayara Energy were among the early adopters of the dirham. Initially, there were some challenges reported, particularly with the State Bank of India (SBI) encountering difficulties in these settlements. However, since February, SBI has successfully cleared dirham payments.

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