© Reuters. FILE PHOTO: An Indian rupee note is seen in this illustration photo on June 1, 2017. REUTERS/Thomas White/Illustration/File Image
Written by Nidhi Verma, Shivangi Acharya, and Krishan Kaushik
NEW DELHI (Reuters) – India and the UAE may announce the start of a rupee-to-dirham payment mechanism for bilateral trade settlement during Prime Minister Narendra Modi’s visit to Abu Dhabi on Saturday, industry and government sources said.
Sources said on Friday that India would use the mechanism to pay for oil as well as other imports from the United Arab Emirates, its fourth largest oil supplier, in the year to March.
At present, India, the world’s third largest oil importer and consumer, whose central bank last year announced a framework for global trade settlement in rupees, pays for UAE oil in dollars.
Apart from creating an alternative payment mechanism, settlement in rupees will also reduce transaction costs in India by eliminating dollar remittances.
The bilateral trade volume between India and the UAE reached $84.5 billion in 2022/23.
India is keen to push similar local currency arrangements with other countries, as it looks to boost exports amid slowing global trade.
An official familiar with the details said India may make the first rupee payment for UAE oil to Abu Dhabi National Oil Company (ADNOC).
India’s foreign, oil and trade ministries did not immediately respond to a Reuters request for comment. ADNOC declined to comment.
Two other government sources said the mechanism was under discussion, and would likely start soon.
A government source told Reuters that the central banks of the two countries were in advanced talks and were “very close” to concluding an agreement.
The other source said it was “possible” to launch it during Modi’s one-day visit. Modi will hold talks with Abu Dhabi President Sheikh Mohammed bin Zayed Al Nahyan.
Another official said on Friday that the RBI will issue guidance to banks on rupee trading within two to three days after the teething issues are resolved.
The oil-rich Gulf states import up to 80-90% of their food and want to secure their supply chains.
The United Arab Emirates has pledged $2 billion to help develop a series of “food parks” in India to address food insecurity in South Asia and the Middle East.
India’s commerce minister said last month that India and the UAE had mutually agreed to increase bilateral non-oil trade to $100 billion by 2030.
The UAE also serves as a trading hub for further market access in Africa and Europe.
