India-UAE Trade Agreement: Boosting Economic Cooperation and Simplifying Cross-Border Transactions

Introduction:

India and the United Arab Emirates (UAE) recently signed an agreement to enable trade settlements in rupees. This agreement holds the potential to bring about significant benefits by reducing transaction costs and eliminating the need for dollar conversions.

I. Background of the Agreement:

The signing of the agreement during Indian Prime Minister Narendra Modi's visit to the UAE adds to its significance. Historically, trade settlements between India and the UAE have heavily relied on the dollar. However, this agreement marks a shift towards using the Indian rupee for trade settlements.

II. Key Elements of the Agreement:

A. Trade Settlement in Rupees:

The agreement allows for trade settlements in Indian rupees, signaling a departure from the reliance on the dollar. By using the Indian currency, transactions can be simplified, and currency conversion costs can be reduced.

B. Real-Time Payment Link:

A real-time payment link has been established between India and the UAE as part of this agreement. This link will streamline cross-border money transfers and facilitate smoother transactions.

III. Economic Implications:

The agreement holds significant economic implications for both India and the UAE. Enhanced economic cooperation between the two nations can lead to increased trade volumes. During the specified period, the total bilateral trade volume between India and the UAE reached a noteworthy level.

IV. Future Prospects:

There is a possibility that India may initiate its first payment in rupees for UAE oil to Abu Dhabi National Oil Co (ADNOC). Using rupees for oil transactions can help avoid fluctuations in the dollar exchange rate, which proves beneficial.

V. Unified Payments Interface (UPI) and Instant Payment Platform (IPP) Linkage:

A connection has been established between India's Unified Payments Interface (UPI) and the UAE's Instant Payment Platform (IPP). This linkage follows a trend in Asia where such arrangements have been successful in reducing payment costs and increasing overall efficiency.

Conclusion:

The India-UAE trade agreement holds great significance in promoting economic cooperation and simplifying cross-border transactions. By enabling trade settlements in rupees, the agreement reduces transaction costs and eliminates the need for dollar conversions. The long-term benefits for both countries, along with the positive impact on their bilateral trade relationship, make this agreement an important milestone in economic cooperation.