Image: Twitter/ India in UAE
Prime Minister of India Narendra Modi visited the UAE in July, where he met President Sheikh Mohamed bin Zayed Al Nahyan.
The two leaders conferred on climate change, energy security, food security and bilateral trade. The bilateral meet saw the signing of three key agreements, which position the two countries at the forefront of regionalisation of trade.
India and the UAE signed two memoranda of understanding to promote the use of local currencies for cross-border transactions and to interlink payment systems.
Unified Payment System
These agreements will allow the Reserve Bank of India (RBI) and the Central Bank of the UAE (CBUAE) to set up a local currency settlement system (LCSS) that encourages the use of the rupee and the dirham to cover export-import transactions.
The RBI said the LCSS would enable exporters and importers to send invoices and pay in their respective domestic currencies, which in turn, would support the development of the Indian rupee and Emirati dirham foreign exchange market.
The deal is also expected to help promote investments and remittances between the two countries. The UAE is India’s second largest remittance source country after the US. Remittances to India from the UAE currently stand at 18 per cent of the $89.1bn in total remittances received for the fiscal year 2021-22, as per a report from India’s Ministry of Finance.
The second agreement will allow the two central banks to link India’s Unified Payments Interface (UPI) with UAE’s Instant Payment Platform (IPP). The UPI-IPP linkage would enable users in either country to “make fast, convenient, safe, and cost-effective cross-border fund transfers”, said the RBI.
These agreements come close on the heels of the two countries marking the first anniversary of the UAE-India comprehensive economic partnership agreement (CEPA), signed in February 2022. This bilateral trade agreement went into effect two months later in May.
The CEPA was agreed upon and implemented to promote cross-border trade and investment. The agreement covers a significant amount (up to 95 per cent) of originating goods that were previously subject to customs duties on both sides.
The two countries envisage that bilateral trade in goods will reach over $100bn and trade in services will reach $15bn within five years, according to India’s ambassador to the UAE, Sunjay Sudhir.
🇮🇳 🇦🇪 Surging ahead!
Prime Minister’s visit to Abu Dhabi was historic @narendramodi @MohamedBinZayed .MoUs on launch of settlement mechanism in local currencies INR-AED & IIT Delhi in Abu Dhabi mark a new era in #IndiaUAEDosti @MEAIndia @ABZayed @DrSJaishankar @RBI pic.twitter.com/cA2e32k07p
— India in UAE (@IndembAbuDhabi) August 6, 2023
The CEPA has considerably impacted bilateral trade (oil and non-oil) within just 12 months of its implementation. According to official data from India’s Ministry of Commerce and Industry, the bilateral trade increased from $67.5bn (from May 2021-March 2022) to $76.9bn (May 2022-March 2023) – an annual increase of 14 per cent. India’s exports to the UAE increased from $26.2bn (May 2021- March 2022) to $28.5bn (May 2022 – March 2023) – an 8.5 per cent year-onyear growth.
Meanwhile, India’s imports from the UAE have grown to $53.2bn, an annual increase of 18.8 per cent during the period April 2022 to March.
Non-oil imports during the same period grew by 4.1 per cent.
The UAE was the second largest export destination for India with its exports amounting to over $28bn for the year 2021-22, according to data provided by the Indian Embassy in the UAE. For the UAE, India was its second largest trading partner for the year 2021, with its non-oil trade figure amounting to $45bn.
Leveraging people-to-people ties
In order to surpass the bilateral trade-target set by the two countries and leverage the 3.5 million strong Indian expatriate population that calls the UAE home, the currency agreements signed during PM Modi’s visit assumes outsize significance.
The two countries, based on the strength of their respective economies and the strong people-to-people network, aim to create a regional platform for growth and collaboration. The two countries’ growing strategic importance is being positioned to channel the flow of investments, and opportunities to stimulate economic prosperity in both countries and strengthen their partnership for sustainable growth.
Thus said, the leaders of the two emerging economies hope to cement historical ties, with economic ones that are future ready.