Local currency trading big shift in UAE-India ties

The agreement between the UAE and India to promote the use of their respective national currencies, the dirham and the rupee, in cross-border transactions, marks a tectonic shift in relations between the two countries, particularly where trade and investment are concerned. The framework will also seek to streamline payment services in both countries, benefiting their respective people, through the linkage of their instant payment platforms (IPPs), local payment card systems, and financial messaging systems.

It also helps boost India’s efforts to cut transaction costs by eliminating dollar conversions. Moreover, the pact allows opening and use of correspondent accounts for the benefit of financial institutions in both countries, promotes direct exchange rates between the two national currencies, and provides options for liquidity management in accordance with the laws and regulations of the two countries.

This will boost the foreign exchange market, facilitate bilateral trade, encourage direct investment, and facilitate financial transfers.

It also helps in acceptance of local cards in both countries for ATM cash withdrawals and direct point-of-sale purchases without relying on external payment networks.

That India’s Prime Minister Narendra Modi would make a brief stopover in the UAE on his way from France to India shows the spiralling importance a country poised to be the world’s third largest economy accords the Gulf nation. This was the fifth visit of Modi to the UAE in the last eight years. The raft of agreements signed between the two nations has not only strengthened bilateral ties but also spotlighted the UAE’s heft as a stellar international hub for trade and investment. India is the second largest trading partner of the UAE, where each year billions of dollars in remittances are sent home by more than three million Indian expatriates. The agreements that were signed in Abu Dhabi were not just on commercial sectors: they also covered a pact on education, setting up the first international campus of the Indian Institute of Technology – Delhi in Abu Dhabi.

The UAE-India Comprehensive Economic Partnership Agreement (CEPA), which came into effect on May 1, 2022, was a great turning point in the two countries’ relations and helped Emirati businesses immensely.

These include a reduction or waiving of tariffs on over 80 per cent of UAE goods exported to India, enabling Emirati companies to trade more freely and fairly across the Indian border. The UAE economy ministry said by 2030 the CEPA would add $9 billion, or 1.7%, to the UAE gross domestic product, exports would increase $7.6 billion, or 1.5%, and imports would rise $14.8 billion, or 3.8%.

During the first CEPA Joint Committee meeting held last June, the UAE and India set a target of US$100 billion in non-oil trade by 2030. During the past ten years (2013-2022), the trade growth rate between the two countries amounted to 18.2 per cent, from Dhs159.72 billion to Dhs188.8 billion last year, to reach Dhs1.41 trillion in 10 years. India-UAE trade rose to US$85 billion in 2022, making the UAE India’s third-largest trading partner for the year 2022-23 and India’s second-largest export destination. India is the UAE’s second largest trading partner. The meeting in Abu Dhabi between President His Highness Sheikh Mohamed Bin Zayed Al Nahyan and Narendra Modi on Saturday, also discussed the COP28 climate conference to be hosted by the UAE later this year, particularly highlighting India’s key role in the meet.

Last year, the UAE and India agreed to work together to combat climate change. The two sides concurred to establish a partnership between their public and private sectors to collaborate on climate action, by focusing on increasing renewable energy and green hydrogen, creating carbon markets, improving agricultural efficiency, and supporting sustainable finance. The leaders noted the significant global roles played by both countries in 2023, with India’s presidency of the G20 and the UAE’s presidency of COP28.