India, UAE Explore Trading in National Currencies to Reduce Dependence on US Dollar

The UAE ranks as India’s third-biggest trading partner, with bilateral trade exceeding $73 billion last financial year. The two countries signed a comprehensive economic partnership agreement (CEPA) in May, intending to touch $100 billion in bilateral trade in the next two to three years.

India and the UAE are exploring the creation of a mechanism for carrying out bilateral trade in national currencies, a statement from the Indian Commerce Ministry said on Tuesday.

Piyush Goyal, India’s minister of commerce and trade, hopes that the discussions on “mutually beneficial” areas like food security and bilateral trade in national currencies will see a thrust similar to the comprehensive economic partnership agreement (CEPA), which was finalized in an "unprecedented 88 days."

The negotiations to trade in local currencies come days after India’s Directorate General of Foreign Trade amended its trade policy by allowing Indian importers and exporters to pay and receive Indian rupees through "Special Vostro" accounts set up by foreign banks in Indian financial institutions.

India and the UAE have also agreed to continue discussions on making Unified Payment Interface (UPI), India’s instant interbank payment system, a common digital payment platform to settle trade payments faster and smoother.

“Recently UPI payments were enabled in UAE, strengthening India's growing clout as a provider of cutting-edge technology for seamless business globally,” Goyal said, adding that Delhi has also been exploring ways to provide tax incentives to “certain UAE sovereign investment entities” to increase investment inflows amid a huge gap in infrastructure funding.

Trade in local currencies has been supported by a number of non-Western states in a bid to reduce dependence on hard currencies, such as the US dollar and euro, in the wake of unilateral sanctions slapped on Russia and Iran, among others, that come with a dollar-denominated system.

Bilateral trade between the UAE and India is still dominated by oil, which constitutes 62 percent of the overall trade value. However, the two governments expressed hope that the trade deal which comes into effect in May will change this in the coming years.