India and the United Arab Emirates (UAE) signed agreements on trade settlement in national currencies and setting up a real-time link for cross-border transactions, as Prime Minister Narendra Modi visited Abu Dhabi on Saturday to bolster cooperation in areas such as trade, energy and climate action.
Educational authorities of the two nations also signed a memorandum of understanding (MoU) on establishing a campus of the Indian Institute of Technology Delhi in Abu Dhabi after Modi arrived in the capital of the Emirates following a visit to France.
The UAE has had a special place in India’s efforts in recent years to increase its engagement in areas ranging from trade to security with West Asian states. The Emirates are home to 3.5 million Indian expatriates, who account for about 30% of the country’s population. Bilateral trade got a boost with the signing of the Comprehensive Economic Partnership Agreement (CEPA) in February 2022.
PM Modi was received by Abu Dhabi crown prince Sheikh Khaled Mohamed bin Zayed Al Nahyan, who is in the line of royal succession and is chairman of the Abu Dhabi executive council, along with Khaldoon Khalifa Al Mubarak, who runs Mubadala Capital, one of the world’s biggest sovereign wealth funds with assets worth $276 billion. Modi then held talks with UAE President Sheikh Mohamed bin Zayed Al Nahyan at the Qasr Al Watan presidential palace.
Modi and Sheikh Mohamed bin Zayed witnessed the signing of two MoUs between the Reserve Bank of India (RBI) and Central Bank of UAE for establishing a framework to use national currencies for cross-border transactions and cooperation in interlinking payment and messaging systems, and another MoU between India’s education ministry and Abu Dhabi authorities for setting up the new IIT Delhi campus.
Modi in a tweet described the agreements between the two central banks as a “very important aspect of India-UAE cooperation” and said they paved the way for enhanced economic collaboration and making international financial interactions simpler.
After the new trade settlement system was adopted, the first deal was transacted in the form of 25kg gold exported to YES Bank in Mumbai for a rupee payment of ₹12.84 crore. The UAE is India’s fourth largest supplier of crude oil and the second largest provider of LPG and LNG, which makes de-dollarisation particularly significant.
An enabling agreement for the use of UPI was also sealed during the visit, which will make India and the UAE integrated in terms of digital infrastructure. As nearly 30% of UAE’s population is made up of Indians, the move will help them use Rupay cards and make RTGS and IMPS transfers with ease.
Modi and Sheikh Mohamed bin Zayed, who held both delegation-level and one-on-one talks, discussed bilateral cooperation in a range of areas, including trade, investment, fintech, energy, renewables, climate action, higher education and people-to-people ties. “Our nations are working together on so many issues aimed at making our planet better,” Modi said in another tweet.
The MoU on using national currencies will put in place a Local Currency Settlement System (LCSS) to promote the use of the rupee and dirham. The agreement covers all current account transactions and permitted capital account transactions. The LCSS will enable exporters and importers to pay in their respective domestic currencies and enable development of an INR-AED foreign exchange market.
This arrangement will also promote investments and remittances between the two sides, the RBI said. Use of local currencies will reduce transaction costs and settlement time, including for remittances by Indians in the UAE.
India could use this mechanism to pay for imports of oil and other commodities from the UAE, its fourth largest energy supplier. India currently pays the UAE in dollars for oil.
Under the second MoU, the two central banks will cooperate on linking India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP) and RuPay switch and UAESWITCH. They will also explore the linking of India’s Structured Financial Messaging System (SFMS) with the payments messaging system of the UAE.
The UPI-IPP link will enable users in both countries to make fast, safe and cost-effective cross-border transfers. The linking of card switches will facilitate mutual acceptance of domestic cards and processing of card transactions.
Bilateral trade between India and the UAE was worth $84.5 billion in 2022-23. The UAE, which imports most of food requirements, has pledged $2 billion to develop a series of food parks in India. The two sides have also agreed to increase non-petroleum trade to $100 billion by 2030.
Modi also met Sultan Al Jaber, president-designate of COP28 and group CEO of Abu Dhabi National Oil Company (ADNOC), and discussed ways to mitigate climate change. “Our discussions focused on ways to further sustainable development. Highlighted India’s contribution in this direction, in particular our emphasis on Mission LiFE,” Modi said in a tweet.
The trade and economic partnership between the two countries has grown significantly since they signed the CEPA in 2022, foreign secretary Vinay Kwatra said. The two agreements on settlement of trade in domestic currencies and interlinking payment systems pave the way for increasing strategic economic convergence between the two sides, he said.
“The visit opens up new pathways to structuring similar arrangements with other countries in the region and beyond,” he added.
