Friday, July 14, 2023

India, UAE likely to announce ‘rupee-dirham payment mechanism’

"India can make its first rupee payment for UAE oil to Abu Dhabi National Oil Co," says an official aware of the development

In this undated photo, a man is counting Indian currency notes. — AFP/File
In this undated photo, a man is counting Indian currency notes. — AFP/File    

In order to settle bilateral trade, India and the United Arab Emirates (UAE) may announce the start of a rupee-dirham payment mechanism during Prime Minister Narendra Modi's visit to Abu Dhabi on Saturday (tomorrow), said well-informed sources in industry and the government on Friday.

India — the world's third-biggest oil importer and consumer — would use the mechanism to pay for oil as well as other imports from the UAE.

Apart from creating an alternate payment mechanism, settlement in rupees would also cut India's transaction costs by eliminating dollar conversions.

At present, India pays for the UAE oil in dollars. It is pertinent to mention here that New Delhi’s central bank last year announced a framework for settling global trade in rupees.

Bilateral trade between India and UAE was $84.5 billion in 2022/23.

India is keen to push similar local currency arrangements with other countries, as it looks to boost exports amid slowing global trade.

An official aware of the details said India could make its first rupee payment for the UAE oil to Abu Dhabi National Oil Co (ADNOC).

India’s foreign, oil and trade ministries did not respond to Reuters request for comment. ADNOC declined to comment.

Two more government sources said that the mechanism had been under discussion, and it was possible it could start soon.

One government source told Reuters the countries' central banks were in advanced talks and "very close" to closing a deal.

The other source said it was "possible" it could be launched during Modi's single-day visit. Modi will hold talks with Abu Dhabi President Sheikh Mohamed bin Zayed Al Nahyan.

The Reserve Bank of India will release guidance for banks on rupee trade in two to three days after resolving teething issues, another official said on Friday.

The oil-rich Gulf states import as much as 80-90% of their food and want to secure their supply chains.

The UAE has pledged $2 billion to help develop a series of "food parks" in India to tackle food insecurity in South Asia and the Middle East.

India and the UAE have mutually agreed to raise non-petroleum bilateral trade to $100 billion by 2030, India's trade minister said last month.