According to recent reports on August 14, India and the UAE have turned a new leaf in their trading ties. Just before the much-anticipated BRICS summit, India, a key player in the alliance, finalized its first crude oil transaction with the UAE, sidelining the US dollar and using rupees instead.
Moreover, this transaction isn’t an isolated one but the manifestation of a broader strategy. In July, the two nations penned an agreement permitting trade settlements in their native currencies. Consequently, this change eliminates the added layer of dollar conversion, thereby slashing transaction costs.
Besides the clear economic ramifications, this decision underscores a political message, reflecting India’s intent to reduce its reliance on the greenback.
The July agreement isn’t limited to just currency trade but also incorporates establishing a real-time payment link, bolstering easier cross-border fund transfers.
However, India’s push to globalize the rupee hasn’t seen rapid success. Until now, local currency trade volumes have dropped in the ocean compared to India’s colossal $1.2 trillion goods trade last fiscal year. Hence, while the recent India-UAE agreement is commendable, the road to India’s aspiration of taking the rupee global still seems long and winding.
One cannot deny that these agreements will likely pave the way for smoother financial exchanges between the countries. With the UAE being India’s second-largest source of remittances, this collaboration holds promising potential for both nations.