India and the United Arab Emirates (UAE) have taken a significant step towards strengthening their business relations through the signing of two memoranda of understanding (MoUs) between the Reserve Bank of India and the Central Bank of the UAE. This milestone was witnessed by UAE President Sheikh Mohamed bin Zayed Al Nahyan and Prime Minister Narendra Modi during the latter’s visit to the Gulf country.
The first MoU aims to establish a framework that promotes the use of local currencies, specifically the Indian rupee and UAE dirham, for cross-border transactions. This move is expected to enhance trade and investment between the two nations by reducing dependence on foreign currencies.
The second agreement focuses on connecting the payment and messaging systems of the two central banks. By integrating their systems, India and the UAE aim to streamline cross-border transactions and make them more efficient and cost-effective.
In a joint statement issued after the visit, both leaders expressed their keen interest in strengthening cooperation in the payment systems domain. The emphasis was placed on facilitating seamless integration of cross-border transactions between the UAE and India, with a focus on enabling greater access to payment services for citizens and residents of both countries.
These agreements between the central banks reflect the global trend of conducting business in local currencies, which gained momentum following the Ukraine crisis in 2022. The move also aligns with India’s efforts to expand its trade partnerships and reduce its dependence on foreign currencies for international transactions. It is worth noting that Indian entities have already started making payments in Chinese yuan to Russian energy companies.
In addition to the MoUs related to trade in local currencies, the visit also witnessed the signing of an agreement to establish a branch of the prestigious Indian Institute of Technology-Delhi in Abu Dhabi. This move aims to enhance educational cooperation and promote knowledge exchange between the two nations.
Prime Minister Modi’s visit to the UAE marked his fifth visit to the country, underscoring the growing importance of the bilateral relationship. The trade between India and the UAE reached $85 billion in 2022, making the UAE India’s third-largest trading partner for that year. The UAE is also the second-largest export destination for Indian goods.
Since the implementation of the Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE in May 2022, bilateral trade has witnessed a significant increase of approximately 15%. This growth demonstrates the positive impact of the CEPA in facilitating trade and investment between the two nations.
During the visit, discussions also covered various agendas, including the I2U2 (India, Israel, UAE, and USA) grouping, as well as trilateral cooperation between the UAE, France, and India. These collaborations aim to leverage the strengths and resources of influential powers to address global challenges and promote mutual prosperity.
Overall, the agreements signed between India and the UAE to facilitate trade in local currencies and strengthen cooperation in payment systems highlight the commitment of both nations to boost bilateral trade and investment. These initiatives are expected to further enhance the already strong economic ties between India and the UAE and open up new avenues for collaboration in various sectors.
