Sources from the commercial sector and government have revealed that India and the UAE may announce the initiation of a payment mechanism in rupees and dirhams for settling bilateral trade during Indian Prime Minister Narendra Modi's visit to Abu Dhabi tomorrow, Saturday. Sources mentioned on Friday that India will use the mechanism to pay for oil and other imports from the UAE, which was India's fourth largest oil supplier in the year ending March. Currently, India pays for UAE oil in dollars. India is the third largest oil importer and consumer in the world and its central bank announced a framework last year for settling international trade in rupees.
In addition to creating an alternative payment mechanism, settling in rupees will also reduce the cost of financial transfers to India by eliminating dollar transactions. The volume of bilateral trade between India and the UAE was 84.5 billion dollars in the current fiscal year. India is keen to launch measures for settlement in local currencies with other countries, aiming to boost exports amid a slowdown in global trade.
An official familiar with the details indicated that India may conduct its first rupee settlement for UAE oil from the Abu Dhabi National Oil Company (ADNOC). The Indian ministries of external affairs, oil, and trade did not respond to requests from Reuters for comments. ADNOC declined to comment. Two other government sources stated that the mechanism is under discussion and could start soon. Another source mentioned that it is "possible" to launch the mechanism during Modi's one-day visit. Modi will hold talks with Sheikh Mohammed bin Zayed Al Nahyan, the President of the UAE.
Oil-rich Gulf countries import between 80 and 90 percent of their food needs and are seeking to secure their supply chains. The UAE has pledged two billion dollars to assist in the development of a series of integrated food complexes in India to address food security issues in South Asia and the Middle East. The UAE is also a commercial hub for India, allowing access to markets in Africa and Europe.
