According to Reuters, India’s central bank is encouraging local banks to ask their clients to settle trade between the UAE and India using the dirham (AED) or Indian rupee (INR).
This falls as part of de-dollarization efforts on the part of India and the UAE has been keen to start this process with the country.
Earlier in July, the two countries agreed to conduct trade in local currencies.
Read: UAE, India agree to settle trade transactions using rupee-dirham payments
And on Monday, August 21, 2023, India announced that Indian Oil Corp. used the local rupee to buy one million barrels of oil from ADNOC. The two countries traded petroleum products worth $35 billion in 2022.
In July, Adnoc Gas inked a 14-purchase agreement valued at between $7 bn $9 bn with Indian Oil Corporation.
The UAE is the fourth-largest source of crude oil for India.
Earlier, a UAE exporter sold 25kg of gold to a buyer in India for around 128.4 million rupees ($1.54 million in equivalent), according to Reuters.
More than de-dollarization
The Reserve Bank of India has a broader aim of promoting settlement in local currencies with countries with which India has a trade deficit. This will help boost the rupee’s global reach and reduce hard currency outflows to cover trade deficits.
India’s trade deficit with the UAE was $21.62 billion in 2022/23, or 8.2% of its total deficit.
Large Indian corporates have been reluctant in engaging in non-dollar-denominated deals. According to Reuters, the Indian Central Bank has pushed smaller companies and bankers have pushed for such transactions by offering discounted service charges as an incentive.
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