India has recently signed an agreement with the United Arab Emirates (UAE) to conduct trade in Indian Rupees (INR). It will benefit the trade and manufacturing sectors in both countries. This agreement will enable importers and exporters to make transactions in their local currencies thereby boosting the INR-AED foreign exchange market. It’s a strategic move to simplify the trade between India and the UAE. It will eliminate the transaction costs associated with multiple currency exchanges. Additionally, both countries have also signed another MoU to interlink their payment systems, UPI and IPP. Interestingly, the UAE is the fourth-largest investor in India during the financial year 2022-2023.
Currently, most deals between the UAE and India are settled in US dollars, which results in additional costs and delays. This currency deal will bring a positive and groundbreaking change. Experts said the deal will streamline trade, accelerate payment processes and provide businesses with quicker access to funds. Also, it will help India and the UAE to cross the $100 billion target in bilateral trade set by both countries after signing the Comprehensive Economic Partnership Agreement (CEPA) in May 2022. The cross-border trade has already recorded a 20% growth after implementing CEPA.
International businesses can now set up their manufacturing units in India and export to the UAE. Also, the bilateral trade is a green light for SMEs in India to expand to the UAE as the major bottleneck in the process is removed. Furthermore, the currency deal eliminates the need for dollar conversion, which will drive growth business setup in the UAE in prominent sectors like energy, defense, healthcare, and education.
- Reduced transaction costs: Business setup in UAE can save costs as they can skip additional fees required for currency conversion.
- Faster settlement: It facilitates real-time transactions, eliminating delays experienced with US dollar transactions.
- Improved predictability: This will help businesses to efficiently manage their cash flow as they can predict the exact amount they will receive.