Abu Dhabi: This step is expected to strengthen the free trade agreement between the two countries. The United Arab Emirates and India are getting ready to start bilateral transactions in local currencies, according to New Delhi's envoy in Abu Dhabi on Wednesday.

After the US and China, the UAE is India's third largest trading partner, with bilateral trade of $43.3 billion in 2020-21. More than three million Indians living abroad call it home and send billions of dollars to their families every year.

India and the United Arab Emirates signed a historic Comprehensive Economic Partnership Agreement in February. The agreement, which came into force in May, lowers tariffs on about 80% of all goods and provides duty-free access to 90% of Indian exports.

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According to India's Ambassador to UAE Sanjay Sudhir, the subject of trade settlement in local currencies was included in the 14th India-UAE Joint Commission meeting in Abu Dhabi in September.

It was one of the main topics of conversation when UAE Foreign Minister Sheikh Abdullah bin Zayed Al-Nahyan visited New Delhi last week.

Since then, progress has been made; The Indian side has submitted a concept paper to the UAE side, and talks are underway between the Reserve Bank of India and the Central Bank of the UAE, according to Sudhir, who also said that the modalities would be finalized "as soon as possible". will be finalised. ,

Trading in local currencies, in this case the rupee and dirham in the context of India and the United Arab Emirates, not only reduces transaction costs but frees trade from dependence on the US dollar.

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According to Anupam Manoor, an economist at the Takshashila Institute in Bangalore, most trade between India and the UAE is invoiced in dollars, which can be costly for businesses on both sides due to exchange rate risk and foreign currency conversion charges. With Arab News.

He claimed that for India, it would also reduce current account stress, prevent rupee depreciation and prevent loss of foreign exchange reserves.

It is now possible to use a common payment system like UPI (Unified Payments Interface) to reduce the cost of Indian remittances to the UAE and actually facilitate capital inflows, Manoor continued.

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“If the agreement to transact in local currencies is successful, it would be a landmark agreement, and the model could be replicated in many other countries with which India has close trade ties.