Key facts
- Over 15% of India-UAE trade is invoiced in local currencies since the rupee-dirham mechanism launched.
- Efforts are underway to increase adoption of local currency trade settlement between India and the UAE.
- Authorities aim to onboard more banks and simplify procedures to improve cross-border transaction efficiency.
- Structural bottlenecks like paperwork and procedural delays have been cited by businesses.
- The India-UAE Local Currency Settlement System was established in July 2023.
- The Reserve Bank of India uses the Special Rupee Vostro Account framework for these settlements.
India and the United Arab Emirates are intensifying efforts to expand the use of their local currencies in bilateral trade, with over 15% of transactions already settled in rupees and dirhams since the mechanism's inception nearly three years ago.
Indian ambassador to the UAE Deepak Mittal stated that the current settlement system is performing well despite headwinds, with businesses flagging structural bottlenecks such as extensive paperwork and procedural delays. Authorities are now prioritizing the onboarding of more banks and the simplification of procedures to enhance the efficiency of cross-border transactions and reduce friction points.
Industry executives note that the adoption of local currency invoicing is primarily concentrated in oil and precious metals transactions, with a larger share still denominated in UAE dirhams compared to Indian rupees. The renewed focus on promoting the rupee-dirham mechanism aligns with India's broader strategy to internationalize the rupee and increase the use of local currencies in trade with major partners.
The India-UAE Local Currency Settlement System, launched in July 2023, aims to reduce reliance on the US dollar, thereby lowering transaction costs and strengthening financial connectivity. The Reserve Bank of India facilitates these settlements through the Special Rupee Vostro Account framework, enabling businesses to directly invoice and settle transactions in rupees or dirhams, bypassing the need for dollar conversion.