India’s historic move to pay for UAE oil in rupees, not dollars, could be a paradigm shift for bilateral trade, potentially boosting ties and reducing reliance on the greenback. Here’s why:
1. Trade Surge:
- India-UAE trade hit a record $84.5 billion in 2022-23, up 16% from the previous year.
- The “rupee-for-oil” deal can further amplify trade volume, aiming for a $100 billion target soon.
2. Reduced Costs:
- Bypassing dollar conversions saves transaction costs for both countries.
- India estimates saving 5% on all trade with the UAE through rupee-denominated transactions.
3. Rupee Boost:
- Increased use of rupees strengthens the Indian currency, making it more attractive for international trade.
- This empowers India to diversify settlement currencies and reduce dependence on the dollar.
4. Investment Opportunities:
- The deal paves the way for deeper bilateral investments, creating new opportunities in sectors like infrastructure, energy, and technology.
- Both countries are working on establishing food and industrial parks in India.
5. Global Ripples:
- The success of this model could inspire other countries to settle trade in local currencies, chipping away at US dollar dominance.
- This could reshape the global financial landscape, promoting multilateral trade and reducing reliance on a single reserve currency.
Challenges Remain:
- Convincing other oil exporters to accept rupees, as they may prefer dollar stability.
- Building adequate infrastructure for rupee-denominated transactions and ensuring efficient currency exchange mechanisms.
Despite the challenges, the “rupee-for-oil” deal marks a significant step towards a more diversified and resilient global trade ecosystem. India and the UAE’s bold move could have far-reaching consequences for the future of international commerce.
