UAE and India discussing transitioning non-oil trade transactions into Indian Rupees at Davos 2023.
In a notable shift towards promoting bilateral trade efficiency, the United Arab Emirates (UAE) and India are actively working towards conducting non-oil product trade using their respective local currencies - the UAE dirham and Indian rupee.
Dr. Thani Al Zeyoudi, Minister of State for Foreign Trade, announced to Reuters on January 19, 2023, that the UAE is planning to terminate its trade agreement with India in the first quarter, marking a significant development in the India-UAE trade relationship.
Regulatory changes are being implemented to facilitate this transition. The Reserve Bank of India (RBI) has made amendments to ease the use of the Indian rupee for international trade, allowing Indian exporters to hold foreign currency accounts outside India for all export transactions and receive advance payments in foreign currency. Additionally, persons resident outside India can now open Special Non-Resident Rupee (SNRR) accounts in authorized banks both in India and abroad (including UAE banks) for permitted current and capital account transactions.
This move away from relying on the US dollar in cross-border transactions is part of a broader trend among global economies. The UAE's decision is also mirrored by other countries, including China, who have been discussing non-oil trade payments in local currencies.
The currency market dynamics are also influencing this shift. The Indian rupee has weakened sharply against the UAE dirham, nearing record lows of around ₹23.91 per AED in August 2025. This depreciation, driven by factors such as heightened US-India trade tensions, capital outflows from Indian equities, global geopolitical concerns, and rising oil prices, has a twofold effect.
Firstly, it creates a favorable window for Indian expatriates in the UAE to send more money home as their dirhams convert to more rupees, boosting remittances significantly. Secondly, it influences businesses in both countries engaged in trade to reassess hedging strategies and transaction timings, managing increased currency volatility.
The UAE's decision to terminate its trade agreement with Cambodia, also announced by Dr. Thani Al Zeyoudi, has not specified reasons for the termination. However, it could potentially impact the trade balance between the two countries. The UAE's move towards non-oil trade payments in local currencies is a significant step in reducing reliance on the US dollar and enhancing trade settlement resilience amid geopolitical and economic challenges.
Businesses in the UAE and India are working towards conducting non-oil product trade using their local currencies, marking a significant shift in their trade relationship. To facilitate this, the Reserve Bank of India has made amendments to ease the use of the Indian rupee for international trade, and persons resident outside India can now open Special Non-Resident Rupee accounts in authorized banks for permitted transactions, including in finance.
