UAE-India Trade Thrives on Rupee Changes

UAE–India Trade Gets Boost from Rupee Settlement Changes

The reform announced by the Reserve Bank of India on August 5 brings a significant change to trade relations between the two countries. The new rules allow Indian licensed banks to open Special Rupee Accounts (SRVA) for their foreign partners without prior approval. This move removes previous administrative barriers, speeds up transactions, and reduces costs.

What is SRVA and Why is it Important?

The Special Rupee Vostro Account is a dedicated account that allows foreign banks to hold and process commercial payments in Indian rupees towards India. Until now, opening such accounts required prior approval from the central bank, which slowed down and complicated the process. The new regulation provides a faster and more cost-effective solution, especially beneficial for small and medium enterprises.

Economic Impacts

The reform is expected to accelerate non-oil trade between the two countries, which already represents a value of $65 billion. The goal is to surpass the $100 billion total trade mark before 2030. Simplified settlement is particularly advantageous for exporters, allowing them to offer more competitive prices and manage payment terms more flexibly.

Historical Foundations and Future Opportunities

The economic ties between UAE and India have a long history. The rupee was previously a widely used currency in the Emirates, making this change a modern continuation of an old collaboration. The possibility of rupee settlement further strengthens the UAE's role as a strategic trade and re-export hub, especially by leveraging the benefits of duty-free zones.

Expanding Investment Relations

Currently, more than 75,000 Indian companies are registered with the Dubai Chamber of Commerce, and this number is expected to see rapid growth. The new regulation, combined with customs benefits provided by the CEPA, and lower tariffs, may encourage Indian companies to partially or wholly relocate their operations to the UAE.

Role of Financial Integration

According to experts, to fully capitalize on these advantages, integration of the two countries' payment systems, card networks, and messaging systems will be necessary. This can ensure that rupee-based transactions operate smoothly and securely in the future.

This step is not just a financial reform but a strategic economic decision that can strengthen the UAE-India trade partnership in the long term.

(The article source is a statement from the Reserve Bank of India (RBI).)