India’s first-ever rupee payment for oil import from the United Arab Emirates (UAE) has opened a plethora of opportunities to escalate bilateral trade and investment, and to achieve the US100 billion target soon. Until now, both countries remained dependent on the exchange of the United States dollars for trade and investment. The ‘rupee-for-oil’ transaction will lessen the requirement of the United States dollars proportionately, and strengthen the demand of the Indian currency going forward.
According to reports, India has made payments in the ‘Indian rupee’ for purchasing petroleum products from the UAE. Negotiations for the rupee transaction began understandably in July, but final decisions were made recently. After completing formalities with banks and oil importing companies, the first payment was made to the UAE in the Indian rupee in December 2023. Traders and forex dealers from both countries perceived the development as an important driver for the growth of the economies. They hailed the ‘rupee-for-oil’ transaction as a vital tool for economic collaboration while making international financial transactions simpler.
| Share of top 10 countries in India’s crude oil import basket (%) |
| Country | 2021-22 | 2022-23 |
| Iraq | 24.8 | 20.6 |
| Russia | 2.0 | 19.3 |
| Saudi Arabia | 18.7 | 17.9 |
| United Arab Emirates | 10.0 | 10.3 |
| Kuwait | 6.5 | 4.9 |
| Nigeria | 7.0 | 3.7 |
| Angola | 1.6 | 2.0 |
| Mexico | 2.8 | 1.8 |
| Oman | 2.9 | 1.6 |
| Brazil | 1.8 | 1.2 |
Source: Centre for Monitoring Indian Economy (CMIE)
India has already been transacting in rupee for purchasing crude oil from Russia since the Ukraine war, which has emerged as the second largest import origin for Indian processors. Since the war erupted in February 2022, India negotiated cheap crude oil import from Russia not only at a discount but also for a payment in the Indian rupee. Consequently, the bilateral trade between the two friendly countries rose to a new high. According to the latest report from the Centre for Monitoring Indian Economy (CMIE), an economic think tank, the UAE accounted for 10.3 percent, thus positioning the fourth in India’s total crude oil import basket. Iraq leads with 20.6 percent of the market share, followed by Russia and Saudi Arabia with 19.3 and 17.9 percent of the share. With an annual demand of 4.5 million barrels per day (bpd), India fulfills approximately 85 percent of it through import.
Trading in the local currency stands as a historic moment for India as the country’s strategic push to decouple from the ubiquitous dollar by promoting its currency. Increasing rupee trade also aligns with the strategic objective of the Brazil, Russia, India, China, and South Africa (BRICS) consortium that was established for regional cooperation. The major objective of the BRICS was to replace the greenback with the local currencies and enhance trade among members, aiming to boost foreign exchange reserves. Oil industry experts believe that the trade settlements in the rupee are a part of the world’s fifth-biggest economy’s broader efforts to diversity oil suppliers, reduce transaction costs, and establish the local unit as a viable trade settlement currency.
The CEPA dealThe intention for an increase the bilateral trade began much earlier, but got a boost with the signing of the Comprehensive Economic Partnership Agreement (CEPA) in February 2022. During the past year, CEPA has made a significant impact on India’s bilateral trade with the UAE particularly exports of oil and non-oil. The bilateral trade between India and the UAE touched historic highs during FY 2022-23 from US$ 72.9 billion to US$ 84.5 billion, registering a year-on-year increase of 16 percent. During the CEPA Implementation period (from May 22 to Mar 23), bilateral trade increased from US$ 67.5 billion (May 21-Mar 2022) to US$ 76.9 billion (May 22-Mar 2023), an annual increase of 14 percent.
Exports from India to the UAE have also registered a multiyear high. During the April-March period, Indian exports to the UAE increased from US$ 28 billion to US$ 31.3 billion, an increase of around US$ 3.3 billion or 11.8 percent year-on-year growth in percentage terms. During the same period, growth in India’s global exports was 5.3 percent, excluding the UAE, India’s global exports grew at 4.8 percent. During the CEPA implementation period (May 22 – March 23), India’s exports to the UAE increased from 26.2 billion (May 21 – March 22) to 28.5 billion (May 22 – March 23), an increase of 8.5 percent yoy.
During the same period, India’s global exports, excluding the UAE, grew at 3.1 percent. India’s imports from the UAE have grown to US$ 53.2 billion (an annual increase of 18.8 percent) from Apr 22 to Mar 23. Non-oil imports during the same period grew by 4.1 percent. Under the India-UAE CEPA in the goods domain, the UAE eliminated duties on 97.4 percent of its tariff lines corresponding to 99 percent of imports from India. India has obtained immediate duty elimination on over 80 percent of its tariff lines corresponding to 90 percent of India’s exports in value terms.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
