As per the Government sources,India is using rupees to pay for gold imports from UAE.India is paying for its import of gold, among some other items, from the United Arab Emirates (UAE) in rupees, a senior Indian government official said, adding that the Emirati nation was using the same rupees to pay for some imports from India.
The two countries have signed an Memorandum of Understanding(MoU) in July 2023 to set up a framework to use their respective local currencies to settle bilateral transactions.
As per the MoU, a Local Currency Settlement System would be taking place to boost the use of the Indian rupee and the AED (UAE Dirham) bilaterally and would cover all current account transactions and permitted capital account transactions.
The transaction between two nations for selective supplies is done via special Rupee Vostro accounts mechanism that was introduced by the Reserve Bank of India (RBI) in July 2022. Under the mechanism, Indian rupees can be used for invoicing, payment, and settlement of exports or imports.
This trade settlement in rupee is key factor for India,as India is largest importer of gold.In December 2023, India’s gold imports rose by a whopping 156.5 percent year-on-year to $3.03 billion, taking the total for the first nine months of 2023-24 to $35.95 billion – 26.6 percent more than the same period for 2022-23.
In contrast,India’s exports of gems & jewellery were grown by 14.1% in the last month of previous year 2023 , valued at $2.90 billion.However,they are they are down 16.2 percent at $24.31 billion so far in 2023-24,as per the recent data given by the commerce ministry on January 15.
“Gold is coming through the advance authorisation route, mostly gold bars. It is then going out after conversion into jewellery. In some cases these are done by taking advantage of the rupee Vostro account that the Reserve Bank of India (RBI) allowed in July 2022.”,Director General of Foreign Trade Santosh Sarangi said on January 15.
Interestingly, Comprehensive Economic Partnership Agreement (CEPA) was signed between both the nations on February 18, 2022, that notably came into effect on May 1, 2022. Under the CEPA, both countries expect to boost bilateral trade to $100 billion within the next 5 years.
