(Kitco News) - India and the United Arab Emirates (UAE) are now settling their bilateral trade for gold and other commodities in rupees, according to a senior Indian government official.
According to the official, who requested anonymity, India is paying for its gold imports from the Emirati nation in its own currency, while the UAE is using the rupees it receives to pay for its gems and jewelry purchases from India.
The rupee settlement of trade between India and UAE for select commodities is being done via the 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.
India and UAE signed an MoU in July 2023 to set up a framework to use their respective currencies to settle bilateral transactions. The Local Currency Settlement System was established to promote the use of the Indian rupee and the AED (UAE Dirham) between the two trading partners and covers all current account transactions, along with specific capital account transactions.
India and UAE signed an earlier Comprehensive Economic Partnership Agreement (CEPA) on February 18, 2022, which came into effect in May 2022. Under the CEPA, both countries plan to boost bilateral trade to $100 billion within the next five years.
India’s use of rupees to pay for its gold imports is significant as they are the world’s largest importer of the yellow metal. Most recently, the country imported a total of $3.03 billion worth of gold in December 2023, a 156% percent increase from the same month in 2022. Meanwhile, India’s gems and jewelry exports were $2.90 billion last month, up 14.1% year-over-year.
In a separate announcement, Santosh Sarangi, India’s Director General of Foreign Trade, said on Jan. 15 that some of the increase in gold imports, as well as the rise in gems and jewelry exports, could be attributed to the use of the advance authorisation scheme for imports.
“Gold is coming through the advance authorisation route, mostly gold bars,” Sarangi said. “It is then going out after conversion into jewelry. 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.”
The Advance Authorisation Scheme allows duty-free import of inputs like gold bullion as long as they are physically incorporated into an export product.
