India on Tuesday signed a currency swap agreement with the United Arab Emirates to boost direct trade and investment without having to use international currencies like the US dollar. The two countries also signed a memorandum of understanding on development cooperation in Africa.
The agreements were signed after the 12th India-UAE joint commission meeting co-chaired by external affairs minister Sushma Swaraj and UAE foreign minister Sheikh Abdulla bin Zayed al Nahyan in Abu Dhabi.
“Two documents signed during the visit of EAM @SushmaSwaraj to #UAE : Agreement on currency swap and MoU for development cooperation in Africa,” Raveesh Kumar, official spokesperson for the ministry of external affairs, tweeted on Tuesday.
The currency swap is for 2 billion dirhams or Rs3,500 crore (about $496 million), a meagre amount compared to the $52 billion bilateral trade between the two countries.
"The bilateral currency swap agreement between India and the UAE is expected to reduce the dependency on hard currencies like the U.S dollar," an official statement said, adding that the two central banks had approved the deal.
Further, the swap deal would also reduce the transmission costs arising from exchange rate risks, it said.
Bilateral trade between the two countries stood at around $52 billion in 2017, according to figures from the Indian embassy in the UAE. In 2015, China's central bank extended a currency swap agreement with the UAE central bank worth $5.54 billion.
UAE is India's sixth-largest source for oil imports and hosts a 3.3 million-strong Indian community.
India's exports to UAE (according to commerce ministry data for 2017-18) is estimated at $28.14 billion (9.27 per cent of India’s total exports). India has a diverse export basket, which includes fresh fruits, agricultural products, Shrimps, prawns, motor engines, reciprocating pistons and even ball point pens.
India’s imports from the UAE, which basically comprises crude oil, stands at $21.73 billion as per commerce ministry data for 2017-18. This is 4.6 per cent of India's total imports. India's import basket with the UAE includes liquefied natural gas, petroleum oils obtained from bituminous minerals, and liquefied propane.
The currency swap could help ease traders and companies engaged in the import-export of crude oil with UAE.