India-UAE Local Currency Trade Enters Double Digits: How Rupee-Dirham Settlement Is Reducing Reliance on USD

India and the UAE are looking at yet another stride forward in their plans to enhance the usage of their currencies for trade. This was announced by Piyush Goyal, the country’s minister for commerce and industry, who recently pointed out that trade in rupees and dirhams between the two countries has crossed the double-digit mark.

The move is significant considering that the majority of the international trade used to take place through the medium of USD. In the context of the India-UAE local currency settlement scheme, trade in rupees and dirhams has become more feasible for businesses.

But it doesn’t mean that the USD is now out of the picture in India-UAE trade. There would still be scope to use the USD for conversion of the rupees and dirhams when required. As per the previous statements made by officials, this move is more about reducing transaction frictions and not about de-dollarization campaign.

What Does “Double-Digit” Local Currency Trade Mean?

With this last statement, it implies that there is now at least a double-digit percentage of transactions or invoicing of business between India and UAE done via local currencies instead of using only the conventional settlement methods via dollars.

This development happened after the official announcement of the Rupee-Dirham Local Currency Settlement System in 2023. By June 2026, more than 15% of their trade has already been transacted through local currencies, according to Ambassador of India to the UAE, Deepak Mittal.

With this latest statement from Piyush Goyal, it means that usage has further increased.

In terms of doing business, it becomes easier for companies. There will be no need to automatically convert rupees into dollars, and vice versa, when dealing with transactions.

How Does Rupee-Dirham Settlement Work?

The system is structured in such a way that allows companies from both countries to pay for their trade in domestic currency.

For example, an Indian company will be able to make payments in rupees, while the UAE company will be able to make payments in dirhams. The process will take place via special bank accounts and the arrangement made by Reserve Bank of India and Central Bank of the UAE.

This was officially announced through a memorandum of understanding signed in July 2023.

It is another way to carry out bilateral trade and not use US dollars as the mandatory mediator in each transaction.

Why Are India and the UAE Expanding It Now?

Such efforts are happening amid attempts by both countries to make their bilateral trade more resilient.

India and UAE have developed a substantial amount of diverse trade relations across energy, precious metals, engineering products, food items, technologies, and other fields. The total amount of bilateral trade was estimated at about $101.25 billion during FY 2025-26, according to the government data, whereas both countries aim to increase the total amount to $200 billion in bilateral trade by 2032.  

Recently, the talks also covered payment system integration, infrastructure for financial messages, and facilitation of business transactions.

Therefore, the purpose behind such efforts is not limited to mere switching of currency on an invoice but involves building of the necessary financial infrastructure that would help to build India-UAE economic corridor.

How Does This Reduce Dependence on the US Dollar?

The US dollar has been used as an intermediary in international business.

Take for instance, a business transaction that was done between the companies of India and the United Arab Emirates in the past would require conversion of the rupee to dollars and then dollars to dirhams. Every time there is a conversion, it becomes expensive and risky in terms of exchange rates and settlement process.

If the two parties can directly conduct business transactions through the use of the two currencies without having to convert to dollars, then this will be another choice in settling the transaction besides the use of the US dollar.

This is a key point in this case because the leaders have described this program as one which seeks to hasten trade and reduce cost without necessarily replacing the US dollar.

What Are the Benefits for Indian Exporters?

Settlements in rupees will be easier for Indian exporters in their transactions with UAE buyers.

Payment in rupees can help decrease the number of currency exchanges involved in the transaction and cut certain expenses. It will also allow firms that operate heavily with the UAE to manage currency better.

The increase in the number of banks and firms using the settlement scheme will make the process more convenient.

Both India and UAE have already been trying to encourage greater participation and simplify procedures since paperwork had been a problem for the widespread adoption of this method.

What Does It Mean for UAE Businesses?

It is also important for the UAE to have a more direct route to settle their payments through a major trading partner in the world.

The UAE importer of Indian products will be able to become part of a mechanism in which the transaction will be settled directly in terms of rupees and dirhams and not completely through dollar settlement.

This assumes particular importance as the trade between the two countries diversifies from its traditional channels and moves towards areas like technology, logistics, aviation, manufacturing, fintech and infrastructure.

India-UAE talks also recently touched upon payment systems connectivity and messaging systems as well.

India-UAE Trade Is Moving Beyond Just Oil and Gold

However, apart from energy and precious metals, there has always been much more to India-UAE trade than these goods and services. Currently, the two nations are exploring different forms of cooperation ranging from ports, ship building, aerospace technology, start-ups, finance, aviation and industrial projects.

In addition, UAE is planning to make an additional investment of $25 billion into India, which will bring their total investment in India to $50 billion and eventually to $100 billion. 

This makes payment infrastructure all the more critical.

Does This Mean the Dollar Is Losing Its Role?

Nothing of the sort. While the arrangement between India and UAE should not be seen as proof that the US dollar is now stripped of its importance to the business conducted by both states, nor that any transactions between the two nations are now carried out exclusively in their currencies.

The US dollar is firmly entrenched in international trade and currency markets. Currency conversions via the US dollar can take place under the terms of this new system.

What is new is the option.

Rather than being confined to one method, business people now have an option that enables the direct usage of their own currencies in the transaction process.

Why This Could Matter for the Rupee

For India, wider internationalization of the rupee has been one of its policy goals for some time now.

In that regard, the RBI has developed means to facilitate invoice and settlement of international trade in rupees. Data from RBI released earlier this year indicated rupee settlements for exports and imports have grown, and the central bank has also worked on international financial messaging system. Informist Media

The UAE would play a key role in this initiative due to the volume of the bilateral trade between the two countries and the presence of many Indian businesses and expatriate communities there.

A rupee-dirham corridor would thus serve as a good case study for India in terms of local currency settlements.

What Happens Next?

This will be followed by a phase that will not emphasize communication about the process but rather ease of using it.

Both India and UAE are moving forward to increase onboarding of banks, streamline processes, and improve payments and financial messaging connectivity.

With bilateral trade being headed towards reaching $200 billion by 2032, the efficiency of the financial network that will support this trade will become of greater importance.

The more firms find rupee and dirham settlement to be practical for them, the more they can use it in bilateral trade.

Conclusion

The rise of India-UAE trade in local currency to double-digit level is an important step in the financial relationship of the two nations.

This does not imply that the US dollar is going away from the equation. India and the UAE are simply developing an alternative route whereby eligible trade can take place in terms of the two nations’ currencies – the Indian rupee and the UAE Dirham.

For business operators, the advantage is basically functional: less currency conversions, potentially cheaper costs and increased flexibility for cross-border payments.

As India-UAE trade broadens to areas such as technology, investments, energy, logistics and manufacturing, the rupee-dirham mechanism is likely to be more relevant in the economic relationship of the two nations.

The rupee-dirham mechanism is not making the US dollar go away from the India-UAE trade. It is giving businesses an alternative route whereby an increasing amount of their trade takes place in terms of their own currencies.

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