UAE Signals Another $25 Billion for India as Rupee–Dirham Settlement Reaches Double Digits

The news

Mumbai and New Delhi. The United Arab Emirates intends to invest an additional $25 billion in India in the near future, Commerce and Industry Minister Piyush Goyal said on Monday after co-chairing the 14th India–UAE High-Level Joint Task Force on Investments in Mumbai with Sheikh Hamed bin Zayed Al Nahyan, Managing Director of the Abu Dhabi Investment Authority (ADIA), the emirate’s sovereign wealth fund, The Hindu reports. The UAE has already invested about $25 billion in India and is its seventh-largest source of foreign direct investment; the new money could take the total to $50 billion in the near term, with an eventual target of $100 billion, The Indian Express adds. The two sides agreed to widen cooperation to ports, shipbuilding, energy security, space technology and financial services, and discussed investment, trade facilitation, taxation, logistics, energy, market access and the use of local currencies in trade. Mr. Goyal said the share of bilateral trade settled in rupees and dirhams has reached double digits, The Economic Times reports. Under this local-currency mechanism, Indian exporters can be paid in rupees and UAE exporters in dirhams, with the currencies converted into dollars periodically if required, so trade need not pass through the dollar at every step. Its use is rising as businesses understand its benefits, he said. Trade between the two countries is “very close” to pre-war levels and should recover and exceed them in coming months, amid geopolitical disruption and heightened risk to the Strait of Hormuz, a key route for India’s energy and merchandise flows; India’s merchandise exports nevertheless rose more than 15% in the first six months of the financial year to September 21. The same day, the Commerce Ministry said Mr. Goyal will visit the United States from September 29 to October 5 for the G20 Trade Ministers’ Meeting in Milwaukee, Wisconsin, on September 30 and October 1, and will meet U.S. Trade Representative Jamieson Greer on its sidelines to advance the Bilateral Trade Agreement and finalise an interim deal in line with the joint statement of February 7, 2026. At the G20, India will argue for a rules-based, open, inclusive, transparent, equitable and non-discriminatory multilateral trading system with the World Trade Organization at its core, and for adequate policy space for developing countries. The syllabus link is GS2 on bilateral relations and agreements, and GS3 on investment models and external trade.

Static syllabus linkage

1. India–UAE ties were raised to a Comprehensive Strategic Partnership and then anchored by a trade agreement. India and the UAE upgraded their relationship to a Comprehensive Strategic Partnership in 2017, when the Abu Dhabi Crown Prince was chief guest at India’s Republic Day. The India–UAE Comprehensive Economic Partnership Agreement (CEPA) was signed in February 2022 and came into force on 1 May 2022, India’s first such agreement with a Gulf country. It removed or cut duties on most tariff lines and also covered trade in services. The UAE is among India’s largest trading partners and a major source of its crude oil and LPG.
2. A Bilateral Investment Treaty protects the capital that the task force is attracting. India and the UAE signed a Bilateral Investment Treaty in February 2024, drawing on India’s 2016 Model BIT but easing some of its terms, after India terminated most of its older investment treaties. A BIT protects investors of one country in the other against expropriation without compensation and unfair treatment, and provides for dispute settlement through arbitration after local remedies. The High-Level Joint Task Force on Investments is the institutional channel that tracks sovereign and private UAE investment in India, and ADIA is one of the world’s largest sovereign wealth funds.
3. The local-currency settlement framework is part of India’s push to internationalise the rupee. In July 2023 the Reserve Bank of India and the Central Bank of the UAE signed a Memorandum of Understanding to set up a Local Currency Settlement System for the rupee and the dirham, alongside another to link India’s Unified Payments Interface with the UAE’s instant payment platform. Earlier, in July 2022, the RBI had allowed invoicing and settlement of international trade in rupees through Special Rupee Vostro Accounts held by foreign banks with Indian banks. Local-currency settlement reduces conversion costs and exposure to the dollar and to sanctions-related disruption, and it helps develop a direct rupee–dirham exchange market.
4. India and the UAE are joined in two minilateral frameworks. I2U2 groups India, Israel, the UAE and the United States, and held its first leaders’ summit virtually in July 2022 with a focus on food security and clean energy. The India–Middle East–Europe Economic Corridor (IMEC) was announced through a Memorandum of Understanding at the G20 summit in New Delhi in September 2023, signed by India, the UAE, Saudi Arabia, the United States, the European Union, France, Germany and Italy. IMEC envisages a ship-and-rail route from India to the Gulf and on to Europe, which gives the new cooperation in ports and shipbuilding a strategic context.

Why UPSC loves this

1. GS2 asks about India’s relations with the Gulf and West Asia. Questions have asked about India’s ‘Look West’ or ‘Think West’ policy, the importance of the Gulf for energy and diaspora, and IMEC as an alternative corridor. The UAE story shows the relationship moving from oil-and-labour to capital, technology and currency.
2. GS3 tests rupee internationalisation and the external sector. UPSC has asked about the benefits and risks of rupee internationalisation and about sovereign wealth funds as investors. The double-digit rupee–dirham share is concrete evidence for answers on de-dollarisation and trade settlement.
3. Prelims draws on agreements, their dates and signatories. CEPA, the BIT, the local-currency MoU, I2U2 and IMEC are standard Prelims material. Knowing who signed IMEC and when is typical of how the paper frames questions on connectivity corridors.

Analysis

1. A signalled $25 billion is an intention, and its value depends on where it goes. The papers say the UAE has “signalled” or “indicated” its intent, which is weaker than a commitment. Sovereign funds invest where returns are good, so the money is likely to flow into infrastructure, renewable energy, logistics and listed assets rather than into new factories. That still eases India’s need for long-term capital, especially while foreign portfolio flows are volatile. The measure of success will be the share that goes into greenfield projects like ports and shipbuilding, which create jobs, rather than into existing assets.
2. Double-digit rupee–dirham settlement is significant, but the dollar has not been replaced. Reaching double digits from almost nothing in about three years shows businesses will use a local-currency channel when it is cheaper and safer. Yet the currencies are still converted into dollars periodically, which means the dollar remains the anchor for pricing and balances. The UAE dirham is itself pegged to the dollar, so exchange-rate risk is reduced but not eliminated. The honest description is a partial, practical hedge against disruption, not de-dollarisation.
3. The war has made the UAE more important to India, and India more important to the UAE. With the Strait of Hormuz at risk, India needs reliable Gulf partners for energy and trade routes, and the UAE needs reliable, large markets and investment destinations. Cooperation on ports and shipbuilding reflects both sides’ interest in alternative routes and shipping capacity. The counter-view is that deepening dependence on one Gulf partner concentrates risk if the war spreads. India’s answer has been to diversify across the UAE, Oman, Saudi Arabia and others.
4. The US visit shows India balancing bilateral deals with multilateral rules. In Milwaukee, India will defend a WTO-centred, non-discriminatory trading system and policy space for developing countries, while negotiating an interim bilateral deal with the United States. These positions are not contradictory, but they are in tension, since bilateral deals are by definition preferential. India uses bilateral agreements for market access and the WTO as insurance against unilateral tariffs. Its credibility at the G20 will depend on showing that its bilateral deals do not undermine the multilateral rules it defends.
5. Trade agreements are becoming investment agreements. The UAE story follows the pattern of India’s recent deals, where tariff cuts come with investment pledges. CEPA was followed by the BIT and now a stated $100 billion target. This is a sensible way to link trade to growth, but investment targets are not enforceable in the way tariff commitments are. India must track actual flows through the task force and publish them, so that pledges do not become diplomatic headlines without economic substance.

Administrator's brainstorm