India and Saudi Arabia have initiated discussions to conduct their trade transactions using their respective local currencies, according to officials from the external affairs ministry. During the state visit of Saudi Arabia’s Crown Prince Mohammed bin Salman and India’s Prime Minister Narendra Modi, Ausaf Sayeed, the external affairs secretary responsible for consular, passport, visa, and overseas Indian affairs, shared that these discussions are in the preliminary stages. Sayeed noted that both sides have exchanged proposals and concept notes. He also highlighted that Saudi Arabia is aware of India’s previous efforts to establish similar arrangements with other regional nations.
This development comes as India and Saudi Arabia expressed satisfaction with the substantial volume of bilateral trade. India is Saudi Arabia’s second-largest trading partner, while Saudi Arabia stands as the fourth-largest trading partner for India. However, it’s worth noting that India faced a trade deficit of $31.31 billion with Saudi Arabia in the last fiscal year. In 2022-23, the total trade between the two nations amounted to $52.76 billion, with exports reaching $10.73 billion and imports at $42.04 billion.
Over the past year, Indian authorities have actively promoted the use of the rupee on the global stage. The Reserve Bank of India (RBI) established a mechanism in July 2022 to settle international trade transactions in rupees. Although this system was initially intended for purchasing discounted oil from Russia amid sanctions related to the Ukraine conflict, it faced difficulties. Negotiations on settling bilateral trade in rupees between India and Russia reportedly stalled after Russia accumulated significant rupee holdings in Indian banks that it could not utilize.
In recent months, India has entered into bilateral agreements to facilitate trade settlement in local currencies. An example of this is the Memorandum of Understanding (MoU) signed with the United Arab Emirates in July to establish a Local Currency Settlement System. Discussions have also commenced with Indonesia regarding cross-border transactions settled in local currencies. Furthermore, it was reported in August that Brazil, Argentina, South Africa, Senegal, and Tanzania could potentially follow suit in partnering with India for local currency trade settlement.
In addition to currency-related discussions, India and Saudi Arabia have agreed to expedite negotiations on the India-Gulf Cooperation Council Free Trade Agreement and enhance cooperation in the fintech sector. The two nations have identified various areas for collaboration, including energy, defense, security, education, technology, transportation, healthcare, tourism, culture, space exploration, and semiconductors.
This development marks an important step in the evolution of India’s international trade strategy, as it seeks to expand the use of its currency in global transactions and strengthen economic ties with key partners.
