India, Saudi Arabia to explore trade in local currencies

India and Saudi Arabia have begun discussions on settling their trade in local currencies, officials from the external affairs ministry said on September 11.

Speaking to reporters following the state visit of Crown Prince and Prime Minister of Saudi Arabia Mohammed bin Salman, Ausaf Sayeed, external affairs secretary (consular, passport, visa and overseas Indian affairs), said the talks were at the “discussion stage”.

“The two sides have started discussing this. It is only at a discussion stage; proposals and concept notes have been exchanged. The Saudi side is aware that we have worked out similar arrangements with other countries in the region,” Sayeed said.

“The two leaders expressed their satisfaction at the volume of trade both countries have reached, India being the second-largest trading partner of Saudi Arabia, and Saudi being the fourth-largest trading partner of India,” he added, commenting on the talks between Prime Minister Narendra Modi and Mohammed bin Salman.

India’s trade with Saudi Arabia in 2022-23 amounted to $52.76 billion, with exports at $10.73 billion and imports at $42.04 billion. As such, India had a trade deficit of $31.31 billion with Saudi Arabia in the last financia year.

Over the last year, Indian authorities have pushed the use of the rupee globally, with the RBI announcing the setting up of a mechanism to settle global trade in rupees in July 2022. Early use of this system was seemingly for the purchase of discounted oil from sanction-hit Russia following its invasion of Ukraine in February 2022. However, the mechanism has not taken off, with reports emerging that negotiations over the settlement of bilateral trade in rupees between India and Russia had been suspended after Russia had accumulated billions of rupees in Indian banks which it could not use.

Also Read: India pins hopes on bilateral local currency trade to internationalise rupee

In recent months, India has entered into bilateral agreements to settle trade in local currencies, with a Memorandum of Understanding (MoU) to set up a Local Currency Settlement System being signed with the United Arab Emirates in mid-July. Discussions with Indonesia to settle cross-border transactions in local currencies have also begun. Moneycontrol reported exclusively in August that Brazil, Argentina, South Africa, Senegal, and Tanzania could be the next in line to tie up with India for the settlement of bilateral trade in local currencies.

In addition to discussions on settlement of trade in local currencies, External Affairs Secretary Sayeed said India and Saudi Arabia have also agreed to expedite the negotiations on the India-Gulf Cooperation Council Free Trade Agreement and strengthen co-operation in the fintech space.

Further, the two countries have identified several sectors for co-operation. These include energy, defence, security, education, technology, transportation, health care, tourism, culture, space, and semi-conductors.