International Relations: July 2023 UPSC Current Affairs | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly PDF Download

India-Africa Partnership: Achievements, Challenges, and Roadmap 2030

Why in news?

• Africa Expert Group has released a report titled ‘India-Africa Partnership: Achievements, Challenges and Roadmap 2023’ which enlisted recommendations to deepen and diversify India-Africa ties.

What is the history of India-Africa relationship?

• Political Relations – This was started when M.K.Gandhi started his political career during colonization in South Africa.
• Diplomatic relations between India and Africa were established during the period of colonialism.
• During the wake of cold war many African Countries joined Non-Alignment Movement pioneered by India, Indonesia, Egypt, Ghana and Yugoslavia.
• India-Africa Forum Summit is the official platform for the African Indian relations which is held once in every 3 years since 2008.
• Economic Relations – India-Africa trade touched $98 billion in FY22–23 which is a positive economic development.
• Defence - India-Africa Defence Dialogue was held in the sidelines of DefExpo 2022 in Gandhinagar, Gujarat.
• Gandhinagar Declaration was adopted to enhance cooperation in the fields of training & military exercises
• Cultural relations- Project ‘Mausam’ is an initiative of Ministry of Culture which aims to explore the multi-faceted Indian Ocean ‘world’ and promote research on themes related to the study of maritime routes.
• About 39 Indian Ocean countries selected for this project which contains African countries like Egypt, Kenya, Sudan, Somalia etc.,
• Education and Health -Africa is one of the beneficiaries of India’s flagship capacity building programme – Indian Technical and Economic Cooperation (ITEC).
• As per National Education Policy 2020 guidelines, First IIT Campus to be set outside India is at Zanzibar, Tanzania.
• India supplied 'Made in India' COVID vaccines to 42 African countries under “One Earth One Health Mission”.
• Technology- Pan-African e-network is a joint effort of India and African Union with an aim to provide satellite connectivity, tele-education, and tele-medicine services to the African countries.

What are the key findings of the report?

• Dynamic Africa- Africa is undergoing significant changes in its demographics, economy, politics, and society.
• It is gradually moving towards regional integration and is committed to promoting democracy, peace, and progress.
• Incidents like insurgency, ethnic violence, and terrorism is still a challenging issue in Ethiopia, Sudan, and the Central African Republic.
• Participation of external partners- China, Russia, the United States, the European Union, Japan, Turkey, and the UAE are actively competing to strengthen their relations with Africa.
• They aim to secure market access, energy and mineral resources, and enhance their political and economic influence in the region.
• China’s role- It is Africa's largest economic partner since 2000. The report identified China as an infrastructure developer, resource provider, and financier in Africa.
• India’s role - The report notes that India has a substantive partnership with Africa and a rich fund of goodwill, but it is essential for New Delhi to review its Africa policy periodically.

What are the recommendations?

• Political and diplomatic cooperation- Strengthen the cooperation by restoring periodic leaders’ summits through India-Africa Forum Summit.
• Enhance the cooperation between India and African Union by launching a new annual strategic dialogue in 2023.
• India should forge AU’s entry in G20 as a full member.
• Defence and security cooperation - Enhance cooperation in counter-terrorism, cyber security and emerging technologies.
• Expand dialogue on defence issues and widen the footprint of maritime collaboration.
• Expand the lines of credit to facilitate defence expenses.
• Economic and development- Promote access to finance through the creation of an Africa Growth Fund (AGF).
• A special package of measures to improve exports and build cooperation in the shipping domain.
• A special focus on promoting trilateral cooperation and deepening science and technology cooperation could pay rich dividends.
• Socio- Cultural Cooperation- Greater interaction between universities, think tanks, civil society and media organisations in India and selected African countries.
• Set up a National Centre for African Studies to promote engagement in education.
• Liberalise visa measures for African students who come to India for higher education.

India- Philippines

Why in News?

Recently, 5th meeting of the Joint Commission on Bilateral Cooperation was convened, between Indian External Affairs Minister and his Philippines counterpart.

• India and the Philippines are exploring various avenues to enhance their defence cooperation, with a particular emphasis on maritime security.
  

What are the Major Highlights of the Meet?

• Defense Cooperation: Both Ministers expressed keen interest to continue to work together on defense cooperation, including through the regular or upgraded official-level interaction among defense agencies, opening of a resident Defense Attache office in Manila, consideration of India’s offer for concessional Line of Credit to meet Philippines’ defense requirements.
• Maritime Security: Both countries aim to cooperate on maritime domain awareness (MDA), joint patrols, and information exchange to enhance MDA capabilities.
  • Emphasizing the utility of MDA, the Ministers called for the early operationalization of the standard operating procedure for the White Shipping Agreement between the Indian Navy and the Philippines Coast Guard.
• Cyber Security Cooperation: Discussions focused on expanding cooperation in existing domains, including anti-terrorism measures and intelligence exchange. Both countries explored avenues for collaboration in cyber security, artificial intelligence, and space cooperation.
• Regional and International Issues: The Ministers engaged in wide-ranging discussions on regional and international issues of mutual interest for e.g., China’s growing assertiveness and territorial claims in the South China Sea.
  • Emphasizing the need for a peaceful settlement of disputes and adherence to international law, including the United Nations Convention on the Law of the Sea (UNCLOS) and the 2016 Arbitral Award on the South China Sea.

How is India’s Relations with Philippines?

• About: India and the Philippines are two democratic countries in the Indo-Pacific region that share common approach towards the Indo-Pacific, emphasizing the importance of a free, open, and stable region.
• Political Relations: India and the Philippines formally established diplomatic relations on 26 November 1949, shortly after both countries gained independence. (Philippines in 1946 and India in 1947).
• When India launched Look East Policy and intensified partnership with Association of Southeast Asian Nations (ASEAN) in 1992, it also resulted in intensified relations with the Philippines both bilaterally and in the regional context.
• With the Act East Policy (2014), the relationship with the Philippines has diversified further into political-security; trade and industry, etc.
• Economic Relations: India is currently the Philippines' fifteenth largest trading partner, with trade worth approximately USD 3 billion in the 2022.
  • Also, Philippines has been a net importer in goods trade with India.
• Defence Cooperation: India and the Philippines have a growing defense and security partnership. One of the most significant developments in defence cooperation between India and the Philippines is the BrahMos missile deal, which is expected to be finalised soon.
• The BrahMos is a supersonic cruise missile co-developed by India and Russia, which can be launched from land, sea or air platforms.

What are the Key Facts About Philippines?

• The Philippines is an archipelago located in Southeast Asia, bordered by the Philippine Sea to the east, the South China Sea to the west, and the Celebes Sea to the south.
• It consists of 7,641 islands, with Luzon and Mindanao being the largest.
• The capital city is Manila, situated on Luzon Island.
• Mount Apo (2,954 meters) on Mindanao Island is the highest peak, and it is an active volcano.
• The Philippines has a tropical climate with high temperatures and humidity year-round, experiencing wet and dry seasons.
• The Philippines is considered one of the world's biodiversity hotspots.
• The Philippines is also a part of the Pacific Ring of Fire, which makes it geologically active. It has more than 20 active volcanoes, including Mayon (recently erupted in 2023), Taal, and Mount Pinatubo (erupted in 1991).

Global South

Central Idea

• The unwillingness of many leading countries in Africa, Asia and Latin America to stand with NATO over the war in Ukraine has brought to the fore once again the term “Global South.”

What is Global South?

• The term “Global South” refers to countries that are often described as ‘developing’, ‘less developed’, or ‘underdeveloped’.
• It encompasses countries in Africa, Asia, and Latin America, which are characterized by higher levels of poverty, income inequality, and harsh living conditions compared to the “Global North”.

Historical Background

• Emergence of the Term: The term ‘Global South’ was first used in 1969 by political activist Carl Oglesby, who argued that the war in Vietnam represented a history of northern “dominance over the global south”.
• Transition from Third World: Prior to the fall of the Soviet Union in 1991, these countries were commonly referred to as the ‘Third World’.
• Momentum and Context: The term gained momentum following the end of the Cold War and the rise of the non-aligned movement.

Features of the Global South

• Lower-income Countries: The Global South primarily consists of lower-income countries located in Africa, Asia, and South America.
• Geopolitical Background: Geopolitically, these nations have a history of imperialism and colonial rule.
• Newly Industrialized Status: Many of these countries are in the process of industrialization and have been described as newly industrialized.
• Prominent Countries: Prominent countries within the Global South include Brazil, China, India, Indonesia, and Mexico, known for their large populations and economies.

Need for Classification

• Critique of Earlier Terms: The East/West binary and the categorization of countries as developed/developing were criticized for perpetuating stereotypes and favoring Western ideals.
• Cold War Context: The First World, Second World, and Third World classifications were associated with Cold War alliances.
• Broad and Inclusive Classification: The term ‘Global South’ provides a broader classification based on shared history of colonization and similar socioeconomic indicators.

Global South amid Ukrainian War

• South-South Cooperation: South-South cooperation has emerged as countries like India and China challenge the dominant global order led by the US.
• Questioning the North as the Ideal: The rise of Asian countries questions the notion of the North as the ideal.
• Criticism of Classification: The classification of the Global South has been criticized for its broadness and concerns about resource accumulation, as well as the neglect of Africa.

Significance of the Global South

• India’s Role: India aims to unite Global South countries to adopt an action-oriented approach.
• Potential for Progress: Cooperation within the Global South can unlock significant potential for progress, including technical and ideas exchanges, sharing of manufacturing best practices, and more.
• Common Concerns: Energy security, justice, and sustainable energy transition are common concerns for the Global South, which India aims to highlight.

Challenges for Consolidation

• Debate over Climate Reparations: The ongoing debate over climate reparations has triggered controversy, as some argue that China and India should contribute given their increasing industrialization and historical carbon emissions.
• Impact of Russia-Ukraine War: The ongoing Russia-Ukraine war has impacted the least developed countries (LDCs) and prompted them to align more closely with China’s Belt and Road Initiative.
• Dominance of the US: Despite the shift to a multipolar world, the US still dominates international affairs, posing challenges for the consolidation of the Global South.

Way Forward

• Active Engagement: India must actively engage with regional politics within the developing world to champion the Global South.
• Tailored Policy Approach: It is crucial to recognize the diversity within the Global South and develop a policy vision that addresses the varying needs and capabilities of its member countries.

Conclusion

• Collaboration between the Global South and India can lead to significant advancements in various fields.
• India’s development partnerships prioritize consultation, outcome orientation, people-centric approaches, and respect for the sovereignty of partner countries.
• Distinguishing India’s approach from that of China can help avoid debt traps and financially unsound undertakings, promoting sustainable development within the Global South.

India and Vietnam Relations 

Why in News?

• India gifted the indigenously built in-service missile corvette INS Kirpan to Vietnam. It reflects India's commitment to deepening defense cooperation and cementing its role as Vietnam's 'Preferred Security Partner' in the Indian Ocean Region.

What are the Areas of Cooperation Between India and Vietnam?

About

• India had established the Consul General’s office in Hanoi as early as 1956.
  • Vietnam established its diplomatic mission in 1972.
• India had stood by Vietnam in opposing US intervention in that country at the cost of embittering Indo-US relations.
  • India was the Chairman of the International Commission for Supervision and Control (ICSC), which was formed pursuant to the Geneva Accord of 1954 to facilitate the peace process in Vietnam.
• In 1992, India and Vietnam established extensive economic ties, including oil exploration, agriculture and manufacturing.
• In July 2007, relations between the two countries were elevated to the level of ‘Strategic Partnership’.
• In 2016, bilateral relations were further elevated to a “Comprehensive Strategic Partnership”

Economic Cooperation

• Mekong-Ganga Cooperation (MGC): As members of MGC, India and Vietnam have been working to enhance ties between India and Southeast Asian nations and promote development cooperation.
• Trade and Investment: In financial year 2021-22, bilateral trade between India and Vietnam posted a growth of 27% and reached USD 14.14 billion.
  • India one of the top 8th trading partners of Vietnam. While vietnam is the 15th largest trading partner of India and the fourth in Southeast Asia.
• Capacity Building: India provides training programs and scholarships under the Indian Technical and Economic Cooperation (ITEC) to Vietnam, contributing to Vietnam's socio-economic development.
• Political Backing: India and Vietnam have supported each other in various international forums and organizations, demonstrating their commitment to global cooperation.
  • Vietnam has backed India's bid to become a permanent member of the United Nations Security Council (UNSC) and join the Asia-Pacific Economic Cooperation (APEC).

Multilateral Cooperation

• India and Vietnam closely cooperate in various regional forums such as ASEAN, East Asia Summit, Asia Europe Meeting (ASEM) besides UN and WTO.

Defense Cooperation

• High-Speed Patrol Boats: In September 2014, India extended a Line of Credit (LoC) of USD 100 million to procure 12 high-speed patrol boats for the Vietnamese border guard force.
• In 2016, an additional USD 500 million defense LoC was extended to Vietnam.
• Also, Joint Vision Statement on India-Vietnam defense partnership towards 2030 was signed in June 2022.
• Vietnam-India Bilateral Army Exercise: Ex VINBAX

Maritime Security and Cooperation

• Freedom of Navigation: Both countries firmly support freedom of navigation and overflight, as well as lawful commerce in national waters, in accordance with international laws, particularly UNCLOS.
• South China Sea Code of Conduct: India and Vietnam emphasize that the Code of Conduct on the South China Sea should be consistent with relevant UN conventions and respect the legitimate rights and interests of nations not participating in the discussions.

East Asia Summit

Context

• External Affairs Minister S. Jaishankar said that the East Asia Summit (EAS) must be committed to a free, open, inclusive, and rules-based Indo-Pacific, with respect for sovereignty and territorial integrity.

East Asia Summit (EAS)

About

• The East Asia Summit (EAS) is a regional forum held annually by leaders of, initially, 16 countries in the East Asian, Southeast Asian, South Asian and Oceanian regions, based on the ASEAN Plus Six mechanism.
• The East Asia Summit (EAS) sits at the apex of the ASEAN-centred regional architecture and is the Indo-Pacific's premier forum for strategic dialogue.
• It is the only leader-led forum at which all key partners meet to discuss political, security and economic challenges facing the Indo-Pacific, and has an important role to play in advancing closer regional cooperation.

Conception and Proposal

• The concept of an East Asia Grouping has significant history going back to an idea first promoted in 1991 by then Malaysian Prime Minister Mahathir Mohamad.
• The final report in 2002 of the East Asian Study Group, established by the ASEAN Plus Three countries, was based on an EAS involving ASEAN Plus Three, therefore not involving Australia, New Zealand, or India.
• The EAS as proposed was to be an ASEAN-led development, with the summit to be linked to ASEAN summit meetings. However, the issue was to which countries beyond those in ASEAN the EAS was to be extended.
• The decision to hold the EAS was reached during the 2004 ASEAN Plus Three summit and the initial 16 members determined at the ASEAN Plus Three Ministerial Meeting held in Laos at the end of July 2005.
• Credit for advancing the forum during the 2004 ASEAN Plus Three summit has been attributed to Malaysia.

Members

• Membership expanded to 18 countries including Russia and the United States at the Sixth EAS in 2011.
• The 18 members of EAS are – the ten ASEAN member states (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) along with Australia, China, India, Japan, New Zealand, the Republic of Korea, Russia and the United States. ASEAN leads the forum, and the chair rotates annually among ASEAN member states.

Role of ASEAN

• Since its establishment, ASEAN has held the central role and leadership in the forum.
• EAS meetings are held after the annual ASEAN leaders' meetings and play an important role in the regional architecture of Asia-Pacific.

First Summit

• The first summit was held in Kuala Lumpur, Malaysia on 14 December 2005.

Priority Areas
There are six priority areas of regional cooperation within the framework of the EAS. These are –

• Environment and Energy,
• Education, Finance,
• Global Health Issues and Pandemic Diseases,
• Natural
• Disaster Management, and
• ASEAN Connectivity.

India endorses regional collaboration in all six priority areas.

Share in the world

In 2020, EAS members represented 54 percent of the world's population and accounted for 62 percent of Global GDP worth an estimated US$52.3 trillion.

EAS Meetings and Processes

• The EAS is an annual Leaders' Summit usually held in October or November. In addition to their discussions, leaders issue statements on topical issues to signal political will for framing policy responses and to provide a basis for cooperation.
• Along with the Leaders' Summit, each year there is an EAS Foreign Ministers’ Meeting and an EAS Economic Ministers’ Meeting. These also serve as platforms for frank discussion of political, regional security and economic issues and prepare for the Leaders' Summit, including by developing new ideas on statements for leaders' consideration.
• There are also regular meetings of EAS participating countries’ ministers of Energy (held annually), Environment and Education (each held biennially).
• Senior Officials of EAS participating countries meet throughout the year to prepare for meetings of leaders and ministers, and to engage in frank exchanges of views on political, regional security, economic and other issues.
• Additional support for the EAS is provided through the EAS Ambassadors' Meeting in Jakarta, who meet regularly to discuss emerging issues, prepare for EAS meetings, and take forward decisions of EAS leaders.
• A dedicated EAS Unit within the ASEAN Secretariat in Jakarta also supports the monitoring and implementation of decisions by EAS leaders.

India and East Asia Summit

• An invitation to India to the EAS is a recognition of its fast-growing economic and political clout. However, a policy centered on multilateralism has its limitations.
• Hence, bilateral relations become crucial and moreover tend to be longer lasting.
• There is already a budding rivalry between China and India.
• India should therefore aim at firming up its ties especially with Japan and qualitatively improve its relations with countries such as Indonesia and Vietnam.
• With some diplomatic adroitness, India can do this not necessarily at the cost its relations with China.

SCO Summit 2023

Why in News?

Recently, India has chaired the Shanghai Cooperation Organization (SCO) virtual Summit, leaders called for the formation of a “more representative” and multipolar world order in the global interest.

• During this 23rd Summit, Iran officially joined the SCO as the Ninth Member Country.
• The theme of India's chairpersonship of SCO is 'Towards a SECURE SCO’, which is derived from the acronym coined by the Indian PM at the 2018 SCO Qingadao Summit.
  • It stands for: S: Security, E: Economic development, C: Connectivity, U: Unity, R: Respect for sovereignty and territorial integrity, E: Environmental protection.

What are the Key Highlights of the 23rd SCO Summit?

New Delhi Declaration

• The New Delhi Declaration was signed by the member nations, which states that the international community must come together to "counter the activities of terrorist, separatist and extremist groups, paying special attention to preventing the spread of religious intolerance, aggressive nationalism, ethnic and racial discrimination, xenophobia, ideas of fascism and chauvinism."

Joint Statements

• The leaders adopted two thematic joint statements - one on cooperation in countering the radicalisation leading to separatism, extremism, and terrorism & the second one cooperation in the field of digital transformation.

New Pillars of Cooperation

India has created five new pillars and focus area for cooperation in the SCO, which include,

• Startups and Innovation
• Traditional Medicine
• Youth Empowerment
• Digital Inclusion
• Shared Buddhist Heritage

India's Reservations on BRI

• India refused to be part of the BRI (Belt and Road Initiative) of the SCO members’ economic strategy statement, mentioning “interested member states’.
• India's opposition to the BRI stems from its inclusion of projects in Pakistan-occupied Kashmir (POK), which India considers a violation of its sovereignty.

Indian Prime Minister’s Address

• The Indian PM highlighted the significance of connectivity for enhancing mutual trade and trust among SCO member states.
• However, he stressed the need to uphold the fundamental principles of the SCO charter, specifically respecting member states' sovereignty and regional integrity.

Other Perspectives

• The Indian PM criticized countries that employ Cross-Border Terrorism as an instrument of their policies and provide shelter to terrorists, urging the SCO not to hesitate in condemning such nations and emphasized the importance of consistency in addressing these critical issues.
• The Chinese President, while celebrating the ten-year anniversary of the BRI, mentioned his new Global Security Initiative (GSI), calling for political resolutions to international and regional conflicts to establish a solid security shield in the region.
  • He urged SCO members to formulate foreign policies independently and remain vigilant against external attempts to instigate a new Cold War or camp-based confrontation.
• The Russian President, attending his first multilateral gathering since the failed rebellion by the Wagner Group, indirectly attributed Ukraine's anti-Russian sentiment to external forces supplying weapons to the country.
  • He emphasized Russia's resilience against external pressures, sanctions, and provocations, citing the unity of Russian political circles and society against attempted armed rebellions.

India-US Strategic Clean Energy Partnership

Strategic Clean Energy Partnership (SCEP) was established as Strategic Energy Partnership in 2018.

• SCEP was established as one of the two-track engagements launched under the US-India Climate and Clean Energy Agenda 2030 Partnership.
• 2030 agenda was announced in 2021 to accelerate progress toward shared climate and clean energy goals.

The five technical pillars of the India-USA Strategic Clean Energy Partnership are:

• Power & Energy Efficiency
• Renewable Energy
• Responsible for Oil & Gas
• Sustainable Growth
• Emerging Fuels and Technologies

Previously, the meetings had the importance of facilitating increased energy investments to ensure sustainable, affordable, reliable, resilient, and cleaner energy systems. Enhanced bilateral efforts included:

• Strengthening the power grid to ensure reliable, affordable, and resilient clean energy supply including through smart grids and energy storage;
• Assessing grid-integrated buildings, electric vehicles, and other distributed energy resources to support load management;
• Advancing renewable energy development and deployment, including supporting India’s goal of achieving approximately 50 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030;
• Advancing energy efficiency and conservation in appliances, buildings, and the industrial sector;
• Electrifying and decarbonizing the transportation sector including creating an enabling ecosystem through setting up an Electric Vehicle (EV) financing services facility in India;
• Reducing emissions across the oil and gas value chain including efforts at deploying methane detection and abatement technologies;
• Decarbonizing the industrial sector through efforts at electrification, carbon capture and storage, and deployment of other clean emerging energy technologies;
• Deepening cooperation between Indian and U.S. Department of Energy labs and agencies, like the EIA, on energy data management, modeling, and low-carbon technologies.

India-USA Strategic Clean Energy Partnership 2023

The sides reviewed the ambitious and dynamic SCEP mandate, which over the years has deepened and strengthened collaboration across a wide breadth of clean energy work streams, including:

• Clean and renewable energy, energy efficiency, and increased collaboration in emerging technologies like battery storage and swapping technologies, gas hydrates, advanced biofuels, and hydrogen and electrolyzer production.
• In this context, the sides recognized the importance of producing green/clean hydrogen as a critical energy source for global decarbonization and agreed to support each other’s national hydrogen missions.

Key highlights of the 2023 meeting are:

• Establishment of the public-private Energy Storage Task Force and related efforts to support large-scale integration of renewable energy needed to support the clean energy transition;
• Deepened collaboration to scale and accelerate deployment of hydrogen technologies through the public-private Hydrogen Task Force and other efforts in support of their national hydrogen strategies, including a focus on common cost reduction goals;
• Launch of the U.S.-India New and Emerging Renewable Energy Technologies Action Platform (RETAP) to accelerate the development of key technologies to advance common ambitious clean energy goals.
• “Electric Vehicle (EV) financing services facility” will create dedicated e-mobility funds.
• The Global Biofuels Alliance will play a role in strengthening markets, facilitating global biofuels trade, development of concrete policy lesson-sharing, and provision of technical support for national biofuels programs worldwide.
• Advancing emerging technologies to support electrification and decarbonization of hard-to-abate sectors.
• Recognizing the role of carbon capture, utilization, and storage to reduce emissions, the sides agreed to spur partnership in this area by building on existing cooperation and welcoming new collaboration including exploring the geologic carbon storage potential.
• The South Asia Group for Energy (SAGE) was launched to deepen the engagement between Indian agencies and US national laboratories to support research, analysis, and capacity-building activities such as building modeling capacity in the Life Cycle Assessment of low carbon technologies and analytics on energy consumption in the building sector.

India-US Energy partnership journey

2005: Initiated the US-India Energy dialogue

2009: Launched Partnership to Advance Clean Energy Research (PACE-R)

2017: India and US agreed to elevate the bilateral energy cooperation

2018: Strategic Clean Energy Partnership (SCEP) was established as Strategic Energy Partnership

2019: Four technical pillars established under the partnership

2021: 2030 agenda was announced

2021: SCEP officially launched and the first ministerial meeting held

Conclusion

Amidst volatility in global energy markets, continuing recovery from the COVID-19 pandemic, and increasingly frequent climate-related challenges, the United States and India reiterated their commitment to accelerating a just and sustainable energy transition.

India-UAE Local Currency Settlement System

Central Idea

• India and the United Arab Emirates (UAE) signed a pact during PM Modi’s visit to Abu Dhabi.
• It established a framework for promoting the use of the Indian rupee (INR) and UAE Dirham (AED) in cross-border transactions.

Local Currency Settlement System (LCSS)

• LCSS Establishment: The framework aims to establish a Local Currency Settlement System (LCSS) between India and the UAE.
• Domestic Currency Transactions: LCSS enables exporters and importers to invoice and pay in their respective domestic currencies.
• Foreign Exchange Market Development: LCSS facilitates the development of an INR-AED foreign exchange market.
• Transaction Optimization: The use of local currencies optimizes transaction costs and settlement time.
• Remittance Benefits: LCSS benefits remittances from Indians residing in the UAE.

Interlinking of Payment Systems: UPI-IPP Linkage

• Payment System Linkage: The Memorandum of Understanding (MoU) includes the linking of India’s Unified Payments Interface (UPI) with the UAE’s Instant Payment Platform (IPP).
• Card Switches and Messaging Systems: It explores linking the card switches (RuPay switch and UAESWITCH) and messaging systems of both countries.
• Efficient Cross-Border Fund Transfers: UPI-IPP linkage facilitates fast, convenient, safe, and cost-effective cross-border fund transfers.
• Mutual Acceptance of Domestic Cards: The agreement enables the mutual acceptance of domestic cards and processing of card transactions.

Impact of the Move

• Trade boost: Bilateral trade between India and the UAE reached around $85 billion in FY23.
• Exchange Rate Risk Management: The agreement helps Indian exporters’ hedge exchange rate risks in rupee-based trade.
• Internationalization of the Rupee: It supports India’s efforts to internationalize the rupee and reduce dependence on the US dollar.
• Interest from Other Countries: Countries in Africa, the Gulf region, Sri Lanka, and Bangladesh have shown interest in trading in rupee terms.

Significance for Exporters

• Denominating in Local Currencies: Denominating export contracts and invoices in local currencies minimizes exchange-rate risks and aids in competitive pricing.
• Enhanced Cooperation: Enhanced cooperation between the banking systems of India and the UAE supports trade and economic activity.
• Major Export Categories: Major Indian exports to the UAE include mineral fuels, pearls, precious stones, electrical machinery, and equipment.
• Trade Growth and Destination: The UAE is India’s second-largest export destination, and India-UAE trade reached $85 billion in 2022.

Benefits for Remittances

• Reduced Transaction Costs: The agreement reduces high transaction costs and exchange rate margins associated with remittances.
• Affordable and Efficient Remittances: It makes remittances more affordable and efficient, particularly for low-wage earners.
• Increased Remittance Inflows: In 2022, India experienced a 24.4% increase in remittances to $111 billion, accounting for 3.3% of GDP.
• Contribution of GCC Countries: Remittance inflows from Gulf Cooperation Council (GCC) countries contribute significantly to India’s total remittance inflows.

Larger Impact

• Reducing Dollar Dependence: The agreement promotes the use of local currencies, reducing dependence on the US dollar in international transactions.
• Strengthening Economic Ties: Strengthened economic ties between India and the UAE encourage investments, remittances, and trade growth.
• Rupee Internationalization: The agreement aligns with India’s goal of internationalizing the rupee and expanding its global acceptance.
• Similar Cross-Border Efforts: Similar efforts, such as collaboration with Singapore’s PayNow, have been undertaken to facilitate cross-border transactions.

Conclusion

• The agreement positively impacts bilateral trade, facilitates remittances, and supports India’s goal of internationalizing the rupee.
• By reducing transaction costs and enhancing financial connectivity, the agreement strengthens economic relations between India and the UAE, fostering trade growth and cooperation.