In a strategic move to bolster their economic ties, India and Egypt, both members of the BRICS bloc, have entered into negotiations for an agreement on trade settlement in their respective national currencies. This development comes at a time when the two countries have set an ambitious target to nearly double their bilateral trade to $12 billion by 2028.

Unlocking the Potential of Bilateral Trade

Strengthening Food and Pharmaceutical Supply Chains

During Egyptian President Abdel Fattah El-Sisi's visit to India in 2023 to participate in the Republic Day celebrations, the two nations discussed the reinforcement of their food and pharmaceutical supply chains. This collaboration aims to ensure the seamless flow of essential goods and services between the two countries, fostering greater economic interdependence and resilience.The negotiations on the trade settlement agreement have been ongoing, with several rounds of talks held by the two sides. Both India and Egypt are eager to finalize the agreement as soon as possible, recognizing its potential to ease the flow of bilateral trade, which has been steadily growing in recent years.

Exploring Opportunities in ICT and Pharmaceuticals

In addition to the focus on food and pharmaceutical supply chains, the two countries have also identified key areas such as information and communication technology (ICT) and pharmaceuticals as promising avenues for enhanced cooperation. By leveraging their respective strengths and expertise in these sectors, India and Egypt seek to unlock new opportunities for trade and investment, further strengthening their economic ties.The development of this trade settlement agreement is particularly timely, as the issue of using national currencies for trade has become a matter of focus for the BRICS grouping. The recent BRICS Summit in Kazan, Russia, saw leaders express a keen interest in exploring payment mechanisms and settlement of trade in national currencies, driven by the global economic landscape and the debt challenges faced by many countries.

Facilitating Trade through Rupee Vostro Accounts

To facilitate trade in local currencies, India has made arrangements for the establishment of special rupee vostro accounts (SRVAs) with about two dozen countries, including Egypt. These accounts allow for the invoicing, payment, and settlement of exports and imports in Indian rupees, providing an alternative to traditional dollar-denominated transactions.The Reserve Bank of India (RBI) has put in place this alternative arrangement since July 2022, enabling banks of various countries to open SRVAs in India. This initiative aims to ease the burden of exchange rate fluctuations and reduce the reliance on the US dollar, particularly in the face of global economic uncertainties.

Navigating the Challenges of Regional Conflicts

The India-Egypt trade relationship has not been without its challenges. The ongoing conflict in West Asia has severely impacted imports from Egypt, leading to a 28% year-on-year decline in the first five months of the current fiscal year. However, India's exports to Egypt during the same period witnessed a 5% growth, showcasing the resilience and adaptability of the two nations in the face of regional instability.Prior to the start of the Israel-Hamas conflict, India-Egypt trade was valued at around $6-7 billion annually. The two countries have worked to diversify their trade basket, with India's major exports including refined petroleum products, buffalo meat, iron and steel, agricultural products, and pharmaceuticals, while it primarily imports crude oil, fertilizers, and cotton from Egypt.

Charting a Path Towards Sustainable Growth

The finalization of the trade settlement agreement in national currencies is expected to provide a significant boost to the India-Egypt economic partnership. By reducing the reliance on the US dollar and mitigating the impact of exchange rate fluctuations, the agreement will help ease the flow of bilateral trade, ultimately contributing to the achievement of the $12 billion trade target by 2028.As India and Egypt navigate the complexities of the global economic landscape, their commitment to strengthening their economic ties through innovative payment mechanisms and supply chain collaborations underscores their shared vision for sustainable growth and prosperity. This strategic partnership holds the potential to serve as a model for other nations seeking to forge stronger economic ties and reduce their dependence on traditional financial systems.