How UAE-India ties are built on 5,000 years of trade – and a shared currency

For a few decades in the mid-20th century, the seven emirates adopted the Indian rupee as its legal tender, Samanth Subramanian writes, as he delves through thousands of years of shared history

Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, stands for a photograph with Indian prime minister Narendra Modi in New Delhi on February 11, 2016. Philip Cheung/Crown Prince Court-Abu Dhabi


NEW DELHI // Visiting New Delhi and Mumbai last week, Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, stressed the long, historical relationship between the UAE and India.

Over thousands of years, the two countries have forged a robust relationship based on trade and commerce. Currency also played its part in knitting India and the UAE together when, for a few decades in the mid-20th century, the seven emirates adopted the Indian rupee as its legal tender.

That quirk of monetary history is little remembered today, said A K Pasha, a professor at the Centre for West Asian Studies at New Delhi’s Jawaharlal Nehru University. But it is illustrative of how the destinies of the two nations were frequently and tightly intertwined.

“It is remarkable how old these ties are, and how strong they have been,” Dr Pasha said.

Trade links between the Arabian Gulf and the Indian subcontinent stretch back at least 5,000 years, when the Indus Valley civilisation shipped timber, spices and grains from ports in present-day Gujarat state to towns in Sumeria and Mesopotamia.

In turn, ships brought back pottery, beads and goods made of ivory. Copper also made its way eastward, since the Indus Valley civilisation – which stretched across what is now north-western India and parts of Pakistan – did not mine its own copper.

“The heavier ships and the dhows came later,” Dr Pasha said. “The boats that brought these goods were simpler, consisting of planks lashed together with reeds.”

Traders in Ras Al Khaimah and Sharjah also set up flourishing businesses that exported pearls, horses and Basra dates to India. Pearls paid for many imported goods, much in the way that oil does today, and the pearl business allowed trade to thrive well into the 18th, 19th and 20th centuries.

"Trade depended on the monsoons," a Ras Al Khaimah businessman is quoted as saying in William and Fidelity Lancaster's 2011 book Honour is in Contentment: Life Before Oil in Ras Al Khaimah and Some Neighbouring Regions.

“The trading boats were ... big, three to five hundred tons carrying capacity, with crews of 40 to 60 men,” the trader went on. “Ras Al Khaimah wasn’t self sufficient, it had to trade. It depended on imported grain, mostly rice, and it had to import cloth and clothes from India.”

Eventually, Dr Pasha said, India and the emirates that would become the UAE fell under the British sphere of influence. “All the trade here was directed by the British, and for that reason, the legal tender became the Indian rupee,” he said.

Even after India became independent in 1947, many emirates on the Arabian Gulf continued to use the rupee as a currency. “All these states were still bound up with everything Indian,” Dr Pasha said.

But criminal activities began to overshadow this arrangement. In independent India, private parties could not import and export gold, according to the website of Peter Symes, an Australian researcher of currency and money. “However, Indian rupees were being smuggled from India” to the Arabian Gulf There, it was “readily accepted in exchange for gold, which was in turn smuggled back into India”.

Between 1948 and 1956, according to one Indian government estimate from 1959, rupees worth at least US$245.7 million (Dh902m) at the time were smuggled out of India. This would have roughly equalled 1.17 billion rupees at the time.

In response, India introduced the Gulf rupee – similar to the Indian rupee, but clearly distinguished from its predecessor. “The new series of special notes will be identical with the existing series except for their colour and for a slight modification of the legend on the obverse, indicating they are payable ‘at the office of issue at Bombay’ instead of ‘at any office of issue’ as in the case of the existing notes,” the Reserve Bank of India announced in May 1959.

Crucially, the Gulf rupee could not be used as legal tender in India and vice versa, and both types of rupee could only be exchanged for the other under the watchful eye of the Indian reserve bank. In this manner, the rupee-gold smuggling operations were curtailed.

Between 300m (Dh16.1m) and 500m rupees’ worth of notes were printed during the time that the Gulf rupee was in existence, according to the Indian reserve bank.

But this system could not continue forever, Dr Pasha said, since the Arabian Gulf emirates would not have wanted their currencies to be subject to devaluations by India. This happened, notably, in June 1966, when then-prime minister Indira Gandhi devalued the rupee by 57.4 per cent, hoping to address India’s yawning trade deficit.

In September that year Qatar and Dubai introduced the riyal. Abu Dhabi adopted the Bahraini dinar. By the end of 1966, the Gulf rupee had stopped circulating as legal tender in the emirates that would soon form the UAE. In 1973, two years after the UAE was formed, the dirham came into being.