Indian exporters of food products, animal feed and pharma products to Iran are set to benefit with Tehran categorising its imports into three levels based on a three-tiered exchange rate system it has recently revived.
As per the new arrangment, importers of the above products in Iran can exchange their national currency, the rial, against the greenback at the rate of 12,260, at a time the market rate is more than double this. This would help create more demand for Indian goods in Iran, sources said.
Iran has resorted to the multiple-rate currency system following a precipitous depreciation of the rial as a result of US sanctions and a grave shortage of hard currency.
For priority goods such as rice, meat and pharma products – of which India has been a major exporter to Iran- the foreign exchange would be allocated at the rate 12,260 rials per dollar while for the second category of imports such as seeds, cotton and rubber, it would be 3-5% less than the market rate. For the third category of Iranian imports, comprising machinery and automobiles, the foreign exchange is provided at the market rate.
Based on these three exchange rates, Iran’s imports have been categorised into 10 priority groups.
The first priority group comprises basic goods such as meat and soyabean while the second group includes medicines and medical equipment. The third group constitutes seeds and fertilizers followed by other groups consisting machinery and automobiles.
From April to December 2012, India exported $775 million of Basmati to Iran, $190 million of soyabean and $135.36 million worth of animal feed. In the same period, rubber shipments to Iran were $70.42 million while pharma exports stood at $57.3 million.
According to officials, this categorization has reflected in a three-fold rise in the letter of credit being issued from R500 crore a month to Rs 1,500 crore.
?Trade with Iran is picking up and had crossed $1 billion because of the stable payment mechanism. They have prioritized their items of import and this is likely to benefit the Indian exporters,? said M Rafeeque Ahmed, president, Federation of Indian Exports Organisations (Fieo).
The differential exchange rates have led to a rush from exports from India and officials say that in order to benefit from the mechanism, many Indian exporters and Iranian importers have tied up to set up third-party ventures. Since the commencement of new rupee payment mechanism with Iran, the country’s biggest exporter destination of aromatic Basmati, the inordinate delay in settlement of dues because of US sanctions have considerably come down.
Under the mechanism, state-owned UCO bank was appointed as the agency from India which has a tie-up with four Iranian banks – Parsian, Pasargad, Saman and EN Banks ? for carrying out settlements of dues with Iran.
The two countries launched a payment mechanism last year to avoid western sanctions by exchanging Iranian oil for a range of Indian goods, including rice, soymeal and pharmaceuticals. Indian oil importers deposit rupees into an Indian bank, while other exporters withdraw funds once their shipments have been received.