Unhappy over India’s move to allow the export of imported products to Iran with a mandatory 15% value addition, Tehran has sought a reduction in that rate to 5-10%.
Hit by declining margins, a 45-member delegation of Iranian businessmen has flagged the issue with the commerce ministry officials. ?Iran is not happy with the 15% value addition clause and it wants it to be reduced to less than 10%. They also want relaxations of a few other restrictions,? said a senior commerce ministry official.
Profit margins (for Iranian importers) in these traded goods are anywhere between 5-10% and the sanction-hit country is facing problems in continuing business with Indian exporters.
?Exports of such goods to Iran that have been imported against payment in freely convertible currency would be permitted against payment in rupees also, subject to at least 15% value addition,? a notification by the directorate general of foreign trade said in June.
The move was aimed at fuller utilisation of the rupee payments accumulated in India?s UCO Bank for oil purchased from Iran. The value addition clause is hampering Iranian importers’ bid to purchase more from India with rupee payment.
The oil payment mechanism allows payments for Iranian oil to be deposited in India?s UCO Bank in Indian rupees. The money is then used to make payments to Indian exporters to Iran thereby avoiding payments in dollars and through foreign banks.
In fact, almost 25% of the payments that Iran gets from oil exports to India are made in the Indian currency and not even half of that has been spent in India and the country is keen to spend it on products other than agricultural commodities.?
Even though Iran wants to increase trade with India, commerce ministry officials say that except commodities, it is not easy for other products to go to Iran because they have strict standards for all products whose relaxation is a must to increase exports.
Not only Iran but UCO Bank, the nodal agency to carry out the rupee payment mechanism, is facing operational problems in calculating the value addition.
?UCO Bank, too, has posed the issue to the commerce ministry as they are the ones who have to calculate the value addition. Moreover, in the trading business, 15% value addition is slightly high and here, they are dealing with traded goods,? said another official privy to the development.
Currently, 70% of India’s exports to Iran comprise commodities such as rice and soymeal.
India?s exports to Iran in 2012-13 increased 39.4% to $3.35 billion from $2.41 billion in 2011-12 while imports in the same period were down 16% from $13.7 billion to $11.5 billion.
