India could revive a rupee-rial payment arrangement with Iran to bail out exporters from the heat of US sanctions that have cast a shadow over any plan to further boost trade with the Islamic nation, exports to which had reversed a three-year slide in 2017-18, trade sources told FE on Thursday. Around 2011-12, a rupee-rial mechanism was put in place where up to 45% of India’s purchases of Iranian crude could be effected in rupees in exchange for items like rice, wheat and medicines that were not sanctioned by the UN. Exports to Iran could witness a hitch if the US and its allies go ahead with sanctions, although such payment issues could be sorted out fast this time around due to previous experience of handling such crisis, restoring the flow of trade, said the sources. But the sanctions have potential to put a lid on growth in India’s exports to Iran.
India has a goods trade deficit of over $8 billion with Iran (thanks to massive oil imports), so our exporters may not face much problem in getting payments via rupee, said the sources. Farm commodities make up for a half of India’s $2.6 billion in goods exports to Iran. In fact, at $900 million, basmati rice alone accounted for over a third of India’s total exports to Iran in 2017-18, payments for which were made mostly in the euros by Iran, said exporters. India’s oil purchases from Iran, worth around $9 billion, accounted for over 80% of its total imports from the Persian Gulf nation in 2017-18. According to commerce secretary Rita Teaotia, the US move is unlikely to cause any major shift in India’s trade with Iran, as the country had shipped out goods to the Islamic nation earlier even when sanctions were on.
The rupee-rial arrangement was done as hardening sanctions by the Obama administration for Iran’s nuclear ambitions made money transfer to Indian exporters through an informal route using UCO Bank much more difficult. On Tuesday, President Donald Trump announced that the US will pull out of the landmark 2015 accord to restrict Iran’s nuclear programme and reinstate financial sanctions on that nation. Indian trade and government officials are closely tracking the situation, as even key American allies are yet to endorse its stance fully.
Vijay Setia, president of the All India Rice Exporters Association and executive director at Chaman Lal Setia Exports, said rice exports to Iran will continue unabated, as food and medicines usually remain outside the sanctions’ ambit. “The rupee-rial arrangement should be revived at the earliest,” he said. Ram Upendra Das, head of ·the Centre for Regional Trade, said the sanctions are unlikely to have any material impact on Indian exports to Iran as of now. There are several mechanisms through which payments can be made for bilateral trade. However, we have to wait for more details to have a precise estimate of the impact of the sanctions, he added.