After the ‘rupee payment mechanism’ for trading with Iran kicked in last year, India’s exports to the Persian Gulf country rose steeply, as Iran needs to buy goods from India to make use of the rupees that it gets for its oil exports.
According to UCO Bank, which handles trade with Iran, India’s exports to Iran currently stand at about $500 million. This is compared with $40 million a year back – a sharp rise of over 12 times.
Interestingly, most of these exports are food items. UCO Bank has so far processed 3,112 letters of credit (LCs), involving goods worth Rs 17,463 crore, of which 960 LCs worth Rs 12,191 crore, or 70 percent, were for food and agricultural products. And the commodity that witnessed the most dramatic rise in exports was basmati rice. While India exported Rs 2,034 crore worth of the aromatic rice in 2010-11, the figure jumped to Rs 6,166 crore in the first six months of the current year.
Now, the U.S. government has eased restrictions on India (as well as China and South Korea) for buying more oil from Iran. Also, though not formally agreed upon, Iran wants India to pay 55 percent of its oil dues in euros. Therefore, experts see Iran accumulating more rupees and the only way it can use the money is by buying goods and services from India.
Against this backdrop, India has begun encouraging domestic companies to bid for projects in Iran, such as for laying roads, building railway lines or factories. Last week, the Commerce Ministry met officials of public sector companies, notably BHEL, SAIL and IRCON, in this regard.
Such ‘project exports’ are typically high-value in nature and take time to secure. However, the Government ushered in another measure a few months back which could help boost exports in quick time — a manufacturer can import raw materials and export to Iran with only 15 percent value-addition; other conditions, such as the goods should leave an Indian port and should reach an Iranian port, remain unchanged.
However, export under this ‘value addition’ facility is yet to happen. T.S. Mallikarjuna, Deputy General Manager with UCO Bank, in-charge of trade with Iran in the bank, presumes that exporters may not be aware of this facility.
UCO Bank has been holding meetings with exporters — one was held in Chennai on December 21 — to sensitize them about the opportunities that Iran now offers.
At the Chennai meeting, the officials said the bank had tie-ups with six Iranian banks for processing payments and would soon enter into pacts with four more.
This would make it easier and cheaper for Iranian importers to buy goods from India, said Arun Kaul, Chairman and Managing Director of UCO Bank.
The public sector bank last year accepted the responsibility of handling payments in India-Iran trade. Under the arrangement, oil refiners, such as IOC and BPCL, buy oil from Iran but make payments into an Iran account with UCO Bank’s Mumbai branch. When Iranians buy goods from India, UCO Bank pays the Indian exporters out of the ‘Iran account’.
This arrangement sidesteps the U.S.-sponsored sanctions against Iran, which seek to deny Iran access to U.S. dollars or Euros, with which it could possibly buy material and equipment for making nuclear weapons.
The sanctions have come in handy for India. Since the middle of last year, India has imported crude oil worth $8 billion from Iran without the outgo of a single dollar — a big relief at a time when the rupee was plummeting against the U.S. currency.
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