Move aimed at fuller utilisation of rupee balance in Iran’s account
India has allowed export of imported products to sanction-hit Iran under the rupee payment mechanism provided 15 per cent value addition takes place in the country.
The move is aimed at fuller utilisation of the rupee payments accumulated in India’s UCO Bank for oil purchased from Iran.
“Exports of such goods to Iran which have been imported against payment in freely convertible currency would be permitted against payment in Indian Rupees also, subject to at least 15 per cent value addition,” a notification by the Directorate General of Foreign Trade said.
“Now that the entire payment to Iran for its oil is being made by India in rupee, it is much more than what can be paid to our exporters for the merchandise exports being made to Iran. By allowing imported items to be re-exported, the Rupee balance could be used up substantially,” a Commerce Department official told Business Line.
Iran is facing economic sanctions from the US and the EU for its alleged nuclear activities, and has been boycotted by most companies in the West.
Since foreign banks refused to handle payments to and from Iran fearing crackdown by the US, India put in place a rupee payment mechanism last year to continue trading with the country.
The 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.
There is a substantial amount of rupee balance in Iran’s account lying idle which the Government hopes would be used up now that it has relaxed the condition of origin of goods for exports.
Indian exporters have welcomed the move but cautioned that there should be limits placed on the re-exports.
“The move will benefit Indian exports and we can look forward to sizeable growth in the country’s exports to Iran in the current fiscal. However, the Government should put a cap on such exports so that the basic idea of promoting manufactured exports remains the focus,” FIEO President Rafeeque Ahmed said.
According to FIEO, the opening of Letter of Credit from Iran under the rupee payment mechanism has been impressive touching about $400 million on a monthly basis.
“With the new provision being put into place, we can look for exports close to $6 billion in 2013-14,” Ahmed added.
India’s exports to Iran in 2012-13 increased 39.4 per cent to $3.36 billion from $2.41 billion in 2011-12, mainly due to the concerted efforts made by both countries to increase India’s exports.
While India’s oil purchase from Iran went down to 13.3 million tonnes in 2012-13 from 18.1 million tonnes the previous year because of the Western sanctions, Iran still has a trade surplus of about $8 billion with India.