Depleting balance in rupee-rial account chokes export of basmati rice, tea to Iran

Export of basmati rice and tea is likely to be severely impacted this year due to issues with Iran which is one of the major importers of the two commodities. Delayed payments from Iran on the back of the “depleting balance” in the rupee-rial trade account is the problem.

Iran is one of the major importers of basmati rice accounting for nearly a third of India’s total exports of the commodity. It also accounts for over 21 per cent of the country’s total tea exports, particularly the orthodox variety.

According to estimates by industry insiders, around ₹2,000 crore, due to basmati rice exporters to Iran, is currently stuck because of a payment crisis. While the tea industry was not able to share the exact figures of the outstanding dues, it would be a “considerable sum” given that no payments have been coming for the past four-six weeks, said Anshuman Kanoria, Chairman, Indian Tea Exporters’ Association.

Payment crisis

Ever since the US imposed sanctions on Iran, India could not engage in dollar-denominated trade with the country. Hence, a rupee-rial trade mechanism was put in place in 2018.

Under this, oil refineries from India would deposit rupees in the two designated banks — UCO Bank and IDBI Bank — for import of crude oil from Iran; the fund was used to clear dues of exporters from India to Iran. However, since there have been no oil imports by India since May 2019 due to the US-mandated sanctions, the accumulations in the rupee-rial accounts have been depleting drastically.

“The Central Bank of Iran is not doing currency allocations to importers there (because of the depleting balance in the rupee-rial account). Therefore, a large number of consignments, shipped from India from December 2019 till July this year, have been stuck at Iranian ports and payments for none of these has come so far,” Vinod Kaul, Executive Director, All India Rice Exporters’ Association (AIREA), told BusinessLine.

Looking for alternatives

A senior executive at UCO Bank confirmed that the balance in the rupee-rial account is “steadily depleting” and also indicated that an alternative mechanism for payments was being discussed. The possibility of India importing fertilisers and some other goods, including kiwi, dates and saffron in lieu of crude oil, to keep the balance in the account is also being explored, he pointed out.

It may be noted that Indian exporters to Iran had faced similar delays in payment to the tune of ₹2,000 crore during the period between June and December 2019. However, the dues were cleared eventually on government intervention.