India will unlock funds in Iran’s rupee account to finance project exports in sectors such as railways and ports. It will provide funds of about ₹6,000 crore from the latter’s rupee account in the UCO Bank.

Boosting exports

The move will help boost New Delhi’s exports to its sanction hit neighbour and gainfully utilise a larger chunk of the $4 billion lying idle in Iran’s rupee account that has been deposited by India as part-payment for its oil imports from the country.

“Iran wanted to obtain co-financing from Exim Bank of India to fund project exports. An umbrella financing agreement by Exim Bank and Iran is being finalised for about ₹6,000 crore, which will be backed by National Export Insurance Account counter guarantees,” a Government official told BusinessLine .

Since there are enough funds available in Iran’s own account in India, finding the money for project financing is not an issue at all.

“We just have to work out the mechanism to ensure that the amount loaned from the rupee account for financing the project exports gets suitably adjusted at a later date between project importers and the Iranian Government,” the official said.

India has been depositing payments for 45 per cent of its oil purchases from Iran in its rupee account with the UCO Bank for the last two years to side-step sanctions imposed by Western countries on Iran due to its alleged nuclear activities.

Although the rupee deposits are utilised to pay for Iran’s import of Indian goods, the balance in the account has increased to over $4 billion as India’s oil imports are higher than its goods exports to Iran. Since the account is non-interest bearing, Iran is keen that the amount gets utilised fast and is exploring various options with India to increase its imports from the country.

Trade deficit

India is hopeful that if project exports take off, it will help wipe most of the trade deficit it has with Iran. The projects identified by Iran are mostly in sectors such as railways and port development and a number of contracts for supply of iron and steel products and railway steel tracks have already been finalised. The rest of the contracts will be sealed through a competitive bidding process.

India’s trade deficit with Iran narrowed from $11 billion in 2012-13 to $8 billion in 2013-14 as exports doubled to $5 billion during the year, and oil imports were cut down following Western sanctions. However, in the first quarter of the current fiscal, India’s exports to Iran took a hit due to a sharp fall in shipments of rice, tea and oil meals.

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