India to stick with plans to deepen trade ties with Iran

India expects to go ahead with its plans to deepen trade ties with Iran, despite pressure from the US to isolate the country.

The Government has now finalised March 10-14 as the date for a trade delegation visit to Iran, official sources told Business Line . Around 30 companies, including listed ones and SMEs, will be part of the trip, co-ordinated by the Federation of Indian Export Organisations.

The visit comes in the backdrop of allegations from certain quarters, including Israel, charging Tehran with alleged involvement in the Israeli Embassy car blast in New Delhi.

But India is eying the an estimated $8-billion opportunity awaiting Indian exporters as their American and European counterparts have virtually put a halt to shipments to Iran on account of recent sanctions.

The sectors identified for boosting Indian exports include auto-components, textile machinery, sugar machinery, steel ingots, heavy tyres, high-technology machines for forging and casting, rice, sugar, soya bean, barley, butter, wheat and red-meat.

Auto-components are of major interest as Iran imports close to $2 billion worth items in the sector including from the US and Europe.

Sources said the payment mechanism for India-Iran trade will be notified soon. UCO Bank would be the nodal bank from the Indian side, while it will have a counterpart Iranian bank which will deal with the buyers in Iran.

Indian worries

Meanwhile the rising tensions between Iran and Israel are creating a fresh set of worries for Indian rice and tea exporters, who are already facing payment issues on account of a weakening Iranian currency.

It is estimated that the rice exporters alone are hurt by payment dues of around Rs 600 crore. Iran is the largest market for India's basmati rice, accounting for close to half the shipments of over 2 million tonnes.

“If the situation aggravates, exports could be hurt,” said Mr Vijay Sethia, President, All-India Rice Exporters Association, recalling the losses incurred by Indian exporters when Iraq invaded Kuwait in 1990.

The Export Credit Guarantee Corporation of India (ECGC), a leading credit risk insurer of exports, has already brought to the attention of the Indian exporting community, the US sanctions on Iran and their implications.

However, as and when the payment mechanism is notified, the ECGC will not have problems in dealing with exports to Iran as it will not be considered high-risk from then on, the sources said.

Trade balance

The bilateral trade balance is heavily tilted in Iran's favour. Oil imports from Iran were $9.4 billion in 2010-11 and $3.1 billion during April-June 2011. However, total exports from India to Iran were only $2.7 billion in 2010-11 and $591 million during April-June 2011.

As part of the proposed payment mechanism, India is to make 45 per cent of oil import payments in rupee terms. This will then be utilised by Iran for payment of imports from India.

If the mechanism becomes a reality, there will be room for assured payments for India's additional exports of at least $1.5-2 billion from the present level.

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