Policy

India’s trade with Iran set to increase

K Ram Kumar Mumbai | Updated on January 19, 2018

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Lifting of sanctions will mutually benefit the two countries: Exim Bank

With international sanctions on Iran ending, India’s access to the West Asian country, especially for food and allied products, machinery and tools, infrastructure projects, and pharmaceutical products, will increase, according to Export-Import Bank of India (Exim Bank).

The recent lifting of sanctions and restoration of international banking and insurance channels is expected to increase Iran’s international trade manifold. This will also hold true for Iran’s bilateral trade with India.

“With the removal of sanctions… India’s access to Iran’s market will increase,” said an Exim Bank spokesperson, who did not wish to be named. The lifting of economic sanctions follows Iran agreeing to curb its nuclear programme. Exim Bank was established by the government in 1982 under the Export-Import Bank of India Act, 1981, with a mandate to not just enhance exports from India, but also to integrate the country’s foreign trade and investment with the overall economic growth.

Trade deficit

India has had a significant trade deficit with Iran since 2006-07 on account of surge in oil imports.

According to Exim Bank data, nearly 82 per cent of the total imports by India from Iran comprise mineral products, followed by chemicals which accounts for another 15 per cent.

Agro and allied products, including processed, is the largest category of India’s exports to Iran (40 per cent share in 2014-15), followed by metals and products (19.7 per cent), chemicals (11.7 per cent), capital goods (9 per cent).

“Indian exporters in some sectors have benefited as India did not back sanctions against Iran. With lifting of sanctions, exporters in these sectors will face stiffer competition.

“However, exporters in general and Indian pharmaceutical, IT (information technology) and commodity exporters in particular, will benefit on account of greater market access to the Iranian market,” the spokesperson said.

On the imports front, increased supply of Iranian oil, in an already oversupplied market, will further drive down the crude oil prices, he added.

Iran is a major buyer of basmati rice, soya meal, sugar, barley and meat. Agro and allied products, including processed, was the largest exported product from India to Iran in 2014-15. Access to the food and allied products market in Iran is expected to increase following removal of sanctions.

The Exim Bank official explained that “Under sanctions, Iran paid a premium of up to 20 per cent over global prices to buy from India. Food companies have gained under this set up. However, such preferences are expected to be disrupted in the medium term.”

Capital goods and transport equipment accounted for 9 per cent and 2.3 per cent, respectively, of the total exports from India to Iran in 2014-15. India’s exports under these categories have grown significantly after the imposition of sanctions in late-2011 and mid-2012.

The official observed that with the removal of sanctions, India’s access to Iran’s market will increase.

However, Indian exporters will now have to compete with Eastern European manufacturers who produce low-end products such as spanners, hand tools and auto parts, and whose access to the Iranian market was limited due to the sanctions.

Infrastructure projects

Indian firms will have greater opportunities in infrastructure projects in Iran. This will include development of the strategic port of Chabahar, among others.

The Exim Bank spokesperson, however, cautioned that competition (for Indian oil and gas companies) will be stiff from American, Chinese and European oil firms, that can commit abundant resources and latest technology for the modernisation of Iran’s oil and gas infrastructure.

India also signed a $233-million contract to supply more than 150,000 tonnes of rail tracks to develop Iran's railways. But the project has run into delays. Lifting of sanctions is expected to speed up the implementation of this project.

The total project contracts supported by Exim Bank in Iran as on September 30, 2015 amounted to ₹900 crore, all of it in the railways sector.

Pharmaceutical Products

Iran’s imports of pharmaceutical products amounted to $1.228 billion in 2014, with India being the sixth largest import source for Iran.

The spokesperson said Iran has reported shortage of several specialised medicines, even though these are exempt from international sanctions.

Upon lifting of sanctions, India’s exports in this sector are expected to grow further on account of easier financial transactions.

Published on January 26, 2016

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