Third-party currency payments for Iran fraught with delays, additional costs

Despite the Reserve Bank of India (RBI) allowing use of third-party currency for doing business with Iran, Indian tea exporters are facing difficulties as Tehran is unable to make direct payment in euro or dirham.

The traders have asked Commerce Minister Piyush Goyal to work a way out, including dipping into the money lying, if any, for use of oil trade.

Longer, expensive process

The third-party currency payment, which was allowed by RBI around 7-8 months back, has helped bring about some improvement in exports, however, the system is fraught with delays and additional costs are being incurred, complain merchant exporters of tea and basmati rice. The delay and additional costs are because Iranian banks are unable to transact in these currencies and therefore, have to route it through a third party.

Besides, Indian banks are not accepting hard currency from Iran so it has to be routed through a third party — who may not be the actual buyer in Iran. This creates some issues on the customs side and the process also takes longer and tends to become more expensive, said Anish Bhansali, MD, Bhansali & Company, one of the major exporters of orthodox tea to Iran.

‘Far behind 2019 levels’

“The year 2021 came as a shocker since the rupee-rial mechanism was not working and there was no alternate payment system,” Vinod Kaul, Executive Director, All India Rice Exporters Association, said adding that “Things have improved slightly over the last few months since the introduction of third-party currency payment. However, we are still far behind our 2019 levels in terms of export of basmati rice to Iran.”

Though India has always maintained that its bilateral relations with Iran stand on their own and are not influenced by India’s relations with any third country, ever since the US imposed sanctions on Iran, New Delhi 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 and the fund was used to clear dues of exporters from the country to Iran. However, since there have been no oil imports by India since May 2019 due to Western sanctions, the accumulations in the rupee-rial accounts have been depleting drastically and therefore, dipping into that fund may no longer be an option.

“When oil was being purchased, there was a lot of balance in the account, but now there is hardly any balance left,” a senior official at UCO Bank told BusinessLine.

Revival of mechanism

The best option available according to traders was the revival of rupee-rial mechanism. According to Sujit Patra, Secretary, Indian Tea Association, the revival would help boost tea exports from India to Iran, particularly at a time when there is a crisis in Sri Lanka.

“We have urged the Commerce Minister to take this (revival of rupee-rial mechanism) up with the Central Bank of Iran and RBI. If this can be done then it will give a big boost to tea exports,” he said.

Iran is one of the major markets for Indian orthodox tea, accounting for nearly 21 per cent of the country’s total exports of tea. Orthodox tea accounts for less than 10 per cent of the country’s annual tea production, which is close to 1,300 mkg. However, nearly 90 per cent of the 110 mkg of orthodox produced each year is exported.

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