New Delhi, Dec. 30: The Indian government has urged exporters to explore trade options in Iran involving rupee transactions.
After the US and European Union sanctions blocked payment to Iran through Turkish and Gulf-based banks, India had agreed to buy about 45 per cent of the $11-billion Iranian oil in rupees. Iran, in turn, would liquidate the rupee by buying Indian goods. The money was to be parked in Uco Bank to facilitate Iranian purchases from India.
However, this did not improve the trade imbalance, and Tehran has started fretting about the idle rupees.
Iran's ministers and diplomats complained that Indian traders lacked business acumen and compared them with the Chinese, who "were flooding the markets of Iran with China-made goods" traded in renminbi, which Iran had accrued by selling around 25-30 million tonnes of crude a year to Beijing.
The Indian government is now pushing traders to try to liquidate the huge rupee position Iran is building up.
A delegation of pharma firms was in Tehran from December 17-19 to explore rupee deals to sell bulk drugs to Iran. This was prompted by a letter from the commerce ministry, which informed pharma firms that the "ECGC (Export Credit Guarantee Corporation) has agreed to provide guarantee cover up to Rs 300 crore to Uco Bank and also to waive the restrictive clause of 'insufficient funds' for negotiation of LCs (letters of credit) by the banks".
Similar comfort letters were issued to other trade bodies. The December trip was the second by the pharma firms this year to Iran, which has a $3-billion medicine market.
Earlier, the Federation of Indian Export Organisations and the Engineering Export Promotion Council organised delegations to Iran, with focus on power, railways and infrastructure.
India wants to ratchet up two-way trade with Iran to $25 billion over the next four years from $14 billion now with an even balance between the two countries.
At present, import of oil and gas from Iran outweighs Indian export of food, medicines, chemicals and engineering goods by 11:3.
Iran is the largest importer of rice from India, buying around 1 million tonnes of basmati.
Iran is also one of the biggest buyers of orthodox tea, consuming about 15 million kg every year.
India has exported 176,000 tonnes of sugar to Iran so far this year.
"The chances of selling more food to Iran are consequently limited. India needs to sell manufactures to Iran, if it wants to take on China… its brands have to be present in Tehran markets more prominently," said commerce ministry officials.
But there are hurdles in doing business with Iran. In the new mechanism, Uco Bank will pay Indian exporters from the account maintained by it on behalf of Bank Markazi, the Iranian central bank, when any of the four Iranian Banks ' Bank Parsian, Saman Bank, Pasargad bank and EN Bank ' issue valid letters of credit.
However, traders take a long time to get letters of credit because of bureaucratic hassles in Iranian banks. The volatile Iranian currency rial makes pricing difficult. Even when Indian exports reach Iran, payments against letters of credit take a huge time.
However, finance ministry officials are optimistic about rupee trade as "the rupee can become a currency for international trade… yes, there are glitches, but if resolved, India can start exporting more in rupees and cutting out the risk of global forex fluctuations".
Both the rupee and the Chinese currency are convertible on the current account but not on the capital account, but the rupee's value is market determined while the Chinese currency's value is fixed by its central bankers. However, it's the renminbi which is being talked about in international banking circles whenever debates occur over new hard currencies which will join the dollar, euro, pound and yen in global trade.
At present, the rupee is officially used for transactions with Bhutan and Nepal. Unofficially, traders in the UAE, Singapore, Malaysia, Afghanistan and other neighbouring Asian nations deal in rupees.
According to reports, the Sri Lankan central bank's monetary board, which had decided to include the renminbi on the list of designated currencies permitted for international transactions through banks in Sri Lanka, is considering placing the Indian currency on that list.