Table of Contents
What has happened?
- Indian merchants have almost entirely stopped signing new export contracts with Iranian buyers for commodities such as rice, sugar and tea, Due to caution about Tehran’s dwindling rupee reserves with Indian banks.
- “Exporters are avoiding dealing with Iran since payments are getting delayed for months,” said a Mumbai-based dealer with a global trading house.
Iran keep rupee reserves with which banks?
- Iran’s rupee reserves in India’s UCO and IDBI Bank, the two lenders authorised to facilitate rupee trade,
- Have depleted significantly and exporters are not sure whether they would be paid on time for new shipments.
But why don’t Iran gives $ for importing goods from India?
- Under S. sanctions, Tehran is unable to use U.S. dollars to transact oil sales.
- Iran previously had a deal to sell oil to India in exchange for rupees, which it used to import critical goods, including agricultural commodities.
So why reserves have fallen?
- New Delhi stopped buying Tehran’s oil in May 2019 after a U.S. sanctions waiver expired.
- Tehran continued using its rupees to buy goods from India, but after 22 months of no crude sales, Iran’s rupee reserves have fallen.
- Iran’s reserves have reduced significantly and “will be over soon probably because trade has stopped,” said a senior official with IDBI Bank.
Which agricultural commodities Iran import?
- The Islamic Republic was buying mainly basmati rice, tea, sugar, soymeal and medicines from India.
- “Rice exporters are concerned about the current payment mechanism,” said Vijay Setia, a rice exporter and former president of the All India Rice Exporters’ Association (AIREA).
- “There was too much of delay in payments from last year’s shipments. Exporters received payments six months after shipments,” Setia said.
- In the first quarter of 2020 Iran imported nearly 700,000 tonnes of basmati rice from India, but in the same period this year shipments would be “very negligible,” Setia said.
- Last year, Iran was the biggest buyer of India’s basmati rice and
- Iran fulfils more than one-third of its sugar and rice demand through imports.
India’s falling export
- India’s overall exports to Tehran fell 42% in 2020 from a year ago to $2.2 billion, the lowest in over a decade.
- The fall is continuing in 2021 and in January this year exports more than halved from a year ago to $100.20 million.
Iran’s response
- “We are in talks with Indian government and Indian traders to resolve these payment issues and I believe it will be resolved soon,” said a senior Iranian official.
- “The delay in payments are due to U.S. sanctions on Iran’s financial system that has made such payments very difficult,” he said.
Impact on Indian companies
- As rupee reserves have depleted and dollar trade is not allowed, sugar exporters are exploring options to conduct trade in euros.
- Sugar exporters are focusing on other destinations like Indonesia and Sri Lanka, as Iran is unlikely to buy significant quantities this year.
- Beneficial for Indian consumers
How should India react?
- Indian government can use this opportunity to increase its soft power.
When US will lift the sanctions on Iran?
- Trading houses and exporters were hoping new U.S. President Joe Biden could reverse sanctions imposed by his predecessor Donald Trump on the oil-rich country.
- “Exports would rebound even if Biden administration provides a few concessions to Iran like allowing oil trade in rupees,” said a Mumbai-based dealer.
Q) Sale of government securities by the RBI is expected to lead to?
- Decline in foreign investment
- Increase in interest rates
- Increase in production
- Reduction in unemployment
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