Iran nuclear deal: Indian exports face more competition

NEW DELHI: In 2011-12, the first full fiscal in which Iran faced sanctions and restrictions on dollar-denominated trade, India's exports to the Gulf nation was estimated at $2.4 billion. In three years, it more than doubled to almost $5 billion following government's special efforts to tap into the market, which resulted in cereal exports alone nearing the $2 billion mark.

While basmati exports are estimated at over $1 billion, shipments of iron and steel, chemicals, machinery, vehicles and tea too soared against the backdrop of sanctions.

By the end of the last fiscal, as the West started negotiations to remove the sanctions, exports had begun to come off the peaks seen just a year ago. With the sanctions gone, exporters now see the market shrinking in the coming months as other sources open for trade especially as the government's efforts to push auto components and pharmaceuticals into Iran during the sanctions days did not get the private sector moving.

"Iran is an attractive market where we had little competition. But now we will face intense competition. Iran will have more options both in terms of exports and imports. Now the West will have a tremendous opportunity," said Biswajit Dhar, professor at Jawaharlal Nehru University.

With oil imports too expected to pick up, the trade deficit with Iran which had narrowed too may widen in the coming months. Due to the sanctions, as well as the fall in international crude prices, India's oil imports declined from $11.8 billion in 2011-12 to $7.2 billion last year.

Apart from trade, there are other concerns too. For instance, under the payment settlement mechanism devised to beat the sanctions, oil companies owe around $6.5 billion. While the government had expected some of this amount would be used for investment in India, with the sanctions expected to go, the flow is unlikely to materialize. To add to it, a bullet repayment would put pressure on the rupee and impact overall imports.

Besides, there could be some other impact too. Officials acknowledge that Iranian negotiators, known to strike a hard bargain, may not be as forthcoming on investments in projects such Chabahar port, seen as a gateway to Afghanistan and other central Asian countries.