In part solution to payment problem, Iran explores buying more goods from India

NEW DELHI: Iran is considering stepping up its purchases from India to obtain a more balanced trade and reduce the problem faced by the two countries in settling payments for crude import by India, especially in the wake of fresh sanctions by the US.

Iran is India's second largest supplier of crude after Saudi Arabia, but New Delhi is unable to pay for the imports in dollars because of the sanctions imposed by the US.

Iranian officials recently met Commerce Secretary Rahul Khullar to discuss the possibility of sourcing more items from the country, an Indian official privy to the developments told ET.

India's exports to Iran is just over $ 2 billion against more than $12 billion of annual oil imports from the country. "If we can double our exports to $4 billion, it would be $2 billion less of payments to Iran that we would have to worry about," the official said.

US has imposed new sanctions on Iran late last month and asked banks not to deal with the Iranian central bank.

Any bank that challenges the US runs the the risk of being banned from the US financial markets or being thrown out of global financial markets.

The Reserve Bank of India had allowed the Iranian Central Bank to open rupee accounts with UCO and IDBI banks last November to make payments for its imports from the country and also receive part payment for its oil exports, but the arrangement has not worked out well due to the steady depreciation of the rupee against the dollar.

"If we make payments for our imports from Iran today in rupees at existing exchange rate against the dollar and the rupee depreciates further, then the dollar value of Iran's rupee holding will actually go down. Why would they accept such a situation?" the official said.

On the other hand, if the rupee payment for imports is offset by the value of exports made by India to Iran, the situation would be even.

"Therefore, Iran, too, is keen on increasing imports from the country, so that part of its payment for oil is taken care of," the official added.

Cereals, tea, chemicals, metals and project exports are few areas that hold potential.

While increase in India's exports to Iran will partly take care of the payment problem, it will have to continue to depend on paying Iran in dollars for some of its oil exports legitimately through non-sanctioned banks.

India, at present, makes payments for its oil imports to Iran through Turkey's Halkbank. There are, however, fears that that Turkey may come under pressure to stop the arrangement following the fresh round of US sanctions.

An official delegation comprising senior representatives from the finance ministry, the RBI and the oil ministry is presently in Tehran to work out a mechanism to continue oil imports from the country and prevent disruption of Indian exports within the present limitations.