India wants its businessmen to sell more to Iran. No big deal, you may say in these days of global slowdown. But here’s the caveat – North Block wants Indian business to sell in rupees and not in the dollars they are used to and has this December, sent out trade delegations to Teheran to explore rupee trade deals.
India had agreed to buy about 45 per cent of the $ 11 billion in oil it purchases from Iran in rupees, to be liquidated by that country in buying Indian goods, early this year, after US and EU imposed sanctions ended the earlier preferred routes of paying through Turkish and Gulf based banks. The money was to be parked in Uco Bank to facilitate Iranian purchases from India. Not much happened after that.
Strangely, instead of the Indians getting worried about the $ 5 billion lying idle in Uco Bank, it was the Iranians who started fretting. Iranian ministers and diplomats complained that Indians lacked business acumen and pointedly compared them with the Chinese, who in their words “were flooding the markets of Iran with Chinese-made goods” traded in Renminbi, which Iran had accrued by selling some 25-30 million tons of crude a year, to the Middle Kingdom.
To push Indian business to try liquidate the huge rupee positions Iran is building up, the Indian government has started encouraging Indian trade delegations to make their way to Teheran. From December 17-19, a trade delegation of pharmaceutical firms were sent out to explore rupee deals to sell bulk drugs to Iran.
This followed a letter from the Commerce Ministry which informed drug makers that “ECGC has agreed to provide guarantee cover up to Rs.300 crores ($600 million) to UCO Bank and also to waive the restrictive clause of “insufficient funds” for negotiation of L/C (letter of credit) by the banks. “ Incidentally, the December trip was the second one organised for pharmaceutical firms, in 2012 to Iran which has a $ 3 billion market for medicines.
The pharmaceutical firms are not the only ones, being encouraged to fly down to Teheran. Engineering firms were sent on trips to Teheran to explore similar rupee based deals. India wants to rachet up two-way trade from a current $ 14 billion to $ 25 billion over the next four years, with trade evenly balanced between the two countries, instead of the current situation where Iranian sales of oil and gas outweigh Indian sales of food, medicines, chemicals and engineered goods by 11:3.
Iran is already the largest importer of rice from India, with India exporting around 1 million tonnes of basmati rice to Iran. Iran is also one of the biggest buyers of Indian orthodox quality tea, consuming about 15 million kg every year. India has also sealed deals to export 176,000 tons 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 Taheran markets more prominently,” said Commerce Ministry officials.
But there are problems in doing business with Iran too. In theory, Uco Bank will pay Indian exporters out of the account maintained by it on behalf of Bank Markazi, the Iranian central bank, when any of four Iranian Banks — Bank Parsian, Saman Bank, Pasargad bank and EN Bank — issue valid letters of credit.
However, in reality, LCs take a long time in coming as importers and exporters are put on bureaucratic queue by the Iranian banks. The quick-fluctuating price of Rials makes pricing a tough job too. Even when Indian exports have reached Iran, payments against LCs take a huge time, with Iranian banks taking their own sweet time.
However, the good thing about the Indo-Iranian rupee trade, officials in Finance Ministry say is that this is “encouraging the idea that the rupee can become a currency for international trade … yes there are glitches, but if resolved, India could start exporting more in rupees and cutting out the risk of global forex fluctuations.”
Both the Indian rupee and the Chinese currency are convertible on the current account but not on the capital account, but the Indian 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 talked about in international banking circles, whenever debates occur over new hard currencies which would join the Dollar, Euro, Pound and Yen in global trade.
Currently, the rupee is officially used for international transactions only with Bhutan and Nepal. Though unofficially, traders in UAE, Singapore, Malaysia, Afghanistan and other neighbouring Asian nations deal in rupees.
According to reports, the Sri Lankan Central Bank’s Monetary Board which earlier this year decided to include Renminbi in the list of designated currencies permitted for international transactions through banks in Sri Lanka, is considering placing the Indian currency too on its list of designated currencies.