Iran is worried about the growing rupee balance lying idle in its account with India’s UCO Bank. This follows a drop in exports from India to Iran in the first quarter of the current fiscal.

“India’s exports to Iran have gone down 10 per cent in the first quarter of the fiscal largely due to a fall in rice exports. This is a cause for concern as both sides were banking on increased exports to utilise the balance in the rupee account,” a Government official told BusinessLine.

The amount deposited by India into Iran’s rupee account with the UCO Bank as part payment (about 45 per cent) for its oil purchases from the country has grown to over $4 billion. Although India is using the amount to adjust payments for Iranian imports of Indian products, the mechanism is not working to the satisfaction of the oil-rich nation.

The rupee payment mechanism was put in place by the two countries to get around economic sanctions imposed on Iran by the Western countries and the United Nations for alleged possession of nuclear weapons.

“Since the amount in the rupee account is non-interest bearing, the larger the deposit grows, the more the losses for Iran,” the official said.

Delegation coming

A delegation of senior officials from the Iranian Government and some top businessmen will be in India next month to look at ways in which it could import more from the country. “There is a lot of scope for India to export more agriculture produce to India. Officials will try to harmonise standards and explore other avenues to increase exports,” the official said.

Drop in basmati shipments

The main reason behind the drop in Indian exports to Iran in the first quarter is a sharp fall in basmati shipments.  It was because the country imported more rice from India last year than it could consume. “Iran ended up with a huge unutilised stock of Indian basmati. Now, the Iranian rice crop is ready to be sold, so there is a glut,” the official explained.

India’s exports to Iran grew 48 per cent in 2013-14 to $5 billion, of which about $1 billion was contributed by rice. Imports from Iran, comprising mostly petroleum, were $10.3 billion, which was 11 per cent lower than the previous year. India hopes to export more project goods this year to even out the balance.

Iran is also worried about repatriation of $1.65 billion from the 55 per cent Euro account lying with the Indian refineries as payment for Iranian oil within the window of the joint plan of action.

The plan, agreed to by Iran and a number of Western countries including the US and some European countries, allows Iran to repatriate a total of $4.2 billion from countries which have been “allowed’’ to buy Iranian oil under the existing US sanctions.

RBI is putting in place in consultation with the Central Bank of UAE to make the transfer.

India has also allowed Iran to make payments to third countries with its money in various Indian accounts for purchases of humanitarian goods that is permitted under the sanctions.

Source:- thehindubusinessline.com