All Eyes on FIEO Delegation of 30 Leaving for Iran on 10 March, FIEO Says UCO Escrow Account to Guarantee Payment

According to an exclusive report by Reuters, released earlier this month, Iranian buyers have defaulted on payments worth US$144 million for shipments of 200,000 tons of rice from India. This was followed up by a number of related reports by Reuters, one claiming that Asian traders have begun to cut ties with the Islamic republic, while another suggests that Pakistani traders are “shying away” from doing business with Iran. A third report highlighted Iran’s use of barter, especially gold and oil, to buy the necessary commodities as an illustration of the immense difficulty the country faces.

In a Bid to Sell Oil, Iran is Offering Oil on Credit to Pakistan

Mr Rafeeque Ahmed President FIEO said in a press release that the payment problem with Iran has been resolved with operationalisation of Rupee payment mechanism through UCO Bank. The payments which have been stuck in the past will be cleared expeditiously. FIEO has been asked to bring any case where exporter faces problem of payment to the notice of Department of Financial Services which has assured to resolve such cases.

Mr Ahmed said that DGFT has also agreed to grant all export benefit on such payments though paid in Indian Rupee as applicable to payment in free foreign exchange. Necessary notification is under way. This claim has been supported by our sources in the Ministry of Commerce.

President FIEO said that such positive action by the Government will encourage exporters to aggressively export to Iran and optimise utilisation of Rupee balance in oil import pool. The 30 member business delegation to Iran from 10th to 14thMarch will now be able to negotiate contracts.

Indian exports to Iran went up by about 50% to touch US$ 2.71 billion last year. If the Rupee payment mechanism works satisfactorily, India will be able to increase exports exponentially, he said. FIEO identifies machinery, automobile parts, synthetic yarn, steel ingots, pharmaceuticals, paper & paper products, organic chemicals, plastic products, rubber products, heavy tyres, forging and castings, and cereals such as rice, sugar, soyabean oil, sunflower oil, barley, red meat, butter, soya pellets in the export list.

Exports can double to over US$ 5 billion by 2013-14, FIEO claims. (It is believed that the Iranian Guards are themselves very big traders who facilitate informal trade on the porous borders with Central Asia, Turkey, Gulf and Pakistan. It is a moot point whether formal trade can face the competition of “smuggled” goods).

India public sector refineries MRPL, HPCL and Indian Oil look forward to the good quality Iran oil, provided the tankers are ready to carry the fuel and insurers are able to cover the transit risk. It will not be so easy to reach the 55% payment for imports in Euro to Iran with full sanctions from EU to come into effect from 1 July. There is even a talk of withholding tax on payments to Iran with the escrow account in India seen as amounting to “residency” in India.