NEW DELHI: Another door has opened for two of India's biggest exports, automobilesand pharmaceuticals, with Iran agreeing to source these from here to help New Delhi settle payment for oil imports in rupees.
The two countries had agreed to settle bilateral trade in rupees after it became difficult for India to route payments to Iran because of the sanctions. However, the mechanism failed to take off as the trade was heavily in favour of Iran - India exported goods worth $3.36 billion in 2012-13 while its imports were $ 11.6 billion -- prompting New Delhi to look for more items to sell to the country.
"We visited Iran and suggested sectors they could look at including engineering, power, steel, auto and pharma. They are keen on automobile and pharma for now," said a commerce ministry official, adding that the country did not appear keen on a larger trade agreement.
Under the rupee arrangement, India makes part payment into a rupee account maintained with UCO Bank. Iran uses this account to import goods from India, reducing the need for routing dollar payments through third country. A delegation led by commerce secretary SR Rao had visited Iran last month when India presented many import options to Iran to reduce the $11 billion trade deficit it ran with the country last year.
Automobiles and pharmaceuticals are India's biggest exports adding up to $18.4 billion and $14.6 billion in 2012-13. Currently, India's exports comprise mainly of agriculture and processed goods and more recently, pharma. Iran had rejected Indian wheat citing quality issues.
The arrangement suits Iran, which was importing most of the automobiles and auto components from EU, but after the sanctions were imposed is facing some difficulty. Indian automakers already meet the stringent quality norms and are in position to meet Iranian demands.
Iran has also spoken to a few auto companies for a joint venture agreement, like TVS. "Iran does not want to become totally dependent on India in terms of imports, so looking on the investment front as well," said Ajay Sahai, director general and CEO, FIEO. Auto exports to Iran declined from $25million in 2011-12 to $11 million in 2012-13, as per EEPC data. The Iranian industry is working at one-third lower capacity due to problems in importing auto parts. Iran has most European and Japanese, South Korean brands of cars, trucks and buses. India enjoys competitive advantage as it is being driven by R&D, said FIEO.
Pharma exports to Iran have already seen a jump in recent years, with the share increase to 30% of the export basket. "The point is whatever you are able to import to Iran is good enough, as it is a barter sort of a system. Here we do not have much to offer what they want. Auto however is a very good idea, if it works," said Manoj Pant, professor, JNU.