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MMTC, STC to act as front for Iran exports, move to help pharma, auto companies

NEW DELHI: Exporters will be able to mask their shipments to Iran as the government has asked state-run trading agencies MMTC and STC to act as a front for these exports as government shipments to evade Western sanctions on that country. 

The move will particularly help automobile and pharmaceutical companies, which have trade links with the US and the 
European Union, and risk inviting sanctions of these countries if they deal with Iran. 

STC said that 70-80 companies have lined up to use the facility and negotiations are on to firm up the detailed rules of engagement. 

"We have recently offered services of MMTC and STC to those who do not want to directly deal with Iran, since they have business dealings with the West. This will encourage large enterprises to export to Iran without getting the country in their buyer's list", a 
commerce department official told ET.

The threat of sanctions against any entity that deals with Tehran has made it difficult for India to buy crude from Iran, as making payments for crude purchase and insuring the shipment has become difficult. 

The share of crude oil imports from Iran has fallen from 11% in 2012 to 7%.

STC said that 70-80 companies have lined up to use the facility and negotiations are on to firm up the detailed rules of engagement.

The government has worked out a mechanism under which it will pay for crude in 
rupee that Iran can use to source goods from India. However, for the mechanism to work, India needs to step up exports to Iran. India-Iran trade stood at $15 billion in 2012-13, out of which Indian exports accounted for only about $2.5 billion.

Iran has showed interest in buying auto components and pharma from the country, but some exporters do not want Iran on their buyer's list. 

Confirming the development, an 
MMTC official said the window has drawn enquiries. "We are in talks with players in the engineering sector and steel. There is some hesitation at the moment, about being identified," he said. "There are exporters who have found buyers in Iran, but are not taking orders because of sanctions. We are encouraging them to route it through us." Besides identification risks, companies are also worried about commercial risks, such as delay in deliveries and arbitration. 

"It is a good mechanism," said Ajay Sahai, DG and CEO at exporters' lobby FIEO. "However, it will take some time for the companies to come on board. They would want to ensure that they would not get identified for supplying to Iran." 

Recently, Iran rejected India's offer of taking full payment in rupee terms and agreed only for 45% of the payment in the Indian currency. "We still have ample cushion in 45%. Exports are only increasing. We are pushing more and more of our delegations to visit Iran and get buyers," said a commerce department official. 

According to official estimates, orders worth $500 million are being shipped to Iran every month against $50 million a year ago. 

Until February this year, India was making 55% of payment in euros through Turkey's
Halkbank and the rest in rupees through UCO BankBSE 1.76 %. The earlier Iranian regime had agreed to take the entire payment in rupees but the new government has not accepted this proposal.