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Bilateral trade hit by banks’ reluctance to transact with Iran (Relevant for GS Prelims and Mains Paper II, Topic: Issues in Indo-Iran Trade Relations)

India’s trade with Iran is yet to be fully normalised even a year after the lifting of international sanctions on Tehran. Indian exporters are complaining of difficulties faced by them due to some Indian nationalised banks refusing to deal with Iran-related transactions. This is despite the Reserve Bank of India (RBI), in a notification in May 2016, specifying that payment or remittance or reimbursement can be made from or to Iran in any freely convertible currency for imports from Iran and exports to that country.

Background
Previously, following the sanctions on Iran over its nuclear activities, both the nations had agreed in 2012 that 45% of India’s oil import payments to Iran would be paid in rupees and deposited in UCO Bank as that bank hardly had an exposure to U.S. or European Union.

In turn, Iran was to utilise that amount to pay for its imports from India. It is learnt that the balance in the rupee account may not be sufficient to cover three months of India’s exports to Iran.
A senior official in a public sector bank, however, said on condition of anonymity that there have been no problems regarding Iran-related transactions in currencies other than the U.S. dollar. Exporters and importers have been advised to carry out their transactions in currencies such as the Euro wherever possible, the official said, adding that banks still have apprehensions that the U.S. regulators could take arbitrary decisions on Iran-related transactions.

India-Iran trade
India’s trade with Iran in FY’16 was $9 billion, of which $6.3 billion were imports from Iran (of which $4.5 billion was the oil import bill), while India’s exports were worth only $2.7 billion.
Of the $5.4 billion worth imports from Iran in April-October FY’17, oil imports were $4.5 billion. India’s exports to Iran during April-October FY’17 were $1.4 billion. The trade between these two countries were worth $16.2 billion in 2011-12 (India’s exports of $2.4 billion and imports from Iran worth $13.8 billion).

To boost India-Iran trade, FIEO had in December 2016 asked the RBI to soon allow Iranian banks such as Persia International Bank, Parsian Bank, Bank Pasargad, Bank Mellat and Saman Bank to open branches in India.
 



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