After President Donald Trump re-imposed US sanctions on Iran, Indian basmati rice and premium tea exporters feel that may lose the Iran market.
According to media reports, at present, basmati rice fetches $1,200-$1,300 per tonne in the world market. India exported 0.87 million tonnes of basmati rice to Iran in FY18 and total exports stood at 4.05 million tonnes. In the current fiscal, the trade is hopeful of exporting 1 million tonnes of basmati rice to Iran.
Trade sources believe that Iran is looking to replace the dollar with the euro. However, nothing has been finalised yet, and till a decision is taken, India’s basmati exports to Iran may not resume. Shipment for old contracts, however, will continue.
Indian exporters mostly receive payments in rupees for exports to Iran under a mechanism worked out in 2012 when banking channels were restricted due to the US sanctions. Indian companies receive payments for exports to Iran using the oil payments held in rupee balances at Kolkata-based UCO Bank. The mechanism helped India narrow its trade deficit with Iran from about $11.3 billion in FY12 to about $3.5 billion in FY16 when the sanctions were lifted.
“India had a bilateral understanding with Iran for settlement of oil purchases in rupees. In fact, India cleared all dues arising from crude oil purchases in dollars. Hence, rupee reserves (in Iran) have been exhausted. Interestingly, Iran is reluctant to use the dollar for bilateral trade in response to US sanctions on it. The Iranian administration has also not taken any final decision on the use of any alternative currency. Hence, there is uncertainty over India’s basmati rice exports to that country. Until the dilemma over the use of currency recedes, India’s basmati rice exports to Iran are unlikely to resume,” said Gurnam Arora, Joint Managing Director, Kohinoor Foods Ltd, producer and exporter of Kohinoor brand basmati rice.
“The situation is not that bad now as UN has not imposed sanctions on Iran. The US sanctions can only affect dollar trade. In that case, Euro or other local currencies can be used for trading. European nations have not imposed sanctions on Iran. Only dollar is eliminated. Also, we have to see whether there are sanctions on food items. If there are no sanctions on food items then there will be no worry for Indian food item exporters,” said an Iranian trader.