Economy, Domestic Economy

Iran Sanctions Removal Bodes Well for Indian Trade

Iran Sanctions Removal Bodes Well for Indian TradeIran Sanctions Removal Bodes Well for Indian Trade

With the lifting of international sanctions on Tehran, India’s access to Iran, especially for food and allied products, machinery and tools, infrastructure projects and pharmaceutical products, will increase, according to Export-Import Bank of India (Exim Bank).

The recent lifting of sanctions and restoration of international banking and insurance channels are expected to increase Iran’s international trade exponentially. This will also hold true for Iran’s bilateral trade with India, wrote Indian business daily The Hindu Business Line.

“With the removal of sanctions … India’s access to Iran’s market will increase,” said an Exim Bank spokesperson, who did not wish to be named. Exim Bank was established by the Indian government in 1982 under the Export-Import Bank of India Act, 1981, with a mandate to not just enhance exports from India, but also to integrate the country’s foreign trade and investment with the overall economic growth.

  Trade Deficit

India has had a significant trade deficit with Iran since 2006 on account of the surge in oil imports.

According to Exim Bank data, nearly 82% of the total imports by India from Iran constitute mineral products, followed by chemicals that account for another 15%.

Agro and allied products, including processed, is the largest category of India’s exports to Iran (40% share in 2014-15), followed by metals and products (19.7%), chemicals (11.7%) and capital goods (9%).

“Indian exporters in some sectors have benefited, as India did not back sanctions against Iran. With the lifting of sanctions, exporters in these sectors will face stiffer competition. However, exporters in general, and Indian pharmaceutical, information technology and commodity exporters in particular, will benefit on account of greater market access to the Iranian market,” the spokesperson said.

“On the import front, increased supply of Iranian oil, in an already oversupplied market, will further drive down the crude oil prices.”

Iran is a major buyer of rice, soymeal, sugar, barley and meat. Agro and allied products, including processed, was the largest exported product from India to Iran in 2014-15.  Access to the food and allied products market in Iran is expected to increase following the removal of sanctions.

The Exim Bank official explained that “under sanctions, Iran paid a premium of up to 20% over global prices to buy from India. Food companies have gained under this setup. However, such preferences are expected to be disrupted in the medium term.”

Capital goods and transport equipment accounted for 9% and 2.3%, respectively, of the total exports from India to Iran in 2014-15. India’s exports under these categories have grown significantly after the imposition of sanctions in late-2011 and mid-2012.

The official observed that with the removal of sanctions, India’s access to Iran’s market will increase. However, Indian exporters will now have to compete with Eastern European manufacturers who produce low-end products such as spanners, hand tools and auto parts, and whose access to the Iranian market was limited due to the sanctions.

  Infrastructure and Pharmaceuticals

Indian firms will have greater opportunities in infrastructure projects in Iran. This will include development of the strategic port of Chabahar, among others.

The Exim Bank spokesperson, however, cautioned that competition for Indian oil and gas companies will be stiff from American, Chinese and European oil firms that can commit abundant resources and latest technology for the modernization of Iran’s oil and gas infrastructure.

India also signed a $233-million contract to supply more than 150,000 tons of rail tracks to develop Iran’s railroads. But the project has run into delays.

Lifting of sanctions is expected to speed up the implementation of this project.

Iran’s import of pharmaceutical products amounted to $1.228 billion in 2014, with India being the sixth largest import source for Iran.

The spokesperson said Iran has reported shortage of several specialized medicines, even though these are exempt from sanctions.

Upon the lifting of sanctions, India’s exports in this sector are expected to grow further on account of easier financial transactions.