India to Take ‘All Necessary Measures’ to Safeguard Economic Interests

India on Thursday said it will take measures to offset any adverse impact on its interests due to US President Donald Trump’s decision to dump the Iran nuclear deal.

Ministry of External Affairs Spokesperson Raveesh Kumar said India was closely monitoring the situation arising out of Trump’s announcement to pull the US out of the Iran nuclear deal, Firstpost reported.

“We are closely monitoring the developments. We are assessing the implications, which it might have on our interests,” he said.

There have been apprehensions that the US decision may adversely impact New Delhi’s oil import from the Persian Gulf nation as well as Chabahar Port project.

Iran is the third largest supplier of crude oil to India after Saudi Arabia and Iraq.

“The government will take all necessary measures, which are required to safeguard our interests,” said the MEA spokesperson.

Asked whether the US sanctions will hit the Chabahar Port project, Kumar said it was too early to analyze and come up with conclusions about the implications of US withdrawal from the nuclear deal.

Trump on Tuesday announced that the US was withdrawing from the Iran nuclear deal signed by the Obama administration in 2015 under which Tehran had agreed to limit its sensitive nuclear activities and allow in international inspectors in return for the lifting of economic sanctions.

On Wednesday, India had said that all the parties concerned should engage constructively to resolve the Iranian nuclear issue peacefully.

India-Iran ties have been on an upswing after Tehran sealed the nuclear deal with the international community in 2015.

Prime Minister Narendra Modi had visited Tehran in May 2016 with the aim of crafting a strategic relationship with Iran and expanding India’s ties with West Asia.

During the visit, India and Iran signed nearly a dozen pacts, the centerpiece of which was an agreement on the development of Chabahar Port.

Later, India, Iran and Afghanistan signed a trilateral pact providing for the transport of goods among the three countries through the port.

In February, Iranian President Hassan Rouhani visited India, during which both sides agreed to further expand cooperation in a number of key sectors.

During Rouhani’s visit, both sides signed nine agreements, including one on handing over Chabahar Port’s operation to India for 18 months.

India and Iran have robust economic and commercial ties covering many sectors, though it has traditionally been dominated by the import of Iranian crude oil by India.

According to the Ministry of External Affairs, India-Iran trade during the fiscal year 2016-17 was $12.89 billion: India imported $10.5 billion worth of goods, mainly crude oil, and exported commodities worth $2.4 billion.

  Reviving Rupee-Rial Trade

India could revive a rupee-rial payment arrangement with Iran to bail out exporters from the heat of fresh US sanctions against the Islamic Republic, exports to which had reversed a three-year slide in 2017-18, trade sources told Financial Express on Thursday.

Around 2011-12, a rupee-rial mechanism was put in place where up to 45% of India’s purchases of Iranian crude could be effected in rupees in exchange for items like rice, wheat and medicines that were not sanctioned by the UN.

India’s exports to Iran could witness a hitch if the US and its allies go ahead with sanctions, although such payment issues could be sorted out fast this time around due to the previous experience of handling such crisis and restoring the flow of trade, the sources said. But the sanctions have the potential to put a lid on growth in India’s exports to Iran.

India has a goods trade deficit of over $8 billion with Iran (thanks to the former’s massive oil imports), so Indian exporters may not face much problem in getting payments via rupee, said the sources.

Farm commodities make up for a half of India’s $2.6 billion in goods exports to Iran. In fact, at $900 million, basmati rice alone accounted for over a third of India’s total exports to Iran in 2017-18, payments for which were made mostly in the euros by Iran, said exporters.

 India’s oil purchases from Iran, worth around $9 billion, accounted for over 80% of its total imports from the Persian Gulf nation in 2017-18. According to commerce secretary, Rita Teaotia, the US move is unlikely to cause any major shift in India’s trade with Iran, as India had shipped out goods to Iran earlier even when sanctions were on.

The rupee-rial arrangement was done as hardening sanctions by the previous US administration for Iran’s nuclear program made money transfer to Indian exporters through an informal route using UCO Bank much more difficult.

Vijay Setia, president of the All India Rice Exporters Association and executive director at Chaman Lal Setia Exports, said rice exports to Iran will continue unabated, as food and medicines usually remain outside the sanctions’ ambit.

“The rupee-rial arrangement should be revived at the earliest,” he said.

Ram Upendra Das, the head of the Centre for Regional Trade, said the sanctions are unlikely to have any material impact on Indian exports to Iran as of now.

“There are several mechanisms through which payments can be made for bilateral trade. However, we have to wait for more details to have a precise estimate of the impact of the sanctions,” he added.