Exhausting the Rupee Pile

Exhausting the Rupee Pile
Exhausting the Rupee Pile

Iran has sought more flexibility in using an estimated $6 billion in accumulated oil payments from India to buy "non-sanctioned" items — beyond "humanitarian goods" — from third countries as sliding crude prices begin to bite.

Valiollah Seif, governor of the Central Bank of Iran, in a December meeting with Indian officials in Teheran, discussed options in this regard and later gave a list of items it wants to import from third countries, Times of India cited top government sources as saying.

India is likely to ask Iran to route the third-country imports through State Trading Corporation or other public sector entities, the report said. It could also insist that the imports be made from the US/EU to ensure stronger checks and avoid criticism from the West. Another condition could be to remove items of India's export interest from third-country list.

Only food and medicines qualify as humanitarian items, whereas non-sanctioned items denote a broader category. Iran is allowed to use the accumulated oil payments to pay for third-country imports of humanitarian items with zero value-addition.

Iran wants to exhaust the rupee pile by debiting the Uco Bank account for the third-country imports of non-sanctioned items. In case the rupee account proves to have insufficient balance, the amount is to be debited from the pending hard currency payments.

India buys roughly 7% of its crude requirements from Iran. But since UN and western sanctions disrupted the traditional payments mechanism in 2010-11, around 55% payment is made in hard currency in tranches and the rest is parked in rupee with the Kolkata-based Uco Bank.

Iranians are also open to first spending the hard currency tranche that remains unpaid due to unavailability of a channel to transfer the money. Under this plan, the hard currency would be first converted into rupee. The third-country imports could then be debited to the rupee account. As an alternative, Iran can also use the rupee fund or any surplus to buy Indian goods.

The sources said Iran also asked India to lower the value-addition requirement from 15% to 5% for such third-country imports of permissible items. The limit was imposed to prevent Iran from circumventing the sanctions, which broadly bar Iran from acquiring dual-use items.

The US and its allies imposed tough sanctions on Iran to curb the country's nuclear program which they claim is geared to military use. Iran insists its program is peaceful. Iran and the P5+1 group ( five permanent members of the UN Security Council, namely United States, Russia, China, United Kingdom, and France, plus Germany) have been holding marathon talks over the past year to thrash out a mutually acceptable comprehensive deal.