NEW DELHI: The US government’s decision to allow India import oil from Iran despite the sanctions is valid till the first week of May and will help the Narendra Modi government avoid any pressure till the conclusion of its current term and also open the window to push exports of several goods — from foodgrains to pharmaceutical products and auto parts.
With elections scheduled to be completed around the middle of May, the reprieve from sanctions will come as a booster for the government as it is expected to help ease the pressure on crude prices, a major concern for the Modi administration in recent weeks. The continuous rise in global crude prices that pushed up retail fuel prices to a record high piled pressure on the government, which was forced to reduce taxes with several BJP-led state governments too lowering VAT. The step came days before elections in three assemblies were announced.
The spike in prices had also resulted in the rupee breaching record lows amid concerns over widening current account deficit, which is the gap between exports and imports, foreign investment flows and remittances. In the last few weeks, oil prices have cooled down and the government is hoping that the payment terms offered by Iran make it an attractive proposition.
As reported first by
TOI on September 7, while the 2+2 dialogue with the US was underway, India and Iran were working on a rupee-based payment arrangement with UCO Bank and Bank Pasargad that recently set up a branch in the country. With the mechanism in place, the government is hoping to continue importing 125 million tonnes of crude through March as it has communicated to the US that bringing imports to zero was not a feasible option.
While oil companies will make the payments in the Iranian bank’s local branch, the massive trade deficit with West Asian country, estimated at over $8 billion last year, and rising, is expected to be used to buy goods from Indian players. The details of the trade arrangements are yet to be thrashed out but sources said that there could be a significant increase in the exports of foodgrains, pharma products and auto components, apart from project exports and other goods.
When it comes to auto components and medicines, Indian companies were not keen on a direct trade with Iran, given that many of them have operations in the US and they do not want to face any adverse impact in a more lucrative market.