India is studying the option of paying for crude oil from Iran in rupees even as it is working on an interim arrangement to pay in hard currencies through a West Asian bank.
While the finance ministry wants to make the payment in rupee, the Reserve Bank has vetoed the move till now as India has a high trade imbalance with Iran.
The West Asian country buys goods worth $1 billion from India against exports of $12 billion of crude, and the RBI believes that this will leave Iran with huge reserves of the Indian currency.
However, officials argue that the payment in rupee is in sync with India’s intentions to turn the monetary unit into a convertible currency and, eventually, into a global reserve currency.
“It could also force Iran to spend that money by stepping up project and consumer imports from India and invest that money back here for lucrative returns,” the officials said.
The officials also saw a situation of rupee payment, and the Iran government holding the currency as a locked-up reserve.
They said this measure could reduce the total money supply within the Indian economy and bring down inflation, though the previous experience of such an arrangement could prove to be a damper.
When the Soviet Union broke up in the early 1990s and the rouble collapsed, Russia held huge stocks of the rupee — and this is a reason why the RBI is wary of such an arrangement.
However, the central banks of both countries have since then been studying a return to direct trade using rupees and roubles instead of hard currencies.
In the recently concluded summit at Sanya in China, Brazil, China, India, Russia and South Africa — they make up the Brics grouping — agreed to provide credit to each other in local currencies.
India buys about 21 million tonnes of crude from Iran every year, or about 14 per cent of its crude oil imports. It is likely to continue buying crude from Iran despite US displeasure.
Once the Chabahar port in south-eastern Iran is set up with Indian help, crude and gas imports will go up further. Besides the port, a highway project in Afghanistan was being developed to access Iranian and central Asian oil and gas. The Zerang-Delaram highway in Afghanistan is now controlled by the Taliban.
In December, the RBI had said trade transactions with Iran would have to be settled outside the Asian Clearing Union, a regional payment arrangement.
India had to work out an alternative system of paying for Iranian crude through Germany’s Europäisch-Iranische Handelsbank AG (EIH Bank). However, Germany is not keen on continuing this arrangement, and India is in talks with banks in Dubai and Turkey for routing the payments to Iran.
Officials said talks with the State Bank of India in New Delhi last week remained inconclusive. “Ultimately we will have to let the oil companies who import Iranian crude to pay for in Indian rupees … we have to take advantage of the adversities,” the officials said.
Source: http://www.telegraphindia.com/1110418/jsp/business/story_13867393.jsp
Source: http://www.telegraphindia.com/1110418/jsp/business/story_13867393.jsp
NUTSHELL:
Very good idea for India to consider; paying your supplier in your national currency. For one, it certainly is an incentive for more balanced trade. What say you? Good or bad idea? Let's see how ''fair'' Iran considers its trading relationship with India.
It's not about fair trade between India and Iran. Pragmatically the Iranians can not use Indian Rupee outside India and looking at the trade deficit (1:12) Iran will not accept the payment in local Indian currency. The issue was highlighted when India's cetrnal bank (RBI) stopped payments through Asian Clearing Union. Then Tehran refused to supply crude oil and finally New Delhi used the German EIH Bank. What Iran is arguing is that it can accept the payments in local currency for the amount of purchases it makes from India ($1 Billion) for the rest of the amount it should be in any global convertible currency. Two options as discussed above are being given serious thoughts, either UAE Dirham payments or Turkish currency payments. Considering Turkey's recent role as a Mediator between various Muslim nations it will be more than happy in facilitating the transaction. Also UAE rulers are unwilling for this due to Iranian hand in recent Mid East crisis (the Bahrain uprising and tensions in Shia parts of Saudi Arabia).
ReplyDeleteThe Chabhar port project is not a very good option for now as long as the situation in Afghanistan normalises. Apart from the oil and gas supply security this port is partly built to counter the strategic gains achieved by China by building a port at Gwadar, Karachi. This Pakistani port is very close to the Indian navy's base. Finally looking at the amount of crude oil India imports from Iran, both the Governments are confident that they will come to an amicable conclusion.
Stunning analysis...; you are right- in that the two parties have to come to an amicable conclusion. It's also about bargaining power; can India force the hand of Iran; to take the Rupees? Yes, UAE Dirham or Turkish currency may make sense too but are we not back at square one if Iran does not have any need for currency holdings in excess of trade volumes with the respective countries? Chicken and egg situation I think....but I'm more enlightened about the situation based on ur analysis; thanks for that. ;)
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