Government Mulling New Arrangement To Clear Iran Payment Problem.

NEW DELHI: The government is mulling a new arrangement for trade with Iran to ensure its exporters receive payments on time and the payment obligations are reduced to a minimum.

India will set up a rupee account to make payment to exporters for goods sold to Iran and those importing goods from Iran will pay into this account, creating a mechanism where only the net amount will need to be paid to Iran. This will substantially reduce the payments that need to be made to Iran.

The details of the arrangement, a kind of barter to the extent possible, are being worked out by the ministries of finance and commerce along with the Reserve Bank of India (RBI).

"We are planning to set up a rupee account, which would allow exporters to get payments for whatever they sell to Iran and sort out the payment crisis that they have been facing," a commerce department official told ET.

An estimated Rs 1,800 crore in dues to exporters is stuck in Iran since December, when US sanctions against the country forced the RBI to suspend settlements through the Asian Clearing Union, a payment arrangement for Asian countries including India.

The government has yet to take a call on the Indian bank where the account would be opened and settle other details.

The Iranian government has already given its in-principal nod to the proposal.

The netting arrangement will initially be limited to non-oil trade, but could be extended to cover crude imports from Iran as well.

India imported $7.8 billion worth of goods from Iran in the April to December 2010 period, of which oil imports stood at $6.65 billion.

Its exports to Iran during the period stood at $2 billion, which is much lower than its total imports. However, the figure is comparable to non-oil imports worth $1.2 billion from Iran.

"We expect that our exports to Iran and our non-oil imports would more or less balance out," the official said.

If India runs a surplus, it might be used to settle part of the payments for oil.

Exporters think the arrangement is workable and will help clear dues quickly.

"If this works, exporters need not negotiate with foreign banks. They would be relatively safe, as there would be no room for payment disputes," said Fieo director-general Ajay Sahai.

India is struggling to find a way to make payments to Iran for crude imports. It has now worked out an arrangement with the Turkish state-owned Halkbank through which Indian oil companies have already started making payments in euros.

European banks have been hesitant in acting as conduits fearing a US reaction after the EIH Bank of Germany, which facilitated payments for ACU members, came under US sanctions earlier this year.

Source : economictimes.indiatimes.com