India plans to offer Iranian central bank BMJI the facility to use its rupee accounts with UCO Bank not just to offset Indian exports but to fund Iranian imports from third countries.
New Delhi’s plan B (as proposed to the Cabinet Committee on Security today) plans to step up India’s exports, including project exports, to Iran with an ‘Oil for Projects’ scheme to sustain Iranian crude oil supplies in the face of stringent US and EU sanctions.
“The objective is to put in place a system so that Indian exporters, including project exporters, could be paid from the Indian rupee accounts held by BMJI directly or through rupee accounts held by Iranian banks in Indian banks,” says the proposal.
The prime strategy is to increase India’s exports through “positive steps relating to extending the Export Credit Guarantee Corp cover for Indian exports to Iran and to identify large projects that could be commissioned in Iran as project exports”.
The projects identified are in mining, fertilizer, food processing, pharma and automobile projects that are not currently sanctioned as well as setting up an SEZ in Iran, developing the Chabahar port and building rail network for access to Afghanistan and Central Asia.
Investments by Indian firms could be in consortium with Russian, Chinese or Kuwaiti companies to make it hard for the US or the EU to single out a country or company. A second option is to create new corporate entities that do not have any financial exposure in the US or EU so that they are insulated from any retaliation.
The delegation to Iran, which leaves on January 16, has also been given the mandate “to explore the possibility of using the rupee accounts held by Iran in India to fund Iranian imports from third countries, subject to suitable verification mechanism” in line with what Japan and South Korea follow.
To that end, the team would advocate for an increase in the rupee account limit to 100 per cent of Iranian earnings from the current 20 per cent to buffer the rupee kitty, and allowing two non-sanctioned Iranian banks to open rupee accounts with the UCO Bank.
Also, the Reserve Bank of India has been given the mandate “to facilitate, in discussion with BMJI, investment by the Iranian central bank in Government of India securities within its limit of $1 billion allowed for its UCO Bank account”.
The present strategy relies heavily on the outcome of the Committee of Secretaries (CoS) meeting held by National Security Advisor in July 2010 that proposed ‘creative mechanisms’ to insulate Indian firms from the adverse impact of US sanctions.
Based on a Ministry of External Affairs paper “International Sanctions on Iran and Way Forward for India-Iran Relations”, the CoS decided that economic engagement with Iran was necessary not just to promote energy security, connectivity and opening of new markets but also to ensure that India did not leave the Iranian space for China to enlarge its presence.
India has until last week bought 11.64 million tonnes of crude oil from Iran. It has paid off $9.08 billion and has to pay $3.59 billion of which only $107.62 million is “due but not paid”.
Source : indianexpress.com