Rupee Turns Stumbling Block in Trade with Iran.

NEW DELHI: The rupee volatility has taken a toll on the rupee trade with Iran even before it could take off. Exporters to the region have been left to fend for themselves, as both governments wait for the rupee to stabilise. Indian rupee has depreciated over 19% against the dollar since July this year and is widely expected to fall more.

"Iran at the moment is not interested in trading in rupee because it does not want to be stuck with a pile of currency that is losing value by the day," a government official told ET. India's trade with Iran had almost stalled early this year when under US pressure the Reserve Bank of India ( RBI) suspended settlements through the Asian Clearing Union -- a payment arrangement for Asian countries, including India.

The uncertainty has hit exports to Iran that have grown at 20% annually over April-September 2011 against 48% growth in the last fiscal. To get around the US sanctions, India and Iran had worked out a mechanism wherein it was decided that India will pay for at least half of the oil and non-oil imports from Iran by depositing the equivalent rupees in accounts opened with Indian banks that Iran would use that money to pay for its imports from India.

Iran has now put a brake on the payment mechanism because of steady devaluation of the rupee which has fallen 18% against the dollar since July. While India is continuing to pay for its oil purchases from Iran through Turkey's Halkbank, a process that began in July this year, the country's exporters have been left in the lurch. "Exporters are managing to fend for themselves and getting their payments," the official said. Exporters, however, paint a less rosy picture.

"We are exporting to Iran through front offices that Iranian companies have opened in countries such as Dubai, Jordan and Turkey. Since banks are not involved, there are no letters of credit, and we are completely at the mercy of our buyers for payments," said Vijay Setia, president, All India Rice Exporters Association.

Setia said because of internal competition, exporters sell on credit and there is just no guarantee whether payments would come or not. Exporters ship their goods directly to Iran, but send all documents to front-offices of importers in third countries. Payments are made to exporters through cheques issued by the front-offices. "If importers delay payments or don't pay up, we could file a case in the Indian courts, but there is little that could be done to harm a company in another country," Setia said.

Source : economictimes.indiatimes.com