African oil import funds may be put in vostro accounts to settle exporters’ dues.

NEW DELHI: The government may soon extend to African countries a mechanism to clear payments of Indian exporters, especially pharmaceutical companies, stuck for months.

The payment model is similar to the one used in the case of Iran and now proposed for Venezuela.

The commerce department has moved a proposal but the final decision rests with the department of financial services and the Reserve Bank of India.

Essentially, the payment for oil imports from these countries will be used for paying for Indian exports. It will be a rupee mechanism wherein payment for imports from these countries will be made into a vostro account that will be then used to settle dues of domestic exporters.

Vostro account is a bank account held by a foreign bank with an Indian bank. Nigeria and Angola, the two top oil producing African countries, have been hit by a series of economic and political crises that have forced their governments to hold on to precious foreign exchange. These countries are not releasing dollars for payment to exporters.

The currency crisis is worsened by falling commodity prices, especially of oil. Nigeria is Africa's largest economy. "Many exporters are not able to do business because the payments are delayed," said PV Appaji, director general of Pharmexil. A least 15 complaints of delayed payments have been received, he said.

"For three to four African countries, including Nigeria & Angola, we have suggested a payment mechanism to resolve issue of pending payments for our exporters," a commerce department official said, requesting not to be identified.

The external affairs ministry is also said to be on board to resolve the current crisis through an Iran-like payment mechanism.

Source : economictimes.indiatimes.com