India may propose preferential trade deal with Iran

The Economic Times

NEW DELHI: India is likely to propose a preferential tariff arrangement to Iran to boost the bilateral trade between the two countries, hoping higher exports will help it pay for crude oil imported through the rupee payment mechanism set up last year.

The US led sanctions on Iran have made it difficult for India to make payment for crude oil India purchases from Iran resulting in a drop in share of Iranian crude to about 7% from 11% in 2011-12.

A delegation led by commerce secretary SR Rao arrived in Tehran on Monday to pitch for a trade agreement and also sort out the issues relating to the payments mechanism.

"The import duty on Indian imports into Iran makes purchases from India less favourable among Iranian importers, therefore Indian wants Iran to sweeten the deal for purchases from India," a person familiar with developments told ET.

New Delhi will pitch this as a win-win deal that will allow India to import more crude from Iran. Under the rupee arrangement, India makes part payment for crude it buys from Iran into a rupee account maintained with UCO BankBSE -0.23 %.

Iran uses this account to import goods from India, reducing the need for routing dollar payments through third country. However, because of limited imports from Iran of Indian goods, the mechanism has not worked as expected.

"Since Pakistan has a preferential trade arrangement with Iran, Iranian importers prefer to buy rice from there instead of the Indian basmati rice," the person said.