Basmati exports to Iran back on track after embargo-induced roadblocks

Trigger provided by Centre's assurance ob sufficiency of funds in special rupee-denominated bilateral barter account

Basmati exports to Iran, which is currently facing US sanctions on crude oil, are back on track after initially facing roadblocks following the trade embargo.

After the US imposed trade sanctions on Iran in May, Indian basmati exporters, fearing uncertainly and payment defaults, adopted a wait-and-watch stance and sought help to make their shipments.

However, after assurance given by the central government to exporters that there were sufficient funds in the special rupee-denominated bilateral barter account that facilitated oil import from India and rice export to Iran, basmati exports along with bilateral trade in other commodities are, again back to normal.

The US, while imposing trade sanctions on Iran, had granted waiver to a few nations, including India, to facilitate crude oil imports from the country. Since the preconditions forbade direct funds transfer to Iran for any bilateral trade, India had instituted a rupee payment mechanism, under which Indian companies importing crude from Iran deposited their payment in rupees in the special escrow accounts opened with two banks, IDBI Bank and Uco Bank. These banks then released payments to Indian rice and pharmaceutical exporters.

“There are sufficient funds in the special account. We do not anticipate any major payment issues cropping up in the next 6-7 months. Besides, the Central Government is seized of the matter and hopefully some steps would be taken to allay the apprehension of exporters and to resolve the issue,” All India Rice Exporters Association (AIREA) executive director Vinod Kaul told Business Standard.

Since, the embargo only bars oil imports from Iran, the escrow account would not get any fresh deposits by Indian refiners, but the available funds could be used for paying Indian basmati exporters.

In fact, basmati exports to Iran have hit the upper circuit (or increased sharply). Compared to last year’s export volume of nearly 200,000 tonnes till May 2018 last year, exports had breached 300,000 tonnes in the corresponding period this year, showing 50 per cent growth this season. In 2018-19 exports to Iran rose 85 per cent to $1.56 billion (1.4 million tonnes) having 32 per cent share in total basmati rice exports.

Iran had been procuring 1-1.1 million tonnes of basmati on average over the past few years. Higher imports last year were also attributed to Iran stockpiling ahead of the anticipated US sanctions on crude oil.

Meanwhile, rice exporters are also exploring other markets to hedge their positions going forward, if the Iran issue continues to boil and the payments situation stiffens.

“We have been analysing about the potential international markets, which could be explored for diverting basmati, if exports to Iran come under cloud. These destinations include the South East Asian and African markets, where Indian basmati is quite popular,” Kaul said.

He added that exporters had been keeping in touch with the union commerce and finance ministry to keep track of the latest developments and seeking more clarity on the unfolding situation.

Meanwhile, Gurnam Arora, joint managing director of Kohinoor Foods, a leading basmati exporter, claimed the Iran export situation was now normal and there should not be any problem in meeting the export targets this year. “Basmati exports to Iran jumped last year and I am confident, this year would be no different,” he said.

The Basmati export basket is wide, and the most exported variety of Pusa 1121 had an average procurement price of Rs 35,000-38,000 per tonne during 2018-19 season, compared to Rs 33,000-35,000 during 2017-18, a hike of 8.5 per cent.

However, basmati export realisation had inflated at a much higher ratio of 14 per cent to over Rs 74,000 per tonnes during April-January 2018-19 against Rs 65,000 per tonne during the same previous fiscal.