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India is keen to restart the system of paying crude oil it buys from Iran entirely in rupees to help stabilise the local currency and reduce the country's current-account deficit.
The issue figured during a meeting called by Principal Secretary to Prime Minister Pulok Chatterji today to discuss raising crude oil imports from Iran to curtail dollar payouts, sources said.
Iran had in July agreed to take payments for oil it sells to India entirely in rupees after US and western sanctions blocked all other payment routes.
However, shortly after a brief trial of the mechanism, it reverted to the old system of taking only 45% of the payments due in rupees.
Today's meeting, which was attended by Oil Secretary Vivek Rae, Commerce Secretary S R Rao and Economic Affairs Secretary Arvind Mayaram, among others, also discussed inventory management to cut oil import bill.
Sources said it was decided to engage Iran on the issue and address their concerns on using the money they get here.
India, which imported crude oil worth $144.3 billion in 2012-13, has already spent $47.13 billion on oil imports in first four months of current fiscal.
Since July 2011, India had paid in euros to clear 55% of its purchases of Iranian oil through Ankara-based Halkbank. The remaining 45% due amount was remitted in rupees in accounts Iranian oil company opened in Kolkata-based Uco Bank.
Payments in euro through Turkey ceased from February 6 this year but the rupee payments for 45% of the purchases continued through Uco Bank. Iran later agreed to take all of the payments in rupees.
Sources said India is keen that the system of full payments in rupee is resumed as it will help it save on the forex outflow. Oil imports have been the biggest factor contributing to a record current account deficit.
According to Oil Minister M Veerappa Moily, India could save as much as $8.47 billion by importing oil from Iran. It imported about 2 million tonnes of crude oil from Iran so far and plans an additional import of 11 million tonnes.
India shipped 13.1 million tonnes of oil from Iran.
Sources said the government is mulling asking state-owned firms to keep crude imports at 2012-13 level of 105.96 million tonnes that will save $1.76 billion in foreign exchange.
Also, the government is looking at cutting down the crude inventory they hold from current 7-14 days to just 2-3 days so as to free millions of dollars oil companies keep parked in maintaining stocks.
Sources said the government was keen to cut oil import bill and help prop up the rupee, which has slipped 23% against the US dollar this fiscal.
