Exporters ask the government to consider the advance payment issue with Iran

Category: Global Economy Sub-category: Indian Economy
Document type: news

4-Apr-2012 | 4:00 IST | Edited by: Sharmila Maitra

In order to facilitate trade with Iran, exporters have asked the government to modify the payment mechanism between the countries so that they can receive funds in advance, as is the normal practice in other nations. This new payment mechanism has been worked out by the two countries.

The normal trend in international trade for commodities, as well as several other products, is that the buyer remits some advance payment (between 15-50%) as soon as the contract gets signed,  in order to ensure that the contracts are honoured even if global prices go down.

The reason for doing this is to take care of buyers' stake and commitment to take delivery even when the prices of cargo go down.

FIEO President said that although the payment issue between India and Iran has been resolved, clarity is needed for receiving advance payments regarding pending shipments. He also said that a meeting would be held between him and the banking secretary as well as RBI officials on this particular issue.

India's long-standing payment problem with Iran has been resolved as India and Iran have agreed to trade under an operationalised rupee payment mechanism through which exporters will get paid in rupees through an arrangement worked out between Iran's Bank Parsian and India's UCO Bank.

It might be interesting to know that India's problem with Iran began after the Reserve Bank of India (RBI) in December 2010 withdrew the Asian Clearing Union (ACU) mechanism under which payments were made to Iran.

However, payment worth about USD 1 billion has been stuck after withdrawal of the ACU mechanism but adding with the new mechanism in place, Indian exporters are gradually getting their dues.

FIEO president also said that there is a huge demand for all types of commodities especially for rice, wheat, sugar and tea.

Since India's exports is just a little over $ 2 billion while its oil imports is at $12 billion annually, all possible efforts are being made to increase India's exports t. Recently about 80 exporters along with the officials from commerce ministry had visited Tehran to explore business opportunities and discuss the payment problem.

Officials from RBI and UCO Bank also accompanied the delegation.

It has been observed that India has the potential to sell a wide variety of goods to Iran like pharmaceuticals, steel, machinery and cereals as the country now has limited buying options with both the US and the EU maintaining distance.

Moreover, India can increase exports to USD 5 billion by 2013-14 from USD 2 billion. FIEO has also set up an Iran cell to update the industry on the export prospects to Iran.

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Federation of Indian Export Organisations represents the Indian entrepreneurs' spirit of enterprise in the global market. Known popularly as "FIEO", this apex body of Indian export promotion organizations was set up jointly by the Ministry of Commerce, Government of India and trade and industry in the year 1965. FIEO is thus a partner of the Government of India in promoting India's exports.