March 8, 2012

 

India, Iran to reach a deal on wheat

 

 

When exporters visit Tehran on March 10, India will try to reach a deal with Iran on wheat despite low global prices as well as other foodstuffs as the two sides try to bridge a trade gap exacerbated by sanctions on the Islamic nation, exporters said.

 

India is Iran's second-biggest oil client after China, buying around US$11 billion a year, but its own exports to Tehran are worth only about US$2.7 billion and the government is urging exporters to boost sales to partially redress this imbalance.

 

The two sides have agreed to use the rupee, which is not freely traded on global markets, for 45% of oil dues to skirt Western sanctions.

 

Private Indian traders are keen to export wheat since they have been able to sell only about 500,000 tonnes of two million tonnes permitted by New Delhi because international prices are lower than the cost of buying and transporting domestic produce.

 

Traders heading to Tehran said the delegation will try to examine if there's a possibility of making wheat sales profitable, perhaps with Iran picking up freight charges.

 

European traders say Iran's state grains agency is in talks about buying large quantities of Indian wheat. Iran has been buying Russian and Australian wheat and has asked to import a million tonnes from Pakistan on fears sanctions will disrupt imports and cause bread shortages.

 

"The basic aim is to reduce the trade deficit by increasing our exports to Iran and we are primarily looking at the items which do not figure in the list of sanctions," Ajay Sahai, chief executive of the Federation of Indian Export Organisations, the top exporters' body, told Reuters.

 

Sales of food such as wheat, rice and sugar to Iran are not banned under sanctions aimed at halting Iran's contentious nuclear programme.

 

"The rupee payment mechanism will encourage Indian exporters to sell to Iran. Earlier, exporters were reluctant because of non-payment from Iranian buyers," Sahai, who will be in the delegation, said.

 

Iran has already started paying Indian exporters in the rupee, raising hopes that about US$3 billion in outstanding payments will be cleared soon.

 

The Indian delegation would also try to expedite payments that Iranian buyers owe to Indian exporters, Sahai said.

 

Most of the Iranian arrears are for imports of iron and steel (US$623 million), chemicals (US$453 million) and cereals (US$419 million), machinery (US$143 million) and pharmaceuticals (US$87 million).

 

The arrears have accumulated since December 2010, when a previous payment conduit was closed under pressure from Washington.

 

Sahai's organisation is a quasi-government body set up by the trade ministry. The 75-member trade delegation, led by a senior trade ministry official, will be in Tehran for a four-day visit. There will not be any representatives from oil companies on the visit.