Iran, India and the intriguing payment crisis

Director (Finance) Mr.Shantanu Kumar Singh inputs on the payment issues that Indian exporters are facing with Iran. Our questions in this regard are as follows: Having worked with Iran Market 2012; Below is some outline on the regular Food products and commodities business.

Iran, India and the intriguing payment crisis
Iran, India and the intriguing payment crisis

1. What role does Iran play as a market for you? How do you view the potential of the market?
Iran has an almost 80 million population and growing fast as well.  It is a very lucrative market for the scale of consumption of future forecasts; specially for India. Inherently, there is a lot of trade activity for Basmati Rice, Tea and Spices; whilst the aim of Iran is to become self-sustaining as well in every aspect of the industry. Yet, Iran is an open window of trade from the next 10 years at least for most food commodities which are not grown there. The potential for Indian products is always there; some raw form as well as processed food. However, not all products are potential to be explored for Iran. There are also possibilities of products becoming obsolete due to local growth factors and industrial development.

2. How has the imposition of sanctions on Iran by the US affected trade with your Iranian clients?

As of now the trade in the past two years have been extremely difficult; Iran banks cannot pay directly to Indian companies due to US bank Sanctions; neither first line banks have open channels for Letter of Credit facilities and Bank to bank channels to facilitate the same and document realisations thereafter. Most Iran importers would use their associate companies in Dubai, UAE; Germany or European associates to pay in USD or Euros; this entails an added cost to international imports. The importer thus only prefers very essential goods only for imports where the margins and demand could sustain the added costs. The Indian Banks having US tie ups have revised sanctions list to not accept direct Iran payments and this has made trade activities very difficult in the past few years. The only Bank which use to handle Iran i.e. IndusInd Bank also revised not to engage in direct Iran based transactions.

3. Why is the Rupee-Rial payment mechanism not helpful in retrieving payments from Iran?

In some cases UCO Bank and IDBI Bank have been chosen to offer Rupee-Rial payment. Export of basmati rice and tea, spices were severely impacted this year due to issues of delayed payments from Iran on the back of the “depleting balance” in the rupee-rial trade account due to no oil imports by India since May 2019. Iran is a very big importer of our goods to almost 21% of total tea production India; Hence, reducing Rupee-Rial balance has severely affected the importers choice of this payment; However, this method was very popular up and until the start of 2019.

4. What challenges are you facing in routing payments through other countries?

The challenges faced by Indian exporters is further discounting to already lower prices of commodities such as Tea, Basmati Rice, Species etc. The Routing of Payment via another country is added commission and cost from 2% to 4% recently which has to come from discounts in order to facilitate continuance of business. As our industry is facing lowest growth numbers, we have no choice but to opt for the available methods and lower profitability due to affected payment mechanisms.  

5. How can the Government of India/banks step in to resolve this issue?

Rupee-Rial payment is an excellent approach; and one which really seems to work from exporters and ease of payments from the balance. However, oil is the only commodity involved in the import payment mechanism; It is further recommended that; we expand the scope of imports to other commodities from Iran; So that Rupee-Rial payment balance could be sustained in a better way for engaged banks to function. 

Brief Introduction:

Director (Finance) Mr.Shantanu Kumar Singh
Director (Finance) Mr.Shantanu Kumar Singh


Shantanu Kumar Singh(Executive Director, Taj Pharma Group); BA (Hons), MBA, M.Phil, England, UK; LLB/LLM; based at Mumbai and Ahmadabad. Extensive experience working with Deutsche bank, pharmaceuticals investment banking; Specialties: Pharmaceuticals Market Launches, Pharma Sales, financial consulting and corporate venture capital. International Corporate Communications and Mass media management.