Rupee reserves are running out, Iran is having trouble importing from India

India is at risk of losing one of its biggest markets for basmati rice exports, Iran, after the West Asian country depleted its rupee reserves in recent weeks, people familiar with the matter said on Wednesday.

The problem also affects exports of other goods such as tea and medicines to Iran, the people added. Iran paid for its imports with rupee reserves it built up through oil exports to India before New Delhi stopped buying Iranian crude in mid-2019 due to US sanctions on Tehran.

While the Iranian side is working to resume imports of basmati rice from India, importers in that country have started exploring the possibility of increasing rice purchases from other producers such as Pakistan, Turkey and Thailand, the people said.

Iran imported nearly a million tons of the aromatic rice from India in 2022-2023, 20.35% of the total 4.5 million tons of basmati exports from the country.

Two people who wished to remain anonymous said trade between India and Iran had plummeted since 2019-20 after New Delhi stopped buying Iranian crude in May 2019. Until then, Iran was one of the country’s three largest energy suppliers along with Saudi Arabia and Iraq.

“It appears that Iran has used up all of its rupee reserves and therefore trading in the respective countries’ local currencies is no longer possible,” one person said.

A second person, an expert on India’s currency management, said: “As far as I know, there may not be any local currency trading (rupee-riyal trading).”

The Iranian side has drawn the Indian side’s attention to the issue in several recent meetings and has offered to resume oil exports to build up rupee reserves held in India, the people said. The Iranian side also cited India’s purchase of Russian crude oil in the face of Western sanctions and demanded that New Delhi take a similar approach to resuming Iran’s energy sourcing, the people added.

According to the government, as of 2014/15, Iran is either the top or second-biggest importer of Indian basmati. It was the largest importer of the commodity in 2017-18, 2018-19, 2019-20 and 2021-22. Iran imported 935,567 tons of basmati in 2014–15 and the volume peaked in 2018–19 at 1.4 million tons. For the period 2022-23 it was 998,879 tons. Iran was the fourth largest buyer of Indian tea in 2022–23 with imports worth US$68 million.

According to official data, India’s trade with Iran fell sharply in 2019-2020 compared to the previous fiscal year. Imports, mostly Iranian crude, fell about 90% to $1.4 billion, compared to $13.53 billion in 2018-19.

The year-on-year decline was not as sharp (less than 5%) in India’s exports to Iran, which were worth US$3.37 billion in 2019-20, compared to US$3.51 billion in 2019-20 Fiscal year 2019.

India imported about 23.5 million tons of Iranian crude in 2018-19, nearly a tenth of its total needs, on lucrative terms like a 60-day loan and other rebates. In addition to crude oil, India mainly imported petroleum products, dyestuff intermediates and fruits from Iran and mainly exported basmati rice.

Other major exports of India included tea, sugar and medicines.

The trade balance, which was in Iran’s favor before May 2019, gradually shifted in India’s favor after crude oil imports stopped. In 2022–23, India exported goods worth US$1.66 billion (mainly basmati rice), but imports from Iran amounted to only US$672 million.

In the first month of the current fiscal year (April 2023), India exported $123 million worth of goods (mainly basmati rice), growing 1.06% yoy, but imports fell 7.24% to 69 million dollars back.

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