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Iran oil sanctions may hit India’s basmati rice industry

Date: 26-04-2019
Subject: Iran oil sanctions may hit India’s basmati rice industry
Kolkata: The recent announcement of withdrawal of waiver, which allowed India to continue to import crude oil from Iran despite imposition of trade sanctions on Iran, by the US government in the first week of May has led to uncertainty over India importing crude oil from Iran. This can in turn skittle the exports of commodities including basmati rice. Given the scale of basmati rice exports to Iran, a disruption in sales to this market can have a severe adverse impact on the basmati rice industrY observed ICRANSE -0.52 % on Thursday. 

Deepak Jotwani, Assistant Vice President, ICRA said: “Iran has remained a major export destination for Indian Basmati rice and the industry’s concentration on Iran has only magnified in FY2019. Discontinuation of crude oil imports from Iran can lead to issues on recovery of outstanding dues for the Basmati rice shipments already made, hampering the financial position of such exporters. Moreover, this issue can impact the industry as a whole and even the players who do not export to Iran. Given the share of Basmati rice exports to Iran, any moderation in sales to this market can have a depressing impact on the Basmati rice prices globally. This can severely impact the industry performance, especially considering that prices of the raw material i.e. Basmati paddy have firmed up in recent times, resulting in industry participants carrying high cost inventory.Additionally, the government’s policy stance on trade with Iran, post withdrawal of the waiver, will have a strong bearing on the prospects of the Basmati Rice industry in the current fiscal.” 

Iran has remained the largest importer of basmati rice from India in recent years, accounting for 32% of the total basmati rice exports from India in 11 month of FY19. During this period, Iran has imported basmati rice worth Rs. 9,204 crore (12.7 lakh MT), significantly higher than Rs. 5,830 crore (8.8 lakh MT) during FY2019. This surge in demand from Iran is explained, to some extent, by pre-emptive buying by Iran due to the uncertainty over its global trade in light of the imposition of trade  sanctions by United States in November 2018. 

The US government had parallelly granted waivers to eight countries including India, allowing them to continue to import crude oil from Iran. The Indian government, in order to comply with the condition that forbids direct fund transfers to Iran, introduced the rupee payment mechanism and identified two banks – IDBI BankNSE -2.97 % and UCO BankNSE 0.27 % for the same. Under this mechanism Indian refiners who import crude oil from Iran, deposit the payment for the same in rupee terms in escrow accounts held with these banks. The banks use these funds to release payments to Indian exporters, which are exporting essential commodities such as agro productsNSE 0.20 %, pharmaceuticals, etc. As a result, uncertainty (specially related to payments) regarding trade between India and Iran eased to some extent, leading to a surge in Basmati rice exports to Iran from December 2018 onwards - Rs. 3,680 crore in three-month period (December-February) as against Rs. 5,528 crore for eight-month period (April-November) in FY2019. 

However, the US government has recently announced that the waiver extended earlier will be withdrawn in the first week of May. India is trying to push for an extension of the waiver; however, in case the same does not materialize, it may discontinue import of crude oil from Iran. In absence of sufficient imports from Iran, payment recovery for exports of commodities like Basmati rice, faces high uncertainty. It may be noted that Indian crude oil imports from Iran were to the tune of Rs. 70,000 crore in FY2018 against which total exports were around Rs. 17,000 crore. 

Source: economictimes.indiatimes.com

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