Friends with benefits

THE FALL OF THE RUPEE has hit India where it hurts the most—its oil import bill, which is expected to shoot up from $169.2 billion (Rs 10.4 lakh crore) in FY13 to nearly $190.15 billion in FY14 (assuming Rs 60 to a dollar). There is a way to reduce the bill: Buy more crude from Iran. India can pay the country in rupees, not expensive dollars, as U.S. sanctions on Iran for trying to build nuclear weapons have rendered dollar-based transactions infeasible.

According to experts, importing 11 million tonnes of oil from Iran could mean savings of $8.4 million (crude at $105 per barrel) in foreign exchange. And since the rupee is not freely convertible, Iran’s strategy has been to use the currency to buy agricultural products, pharmaceuticals, and other goods from India.

The auto industry, which has grown sluggishly here, has been a big beneficiary. Sale of cars and spare parts to Iran by European Union countries are banned because of the sanctions. So, Indian companies have moved in to fill in the gap.

Ajay Sahai, director-general and CEO of Delhi-based trade lobby Federation of Indian Export Organisations, says trade with Iran is a win-win proposition for India. “India doesn’t have to pay in dollars for the crude that it imports and, therefore, there is no pressure either on the currency or on the current account. At the same time, exporters [to Iran] are thrilled because they do not have to worry about currency fluctuations.”