India is studying the option of paying for crude oil from Iran in rupees even as it is working on an interim arrangement to pay in hard currencies through a West Asian bank, Telegraph India reported.
While India's finance ministry wants to make the payment in rupee, the Reserve Bank of India (RBI) has vetoed the move till now as India has a high trade imbalance with Iran, the report claimed.
According to the report, Iran buys goods worth $1 billion from India against exports of $12 billion of crude, and the RBI believes that this will leave Iran with huge reserves of the Indian currency.
However, officials argue that the payment in rupee is in sync with India’s intentions to turn the monetary unit into a convertible currency and, eventually, into a global reserve currency.
“It could also make Iran to spend that money by stepping up project and consumer imports from India and invest that money back here for lucrative returns,” Telegraph India quoted the officials as saying.
The officials also saw a situation of rupee payment, and the Iran government holding the currency as a locked-up reserve.
They said this measure could reduce the total money supply within the Indian economy and bring down inflation, though the previous experience of such an arrangement could prove to be a damper.
When the Soviet Union broke up in the early 1990s and the rouble collapsed, Russia held huge stocks of the rupee - and this is a reason why the RBI is wary of such an arrangement.
India buys about 21 million tonnes of crude from Iran every year, which accounts for 14 percent of its crude oil imports, the report read.
It is likely to continue buying crude from Iran despite US displeasure, Telegraph India added
Once the Chabahar port in south-eastern Iran is set up with Indian help, crude and gas imports will go up further. Besides the port, a highway project in Afghanistan was being developed to access Iranian and central Asian oil and gas. The Zerang-Delaram highway in Afghanistan is now controlled by the Taliban.
In December, the RBI had said trade transactions with Iran would have to be settled outside the Asian Clearing Union, a regional payment arrangement.
India had to work out an alternative system of paying for Iranian crude through Germany’s Europäisch-Iranische Handelsbank AG (EIH Bank). However, Germany is not keen on continuing this arrangement, and India is in talks with banks in Dubai and Turkey for routing the payments to Iran.
Officials said talks with the State Bank of India in New Delhi last week remained inconclusive. “Ultimately we will have to let the oil companies who import Iranian crude to pay for in Indian rupees ... we have to take advantage of the adversities,” the officials said.
... Payvand News - 04/20/11 ... --