To save precious foreign exchange and reduce a burgeoning oil import bill, the government plans to increase crude oil imports from Syria and Sudan — which are diplomatically controversial —while making its payments in rupee.
The move is likely to help the government cut a widening current account deficit (CAD) — the difference between dollar inflows and outflows — but it would have to contend with fallouts linked to Western sanctions on these two nations.India currently pays in dollars for most of its crude oil imports and any fluctuation in the rupee-dollar rate as well as global oil prices have a direct impact on the country’s economy.
UCO Bank, which has been handling the rupee payments for oil imports from Iran for more than a year, has already approached the government with a proposal to provide banking support for similar trade with the Syrian Arab Republic and South Sudan, senior petroleum ministry officials said.
“The UCO Bank in co-operation with the government and the Reserve Bank of India had developed a new rupee payment mechanism for oil import from Iran...They (the bank) want to replicate the same banking support for Syria, a move that can help India save on its outgo of dollars,” an official said.
However, since both Syria and Sudan have sanctions imposed against them by the US and EU, the Indian government will have to chalk out a “careful strategy” before increasing oil imports from these two countries, government sources said.
Petroleum minister Veerappa Moily recently said oil imports from Iran will be increased in the coming months. This can help India save around $10 billion (`62,000 crore) in foreign exchange since the payment for oil from Iran will be made in rupees. The ministry was looking at similar options with other countries, he added.
However, there may be hurdles, officials said, since following the change of leadership in Iran, the Persian Gulf nation is not keen to accept full payments in rupees.
Petroleum secretary Vivek Rae on Tuesday said India is in talks with Tehran to resolve these issues so that the system of full payments in rupee is resumed.
Talks on with Iran for rupee deals
The government is in discussions with Iran over the issue of making payments in the Russian rouble, the Japanese yen or the Chinese yuan for oil imports after the Persian Gulf nation refused to accept full payments in rupees.
“Initially, we thought they (Iran) will be taking it (all payments) in rupees but there is some reluctance on their side particularly after change of government there,” petroleum secretary Vivek Rae said on Tuesday.
The government is keen that the system of full payments in rupee is resumed as it will help save precious foreign exchange, Rae added.