RBI officials have sought to clear the air over recent payment rules which some suggest will curb India's trade with Iran, especially in the oil sector, saying that the central bank's move was actually aimed at facilitating it.
The move is aimed at helping importers, who are facing difficulties in settling payments through the dollar or euro due to sanctions against Iran for nuclear proliferation, a key RBI official explained.
The central bank's "bona fide move" to smoothen oil imports from Iran, the second biggest supplier of crude to India, was misinterpreted by certain quarters as a step to curb these imports, the official said.
Last month, Reserve Bank of India allowed oil importers to settle payment in any currency outside of the Asian Clearing Union (ACU) mechanism, under which its members -- including India and Iran -- are allowed to pay for oil and gas only in euro or dollar.
"The provisions have been reviewed and it has now been decided that payment for import of oil or gas should be settled in any permitted currency outside the ACU mechanism," a RBI notification said. The RBI move means that India can now import oil from Iran and settle the payment in any currency, other than dollar and euro.
Later, the new provisions were extended to all current account trade with Iran. Current account includes trade in goods and services as well as some investment income. "Our move was facilitative and not restrictive," the official said.
Central banks and monetary authorities of Iran, India, Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka, Myanmar and Maldives are the members of the ACU.
While the US has imposed bans on various imports from Iran and importers were finding it difficult to settle the payment in dollars, Europe has allowed oil imports from Iran.
However, European nations insist on a certificate from the importers that payment will be made only for oil imports. But importers are encountering problems because it is not clear as to who has to give the certificates, central banks or the bank which is guaranteeing the payment.
Also, the payments are made on net basis, making it difficult to go through the composition of trade. Under this method, if country A buys goods worth Rs 200 from country B, and country B has bought goods worth Rs 100 from country A, then A has to give only Rs 100 to B.