New Delhi, April 17: 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.
While the finance ministry wants to make the payment in rupee, the Reserve Bank has vetoed the move till now as India has a high trade imbalance with Iran.
The West Asian country 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 Indias intentions to turn the monetary unit into a convertible currency and, eventually, into a global reserve currency.
It could also force Iran to spend that money by stepping up project and consumer imports from India and invest that money back here for lucrative returns, the officials said.
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.
However, the central banks of both countries have since then been studying a return to direct trade using rupees and roubles instead of hard currencies.
In the recently concluded summit at Sanya in China, Brazil, China, India, Russia and South Africa — they make up the Brics grouping — agreed to provide credit to each other in local currencies.
India buys about 21 million tonnes of crude from Iran every year, or about 14 per cent of its crude oil imports. It is likely to continue buying crude from Iran despite US displeasure.
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 Germanys 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.