Opportunities in India’s Trade and Investment with Iran
We discuss India’s trade exposure to Iran and the prospects for a rebound in imports and exports in light of the US-Iran detente, full Chabahar port operations, and developments in the situation in Afghanistan. A new bilateral preferential trade treaty has also been the subject of several rounds of negotiations and would boost trade flows between India and Iran, diversify the trade basket beyond energy assets and strengthen regional trade ties and investments. in connectivity infrastructures.
Iran’s vast untapped hydrocarbon reserves and India’s ever-increasing energy consumption form the basis of economic cooperation between India and Iran. However, the two countries are also invested in strengthening their regional connectivity infrastructure to enhance trade and commerce.
With the development of the situation in Afghanistan, India and Iran find themselves at an opportune time to explore the convergence of their mutual interests.
Iran’s geographic location provides India with a gateway to Afghanistan and Central Asia via the port of Chabahar, invested by India, as well as access to global markets in Europe and Russia via North-South international transport corridor (INSTC). These infrastructural links are essential for expanding trade and investment prospects in the region, including between India and Iran.
India-Iran trade: ups and downs
Bilateral trade between India and Iran grew 23.7% in fiscal year 2018-19 (FY19), peaking at US $ 17.03 billion, oil and fuel carve out the lion’s share of Indian imports, accounting for US $ 12.3 billion. However, this trend has reversed since May 2019, following the expiration of the oil sanctions waiver granted to India by the United States. In FY20, bilateral trade amounted to US $ 4.77 billion.
This prolonged period of no sale of crude oil from Iran to India led to the depletion of rupee reserves at UCO Bank and IDBI Bank, the only two legal lenders to facilitate the rupee’s trade with the ‘Iran, thereby further reducing the volume of exports from India to Iran. India’s overall exports to Iran fell 42% in 2020 from 2019 to $ 2.2 billion, the lowest in more than a decade. The decline continues into 2021, and in January of this year, exports fell by more than half from a year ago, to $ 100.20 million. Exporters are worried about the depletion of rupee reserves and the resulting late payment.
Can we expect a change in this grim bilateral trade scenario?
However, with a change in US leadership, the prospects for economic engagement with Iran look bright. The new Biden administration is expected to take a pragmatic approach towards Iran and the possibility of easing US sanctions is not so far away. The United States’ position to negotiate its return to the Joint Comprehensive Plan of Action (JCPOA), which was abandoned by the Trump administration in 2018, reflects Biden’s facilitative and outward-looking approach that moves away from Trump’s protectionist and inward-looking approach.
India stands to benefit from this new approach, with India being Iran’s second largest oil trading partner after China. Deeper economic engagement with Iran is crucial for India’s energy security. In fact, according to the report in Reuters, India hopes that the thaw in US-Iranian relations will enable it to Advanced on investments worth $ 500 million.
On July 8, Indian Foreign Minister S. Jaishankar trip in Tehran to appeal to Iranian President-elect Ebrahim Raisi, a month before he takes office. The visit was made during Jaishankar’s visit to Moscow for bilateral talks July 7-9. Last weekend, Tehran invited india at Raisi’s official swearing-in ceremony on August 5.
Negotiation of a commercial treaty
Negotiations for a bilateral India-Iran preferential trade agreement (PTA) are underway (five rounds have already taken place in June 2021), with an emphasis on diversifying the bilateral trade basket to include manufacturing, services and light engineering items. The PTA, which is expected to materialize soon, will allow both countries to reduce tariffs on each other’s products. Since Iran is not a signatory to the World Trade Organization (WTO), there is no obligation to keep tariff rates within a specific threshold as prescribed by the WTO.
Indian exports to Iran
Top Indian exports to Iran include semi / fully ground rice, black tea, fertilizers, organic / inorganic / agro chemicals, machinery and instruments, primary and semi-primary metals, iron and steel. finished products, pharmaceuticals and fine chemicals, processed minerals, polyester yarns and rubber fabrics and manufactures.
India meets more than a third of Iran’s demand for sugar and rice. Iran imported around 700,000 tonnes of basmati rice from India during the first quarter of 2020. Other agricultural exports to Iran include barley, sesame seeds, cane sugar and meal, etc. In fiscal 2019, India’s export basket to Iran was valued at $ 3.5 billion. and in the first 10 months of FY20, that value was US $ 2.8 billion.
Other potential items that could improve Indian exports to Iran are machinery and instruments, electrical and electronic equipment, vehicles other than railways, streetcars, plastics and plastic articles, optical devices. , photographic and technical, pharmaceutical products, animal vegetable fats and oils, ceramic products. and pearls and precious stones.
Indian imports from Iran
Top Indian imports from Iran include crude oil, inorganic / organic chemicals, fertilizers, plastics and articles, glass and glassware, natural or cultured pearls, precious or semi-precious stones , leather, etc. Agricultural imports from Iran include almonds, pistachios, dates, and saffron, etc. In fiscal year 19, imports from Iran amounted to US $ 13.5 billion. In the first 10 months of FY20 (April 2019-January 2020), that value fell to $ 1.35 billion. The main reason for this drastic drop was the lack of importation of crude oil from Iran since May 2019.
Business prospects will depend on the behavior of regional players
Between June 1990 and March 2021, cumulative Indian foreign direct investment (FDI) in Iran amounted to US $ 5,750.20 million. Large Indian companies, like ESSAR, OVL, Tata Steel, etc., are present in Iran. (By comparison, Iranian cumulative FDI to India from 1997 to 2019 was only US $ 905.62 million.)
Iran’s vast reserves of gas, oil and hydrocarbons along with its strategic location make it an attractive destination for India.
The recent $ 400 billion deal between Iran and China to develop Iran’s infrastructure and energy instead of a continuous, discounted supply of oil to China has upset India and could urge New Delhi to be more aggressive in its pursuit of trade and trade relations with Tehran.
Pure rhetoric won’t have much in the region, and businesses should pay attention to the presence of new regional players with the departure of US-led NATO from Afghanistan. China is expected to join Russia as a security provider, but India could pursue its economic and development goals by strengthening infrastructure and facilitating trade flows through tariff and non-tariff easing. This makes sense in light of New Delhi’s own reservations about the Belt and Road Initiative and Pakistan (CPEC) in relation to the desire to improve the scope of economic and trade cooperation between India and Iran. .
Port of Chabahar and other regional trade facilitation links
This is why India has invested heavily in the Iranian port of Chabahar, which will provide it with land maritime access to Afghanistan and Central Asia via Iran, bypassing Pakistan. This investment is key to India’s strategic ambitions in the region, whether it is accessing the rich mineral reservoirs of Central Asia or accessing Afghanistan of tactical importance to assert the role. of India in the security and development of the region.
Recently, India has also proposed the inclusion of the port of Chabahar in the multimodal INSTC project. Proposed by India, Russia and Iran in 2000, INSTC now enjoys the support of 10 other Central Asian countries. It envisions a 7,200 km long multimodal network of ships, rails and roads for the transport of goods, aiming to reduce transport costs by around 30% and transit time from 40 days to around 20 days.
India has developed two terminals at the port of Chabahar, including the Shahid Beheshti complex. Under an agreement with Iran, India will operate the terminal for 10 years. In December 2018, an Indian company, India Ports Global Limited (IPGL), took over the port’s operations.
As of December 2020, the port had handled 1.75 million tonnes (MT) of bulk cargo and over 13,000 TEUs of containerized cargo, such as reported through WION media. India used the port to send 75,000 million tonnes of wheat to Afghanistan in 2020 as part of humanitarian aid during the pandemic. India has also supplied 20,000 liters of the pesticide Malathion 96 ULV to Iran via the port of Chabahar to help the country curb its Desert Locust outbreak.
Media in March quoted India’s Minister of Ports and Navigation, Mansukh Mandaviya, as saying the port will start to operate fully by May. Talk to Reuters, Mandaviya said Chabahar Port handled 123 ships and 1.8 MT of bulk and general cargo from February 2019 to January 2021. In addition, India agreed to provide six cranes and other equipment worth US $ 85 million to equip and make operational the Shahid Beheshti terminal.
Finally, India also wants to set up a rail line of about 600 km connecting the port of Chabahar to Zahedan, capital of the province of Sistan-Baluchestan in Iran and close to the Afghan border. The business is expected to cost $ 1.6 billion.
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