According to sources familiar with the matter, India is facing the risk of losing one of its major markets for basmati rice exports, Iran, due to the recent depletion of rupee reserves held by the West Asian nation. This depletion has also affected the export of other commodities, including tea and pharmaceuticals, to Iran.
Historically, Iran used its rupee reserves, accumulated from oil exports to India, to pay for imports. However, since mid-2019, when New Delhi ceased purchasing Iranian crude due to US sanctions on Tehran, the rupee reserves have been dwindling.
Despite efforts from the Iranian side to find solutions for resuming basmati rice imports from India, importers in Iran are now exploring the possibility of increasing rice procurements from alternative sources like Pakistan, Turkey, and Thailand, as per the sources.
During 2022-23, Iran imported nearly one million tonnes of aromatic rice from India, accounting for 20.35% of the country's total basmati exports, which stood at 4.5 million tonnes.
According to two anonymous sources, India-Iran trade has experienced a significant decline since 2019-20, triggered by India's decision to stop buying Iranian crude in May 2019. Prior to this, Iran ranked among the top three suppliers of energy to India, alongside Saudi Arabia and Iraq.
One of the sources stated that it appears Iran has depleted its rupee reserves, leading to difficulties in conducting trade in local currencies between the two nations.
An expert on India's currency management, the second source, mentioned that there seems to be no trade in local currencies (rupee-rial trade) at the moment.
In recent meetings, the Iranian side raised concerns about the rupee reserves issue with the Indian side and offered to resume oil exports to India as a way to rebuild rupee reserves held in the country. They also pointed to India's purchase of Russian crude despite Western sanctions and suggested that a similar approach should be adopted to resume procurement of Iranian energy.
Government data shows that since 2014-15, Iran has consistently been the largest or second-largest importer of Indian basmati rice. It held the top position in import volumes for the commodity during 2017-18, 2018-19, 2019-20, and 2021-22. The quantity of basmati imported by Iran reached its peak in 2018-19 at 1.4 million metric tonnes, while it was 935,567 metric tonnes in 2014-15 and 998,879 metric tonnes in 2022-23. In the same fiscal year 2022-23, Iran was ranked as the fourth largest purchaser of Indian tea, with imports worth $68 million.
Official data indicates a significant decline in India's trade with Iran during 2019-20, primarily due to a steep drop in imports, mainly consisting of Iranian crude. Imports, which were mainly Iranian crude, fell approximately 90% to $1.4 billion in 2019-20, in comparison to $13.53 billion in 2018-19.
On the other hand, the year-on-year fall for India's exports to Iran was not as steep, with exports worth $3.37 billion in 2019-20, compared to $3.51 billion in FY19.
During 2018-19, India imported about 23.5 million tonnes of Iranian crude, which constituted almost one-tenth of its total requirement. These imports were facilitated by advantageous terms, such as a 60-day credit and other discounts. Apart from crude, India primarily imported petroleum products, dye intermediaries, and fruits from Iran, while mainly exporting basmati rice to the country.
Additional significant Indian exports to Iran included tea, sugar, and pharmaceuticals.
The trade balance, which was previously in favor of Iran before May 2019, gradually shifted in favor of India after it ceased crude imports. In the fiscal year 2022-23, India's exports of goods amounted to $1.66 billion, with basmati rice being the main commodity. On the other hand, India's imports from Iran during the same period were valued at only $672 million.
During the first month of the current fiscal year (April
2023), India's exports of goods totaled $123 million, primarily driven by
basmati rice, marking a year-on-year growth of 1.06%. However, imports from
Iran contracted by 7.24% to $69 million during the same period.
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