Iran, India to Begin PTA Talks

EghtesadOnline: India will soon begin talks with Iran on a trade accord just as the US has turned hostile toward the Persian Gulf nation, threatening it with renewed sanctions after walking out of a nuclear accord with the country.

News ID: ۷۸۲۸۶۶

10 June 2018

The first round of formal negotiations on a preferential trade agreement will be held between India and Iran by August, Indian daily The Economic Times quoted "people with knowledge of the matter" as saying.

Such an accord will see the two giving duty concessions to each other’s goods, enabling greater market access for India’s pharmaceutical, rice and auto component exports, Financial Tribune reported.

“We are making our wish lists,” said one of the officials. “The first round of text-based negotiations will take place in a month or two.”

Talks on a PTA began two years ago, then slowed because Iran had concerns about India’s indirect tax structure.

“Most of Iran’s exports to us are intermediates,” an unnamed official said. “Initially, they had problems with countervailing duty and its adjustment in the pre-GST (goods and services tax) regime but now it is confident of the new tax structure.”

Iran has sought details on India’s tax structure before and after the imposition of GST on around 100 products, including urea, various dry fruits and chemicals.

India implemented GST on July 1 last year.

On the issue of PTA talks gaining momentum when the US was becoming belligerent on sanctions, another commerce department official said the two were mutually exclusive.

“PTA is a permanent thing while sanctions are temporary. Moreover, there is already an existing solution—the rupee payment mechanism—which is working,” the second official said.

Banks have not objected to India going ahead with the pact despite the threat of sanctions, the official said. “In fact, with a PTA, banks will have to process less payments due to reduction of duties,” he added.

Iran’s major exports to India are oil, fertilizers and chemicals while imports include cereals, tea, coffee, spices and organic chemicals.

“India can benefit on products such as pharmaceuticals, manmade staple fiber, iron and steel, tea, coffee, spices and chemicals,” said Ajay Sahai, director general, Federation of Indian Export Organizations.

The two sides agreed to undertake text-based negotiations on PTA as well as the conclusion of a bilateral investment treaty in a fixed timeframe during Iranian President Hassan Rouhani’s visit to India in February.

“India never stopped trading with Iran even when there were US and EU sanctions on that country. Going ahead with a PTA now is a strong signal of our trade partnership,” said an expert on trade issues.

India’s exports to Iran were $2.6 billion in fiscal 2018-19 while imports were $11.1 billion.

> Indian Delegation to Assess Mood in EU

To assess the mood of the nations in the European Union with regard to the impending US sanctions on Iran, a joint team of the finance, petroleum and natural gas ministries has been sent to meet officials in these countries.

According to a top government official, the team will be studying responses from various sources.

“We should remain aware of what the world is thinking,” said the official as reported by The Financial Express.

Though the European nations have said they will not adhere to the US sanctions, India does not want to keep any stone unturned.

“The last time when US had imposed sanctions, Europe followed. We want to be prepared for a repeat scenario,” said the official.

Currently, India pays Iran in euros through European banking channels and if European nations are not part of the sanction, it can continue to pay through the same channel. There is still time before sanctions are actually imposed.

India's Petroleum Minister Dharmendra Pradhan said the government is adopting a wait-and-watch policy regarding its crude imports from Iran, in case the US goes ahead with the sanction.

“It is too early to comment on the Iran issue.”

> India's Iran Investment in Rupee

It was reported a day before Rouhani's meeting with Indian Prime Minister Narendra Modi on February 17 that India, for the first time beyond Bhutan and Nepal, would invest in a foreign country—Iran—through its own national currency rupee to bypass any trouble arising out of impending US sanctions against Iran, which bars the country from dealing in dollars and euros, after the decision to invest in rupee was implemented in January to stimulate trade and investment between the two countries.

Rouhani’s visit was his first since assuming office in 2013 and came a decade after the last presidential visit from Iran: Mahmoud Ahmadinejad in 2008.

The Indian investments in rupees will get converted into Iranian rial through banking mechanism allowing investments from India, including in the Chabahar Port complex.