Indian Basmati Rice Exporters Facing Iran Defaults Woes

EghtesadOnline: Defaults by Iranian importers on some Indian basmati rice brands under bilateral deals have hit India’s export of these products in the June quarter.

News ID: ۷۸۳۶۰۷

11 August 2018

The Indian government has cautioned exporters to avoid private transactions with Iranian importers, Business Standard reported.

Data from the Indian government’s Agricultural and Processed Food Products Export Development Authority show shipment of basmati declined by 7.2% to 1.17 million tons for the April-June period in the first three months of the fiscal year from the same period of last year.

Iran is the largest importer of India’s branded and unbranded aromatic rice, as it took a third of all its export in the June quarter. Hit by trade restrictions from the US, Iranian importers pay to Indian basmati exporters in rupees, according to Financial Tribune.

Many such transactions are done on a private basis without involving banks and regulators. Informed sources say a number of importers dealing primarily with private basmati exporters had defaulted in making payments of around Rs5 billion ($72.5 million).

“Usually, exporters get a certificate from Apeda and proper processes are followed. As per trade sources, several large basmati rice exporting firms have become non-performing assets with their bankers, due to non-receipt of payments against the export of large volumes to importers,” said a senior Apeda official, on condition of anonymity.

According to trade sources, some Indian exporters were dealing privately with Iranian importers without opening Letters of credit, which guarantee the receipt of money from importers.

According to the Apeda official, around a third of India’s basmati exported to Iran faces a threat of default.

“We have taken up the issue with the trade ministry in Iran. But, it seems, Indian exporters would have to go only through the legal route to recover the money,” the official added.

Apeda has advised exporters not to register contracts for export of basmati or make arrangement for payment before applying to it in this regard.

Exports should be against formal orders that include quality specifications and a mechanism for resolution of disputes.

“The situation might normalize in a couple of months,” said Gurnam Arora, joint managing director of Kohinoor Foods, an exporter of basmati.

“The Indian government needs to look into the problems facing exporters shipping consignments to Iran in view of the increasing threat of US economic sanctions against the Persian Gulf nation,” said Federation of Indian Export Organizations President Ganesh Gupta, noting that the rupee account currently used for payment settlement has limited funds to meet export requirement only for 3-4 months.

“Other than UCO Bank, no other bank is willing to deal with exporters who are trading with Iran in view of the US sanctions. The government needs to immediately look at the situation and take steps,” Gupta was quoted as saying by The Economic Times.