News Analysis |
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. The first round of formal negotiations on a preferential trade agreement (PTA) will be held between India and Iran by August, said people with knowledge of the matter.
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.
“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,” the 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 while the US was becoming belligerent on sanctions, another commerce department official said the two were mutually exclusive of each other.
“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 haven’t 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 fibre, iron and steel, tea, coffee, spices and chemicals,” said Ajay Sahai, director general of the Federation of Indian Export Organizations. The two sides agreed to undertake text-based negotiations on PTA and they agreed upon a conclusion of a bilateral investment treaty in a fixed time frame, 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 FY18 while imports were $11.1billion. The US withdrew from the nuclear accord in May, alleging that Iran had violated the terms of the deal aimed at curbing the country’s bid to develop nuclear weapons, raising the prospect of renewed sanctions.
Meanwhile on the important issue of Chabahar, India said it hoped that the frosty ties between Iran and the US would not hurt the Chabahar port project as it provided an alternative route to not only Afghanistan but also Central Asia.
A Ministry of External Affairs (MEA) spokesperson, Raveesh Kumar, said External Affairs Minister Sushma Swaraj has made India’s position clear on the issue and also elucidated on how the relations between the two countries would grow despite the sanctions.
Javad Zarif, the Foreign Minister of Iran, held wide-ranging talks with Swaraj last week during which he sought India’s support in salvaging Iran’s nuclear deal with leading world powers in the wake of the US pullout.
India’s oil trade with Iran and the implementation of the Chabahar port project figured prominently in the talks.
“For Chabahar, we have expressed our position in this regard. We have told them (Iran) that it is our hope and expectation that the project would not be impacted by these developments. We have told them that Chabahar provides an alternative access to Afghanistan and Central Asia, which we have used to supply wheat in Afghanistan. The success of this project will contribute to our objective of a peaceful, stable and prosperous Afghanistan and this objective is also used by the US,” Kumar said.
Kumar added that India’s position on Iran’s nuclear deal is that Tehran has the right to peaceful use of nuclear energy.