Basmati exporters are hopeful of steady returns after the UAE-India currency trade agreement. This will likely give a boost to Iran window via Dubai reducing the risk of a payment default. Iran is an important destination of Indian Basmati, remaining among the top five destinations.
Basmati rice shipments increased to 4.56 million tonnes (mt) worth $4.79 billion (₹38,524 crore) during the 2022-23 fiscal from 3.94 mt in 2021-22. The unit value realisation from export went up last year to $1,050 a tonne from $897 in 2021-22. Besides, global uncertainties due to Ukraine-Russia conflict, partial restrictions on the export of non-Basmati rice — ban on broken variety and 20 per cent duty on non-parboiled rice — also had some influence over Basmati prices.
“Business with Iran will definitely get a boost,” said Vijay Setia, a former president of All India Rice Exporters Association (AIREA) referring to the current trade agreement. He said Iranian businessmen sitting in UAE prefer barter as they have establishments in both countries. “Currently, many Iranian businessmen are facing problems to clear payments despite the rupee trade in place. With the new agreement, re-export of Basmati to Iran from Dubai will increase,” Setia said.
Under the agreement between the RBI and the UAE Central Bank, both the agencies will establish a framework to promote the use of local currencies (rupee and dirham) for cross-border transactions. Another MoU, also between the two central banks, is aimed at interlinking the “payment and messaging systems”.
Less fluctuations
When currency (USD) appreciates, exporters face loss and when it depreciates, there is gain. By shifting to local currency such fluctuations can be avoided, which is very important for Basmati trade, said Vinod Kaul, executive director of AIREA.
“Transaction will definitely become much easier. However, it is too early to get a clear picture as the agreement has just been announced,” he said. There are several more steps to be decided including nominating a bank or more than one bank, opening Vostro account and also setting up a corpus, he said.
Further, Kaul said the risk of payment default (from Iran) will likely reduce. “Exports will be fast-tracked and possibility of higher shipments to Iran will always be there,” he added.
The export of Basmati rice to UAE was 3,15,313 tonnes and to Iran was 9,98,879 tonnes in 2022-23.