Rupee pact with Iran to aid pharma exports

Why in news?

• As the United States of America has imposed certain trade restrictions on Iran, it has become a big hurdle for Indian pharmaceutical exporters to carry on the business in dollar terms and was facing quite a big problem with regard to payments and receipts.
• In view of this, India and Iran have entered an agreement to ease the trade payments between the two countries.
• This move by both the Indian and Iranian governments has come as a big relief to the Indian pharmaceutical exporters to Iran. It is understood that both India and Iran have agreed to carry on business in rupee terms and accordingly have agreed to ease out their respective trade payments.
• This move by both the counties in the contest of US sanctions has come as a big boost particularly for the pharma players.
• As per the agreement, designated Iranian banks can open Indian Rupee Vostro Accounts in UCO Bank and other mutually agreed banks assigned for this purpose. With this it will enable 100 per cent of amounts payable by Indian importers, including pharma and oil companies, will be credited to the Indian Rupees Vostro accounts opened by Iranian banks. Fifty percent of such amounts credited will be utilized for making payments to Indian exporters of goods and services to Iran.
• The Indian pharma industry now has an opportunity to increase exports to Iran, following a rupee payment mechanism agreed upon recently by India and the Persian Gulf nation.
• Indian pharma exports to Iran were at $124.05 million last fiscal. Iran has a well-established pharma industry that meets 80% of the country’s requirement. The remaining 20% is met predominantly through imports from Europe.
• With a cloud of uncertainty hovering over continued pharmaceutical supplies from Europe in the wake of the U.S. sanctions against Iran, the Indian pharma industry could explore opportunities to step up exports.
• The U.S., had in May last year, come out from a nuclear accord with Iran and re-imposed sanctions. The rupee payment agreement came within weeks of the sanctions to cover oil imports from Iran.
• While imposing the sanctions again, the U.S. provided a time window of exemption under which India and a few other countries could continue to import oil for some time, but of relatively less quantity.
• Pharmexcil, pharma export council, intimated its members recently about the agreement under which 50% of the amount credited by Indian oil companies could be utilised by Iran for making payments to Indian exporters of goods and services.
• These funds may also be used for settlement of payments to Indian exporters for transactions that took place prior to operationalisation of the arrangement.

Drug industry

• Constituting mostly APIs (bulk drugs), Indian pharma exports to Iran have been declining in recent years.
• From $180.50 million in 2015-16, — bulk drugs and intermediates contributing to a little over $119 million and drug formulations and biologicals around $40 million — pharma exports to Iran fell to $160.33 million in 2016-17.
• Bulk drugs and intermediates accounted for $83.67 million, while export of drug formulations was for almost $47 million.
• Of the $124.05 million export in 2017-18, the share of bulk drug and intermediates was $66.22 million. Drug formulations and biologicals export stood at $37.58 million.
• Indian drug makers ought to eye a bigger pie in Iran’s $1.3 billion generic market.
• On replacing European suppliers, it was possible as not all the drugs imported by Iran were innovator drugs. It made economic sense for Iran to source more from India as the U.S. sanctions were likely to impact its economy, turning the spotlight on cost-effective products.

(Bilateral, Industry) (The hindu, Business standard)

Pic courtesy: The Hindu