CHAPTER 5

Indo-Iran Trade: Policies and Initiatives

The behavior of trade is very complex in nature. It is not only determined by

trade policy but also the volume, composition, and direction of trade, which
plays an appropriate role in strengthening mutual ties among the countries.
Moreover, the determinants of trade are another field of study to analyze by the
trade behavior. The policy of trade forms an integral part of the overall
economic development in all economic jurisdictions hitherto. It leads economic
priorities to be fulfilled through intervention into global markets. Therefore, the
foreign trade cannot be left to the principles of the market and its mechanism
alone.

5.1 Background of India’s Foreign Trade Policies after

Independence

It is considered that India was a raw material exporting country before

independence. However, India introduced planned development policies in
1951; this was the initiate towards inward-oriented policy. It became apparent
that the second plan (1956-61) adopted import substitution industrialization
(ISI), which resulted in inward orientation. It was the period when the economy
of India was in infancy stage as well as unstructured in many forms. It is
suggested by various studies, including Dean Judith et. al. 1994; Singh, 1995;
Varma, 1998; Sen 2000; Debroy, 1998, that India had witnessed three distinct
phases with regards to its trade policy after independence, which is clearly
appeared by the paradigm shifts of policy approach from closed economy to
Chapter 5 Indo-Iran Trade: Policies and Initiatives

liberalized economy1. These phases could be identified as inward orientation

(1950-61), transition (1961-90), and outward orientation (1990-upto now) of
foreign trade policies. The first phase (inward orientation) relied heavily on the
development of basic and heavy industries, export restrictions, and quantitative
trade limitations. Therefore, the import was the only substitute for contributing
to economic development and self-reliance as well. The potential of domestic
markets was high, but unexplored, and coupled with the traditional composition
of goods. The composition of primary or traditional commodities have usually
constituted by the bulk of items, and thereby not suitable for export along with
corrosion of terms of trade. Also, those products were accompanied by several
limitations including low-return, the elasticity of goods, susceptible towards
alternative materials and others. Thus, import substitute was restricted, or
limited to some extent, to protect domestic market during the first phase. Also,
it was required to maintain the balance of payment, by control imports, and
elaboration of an administrative mechanism along with exchange control
or/and tariff policies. Therefore, India extended quantities restriction on
imports and rigid licensing system as inward orientation tool of trade policy.
However, the imports of essential and indigenous non-available items were
allowed without such restraints.

Moreover, the second phase (1961-1990) has witnessed the transition of trade
policies with regards to export promotion and import liberalizations. However,
a certain degree of restrictions was imposed on imports in the early period.
Officially, the Indian government has taken initiatives to promote export
instead of import substitutes. Therefore, the institutional framework was
extended to fiscal decentralization by cutoff import duty, income tax
concession and refund of excise duty during the third plan (1961-66). There
was export promotion entitled by the export proceeds against the import of
manufacturing and processed items. In addition, the subsidies also reduced to

1
Bhat, TP. (2011). Structural changes in India’s Foreign Trade. Institute for Studies
in Industrial Development, New Delhi, pp. 1-6.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

certain products in order to promote exports of non-traditional goods. However,

the policies of the third plan were severely hit by the crisis of monetary
devaluation, which resulted in the decline of rupee value by 36.5 percent in
June 1966. Consequently, the policy of export promotion impeded by the
withdrawn of import proceeds payments, reduction of cash subsidies, and
extension of tariffs over imports 2 . In 1970, the government of India had
announced a new export policy to cope up the monetary loss and accelerate
economic development. The following major steps were taken in new export
policy.

 Reduction of excise and custom duty

 Duty exemption and remission scheme
 Support for domestic products at international prices
 Concessional export credit and insurance
 Direct cash assistance scheme to the exporter
 Promotion of export by media campaign and publicity
 Rapid disposal of export replenishment licenses procured (REP) by
export firms

It was also significant to note that the share of India’s export in GDP decline
from 7.3 percent (1951) to the lowest level of 3 percent (1965) and remained
below to 4 percent until 1973. During 1970-75, the government again
succeeded with export promotion and import liberalization. Thus, the particular
emphasis made on import maintenance in order to promote capacity utilization
of export-oriented industries. The import was strengthened by the several
scheme likely open general licenses (OGL), export oriented units (EOU),
import replenishment proceeds (REP), free trade zones (FTZs), foreign direct
investments (FDIs), the introduction of joint-ventures with the collaboration
foreign firms and others. During sixth plan (1980-85), the government of India
had commenced new EXIM (export-import) policy 1983-84, which was proven

2
Kapila, Uma (2004), “Foreign Trade and Balance of Payments” in Uma Kapila (ed),
Indian Economy Since Independence, Academic Foundation, New Delhi, p. 526.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

an impetus for export by numerous initiatives. It was certainly the first efforts
towards liberalization of economy and openness of markets for investors. The
government adopted new regulations and tariffs and reduced trade obstacles of
international trade. Subsequently, the Abid Husain committee, formulated in
1984, has also envisaged on the ‘growth-led export’ rather than ‘export-led
growth.' Further, the committee recommended harmonization of foreign trade
policies and others measure to the boost-up Indian economy. Successively, the
Indian trade policies were influenced by the recommendation of Abid Husain
committee. However, some salient measures of trade liberalization could be
understood as follows3:

 During 1980-81, the import of raw material and consumables goods

were classified as restricted, banned, and free goods. All items except
above restricted and banned as appeared in the list were allowed to
import under General Open License (GOL). The import replenishment
licenses (REP) were introduced to the Indian exporters to compete in
global markets.
 During 1981-92, the extension of import replenishment licenses (REP)
to all manufacturers either exporting goods directly or by channels. The
introduction of the new trading scheme for big trading houses and
corporate, which enable incentives on exports.
 During 1982-83, the REP licenses were made attractive to raise
productivity as well as encouragement of export. Technological import
was emphasized along with simplification of trade norms. The special
provision introduced for NRIs investment with the relaxation schemes.
 During 1983-85, wider access was provided to the exporters that
exporting value added goods. The bans were imposed on the import of
old or used machinery by which domestic productivity could be ensured.
Subsequently, the new trade policy was executed in 1984.

3
Inputs from various issues of Economic Survey, Ministry of Finance, Government of
India, New Delhi.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

 During 1985-90, the introduction of first EXIM policy in 1985, which

was later on extended to next three years in 1988. A new policy for
computer software was announced along with identification of 14 thrust
sectors of export. The export proceeds (REP) were given to big
exporters under Barter system along with the extension of duty
exemption scheme for the advance licensee to increase the returns and
regulate factors of productions. The import-export passbook scheme was
revamped. The import of non-essential and low priority items was
minimized.

Although, all these measures, to some extent, had protected Indian economy
from global competitions. During 1980-90, the trade was overwhelmingly
characterized by license mechanism and high trade tariffs, which would not be
understood as the beginning of liberalization in India.

5.2 India’s Foreign Trade Policies during 1990-2002

The third phase of foreign trade policy was the crucial period in India. In 1991,
India had experienced global financial crisis, which creates massive imbalances
on both internal and external accounts. In July 1991, the rupee was depreciated
by around 20% vis-a-vis five international currencies, i.e. the US dollar, the
French franc, the British pound, the Deutsch mark, and the Japanese yen4. To
overcome this crisis, India has introduced a wide range of reforms in economic
policies. The reforms led to significant changes in the trade regime as well.
Nonetheless, India has brought about distinct changes in its trade policy to (or
“intending to”) creating an environment for rapid increase in exports along
with the growth of the economy. The initiatives that have been taken to cope up
with this goal could be understood as follows:

 Adaptation of policy of liberalization in imports

4
Sharan, Vyuptakesh and Mukherjee, Indra Nath (2001), India’s External Sector
Reforms, Oxford University Press, New Delhi, p.27.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

 Strengthening export promotion by incentives to exporters

 Rationalization of exchange rate policy on trade and tariffs
 Fostering of transparency and simplification of procedural formalities
 Introduction of dual exchange rate system

Consequently, the partial convertibility of the rupee was followed by a dual

exchange rate system in March 1992, which is also known as the Liberalized
Exchange Rate Management System (LERMS). Under this system, 40 percent
of the current receipts were required to be surrendered to the Reserve Bank at
the official exchange rate. Moreover, the rest sixty percent were converted at
the market exchange rate 5 . The rupee was made fully convertible on trade
account in March 1993 by the introduction of unified market-determined
exchange rate system. However, the current account convertibility of rupee was
achieved in August 1994. Subsequently, A new law came into force for import
export -activities known as Foreign Trade (Development and Regulation) Act,
1992. Later, the Export-Import (EXIM) policy announced on March 31, 1992,
which provides the EXIM policy validity for five years and simultaneously it
coincided with the Eighth Plan Period (1992-97).

The salient feature of the policy were stated as follows, (1) the globalization of
foreign trade; (2) perseverance on cost-effective import substitutes and self-
reliance; (3) improvement of quality of products in international market; (4)
improving research, development and technological capabilities; (5) cutoff of
quantitative licensing and discretionary controls; (6) enhancement of
competitiveness in industry, agriculture, and services sectors by improving
export potentials; (7) encouragement to exports by giving more access to raw
materials, intermediary goods; (8) reformation of EXIM procedures.

Under the EXIM policy (1992-97), the imports of capital goods under the
Export production capital goods (EPCG) scheme was allowed to reduced the

5
Pattnaik, R.K; Kapur, Muneesh and Dhal, S.C (2003), “Exchange Rate Policy and
Management-The Indian Experience” Economic and Political Weekly, Vol.38, No.22,
p. 2149.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

level of duty by 15 percent. The export obligation was stipulated as four times
of the cost insured fright (CIF) value of the imports. Moreover, the EPCG
scheme was also extended to the services sector. The policy also acknowledged
that trade can flourish only in a regime of substantial freedom. Thus, the need
for reasonable stability of EXIM policy was recognized by the duration of
policy as five years.

Moreover, the following EXlM Policy (1997-2002) runs parallel with the ninth
development plan (1997-2002). The objectives of the policy sought to the
consolidation of the gains of the previous policy along with the process of
liberalization. The salient features of the EXIM Policy (1997-2002) were stated
as the follows:

 To accelerate the country's economy to an internationally oriented

vibrant arena or intending to maximum benefit from the global market
opportunities
 To improve technological strength and efficiency particularly in
industry, agriculture, and service sector, thereby improving their
competitive strength while generating new jobs, and encourage the
attainment of internationally accepted standards of quality
 To foster sustained economic growth by providing access to essential
raw materials, intermediates, components, consumables and capital
goods required for augmenting production
 To enable consumers to good quality products at reasonable prices

In addition to the EXIM policies, the role of subsidies in export was

substantially reduced by abolishing the Cash Compensatory Support (CCS).
Moreover, The import entitlement scheme for exporters known as
replenishment license (REP) was modified as EXIM scrip, which was also later
withdrawn. The import liberalization was promoted by substantial elimination
of licensing, quantitative restrictions (QRs) and other regulatory controls.
Consequently, there has been a considerable cutoff in the import duties. As
tariffs have been cut across the board, the average tariff rate came down from

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127 percent in 1990-91 to less than 50 percent in 1995-96. The import-

weighted average of tariffs for all import stood at 87 percent (with tariffs on
some imports exceeding 300 percent) during 1990-91. The Import-weighted
average tariffs on consumer goods imports were as high as 164 percent. Also,
some non-tariff barriers, particularly QRs applied to virtually all imports while
import-weighted average tariffs declined to 24.6 percent by 1996-1997, only to
increase to 30.2 percent by 1999-00, in part because of a surcharge of 10
percent on tariffs imposed in 1997-986. The surcharge was terminated in the
budget for 2001-02. There were just four major tariff categories as of the fiscal
year 2000-01, i.e. 35, 25, 15, and 5 percent. However, most of the imports
attract tariffs slabs of 25 and 35 percent. The quantitative restrictions (QRs) on
most imports have been abolished as of 1 April 2001. However, the tariffs have
been raised to high levels while removing QRs on agricultural imports. There
has been a further reduction in subsequent years.

The summary of significant policy measures is presented in the Table 5.1,

which aimed at simplification and transparency of trade in the international
market.

Table 5.1 Summary of the policies measures in India since 1990-2002

Periods Measures of Policy

 Formulation of new Import –Export (EXIM) policy

 Promotion of Services exports
1990-1991
 Modification of replenishment rates (REP) to support
higher value added products

 Implementation of EXIM policy (1992-1997)

1992-1993
 Regulation of import through a limited negative list

6
World Bank (2000), “India: Policies to Reduce Poverty and Accelerate Sustainable
Development”, Report No. 1947-IN, Poverty Reduction and Management Unit,
Washington, D.C, p. 72.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

 Third party benefits introduced under the Duty Exemption

1994-1995 Scheme and the export promotion of capital goods (EPCG)
scheme

 Elimination of quantitative restrictions (QRs) by licensing

and other discretionary controls
 More than 3000 tariff lines covering raw materials,
1995-1996 intermediary, and capital goods were freed of import
licensing requirements
 Controls on imports were liberalized with an only small
list of items in the negative list.

 The second five-yearly EXIM Policy 1997-2002

1997-1998
implemented

 India’s exports hit severely by the adverse impact of Asian

financial crisis7
 Thus, various measures were announced in August and
1998-1999 September 1998, including:
 Exports exempted from Special Additional Duty (SAD) in
all promotion scheme
 Simplification of bond-furnishing procedures for exporters

 License wave off on 894 commodities while another 414

products allowed to import against Special Import License
 Free Trade Zones replaced with export processing zones
1999-2000 (EPZs)
 Green card for exporters exporting more than 50 percent of
their production
 Duty-free imports of consumables up to individual limits

7
Devaluation of Asian currency

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

for gems and jewelry, handicrafts and leather sectors

 Golden status certificates for Export and Trading Houses

 Quantitative restrictions removed from 714 tariff lines

2000-2001
 Setting up Special Economic Zones

5.3 India’s Foreign Trade Policies 2002 onwards

Moreover, the third five years based EXIM Policy (2002-2007) contains a
comprehensive package to foster massive thrust of exports. It was unveiled on
March 31, 2002, with co-terminus of the tenth five-year plan (2002-07). The
new policy has the provision for removal all quantitative restrictions (QRs) on
exports. The policy was devised towards doubling India's present exports of $
46 billion to more than $ 80 billion during the Tenth Five Year Plan (2002-
2007. It predicted the compound annual growth rate of 11.90 percent for the
same period. The principal objectives of this policy were:

 To boost the economy in order to derive maximum benefits from

expanding global market opportunities through sustained growth in
exports by a share of at least 1 percent of world merchandise trade
 Ensure delivery of fine services and quality products to the consumers at
internationally competitive prices while at the same time creating
competitiveness in the domestic producers

Moreover, prominent features of the EXIM Policy (2002-07) could be

understood as:

 All exports and imports are free, subject to the regulations imposed by
the government except those which were contained in the negative list
appended to the policy
 both new and second hand, capital goods may be imported under the
EPCG scheme

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 Advanced license granted to a manufacturing exporter for the import of

inputs, required for the goods production without payment of basic
customs duty
 Any person can make no import or export without an importer–exporter
code number granted by a competent authority
 Special provision for Offshore Banking Units (OBUs) in SEZs, which
impart security to the returns of the unit
 Electronic Hardware Technology Park (EHTP) was modified to enable
the sector to face zero duty regimes under Information Technology
Agreement (ITA-1)

Moreover, the changes in gems and jewelry scheme include abolition of the
licensing regime for the import of rough diamonds, reduction in value addition
norms for export of jewelry and permitting personal carriage of jewelry (Govt.
of India, 2002-03)

The new supplement to EXIM policy (2003-04) was released after the
revision of previous EXIM policy aimed with the following:

 The policy introduced duty-free import for the service sectors having
minimum earning of foreign exchange as Rs. 10 lakh
 Promotion of Agricultural Export Zones for boosting exports
 The EPCG scheme made more flexible and attractive. So that even small
sector could set up and expand its manufacturing base for exports
 Simplification and codification of rules, regulations and procedures
applicable to SEZs and EOUs
 a scheme for up-gradation of infrastructure was introduced to increase
the overall competitiveness of export clusters
 Extension of Duty-Free Replenish Certificate (DFRC) scheme to
deemed exports and reduction in its value addition norms from 33 to 25
percent.

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In the same row, the another supplement was introduced as EXIM policy
(2004-05) on January 28, 2004, included facilitation and simplification
measures to sustain the momentum of export growth, especially of gems and
jewelry. It also included provisions for the encouragement of tourism and
making energy generation cheaper. The salient features of supplement are as
follows:

 Import of gold and silver was freed for export purposes, and lifting
quantitative restrictions. The gold card introduced to make available
cheaper foreign currency debt on easier terms
 Duty-free import facility is available to star hotels extended to heritage,
one and two-star hotels and stand-alone restaurants. They allowed duty-
free imports equivalent to 5 percent of their export earning in three
preceding years
 Restrictions on import of electrical energy lifted
 Online license and electronic fund transfer facility for exporters made
available

During 2002-05, the overall focus of trade policies was on the liberalization of
commerce by import liberalization and simplification of the procedures. The
period covers one five year EXIM policy (2002-07) and two supplements i.e.
EXIM policy (2003-04) and (2004-05).

Moreover, a new Foreign Trade Policy (2004-09) was announced on 31

August 2004, aimed at simplifying procedures, improvement of products
quality and partnership with business and industry. The new foreign trade
policy (2004-09) announced new initiatives that include setting up of Board of
Trade and the Service Export Promotion Council. These efforts foster overall
trade along with the formulation of core objectives and identification of key
strategies. It focused on sectors having prospects for export expansion and the
potential for employment generation. The salient features of foreign trade
policy (2004-09) were:

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 To double India's percentage share of trade in global merchandise

activities by 2009
 To act as an effective instrument of economic growth by giving a thrust
to employment generation

These objectives expected to enhance international competitiveness and aid in

further increasing the acceptability of Indian exports. The strategies to achieve
these goals included:

 Decisive controls and creation of an atmosphere of trust and

transparency
 Simplifying procedures and bringing down transaction costs
 Identifying and nurturing different particular focus areas to facilitate
development of India as a global hub for manufacturing, trading and
services
 Facilitating technological and infrastructural up-gradation of Indian
economy, especially through import of capital goods and equipment

Besides this, it also included avoidance of inverted duty structure and ensuring
that domestic sectors were not disadvantaged in trade agreements and
upgrading the infrastructure network related to the entire foreign trade chain to
international standards. The special focus initiatives have been announced for
agriculture, handicrafts, handlooms, gems and jewelry and leather and footwear
sectors. However, the policy has proper measures for imports and its
promotion, which were followings:

 Import of seeds, bulbs, tubers and planting material has been liberalized
 Duty-free import of consumables for metals other than gold and
platinum allowed up to 2 percent free on board (fob) value of exports
 Duty-free re-import entitlement for rejected jewelry allowed up to 2
percent of fob value of exports
 Duty-free import of commercial samples of jewelry increased to Rs. 1
lakh

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 Import of gold of 18 carats and above allowed under the replenishment

scheme
 Duty-free import of trimmings and embellishments for Handlooms and
Handicrafts sectors increased to 5 percent of fob value of exports
 Duty-free entitlements of import trimmings, embellishments and
footwear components for leather industry increased to 3 percent of fob
value of exports
 Duty-free import of specified items for leather sector increased to 5
percent of fob value of exports
 Exemption of customs duty on Machinery and equipment for Effluent
Treatment Plants

In addition to these, the Free Trade and Warehousing Zones (FTWZs) has been
introduced to create the trade-related infrastructure to facilitate the import and
export of goods and services with the freedom to carry out business
transactions in convertible currencies. The import of second-hand capital goods
without any restriction on age has been permitted. The new policy has allowed
transfer of the import entitlement under Duty-Free Replenishment Certificate
(DFRC) scheme regarding fuels to the marketing agencies. The policy
measures announced to further rationalization and simplification of the rules
and procedures. On 31st August 2004, several items were made free from
restrictions, with the aim to increase productivity and benefit the country
through higher yields.

Moreover, the Annual Supplement (2005-06) to the Foreign Trade Policy

(2004-09), was announced on April 8, 2005. It aimed at to accelerate the
exports by agriculture and manufacturing sectors. The imports by hotels, other
service industries were also made duty free. The policy ensures the share of
state governments in providing an environment for international merchandise
trade, by setting up an inter-State Trade Council. In addition, concessional duty
imports made about the agricultural sector by agro units establishment under
the EPCG scheme. It included the provision for capacity expansion and quality

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up-gradation in the small-scale industry (SSI) sector by allowing import of

capital goods at 5 percent customs duty. The concessional duty benefits under
EPCG scheme extended for import of capital goods. The requirement of
submitting an installation certificate for machinery imported under EPCG
scheme, now not be required for the units, which were not registered with
central excise. The ‘Served from India’ scheme was introduced, which enable
the service providers to upgrade the infrastructure in their associated
companies. Moreover, the sample limit of gems and jewelry was exempted
from duty up to Rs. 3 lakh, which was earlier Rs. 1 lakh. The paper and
dyestuffs were removed from the sensitive list of items prescribed for import of
articles under Duty-Free Replenishment Certificate (DFRC). A fast track
mechanism was set up for clearance, examination, testing, quarantine,
packaging, etc. The online web based information system, by the directorate
general of foreign trade (DGFT), was promoted to enable all the users trade-
related policies and procedures.

Moreover, another Annual Supplement (2006-07) to the foreign trade policy

(2004-09) was announced on April 7, 2006. Under this, especially focused
initiatives were identified for intensive employment areas of agriculture
handlooms, gems and jewelry, leather and marine sectors. The import features
of supplement are as follow:

 The capital goods imported under EPCG shall be permitted to be

installed anywhere in the agri-export zones (AEZ)
 Import of restricted items, such as panels, allowed under the various
export promotion schemes
 Duty-free import entitlement of specified trimmings and embellishments
was 5 percent of fob value of exports
 Duty-free import entitlement of hand knotted carpet samples was 1
percent of fob value of exports during the previous financial year
 Duty-free imports of old pieces of hand knotted carpets on consignment
basis for re-export after repair was permitted

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

 Duty-free import entitlement of consumables for metals other than gold,

platinum was 2 percent of fob value of exports
 Duty-free benefit for the import of trimmings, embellishments and
footwear components for footwear, gloves, travel bags and handbags
was 3 percent of fob value of exports of the previous financial year; it
also cover packing material
 Re-export of unsuitable materials such as raw hides and skins and wet
blue leather was permitted
 The new or second-hand capital goods, equipment, components, parts
and accessories, containers meant for packing of goods for exports, jigs,
fixture, dies, and molds may be imported for export without a license/
certificate/ permission/ authorization.
 Imported goods may be exported in same or substantially the same form
without a license/certificate/permission/authorization provided item was
not mentioned as restricted for import or export in the ITC (HS)
 Duty-Free Replenishment Certificate (DFRC) is issued to a merchant
exporter or manufacturer for the import of items used in the production
of goods without payment of basic customs duty

There were several other measures included in foreign trade policy (2004-09),
intending to accelerate the transition to the globally oriented economy. In
general, India's import policies aimed at export promotion and facilitation of
imported inputs for production. The focus of policies shifted to easing of trade
restrictions, simplification of procedures, and improvement of the environment.

Moreover, the foreign trade policy (2009-14) released as updated version of

previous EXIM policy, on 12 August 2009. After the global recession during
2002-09, it was a fostering attempt to stabilized Indian economy and stopped
the decline in exports. In the last three years, India had adopted a stable policy
environment and forwarded diversification plan to reach out non-traditional
destinations. The focus was on the African, Latin American and Asian markets.
It also incorporated the aim of intensive employment generation along with

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fiscal and other market initiatives. Therefore, new schemes likewise Focus
Market Scheme (FMS), Focus Product Scheme (FPS), Market Linked Focus
Product Scheme (MLFPS), and others were introduced in the new policy. The
policy also recognized the need for promoting domestic value addition and
value added exports from India by the zero EPCG scheme as an instrument. In
addition to main policy documents, a supplement was also added later on as
foreign trade policy (2012-13) released on 12 June 2012. However, both the
documents put forwarded adaptation of previous foreign trade policy (2004-09)
with some addition or modification. The salient features of both the main
policy document and supplement are as follows:

 New 29 countries have been included within the ambit of Focus Market
Scheme.

 The incentives provided under Focus Market Scheme (FMS) have been
increased from 2.5 to 3 percent

 The EPCG Scheme at zero duty has been introduced for certain
electronic products, basic chemicals engineering products, and
pharmaceuticals, apparel and textile, handicrafts, chemicals and allied
products, plastics, and leather and leather products. This scheme aimed
at expansion to cover-up more export product groups including sports
goods, toys, rubber & rubber products, marine products, additional
chemicals / allied products and other engineering products.

 Minimum 15 percent value addition on imported inputs under Advance

Authorization Scheme has been stipulated to encourage value added
manufacture export

 Permission granted for all capital goods imports used in Agro-Economic

Zones.

 Import of restricted items, such as panels, is allowed under various

export promotion schemes.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

 Duty-free import benefit of specified trimmings and embellishments is 5

percent of FOB value of exports. The Handloom made-ups have also
been included for the entitlement.

 Duty-free import entitlement of hand knotted carpet samples is 1 percent

of FOB value of exports.

 Duty-free import of old pieces of hand knotted carpets on a consignment

basis for re-export after the repair is permitted.

 Additional 2% bonus entitled under Focus Product Scheme (FPS) on

leather and footwear.

 Duty-free import entitlement of specified items is 3 percent of FOB

value of exports of leather garments; previously it was 5 percent.

 Marine sector provided for benefits under zero duty EPCG scheme.

 Export of electronic goods to be promoted under FPS.

 Duty-free import of sport and toys goods under specified specialized

items allowed to the extent of 3% of FOB value of previous financial
year’s export.

 Promotion, production and export of green products and technologies.

 Direct or indirect trade of all items, equipment, materials, goods, and

technology that can contribute to Iran’s enrichment-related, reprocessing
or to the development of nuclear weapon delivery systems, or heavy
water related activities, to/from Iran is strictly Prohibited.

 Freely exportable new or second-hand capital goods, components,

equipment, parts and accessories, containers for packing of goods for
exports, jigs, fixtures, dies, and molds may be imported for export
without an Authorization on the execution of board of governors with
Customs Authorities.

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 Capital goods, components, equipment, parts, and accessories, whether

indigenous or imported, except those restricted under ITC (HS), to sent
abroad for repairs, quality improvement, testing, or up-gradation or
standardization of technology, re-imported without an Authorization,
and were exempted from the duty.

 Single window system introduced to facilitate export of perishable

agricultural products The system involved the creation of multi-
functional nodal agencies to accredited by Agricultural and Processed
Food Products Export Development Authority (APEDA), New Delhi.

 A novel ‘Niryat Bandhu’ scheme (NBS) for mentoring first generation

entrepreneurs has been conceptualized. The Niryat Bandhu officer
would primarily mentor interested individuals in the arena of
international business.

 Introduction on Bank Realization Certificates (BRCs) for export

proceeds

 Market development related schemes likely Market Access Initiative

(MAI), Assistance to States for Developing Export Infrastructure and
Allied Activities (ASIDE), and Marketing Development Assistance
(MDA) were incorporated.

In addition to these, several others measures were also taken into consideration
under foreign trade policy (2009-14). However, the overall focus of the policy
was to ensure transparency, diversification, and special focus based initiatives.
Moreover, the foreign trade policy (2015-20) also forwarded recently with the
aim of “Make in India” slogan. The policy aimed at promotion and fostering
export of goods and services as well as the generation of new employment and
increasing value addition in the country. The focus of the policy is to support
both the manufacturing and services sectors with an emphasis on improving the
“ease of doing business”. With the addition of previous policy (2009-14), the
two new schemes namely merchandise exports from India schemes (MEIS) for

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

export of specified goods for specified markets and service exports from India
Scheme (SEIS) for increasing exports of notified services were introduced. It
seems not suitable to discuss all the initiatives of this new policy as the present
study includes only the duration of 1991-2014. Moreover, it is recommended
that the new study should incorporate the new policy discussions with the
objective of foreign trade promotion and working framework for ease of import
and export.

Thus, the import policy of India changed from time to time according to
changing economic conditions and domestic requirements. Since
independence, the Government restricted foreign competition through the
judicious use of import licensing, import quotas, import duties and in extreme
cases, even banning the import of specific goods. However, the policy from
1991 onwards is consonance with the overall liberalization of the Indian
economy. The main focused has always remained on transparency, openness,
and globalization. The promotion of industrial and manufacturing activities lies
in the consideration of all policy framework. It also includes production and
productivity improvement strategies to ensure the competitiveness of Indian
industry as to meet global market requirements along with export
competitiveness, technology development, foreign direct investment (FDI). All
the policies have moved away from quantitative restrictions (QRs), facilitating
input availability besides focusing on quality and above all integration of
Indian economy with changing international economic order.

In 1979, the Islamic Republic of Iran has abolished monarchy system and
established an Islamic state based on Sharia law. Since then, Iran emerged as a
significant regional economy, and one of the world’s principal oil producers
and simultaneously an exporter of capital goods. The policy of Iran’s import
and export heavily relied on export promotion and exchange rate stabilization.
It was evident that the Iran’s exchange rate was suffering from global setback
due to the continuous devaluation of Rials against the dollar. For instances, the
value of a Rials was 11.2 per dollar in 1933, which significantly dropped to 165

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

Rials per dollar at the end of 1979. However, the decline rate is continuing up
to now, while it was reported 8600 Rials per dollar in 20058. Despite adopting
several measures to stabilize Iran’s economy, the government has made an
effort to export promotion and establishment of unified exchange rate system
during 1985-90. Moreover, the trade of Iran was dominated by intermediary
goods and diversified in its nature before the Islamic Revolution. The Oil crisis
of 1973 provides the strength to shift trade regime towards the export of
industrial products, and more importantly by Petroleum and Gas substitutes. In
addition, continuous devaluation of Rials and various exchange rates system
foster trade liberation and openness in the market economy.

5.4 Iran’s Foreign Trade Policies during 1991-2003

Iran pursued with previous year’s trade policy in 1991, which were aimed at
the Exchange rate unification, gradual liberalization, deregulation of industrial
import, promotion of free trade on floating exchange price, adaptation of new
economic policy, the introduction of competitive and floating exchange rates,
prevention of dolarization and improvement in Rials position. However, import
specific policies pursued to the deregulation of industrial import, gradual
inclusion of floated imported items, elimination of “saying certain items are not
manufactured domestically” certificates, removal of import license and custom
clearance, export proceeds and competitive exchange rate for import, relaxation
by free market and letter of credits (LC) for some selected goods, elimination
of surrender limit of LC by 65 percent, reduction of import duty by 30 percent,
development of Kish island as most favorable import destination by using
several measures, and others.

Moreover, the export managed by the removal of restrictions, facilitation of

non-oil export and terms of surrender on LC and export proceeds, introduction
of more depreciated (floating) rate, establishment of Export Development
Bank, limit of LCs determine by 50 percent share in foreign exchange,
8
Oskooee, Mohsen B. (2005). History of Rial and Foreign Exchange Policy of Iran,
Iranian Economic Review, Vol. 10 (14), pp. 1-20.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

extension of facilities in the framework usury-free banking law and related by-
laws and regulation, introduction of Rials convertibility outside the country.
The outcome of all those policies resulted positively by Import decline and
export increase. Thus, the trade balance was in surplus9. Subsequently, during
1992-93, Iran pursued with exchange rate unification implemented, elimination
of exchange allocation and exchange of budget, floating exchange rate for the
optimum allocation of resources, reduction of imports, correction of relative
prices and increase the efficiency of manufacturing sectors.

Moreover, the import was controlled by the banking system for all goods and
services. The policy of import without foreign exchange transfer was nullified.
In addition, the implementation of non-oil export promotion policy and
removal of hurdles in export were the prime measure for export promotion.
During that year, the oil prices decline by 18 percent (from $ 16.75 to 13.69 per
barrel). The total trade increase positively by import reduction and export
increase 10 . In 1994, Iran succeeded with the aim to create noticeable trade
surplus for the repayment of parts of foreign debts, through import controls and
for the promotion of non-oil export. In addition, the expansion of trade
(transactions) with the newly independent Republics and ECO members, and
Controlled over severe fluctuations of the exchange rate in the free market.

Thus, Iran nullified the right of transferring the permits for imports by the
exporter and deposit payment as a pre-requisite for order registration was
announced for luxury and consumer goods. The implementation of ‘Price
Control’ policy along with the export of certain items was stopped. The policy
of surrendering 50 percent of the export proceeds was put into force. During
the year, the oil price increased by 3 percent (from $ 15.27 to 15.79 per barrel).
The main focus of the policy was the promotion of non-oil export. Thus, all

9
Economic Report and balance sheet of Islamic republic of Iran, 1992 (1369-70), pp.
61-70
10
Economic Report and balance sheet of Islamic republic of Iran, 1994 (1371-72), pp.
44-51

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

those policy measures resulted in the stabilization of the economy, which

substituted by a decline in import and export increase whereas the total trade
balance was surplus11. The trade policies adopted in 1995 aimed at Creating a
trade surplus to strengthening foreign exchange reserves along with prompt
repayment of foreign exchange obligation, allocation of foreign exchange
resources to certain sectors through channeling foreign exchange proceeds, and
control imports through deposit surrender requirement, fixation of exchange
rate through channeling all foreign exchange transactions and foreign trade into
the banking system.

Moreover, the exchange rate stabilization and foreign exchange regulation

regarding surrender requirements were the major policy measures. Further, the
restriction on Import was continued along with the increase in the registration
fee and formulation of exchange allocation committee. Moreover, the
registration norms toughened, and the prepayment for opening sight letters of
credit (LC) to import raw materials was set at 50 percent and for usance LCs at
15 percent. However, the implementation of exchange control policy and the
compulsion on exporter to sell their export proceeds at an export rate to the
Bank were major export measures. Thus, the CBI has forced to the exporters to
sell the exchange proceeds within six-month. However, the policy of incentives
and penalties were obliged to increase export proceeds. The service export
increase by tourism promotion. Subsequently, the oil price was also increased
by 2.46 percent (from $ 15.79 to 16-18 per barrel)12. All those measures have
substantially improved trade balance along with export growth. However, the
import was declined during that year.

The appropriate management of foreign exchange reserves and the allocation of

resources through channeling, import control through surrender requirement,

11
Economic Report and balance sheet of Islamic republic of Iran, 1995 (1372-73), pp.
50-57
12
Economic Report and balance sheet of Islamic republic of Iran, 1996 (1373-74), pp.
62-71

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

prevention of exchange fluctuations, and strengthened foreign exchange

capability by trade surplus were the aim of 1996’s Iran’s foreign trade policy.
The import policy was aimed at import substitute’s development of the
economy by which the import registration free increased, mining and
manufacturing export followed by 50 percent export proceeds for import,
formulation of foreign exchange market regulation committee (FAMRC), and
import permits granted for non-oil export proceeds for import. Moreover, the
sale of export proceeds within eight months, carpets export proceeds extended
by 100 percent for Import, export of industrial, mineral, agricultural and
livestock were done by the import of raw material and spare part using 50-30
export proceeds during 1996-97. Simultaneously, the increase in price by 23.8
percent (from $ 16.18 to 20 per barrel) also contributed to trade surplus. Both,
the Import and export have reported significant increase as compared to
previous year, and the positive effect of all those measures substantially
strengthened Iran’s foreign trade13.

After extensive achievement in the previous year, Iran perceived with

preceding policy regime in 1997 along with import promotion by the provision
of third party’s import and utilization of import license against export.
Although, the transfer of import certificate to the third party was illegal except
the transaction with Tehran Stock Exchange (TSE). Moreover, the import was
extensively promoted by the exemption of registration fee for essential goods.
However, the registration fee increased slightly for others products whereas
import by using external foreign exchange was forbidden. Moreover, the export
also strengthened by policy measures, which includes the use of 30-50 percent
export proceeds of agricultural and livestock for import of certain goods, and
the relaxation on pharmaceutical export from exchange obligations.

Consequently, the non-oil export proceeds were allowed to use its 50 percent in
goods import. However, the external sector of the economy was hit severely in

13
Economic Report and balance sheet of Islamic republic of Iran, 1997 (1374-75), pp.
55-61

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

1997-98 by prevailing devaluation of money crisis in all over Asia (Asian

Crisis, 1997). Despite the decline in both the import and export, Iran succeeded
to manage the trade surplus14. In order to minimize or regain its trade position
in 1998, Iran preferred to the Euro transactions against the dollar, as a policy
measure, for import and export. The trade transaction in Asia was allowed
through the Asian Clearing Union (ACU). Moreover, the promotion of non-oil
export and freedom on the use of export proceeds along with foreign exchange
and the trade measures were the primary objectives of Iran’s foreign trade
policy in 1998.

Further, the diversification of import promoted along with transit transactions

Bazargan and Astara borders. For import promotion, a price-setting committee
was established to promote the competitiveness of export and non-oil export
proceeds allowed for import certificate. In addition, the export surrender limit
for foreign exhibitions was lifted. The adverse effect of Asian Crisis on Iran
economy has resulted in trade deficit along with export decrease whereas the
import is increased due to domestic demand15. In 1999, Iran adopted a focused
market policy of export and export promotion. Thus, the reduction in foreign
exchange obligations, relaxation on both the Import and Export, non-oil export
promotion, reduction of base rate of many exported goods, floating exchange
system for trade (import and export) were the main policy measures. It also
includes the exception on surrender limits on handicraft, preferential price
against rial domination, and electricity export. However, the import was
restricted by granting limited permits for direct import of machine and spare
parts. Therefore, Iran overcomes from the Asian Crisis with a positive effect on
its trade balance by the export increase and decline of Import16.

14
Economic Report and balance sheet of Islamic republic of Iran, 1998 (1375-76), pp.
53-59
15
Economic Report and balance sheet of Islamic republic of Iran, 1999 (1376-77), pp.
55-60
16
Economic Report and balance sheet of Islamic republic of Iran, 2000 (1377-78), pp.
67-76

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

The trade policies pursued in 2000-01 were expected to make transparency in

the foreign exchange market, and administrative barriers in the import and
making favorable environment for non-oil exports. The approval of the high
council of export exempted the export of all goods and services from foreign
exchange give up requirement 17 . The Central Bank of Iran (CBI) was
successful in administrating the fluctuations in the foreign exchange market.

In 2001-02, the Rial was relatively stable, which was creating the favorable
situation of foreign exchange reserves. It was a positive outlook for
international energy markets, which guided the policymakers to adopt actions
for deregulation and relaxation of administrative routines, existed in the foreign
trade process. By promoting exports and rotating funds, the manufacturing
sector of Iran gained substantial revenue and contributed significantly to
international trade18. The major foreign trade policies for this year were the
tariffication of non-tariff barriers and steady reduction of tariffs, exclusion of
non-oil exports from levies and charges.

In 2002-03, in order to encourage non-oil exports and to increase the role of

private sector, the government approved the law for the establishment of
private export promotion funds and the process of supporting such funds. Other
major foreign trade policies were reframed in 2002, with the aim of
deregulating the external sector. All regulations with respect to foreign trade
i.e. transaction of goods, services transactions, and banking procedure were
adjusted in agreement with the contemporary scenario19.

17
Central Bank of the Islamic Republic of Iran, publication 2000-01 retrieved from
mhttp://www.cbi.ir/simplelist/1784.aspx
18
Central Bank of the Islamic Republic of Iran, publication 2001-02 retrieved from
http://www.cbi.ir/simplelist/1767.aspx
19
Central Bank of the Islamic Republic of Iran, publication 2003-04 retrieved from
http://www.cbi.ir/simplelist/2508.aspx

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

5.5 Iran’s Foreign Trade Policies 2003 onwards

In 2003-04, Iranian economy showed a surplus in major accounts of the

balance of payments. The government has withdrawn the Oil Stabilization
Fund (OSF) during that year; the cash balance reached $ 9,477 million at the
end of 2004-05. In order to attract foreign investment and facilitate financial
transactions, Foreign Investment Promotion and Protection Act (FIPA) was
approved. The new Act aimed at strengthened the foreign trade relation by
which the foreign investors’ could ensure a maximum share in economic
activity likely the FDI procedures. The procedures of FIPA has set partnership
limit in each economic sector by 25 percent and in each field of activity at 35
percent 20 . Further, during 2005-06, a global rise in crude oil price was
experienced. The concomitant increase in petroleum price along with the
amount of oil and gas export raised export proceeds (including exports of crude
oil, petroleum products, condensates and natural gas) to $ 53,820 million,
which constitutes almost 48.2 percent of total trade21.

The export encouragement facilities were provided in the successive year

(2006-07), it includes exemption of export from tax whereas the subsidies and
rewards were another measures provided for export promotion. It leads to
increment in the export to $10,546 million in 2006-07. The increase was
contributed mainly by the exports of petrochemicals, construction materials,
and metals, as well as transportation vehicles and their spare parts and mineral-
metallic ores. Iranian government took steps towards the developments, which
affect the balance of payments performance positively22 . Likewise 2005-06,
this year also witnessed an increase of world’s crude oil prices. It contributed
significantly to both the value and volume of petroleum and gas export, which

20
Central Bank of the Islamic Republic of Iran, publication 2004-05 retrieved from
http://www.cbi.ir/simplelist/3448.aspx
21
Central Bank of the Islamic Republic of Iran, publication 2005-06 retrieved from
http://www.cbi.ir/simplelist/4625.aspx
22
Central Bank of the Islamic Republic of Iran, publication 2006-07 retrieved from
Jhttp://www.cbi.ir/simplelist/5884.aspx

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

lifted export proceeds by 15.2 percent to $ 62,011 million at the end of 1384
(2006-07). Moreover, a remarkable increase in the exports of chemicals and
petrochemicals, construction materials, and metals were noticed. It was the
effect of extension facilities by which tariffs and taxes reduced significantly.
Consecutively, again the price of oil increased at the global level, and along
with the liberalization of foreign trade was led to the surplus of the balance of
payment. It was a remarkable increase in the price of crude oil, which
condensed export proceeds by 31.5 percent at a record rise of $ 81,567 million
in 2007-0823. Simultaneously, the importance of the exports of technical and
engineering services was given, and export of high-value goods was
encouraged along with infrastructure support. In addition, the export was
promoted the initiation of trade delegations to various countries including
India. It was the market focused and commodity targeted effort by the
government of Iran. The promotion measures were taken for non-oil export by
providing duty relaxation during the international fairs. In addition, the
standardization of goods at international standard was also the part of trade
policy24.

During 2008-09, various domestic and international factors affected the Iran
foreign trade policy. The major characteristic of this year includes the drought,
reduction in economic growth, high inflation, and depreciation of real’s value,
the rise in petrochemical products investments and others. However, some
intensification of international limitations on the nation was the main external
factors that affected Iran’s foreign trade. Consecutively, Iran experience
favorable trade condition, which led to commendable growth in export and
decrease in import during 2010-11 25 . The government extended previous

23
Central Bank of the Islamic Republic of Iran, publication 2007-08 retrieved from
http://www.cbi.ir/simplelist/6904.aspx
24
Central Bank of the Islamic Republic of Iran, publication 2008-09 retrieved from
http://www.cbi.ir/simplelist/9589.aspx
25
Central Bank of the Islamic Republic of Iran, publication 2010-11 retrieved from
http://www.cbi.ir/simplelist/11024.aspx

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

year’s policy with the addition of trade support policies for manufacturing
industry. It was aimed to boost domestic pharmaceutical and chemical industry
at international standard. The global trade gained significant momentum after
overcome from the recession effect. Thus, Iran adopted a policy of free trade
zones and diversification of its export whereas simultaneously the ease of
tariffs on the import of essential goods. However, market and products oriented
export policy were another initiative taken by the Iranian government.
Therefore, the economy of Iran gained significant trade surplus along with an
increase in both the import and export.

However, the effect of the previous global recession (during 2008-09) also
contributed in the trade of Iran as the spillover to the real sector reversed the
uptrend in global economic growth and experienced a substantial increase in
commodity prices. Moreover, the expansion of sectoral and free trade zones
provided a hefty amount of trade revenue. The geographical expansion of the
trade with new destinations was also one of the policy measures in that year.
Thus, the incremental trade by providing direct support to the new economies
was noticed26. Iran perused with previous year’s policy in 2012-13, with the
addition of diversification, high value added export, standardization of the
products. The international economic expansion, surge in world economic
growth, rise in global trade, global price hike of crude oil, increase in nonoil
exports were the major reasons, which influenced Iran's foreign trade
positively27 . Thus, the trade balance was surplus along with the increase of
import and export.

5.6 Trade Initiatives/Policies between India and Iran since 1990

India has contributed in Iranian trade significantly, despite the threat of

sanctions imposed by the United States and the European Union against

26
Central Bank of the Islamic Republic of Iran, publication 2011-12 retrieved from
http://www.cbi.ir/simplelist/13010.aspx
27
Central Bank of the Islamic Republic of Iran, publication 2011-12 retrieved from
http://www.cbi.ir/simplelist/13602.aspx

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

countries trading with Iran. India has considered several incentives for
exporting selected products such as pharmaceuticals, diagnostic equipment,
auto spare parts, and others.

On the contrary, Iran acted with the subsidies price of Oil and gas export to
India. India introduced market- linked focus product scheme, which provides an
incentive for exports of specific products as free from the duty import scrips.
Also, the extension of the LC credit limit was increased to about $ 200 million
for Iranian import. India signed an agreement with Iran to build regional
transport networks-International North-South Transport Corridor (INSTC),
which will eventually help in connecting South, Central and West Asia for
regional economic development. Equally, the important would increase regional
security dynamics, particularly the developments in Afghanistan after the post-
2014 scenario.

In addition, the unfolding of the Syrian crisis and the impact of the ‘Arab
Spring’ has implications for both India and Iran. The West Asia is undergoing
under the political transition after the genesis of Arab spring with political
turmoil in West Asian countries, new security threats and transforming
geopolitical alignments are the problems being faced by these countries. Iran
being an important entity in the region is confronted with inter and intra-
national challenges. Externally, Iran has to prepare herself to manage its
economy positively under the umbrella of sanctions imposed by the
international community, whereas to stabilize the domestic and neighboring
ground internally. Moreover, the involvement of India in the development of
Chahbahar port has been a matter of concern for the last few years. The
Ministry of external affairs of India has responded positively, and the up
gradation of the port initiated successfully. The Chahbahar port project has
immense importance regarding India’s strategic interest. It provides the access
to Iran’s oil and natural gas resources along with access to Central Asian
countries.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

In April 2008, Iran and India signed an agreement that establishes a new rail
link between Iran and Russia, India will help in the technical training of human
resources. Moreover, a tripartite trade agreement among Iran, India and
Afghanistan was also signed to build Chahbahar route passing through Melak,
Zarang and Delarian. India had also signed an agreement with Iran for a project
worth $ 22 billion for 25 years. Under this agreement, the Gas Authority of
India Limited (GAIL) has to buy 5 million tons Iranian liquefied natural gas
(LNG) per year. The GAIL has established an LNG plant in Iran recently. The
agreement also offers the development of South Pars gas field in Iran, which
indicates India’s investment in Iran’s energy sector.

Currently, India buys near about 1-1.5 lakh barrels of Iranian oil per day, which
costs around 7.5 percent of Iran’s oil exports. Due to repercussions in past few
years, it has become hard for India to import oil from Iran. Consequently, the
reserve bank of India (RBI) banned Indian companies for payment of Iranian
crude oil through Asian Clearing Unit (ACU). However, India acceded with a
request to the US against sanctions in December 2010. Subsequently, the India-
Iran energy deals proposed a construction of gas pipeline from Iran to India via
Pakistan, with a probable extension from Pakistan to China. Iran has proposed a
free trade agreement with India to heighten bilateral trade and investment. Iran
is eager to develop its trade relations with India. To strengthen the trade
relationship, Iran wants to tie up with India a special preferential agreement on
the trade.

The future development of trade relations between India and Iran has several
implications as India had opposed the Iranian nuclear program under pressure
from the United States and other Western powers. In particular, India voted
against Iran at the International Atomic Energy Agency (IAEA) in 2005 during
Indo-US negotiations for a civil nuclear agreement.28 Both, the Tehran and New
Delhi has a different view over India’s ties with Israel, whom India has long

28
Kronstadt KA, Kerr PK, Martin MF, Vaughn B (2011) India: Domestic Issues,
Strategic Dynamics, and U.S. Relations. Congressional Research Service.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

considered an important trade allies for arms procurement as well as counter-

terrorism cooperation. India has till now followed a balancing act in the
diplomacy surrounding Iran and the nuclear program. However, India has long
been a strict supporter of countries’ right to develop peaceful civilian nuclear
energy29.

The current Indian approach of diversifying its trade relations with Iran
especially in the non-energy sector has long predicaments, basically from two
purposes— Firstly, India has contributing to dematerialized the economic
difficulties of Iran by using the Rupee payment system, and secondly, to
increase its exports. Thus, overall minimization of the trade imbalance could be
ensured that heavily loaded against it. However, a brief summary of trade
agreements between both the countries are presented in the successive section,
which gives the momentum of bilateral trade relations.

Trade Agreements30

 Iran Pakistan India (IPI) Gas Pipeline: India is yet to arrive at an

agreement about Gas price and separate transit fee payable to Pakistan.
 Liquefied natural gas (LNG): the LNG agreement has been signed
between India and Iran in June 2005 for Supplying 5 million tons LNG
per annum by Iran to India. However, Iran has since been insisting for
an increase of gas price.
 Steel and Mining Sector: the Essar Group of India- has set up offices in
Iran to foster the development of steel sector. A steel plant in Bandar
Abbas already developed. It has a production capacity of about 4 million
tons per year. The TATA Steel also proposes to set up a steel plant near

29 Meena Singh Roy &AjeyLele (2010): “Engaging Iran in the New Strategic
Environment: Opportunities and Challenges for India”, Strategic Analysis, 35:1, 88-
105
30
Bhatia Rajesh, monthly bulletin on the affairs of the trade between India and Iran,
Mumbai, 2008, P. 9.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

Bandar Abbas with a production capacity of about three million tons

steel per annum.
 Gems and Jewelry: A MOU between Gem and Jewellery Export
Promotion Council (GJEPC) of India and Asian Gem and Jewellery
Trade Promotion Co. (AGJTPC) of Iran was signed on 28.4.2007 at
Tehran to increase trade transactions and free trade initiatives.
 The ONGC, Hinduja negotiation with Iran: Officials from the India's
ONGC Videsh and Hinduja companies have met with Iranian Oil
Ministry officials to discuss their participation in the development of
Azadegan and SP Phase 12 gas fields.
 MOU for petrochemical: India’s company signed a memorandum of
understanding with National Iranian petrochemical company (NIPC) for
the construction of a joint urea and ammonia complex in the Pars special
economic energy zone. It is the extension of Assaluyeh second phase.
The complex nominal production capacity has to be increased by 2,200
tons of urea and 3,860 tons of ammonia per day. The estimated budget
for the project is 400 million Euros.

Top Ten items of Export from India to Iran

 Primary and semi-finished iron and steel.

 Machinery and Instruments.
 Manufactures of Metals.
 Drugs, Pharmaceuticals and Fine Chemicals.
 Rubber Manufactured Products except footwear.
 Gasoline.
 Non-alloyed Iron and Steel ingot.
 Non-alloyed Iron and Steel shares.
 Light oils and products other than gasoline.
 Products of Flat iron or steel.

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

Top Ten Items of Import from the Iran to India

 Organic Chemicals.
 Metalifers Ores and Metal Scrap.
 Non-Ferrous Metals.
 Sulfur and Unroasted Iron Parts.
 Transport Equipment.
 Methanol.
 Liquid gasses (Propane, Butane).
 Fresh or dried Pistachio.
 Other Aromatic Hydrocarbon mixtures.
 Ammonia without water.

5.7 Strengthening of Economic Relationship

To resolve the trade issues and strengthening bilateral trade relations, both the
India and Iran hold regular bilateral discussions within the setup of India-Iran
Joint Commission Meeting (JCM). During 8-9 July 2010, India’s External
Affairs Minister Shri S.M. Krishna and Iran’s Minister of Economic Affairs
and Finance H.E. Dr. Seyed Shamseddin Hosseini met in 16th JCM, which was
in New Delhi. There were a total six MOUs agreements were signed of
immense importance between both the countries31, it includes:

1. Air Services Agreement;

2. Agreement on Transfer of Sentenced Persons;

3. Cooperation in New & Renewable Energy;

4. Collaboration in Small Scale Industry between National Small Industries

Corporation (NSIC) and Iranian Small Industries and Industrial Parks
Organization (ISIPO);

5. Program of Cooperation on Science & Technology and

31
Annual Report 2010-2011, Ministry of External Affairs New Delhi

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

6. Cooperation between Central Pulps and Paper Research Institute of

India (CPPRI) and Gorgan University of Agricultural Science and
Natural Resources (GUASNR)32

On this occasion, there were about 50 Iranian companies from different sectors,
which held more than 300 back to back meetings to increase the trade
partnerships and to strengthen the economic relations. The detailed trade
statistics between both the countries give an indication of the scope and future
opportunities that exist in this market. The two-way trade between India and
Iran has shown promising growth in recent years. In fact, it has grown more
than 25 percent during the last five years from $ 12887.52 million in 2007-08
to $ 15968.03 million in 2011-12. India’s export to Iran has increased more
than 25 percent from about $ 1943.92 million in 2007-08 to $ 2411.33 million
in 2011-12. Iran's exports to India during the same period have registered an
increase of almost 30 percent from $ 10943.61 million to $ 13556.71 million.
However, the trade balance rests in favor of Iran while India’s imports noticed
a slight increase in the same period.

Nonetheless, the there have been some ups and down in trade relations, which
was caused by the third party interference most of the time, likewise the US,
Pakistan, Israel and other countries. Thus, the future development of trade
relation would rest on preferential trade agreement and overthrow of such
barriers. The measures could be sum up as:

 Indian exporters are facing some problems in the operation of LCs due
to uncertainties about economic sanctions regime against Iran,
especially those that are required to be confirmed by third country's
banks.

 Transportation of goods from India to Iran directly takes time

(approximately one/two Months).

32
Embassy of the Islamic republic of Iran: New Delhi:
http://newdelhi.mfa.ir/index.aspx?siteid=328&pageid= 23175

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Chapter 5 Indo-Iran Trade: Policies and Initiatives

 Iran's new laws on import of only standardized and quality products

requiring inspection certificate from the recognized domestic and
foreign inspection agencies are causing a delay in the release of
consignments.

 Four rounds of negotiations on Bilateral Investment Promotion and

Protection Agreement (BIPA) were held to finalize the agreement for
promoting investment between two countries. A Double Taxation
Avoidance Agreement (DTAA) between India and Iran took place at
Tehran, would contribute significantly in trade relation between them.

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