Indian and Iranian officials are meeting this week to discuss how to unlock the first oil payments to Iran since the United States and other world powers eased sanctions last month in exchange for curbs to Tehran's nuclear programme.
Last month six world powers and Tehran reached an interim deal that provided limited relief to Iran from economic sanctions, opening the way for some oil payments to resume.
The deal is a chance for Iran's new leadership to revive the country's economy, plagued with high inflation and a weakened currency since being cut off from the global financial system after sanctions were imposed in 2012.
The West believes Iran is trying to make a nuclear bomb, while the Middle Eastern nation says its nuclear programme is for power generation.
India and Iran are to discuss how to restart oil payments in foreign currencies, including a plan to process partial payments for oil in euros through a Turkish bank, two government sources said.
A delegation of Iranian officials led by Gholamali Kamyab, deputy governor at Iranian Central Bank, is in India until December 13. The group met officials of the finance ministry and Reserve Bank of India on Tuesday.
Arvind Mayaram, a senior official at India's finance ministry, said that for now, India would not release dollar payments it was holding back from Iranian imports.
He said the meeting had mostly focused on the implications of the new deal on issues of insurance - a problem for shipping under the sanctions - as well as ways to increase oil imports from Iran and exports from India.
Iran had asked Indian refiners in mid-October, before the deal was reached with world powers, to resume paying for oil imports in euros through Turkey's Halkbank but the refiners are still seeking direction from the government.
India started settling 55 percent of its payments for Iranian crude in euros through Halkbank in mid-2012. The rest was settled in rupees through India's UCO Bank.
Since then Indian refiners have been withholding payment for 55 percent of their Iranian oil imports, while Iran scouted for an alternative way to receive that money in hard currencies such as the dollar and the euro.
At the end of November Indian refiners owed about $2.2 billion for partial payments to Iran, refinery sources said. About $3 billion worth of rupees, paid by refiners are lying in Tehran's account with UCO Bank, Arun Kaul, chairman of the bank said after the meeting.
India is Iran's second-largest buyer but its oil imports from the OPEC member plunged to about 170,000 bpd in the April-October period, a decline of about 40 percent from a year ago, tanker arrival data made available to Reuters showed.
A finance ministry official said this week India would continue to settle part of its oil payments in rupees through UCO Bank until receiving further information on the lifting of U.S. and EU sanctions on Iran.
India wants to fix its trade imbalance with Iran, tilted now in favour of Tehran because of oil purchases. New Delhi wants to boost its exports to the Islamic nation by letting Iran pay for goods in the billions of rupees it has in UCO Bank.
Indian exports to Iran are expected to touch $6 billion in the year to March 31, 2014, almost double last fiscal year's $3.2 billion, said Ajay Sahai, director general, Federation of Indian Export Organisations (FIEO).
He said the rupee trade mechanism had helped exports of agricultural commodities, pharmaceutical and auto components to Tehran. An industry delegation will visit Iran next week to push up exports, industry sources said.
Copyright: Thomson Reuters 2013