Harsha AH asked: Even though Iran was willing to accept the payment for India’s oil imports in the Indian currency, why did India declined from doing so?

Shebonti Ray Dadwal replies: According to reports, Iran is willing to accept payments in rupee for the crude it sells to India but the Reserve Bank of India (RBI) is opposing the idea. Iran's central bank had expressed their vote of confidence in the rupee during their meeting with RBI executives, where they said that they were ready to operate through a State Bank of India (SBI) branch in Mumbai where state oil firms can make rupee payments. But RBI is against this arrangement on the ground of high trade imbalance between the two countries. Iran imports goods from India worth only $1 billion against the huge amount New Delhi pays for its oil. Also, many Indian banks do business with the US and are wary of coming under the US sanctions.

However, recently it appears that some smaller Indian national banks are being used to make payments to Iran, such as the UCO, Union Bank, etc. In mid-January 2012, a finance ministry team from India will be in Tehran for talks to resolve the payment issue, where some innovative ideas on how barter trade can be conducted on the lines of China-Iran and Iran-South Korea trade may be discussed.