RUPEE PACT WITH IRAN TO AID PHARMA EXPORTS

Prelims level : Economy – Trade Mains level : Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.
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In News

  • 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.

Background

How the Agreement works?

  • Under the agreement, Indian refiners make payments in rupee for oil imports from Iran, to designated accounts maintained with UCO Bank. A portion thus received is to be used by Iran to pay for imports from India, including pharmaceuticals.

Why Pharma Sector?

  • 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. 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
  • 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, in a circular, 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

India – Iran pharmaceutical Trade

  • 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 biological 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. 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.
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