By Sravya Vemuri
In his first ever visit after taking over as President of Iran, Hassan Rouhani met Prime Minister Narendra Modi on 18th February. At the end of the meeting, the countries signed nine MoUs, ranging from connectivity to trade and taxation.
Double taxation avoidance agreement
The two countries signed an agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion, with regard to taxes on income. The agreement is expected to improve the flow of investment and personnel from India into Iran by preventing double taxation. The agreement will also improve transparency in tax matters. Besides, it also meets the standards set by the G-20 (Group of 20) Organisation for Economic Cooperation and Development’s Base Erosion and Profit Shifting Project (BEPS). It refers to tax avoidance strategies that use the loopholes in the law to artificially shift profits to low-tax or no-tax locations. Double taxation occurs in international trade when the same income is taxed in two different countries. India signed the Double Taxation Avoidance Agreement with a total of 88 countries, and Iran will be the 89th country to enter into this agreement.
Investment in rupees
During the visit, it was decided that India will allow its citizens to invest in Iran through its own national currency, rupees. This comes at a time when US sanctions against Iran bars the country from dealing in dollars and euros. Indian investments are sought across sectors from the port, rail network and special trade zones. Such an allowance will hugely support the Iranian economy as it will attract more Indian investments. Under the plan, Indian businessmen are expected to deposit the money in rupees in the bona fide Iranian account in one of the Indian banks and the equivalent amount of Iranian rials will be deposited in the venture in Iran. The Indian investments in rupees will get converted to the Iranian rial through a banking mechanism that allows investments from India, including in the Chabahar port. India started operating Chabahar port on Irans south-eastern coast as a way to gain access to Afghanistan. New Delhi aims to spend up to $500 million on the port, which is a major Indian overseas port venture, as it tries to offer an alternative to Chinas Belt and Road Initiative (BRI). Several trade bodies such as FICCI, ASSOCHAM and Iran Chamber Of Commerce also inked the MoUs.
Economic and commercial relations
Iran is considered a very resourceful country. It is now said to have the largest combined oil and gas reserves in the world, with 9.3% of total global oil reserves and 18.2% of gas reserves. On the other hand, Indias economic progress and its increasing importance in the global market have contributed to Irans growing interests in the country. The commercial ties between these two nations are largely dominated by Indias import of crude oil from Iran. As per the Ministry of External Affairs, India is the second-largest buyer of Iranian crude after China. Moreover, Iran was the third-largest supplier of crude to India during April to September 2016-17. Bilateral trade between Iran and India reached nearly USD 16 billion in 2012 and remained above US$15 billion till 2014. However, the total trade dropped drastically in 2015 as the supply of crude oil has been disrupted due to political tensions in West Asia. India faces a trade deficit with Iran as the import of crude oil from Iran far exceeds Indias total exports. Top exports from India to Iran include rice, soybean oil, iron and non-steel alloy products, manganese, tea and motorcycles. Indian imports from Iran include petroleum and its products, organic and inorganic chemicals, fertilisers, edible fruits and nuts, precious or semi-precious stones among others.
Challenges and opportunities
Iran is certainly a good partner for India in the very destabilised West Asia. However, these plans come with various challenges of banking mechanisms between the two countries. These can be ironed out by putting in place a robust exchange technique between the two countries. The visit also comes at a time when the recent protests in Iran drew attention from across the world. Alongside economic incentives, Iran is a key player in Indias engagement in West Asian geopolitics. Therefore, the opportunity should be used to further the trade between the two countries and also iron out the differences on long-pending economic topics.
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