Payments for India’s urea deal with Iran — its first long-term Iranian import contract for the fertilizer since 2019 — will likely be made in rupees, Reuters reported Thursday (Feb. 24).
The move by India to seal a deal with Iran is in anticipation of possible supply limitations of urea and inflated prices, as well as volatility in the foreign exchange (FX) market, with everything further muddled by Russia’s invasion of Ukraine, according to the report.
Discussions that have already taken place by stakeholders have pointed to payments in rupees with local banks participating to import 1.5 million tons of urea from Iran to India annually, the report stated. The pricing is still under negotiations.
India originally stopped importing urea from Iran three years ago over U.S. sanctions on Tehran, prompting India to buy from China, Ukraine and Russia, according to the report. Last year, however, China restricted exports during a time of rising global prices, and India was faced with shortages, according to the report.
Current negotiations between Iran and the U.S. could result in a new agreement to lift sanctions, which prompted India to push for a deal with Iran, the report stated.
“Now, the Russia-Ukraine issue has added to uncertainties over supplies and prices … so our aim is to secure supplies at reasonable rates,” an unnamed source reportedly told Reuters.
Some 60% of India’s workforce is employed by the agriculture industry and comprises 15% of the country’s $2.7 trillion economy, according to the report.
The federal government in India puts a ceiling on the retail price of urea in the country. Additional import costs are reflected in the budget as a subsidy, which is provided to local urea manufacturers for selling urea at a state-determined floor price. The country’s fertilizer subsidy bill was hovering near a record of 1.5 trillion rupees, the report stated.
India is the world’s biggest buyer of urea but has been spending less on the chemical fertilizer as the government starts pushing for chemical-free natural farming, Bloomberg reported earlier this month. The fertilizer shortages and soaring prices of crop nutrients have hit India the hardest due to its large economic dependence on agriculture.