The
Iran gambit is central to Moily's attempt to reduce India's oil bill by
$20 billion but will need a reversal of India's recent attempts to
reduce business with the regime in Tehran.
But the need to
control an expanding deficit — fueled by a weak rupee — is becoming
urgent, and India may have to repair ties with Iran that have hit an air
pocket over the Iranian security forces detaining an Indian ship
transporting Iraqi crude. India will need to display some creative
diplomacy to tip toe around international sanctions and US
sensibilities.
On August 12, even Chidambaram had spoken of
importing more crude from Iran as part of his drive to contain current
account deficit within the $70 billion target for this financial year.
He had, however, made it clear that the operations had be undertaken
without breaching UN sanctions.
Although several Asian
countries, including India and China, have been provided flexibility,
the government has reduced its dependence on Iran. In 2012-13, India
imported about 7.2% of its oil from Iran, compared to 10.5% in the
previous year.
India imports over 70% of its oil requirement,
which is one of the key drivers of India's import bill. In the absence
of a rise in exports, the trade and current account deficits have
widened, adding to the pressure on the rupee.
But unlike
imports from other countries, India can make the payments to Iran
through a rupee account, which was created as part of the settlement
mechanism to deal with the UN sanctions.
Moily's plan is in
response to the PM's call to the ministry seeking a $25 billion cut in
the oil import bill to narrow the current account deficit. He has
suggested several measures to reduce the oil import bill by $19-20
billion this fiscal.
