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Iran Nuclear Deal - Impact on India

Iran and the six world powers including US were able to pin down the historic nuclear deal which will lead to the removal of trade sanctions on the country. Iran has huge crude reserves and it can start exporting crude beginning Dec 2015. This will add to the supply in international markets further impacting the crude prices. This is positive as far as India is concerned which imports 80% of its crude requirements. India’s current deficit is already down to 0.2% of GDP at the end of March quarter due to decline in oil prices. As government’s oil subsidy bill falls it should bring down fiscal deficit as well.

However, the benefit from fall in oil prices might not be huge for India as it was already buying crude at discounted price from Iran. India benefited from the sanctions on Iran in the past as it was able to buy crude on favorable terms in terms of price and payment conditions. These concessions are expected to go away with export doors to other countries opening for Iran.

India has been exporting automobile components, tools, motors and chemicals to Iran but with lifting of sanctions Indian companies will have to compete with other international companies on price as well as quality front. However in long term lifting sanctions will help Indian exporters as they can increase their exports which were curtailed earlier. India is the top supplier of rice to Iran. Also Indian pharma and IT companies can export to Iran without any fear.

India is also working on some strategic projects with Iran like developing Chabahar port, oil and gas exploration and developing Iran railways. Lifting sanctions will enable Iran to negotiate harder on terms of engagement but considering India’s ambitions in Central Asia it will be willing to play ball with Iran.

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