 "An Oil and Natural Gas Corp's (ONGC) well is pictured in an oil field on the outskirts of Ahmedabad")
The Commerce Ministry is aiming to create a mechanism, which will allow cash strapped African nations to clear payments that are stuck for months to Indian exporters.
The nations being considered under the plan constitute those which are bulk exporters of oil to India like Nigeria and Angola.
The long slump in commodity prices globally have heavily hit countries majorly dependent on minerals like gold and metals. Oil rich African countries have been hit by an acute shortage of US dollars - the currency used globally for trade.
This has led to delayed payments to Indian exporters, primarily automobile and pharmaceutical exporters, who trade with these nations.
A payment model has now been suggested by the Commerce Ministry, which will allow payment for oil imports from these countries to be used for paying for Indian exports such as automobiles and pharmaceuticals. It will be a rupee mechanism wherein payment for imports from these countries will be made into a vostro account that will be then used to settle dues of domestic exporters.
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A vostro account is a bank account held by a foreign bank with an Indian bank. While the Commerce Ministry had suggested the plan, the final decision will be with the Reserve Bank of India, an oficial said.
The model is similar to the one used in the case of Iran when it was under international sanctions and is now proposed for Venezuela. Calls for adopting the model had first come from automobile manufacturers who export substantially to rapidly growing African economies like Algeria and Egypt.
Industry body Society of Indian Automobile Manufacturers (SIAM) had met Commerce ministry officials in June followed by other exporters who argue that a rupee payment mechanism has inherent advantages for the country.
Pharma exports worth $21.53 million was exported by India to Nigeria, Africa’s largest economy in 2015-16. This was followed by Automobiles and auto parts worth $ 12.69 million being exported.
However, exporters suggested a deeper look into the issue to facilitate long term solutions. “We need to enter unexplored markets such as South America and Australia and having trade pacts will provide as a backup to deal with competition” Deputy Director General of SIAM, Sugato Sen told Business Standard.
While India recently expanded the Preferential Trade Agreement (PTA) with South American nation Chile, it is negotiating an FTA with Australia.
Automobile manufacturers are targeting the Australian market since most Australian companies are in a bad shape and the country is expected to import heavily in the future, a Commerce ministry official said. He added that the ministry has received same complains from exporters regarding trade with Angola, Ghana and Ethiopia.
India is a major exporter to countries such as Nigeria, Algeria and Botswana. According to SIAM, of the total automobile exports of around $8.86 billion in FY16, Africa alone accounted for 30-35% of the total overseas shipments in value terms.
However, growth in total auto exports to the continent has slowed down to 1.9% in the last financial year.
