India plans to pay in rupees for its first long-term urea import deal with Iran to hedge itself from global supply disruptions, higher prices and forex volatilities, sources familiar with the matter said, complicated now by Russia's invasion of Ukraine.

India halted urea imports from Iran in 2019 under pressure from tough US sanctions on Tehran and government data show that Asia's third-largest economy turned to countries such as China, Ukraine and Russia to meet its demand for the crop nutrient.

Last year, some Indian states faced shortages of urea after "abrupt" export restrictions by China amid high global prices, one of the sources said.

"Now, the Russia-Ukraine issue has added to uncertainties over supplies and prices ... so our aim is to secure supplies at reasonable rates," the source said.

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India is a top importer of urea and other soil nutrients needed to feed its huge agriculture sector, which employs about 60% of the country's workforce and accounts for 15% of $2.7 trillion economy.

The federal government caps the retail price of urea and reflects the extra import costs as a subsidy in the federal budget. It also gives subsidies to local manufacturers of urea for selling the product at state-set low prices.

In 2020/21, India's fertiliser subsidy bill touched a record 1.5 trillion rupees.

Iran was India's third-biggest source of urea in 2018/19, supplying about 17% of New Delhi's nearly 7.5 million tonnes of urea imports.

India is looking at expediting a deal with Iran after indications that negotiations between Iran and the United States could culminate in a new agreement to lift sanctions.

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Some meetings with stakeholders had already taken place and the plan was to pay in rupees with the involvement of local banks to import annually 1.5 million tonnes of urea from Iran, said another source.

The pricing had yet to be decided, the sources said.

India's fertiliser and finance ministries did not respond to Reuters' emails seeking comment.

During a previous round of sanctions from 2012, India devised a barter-like scheme acceptable to Washington to allow it to make oil payments to OPEC-member Iran in rupees through a small state bank. Iran used the funds to import goods from India.

That helped India narrow its trade deficit with Iran. Since India halted oil purchases from Iran in 2019, the funds in the local bank depleted and New Delhi's trade deficit with Tehran turned into surplus in 2019/2020.

First Published:Feb 25, 2022 6:08 PM IST