NEW DELHI: India is considering wheat exports to Iran, a government source said on Friday, as New Delhi hopes to boost exports to the sanctions-hit nation to help settle part of its oil imports bill through a bilateral mechanism.

An Iranian trade delegation will come to India next week to discuss wheat exports, the source added, without elaborating on the likely payment mechanism for sales to Iran.

Food shipments are not targeted under Western sanctions, but Iranian companies have been cut off from much of the global banking system because of the financial measures against Tehran, making payments difficult and discouraging traders.

Tighter sanctions are targeting Iran’s oil trade and central bank to pressure Tehran to shut down its nuclear programme, which Iran says is for peaceful purposes.

Asked whether the government would export wheat to Iran, the government source told reporters: “That is under consideration.”

India, one of Iran’s largest oil clients, aims to cut the trade imbalance which is currently tilted towards Tehran.

Exports from the South Asian nation accounted for about $2.8 billion versus imports of about $11 billion in 2010/11, according to government data.

India earlier this year decided to try to settle 45 per cent of its oil trade with Tehran in the rupee – which is not globally traded – by settling payment for Indian exporters without the involvement of foreign banks.

Unmanageable stock

Ministers will soon meet to decide on government to government deals for wheat to other countries as well, the source said, adding the meeting will also consider giving export incentives for wheat due to lower global prices.

The source said ministers would also decide the price India will offer for its wheat.

Bumper harvests since 2007 have swelled stocks at government warehouses, forcing a state-run grain procurement agency to store extra stocks under tarpaulin.

Grains stored in open fields are vulnerable to rot and decay, inviting criticism from the opposition as hunger is endemic among the country’s 500 million poor.

Despite the government’s decision last September to lift a four-year old ban on wheat exports, unattractive global prices have hobbled large-scale shipments. Exporters have sold only around 830,000 tonnes of wheat since exports were allowed.

To sort out the issue of unmanageable stocks and agree on exports, Prime Minister Manmohan Singh early this month set up a committee under his top economic adviser C. Rangarajan who has now favoured some exports with incentives.

Food Minister K. V. Thomas on May 10 said the government was considering selling wheat to states in Africa, the Middle East and neighbours such as Afghanistan and Pakistan.

Wheat stocks at government warehouses on May 1 were 38.2 million tonnes, more than nine times the official target of 4.0 million tonnes for the quarter ending June 30.

Iran has not bought Indian wheat in more than a decade over quality issues. Other buyers have not raised issues over quality.