Iranian Ambassador to India Ali Chegini said that Tehran and New Delhi can increase the volume of their trade ties to $30bln through the application of rupee-rial mechanism.
Iran says it is willing to meet the energy security needs of India, the world's third biggest oil importer and consumer.
"Rupee-rial trade mechanism can help companies from both the countries to deal with each other directly and avoid third party intermediation costs," Chegini was quoted as saying by Indian facilitation body MVIRDC World Trade Center on Friday.
"If both countries launch rupee-rial trade mechanisms, the bilateral trade could grow to $30 billion," he added.
India, which depends on imports to cover over 80% of its crude oil needs, was the second largest importer of oil from Iran after China until May 2019 when it stopped purchases under pressure from the administration of former US President Donald Trump.
India and Iran had agreed to ditch dollar in bilateral trade to bypass sanctions imposed on Tehran by the US.
Under that mechanism, Indian refiners were paying for Iranian oil in rupees to a local bank and the funds were used by Tehran to pay for imports from India.
Earlier this month, Indian Oil Minister Hardeep Singh Puri said that his country is willing to sign new agreements and resume imports of oil from Iran and Venezuela.
Puri said oil exports from Venezuela and Iran had been hit due to sanctions, according to Economic Times.
The two nations are among those with the highest oil reserves in the world and were significant suppliers to India before the US sanctions halted purchases.
"It is our hope and expectation that oil, not only from Venezuela, but other countries under sanction, will become available," he said. "I am hopeful that we will all use collectively, our margin of persuasion... to request the international community to make more oil available including from Venezuela".
Indian oil companies will enter into agreements with Venezuela and "equally (with) Iran" no sooner their oil comes into the market, he said.
Chegini said late January that trade between India and Iran exceeded $17 billion in 2018-19 and had the potential to reach $30-35 billion this year had New Delhi not stopped Iranian oil imports.