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Draft Regulation of Foreign Trade under Foreign Exchange Management Act (FEMA), 1999

Reserve Bank of India (RBI) has issued draft regulation of foreign trade under Foreign Exchange Management Act (FEMA), 1999.

Who is Authorised Dealer?

Authorised Dealer (AD) means a person authorised as an authorised dealer under Section 10(1) of Foreign Exchange Management Act (FEMA), 1999, and includes a person carrying on business as a factor and authorised as such under the said Section 10.

What are the draft guidelines for declaration of exports?

  • Every exporter shall submit Export Declaration Form (EDF) specifying the amount representing the full export value of the goods or services.
  • The exporter shall submit to the AD bank the documents pertaining to export, within 21 calendar days from the date of shipment in case of goods or from the date of invoice in case of services. AD bank may accept the documents after the expiry of the said period subject to directions issued by RBI.

What are the draft guidelines on receipt of payment for export of goods and services?

Receipt of payment for export of goods and services to the following countries shall be made as under –

  • Nepal and Bhutan – In Indian Rupees. Where the importer in Nepal has been permitted by the Nepal Rashtra Bank to make payment in foreign currency, receipts towards the export to Nepal may be in foreign currency.
  • Member countries of Asian Clearing Union (ACU), other than Nepal and Bhutan – Through ACU mechanism.
  • Countries other than member countries of ACU – In Indian Rupees or in any foreign currency.

What are the draft guidelines for realisation of export value and payment for import?

  • The amount representing the full export value of goods and services shall be realised and repatriated to India within 9 months from the date of shipment for goods and date of invoice for services. 
  • AD banks, on request of the exporter, may permit reduction in the full export value. AD banks shall put up all cases of reductions of more than 25% in the full export value of exports to its Board for post facto ratification.
  • AD banks shall ensure that payment for imports is completed within the period specified in the contract between the importer and overseas seller.
  • AD banks may grant extension of time to exporter in the following cases –
    • If the exporter has not been able to realize and repatriate export proceeds for reasons beyond its control.
    • If the exporter has not been able to fulfill the export obligations in case of export advance.
  • AD banks may grant extension of time to importer in the following cases –
    • Delayed settlement of import payments.
    • If the overseas supplier delays in fulfilling its obligation in case of import advance.

What are the draft guidelines for set-off of export receivables against import payables?

  • AD banks may allow set-off of export receivables against import payables in respect of the same counterparties, if they are satisfied that the grounds for such requests are legitimate and justifiable.
  • AD banks shall not allow set-off of export receivables for goods against import payables for services and vice versa.

What are the draft guidelines for advance payment?

  • Advance payment and documents pertaining to export shall be routed through the same AD bank.
  • Interest payable if any, on advance payment for export of goods and services shall not exceed all-in-cost ceiling of trade credit in terms of Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 –
    • For trade credits in foreign exchange, the maximum spread over the benchmark of 6-month LIBOR or applicable benchmark for the respective currency will be 250 basis points per annum or as prescribed by RBI in consultation with the Government of India. 
    • For Rupee denominated trade credit, the all-in-cost shall be commensurate with prevailing market conditions or as prescribed by RBI in consultation with the Government of India.
  • Where an exporter is unable to fulfill the export obligation within the contracted period, the advance received shall be refunded unless extension of time to fulfill the export obligation has been granted by the AD bank.
  • Advance payment for import of goods and services shall be repatriated by the importer and surrendered to the AD bank in case of non-import within the contract period or within the extended period granted by the AD bank.
  • Advance payment made or received for import or export of goods and services which do not result in any import or export even within the extended time granted by the AD bank and when the advance is not refunded thereafter would be subject to Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 –
    • A person resident in India shall not borrow / lend in foreign exchange from / to a person resident in / outside India and a person resident in India shall not borrow in rupees from / lend in rupees to a person resident outside India, unless permitted by RBI.
    • Use of Credit Card (a) in India by a person resident outside India or (b) outside India by a person resident in India shall not be deemed as borrowing / lending in Indian Rupee / foreign exchange.
  • No advance remittance for the import of gold and silver shall be permitted unless specifically approved by RBI.

What are the draft guidelines for caution-listing of exporters?

  • Where an export amount is outstanding in Export Data Processing and Monitoring System (EDPMS) for more than 2 years from the due date of realization (including extension of the period granted by AD bank, if any), AD banks shall ensure that exporter is flagged as ‘caution listed’ in the EDPMS.
  • AD banks shall ensure the following while flagging the exporter as ‘caution listed’ –
    • The exporter is duly informed before caution listing in EDPMS.
    • Exporter should be given an opportunity of being heard.
  • When caution listed exporters submit export documents for negotiation / purchase / discount / collection, etc., AD banks may accept export documents only if the exporter concerned produces evidence of having received advance payment or receiving the payment under an irrevocable letter of credit.
  • Once all outstanding export proceeds are realized (including by way of set-off or reduction in realizable value), AD banks shall remove the exporter from the caution list and update the status / remove the flag from EDPMS.

What are the draft guidelines for project exports?

  • For export of goods or services on deferred payment terms or in execution of a turnkey project or a civil construction contract, the exporter shall, before entering into any such export arrangement, submit the proposal for prior approval of the AD bank.
  • AD banks shall monitor the progress of work in such projects till their completion by seeking regular progress reports from the exporters in order to facilitate the corresponding payments.
  • AD banks shall verify consistency of export contracts with rules / regulations / directions under FEMA.

What are draft guidelines on merchanting trade?

  • AD banks shall allow merchanting trade payments only for goods permitted under the extant Foreign Trade Policy.
  • AD banks shall ensure the genuineness of a merchanting trade transaction before effecting any payment.
  • AD banks shall allow payments for a merchanting trade only if all payments are routed through the same AD bank.
  • AD banks shall not allow payments if the period between the outward remittance and inward remittance of a merchanting trade exceeds 6 months.
  • AD banks shall ensure that outward remittances sent are to the overseas seller and inward remittances received are from the overseas buyer and no payments are made to / received from any other counterparty.
  • In case inward remittance is received before making outward remittance for a merchanting trade, AD banks shall ensure that the receipts are deposited and held in Exchange Earners Foreign Currency (EEFC) account of the merchanting trader.

What are the draft guidelines on reporting?

  • AD banks shall enter details of Shipping Bills (SB) / Bills of Entry (BoE) as received from Non-EDI (Electronic Data Interchange) port in Export Data Processing and Monitoring System (EDPMS) / Import Data Processing and Monitoring System (IDPMS) on the same day of receipt of documents, in respect of their customers only.
  • AD banks shall enter details of service exports / imports in EDPMS / IDPMS, as declared and submitted by their customer only, on the same day of receipt of documents.
  • AD banks shall report all payment transactions related to export and import of goods and services, including merchanting trade transactions, in EDPMS / IDPMS.
  • AD banks shall ensure that, in case of export advance, outstanding entries for inward remittance shall be closed and reconciled on submission of export documents.
  • AD banks shall report all foreign trade transactions in the Foreign Exchange Transaction Electronic Reporting System (FETERS).


References

Reserve Bank of India. (2018, December 17). 'Foreign Exchange Management (Borrowing and Lending) Regulations, 2018'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11441&Mode=0

Reserve Bank of India. (2023, December 21). 'Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12579&Mode=0

Reserve Bank of India. (2024, July 02). 'Regulation of Foreign Trade under Foreign Exchange Management Act (FEMA), 1999 – DRAFT REGULATIONS AND DIRECTIONS'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=58212

Reserve Bank of India. (n.d.). 'Draft - Export and Import of Goods and Services'. Retrieved from https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=4448

Reserve Bank of India. (n.d.). 'Draft - Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2024'. Retrieved from https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=4449


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