EXCHANGE CONTROL REGULATIONS EXPORTS Introduction International trade involves movement of goods and matching payment settlements in various

s currencies. Export results in depletion of the wealth of a nation and imports create demand for currencies of other currencies. In our country, the demand for foreign exchange exceeds the supply and hence the foreign exchange is considered a scare commodity. To preserve foreign exchange, Reserve Bank of India administers exchange control through various Authorised Dealers. The role of Exchange Control in international trade may be indicated as below; Statutory Base : Foreign Exchange Regulations Act, 1973 Authority with : Reserve Bank of India Guidelines : As per Exchange Control Manual (1993 Edition) and RBIs ADMA Circulars. Authorised by : Authorised Dealer / Banks Registration The exporter shall register with and obtain importer-exporter code number from the Director General of Foreign Trade (DGFT). The role of exchange control and trade control in international trade may be indicated as follows : Exchange Control 1. Statutory Base Act 1992 2. Guidelines as per Trade Control The Foreign Exchange Regulation Act 1973 Foreign Trade Development & Regulation Export-Import Policy

Exchange control manual 1987 Edn. & Amendment

(Current) Handbook of procedures & public notices. 3. Administering Authority Control Authority 4. Administered by Declaration Prior to export of goods to any country, the exporter should furnish a declaration on The full export value of goods, or if The exact value is not ascertainable, the expected value has been or will be paid within the period and in the manner as prescribed by Exchange Control. Submission of this declaration is exempted in instances like, Trade samples supplied free of payment Personal effects of travellers Ships stores carried on board for own use Gift parcels, publicity materials where the value of export does not exceed Rs.25,000/Samples for testing Defective goods for repairs and return or for replacement RBI & other Regional Trade Authorised Dealers Director General of Foreign Trade, New Delhi

Customs & Regional Licensing Authority.

Despatch of air-craft engines for overhauling and return Goods despatched by Air Freight or Post Parcel provided the packet is accompanied by a declaration by the sender that the value of the goods is not more than Rs.10,000/- and that the export does not involve any transaction in foreign exchange. Declaration Forms The prescribed export declaration forms concerning bankers are: GR Form : Export to all countries made otherwise than by post. PP Form : Export to all countries by post parcel, other than on VP COD basis. Softex Form : Export of computer software in non-physical form. While GR /PP forms are made in two copies, VP / COD forms are to be submitted in a single copy, Softex form is prepared in three copies. Where the specified categories of shipping bills are processed electronically, the declaration in Form SDF (Statutory Declaration Form) in respect of such shipping bills shall be submitted. GR forms(with manual shipping bill) / SDF (with computerised shipping bill) will be submitted to customs, PP forms will be tendered to post office. Softex forms will be submitted to Department of Electronics (DOE) located in software technological park (STP) or electronic hardware technological park (EHTP) Time Limit for Realisation of Export Proceeds The full export value of the goods must be realised on the due date for payment or within six months from the date of shipment, whichever is earlier. However, in respect of export to Indian owned warehouses abroad, established with the permission of Reserve Bank of India, a maximum period of fifteen months is allowed. In case of exports on consignments basis made to CIS countries and East European Countries by Exporters, RBI will permit it on application up to twelve months. The payment must be received through a medium of an authorised dealer in foreign exchange in a currency through an account appropriate to the country of final destination of the goods. Permitted methods of receipt are laid down in Chapter 2 of Exchange Control Manual (1993 Edition) which is reproduced below: Group Permitted Methods i) All countries other than those listed under (ii) below in any country in this group. Payment for all eligible current transactions by debit to the ACU dollar account in India of a bank of the participating country in which the other party the transaction is resident or by credit to the ACU dollar account of the uthorised dealer maintained with the correspondent bank in the participating country. ii) Member countries in ACU (Except Nepal), Bangaladesh, Myanmar, Sri Lanka, Pakistan & Iran b) Payment in any permitted currency in other cases. Notes : a. In respect of exports, payment must be received in a currency appropriate of the country of final place of destination of the goods as declared on GR etc., forms, irrespective of the country of residence of the buyer. b. Payment for exports out of funds held in NRE / FCNR accounts are also permitted. Payments out of rupee accounts held in the names of Exchange House by authorised dealers are also permitted upto Rs.200000 per transaction. c. Payments received directly by exporters by way of DD / MT / TC / FCN etc., without any monetary limit. a) Payment in Rupees from the account of a bank situated

d. Payments can be settled out of I.C.C. Mechanism Reserve Bank of India has since permitted handling of documents by Authorised Dealers where exporter has received payment directly from overseas buyer, subject to the following conditions:i) the exporter should be a customer of the Authorised Dealer ii) the authorised dealer must be satisfied that the instrument of remittance like DD BC / Personal Cheque etc., represent payment of exports. iii) the instrument is tendered to the authorised dealer through whom export documents are routed iv) the foreign currency instrument is surrendered to authorised dealer within a week of receipt and currency notes on the next working day of receipt. v) the payment is received in a currency permitted by Exchange Control vi) export is made only on realisation of the instrument (or) vii) in case exports are made, the GR/PP duplicate form is Certified only after the instrument has been realised. Permitted Method of Payments The payment must be received through the medium of an authorised dealer in foreign exchange in a currency through an account appropriate to the country of final destination of the goods. Rule 9 of Foreign Exchange Regulation Rules 1974 provides that payment for export should be received as : 1. Countries in the external group other than Nepal & Bhutan and those belonging to ACU (Asian clearing unionsIndia pass, Iran, Srilanka, Burma, Nepal and Bangladesh. countries. Payment in rupee from the account of a bank situated in any country in that group. Payment in any permitted currency. 2. From member countries in the Asian clearing union i.e.. Nepal, Bangladesh, Burma, Iran, Pakistan & Sri Lanka. In Indian Rupees In Asian Monetary unit In the currency of the participating country in which the other party to the transaction is resident. Payment in any permitted currency in all other cases. The Manner in which the Exports Proceeds are to be realised and repatriated has three dimensions namely : RBI has permitted handling of documents by authorised dealers, where exporter has received payments directly from the overseas buyer, subject to the following conditions. The Exporter should be a customer of the Authorised Dealer The Authorised Dealer must be satisfied that the instrument of remittance like DD BC/Personal cheque etc. represents payments for exports. The instruments is tendered to the Authorised Dealer through whom, export documents are routed. The foreign currency instrument is surrendered to the AD within a week of receipt and currency noted on the next working day of receipt. The payment is received in a currency permitted by Exchange Control. Export is made only on realisation of the instrument.

In case exports are made, the GR/PP duplicate form is certified only after the instrument has been realised. I. Foreign Currency Accounts in India 1. Only one account will be allowed to be maintained by the exporter in US$ or Pound Sterling. The account will be without cheque facility. 2. The Exporter must route all export documents through the designated branch of the bank maintaining the account. 3. RBI will fix ceiling upto which balance can be held in such accounts. The amount in excess of such ceiling will have to be converted into rupee promptly. 4. Crediting exports proceeds to the foreign currency account will be treated as one of the approved method of liquidation of post-shipment credit, provided the post shipment credit is liquidated on the date of credit of the proceeds to Exporters foreign currency account. II. Foreign Currency maintained with Banks abroad Conditions are almost the same as given under I. excepting a. No Pre-shipment & post-shipment credit will be available to the Exporter excepting to the extent of rupee expenditure required to be incurred in India. This will have to be liquidated by repatriation of funds held in the overseas account. Exporters desirous of maintaining Foreign Currency Accounts in India or abroad should submit application in EFC through the designated branch. Foreign Currency Accounts Reserve Bank of India may permit on application (EEFC), exporters with good tract record to maintain foreign currency accounts with bank in India and abroad for credit of export proceeds in respects of exports to countries other than those in ACU group. Funds held in these accounts can be utilised for meeting exporters own commitments in foreign exchange on account of imports and other specified purposes. Delay in Submission of Shipping Documents It is obligatory for exporters to submit all shipping documents pertaining to every export passed by customs or postal authorities within 21 days from the date of export of goods. In case, there is a delay beyond the stipulated period of 21 days, authorised dealer if satisfied with the reasons for the delay as beyond the control of the exporter, may handle the documents without prior approval of Reserve Bank of India. Transfer of Documents ADs may accept from their constituents for negotiation or collection shipping documents covering exports even where the original declaration on GR form has been signed by some other party provided the constituent who is drawing the bill countersigns the duplicate copy of GR form and an undertaking to deliver to the ADs the foreign exchange proceeds of the shipment within the prescribed period. In case the constituent exporter is one who is placed in exporters caution list by RBI, ADs may negotiate the documents provided the shipment is covered by Advance remittance or by irrecoverable letter of credit where the documents confirm strictly to the terms of the letter of credit. Short Shipment Certificate / Shutout Shipment When part of shipment covered by a GR form already filed with Customs is short shipped, exporter files a short shipment notice with the customs. Customs on verification forwards a certified short shipment notice should be attached to the duplicate of GR from and a record of analysis of export value of goods actually shipped should be made on the GR duplicate.

When the short shipped portion is subsequently shipped a fresh set of GR forms shall be used for declaration. Where a shipment has been entirely. Extension of Time Limit Where an exporter is unable to realise the proceeds within the prescribed period, for reasons beyond his control, he may apply to Reserve Bank of India through his banker, in form ETX together with appropriate documentary evidence for extension of time. RBI grants permission only in such cases where the exporter is in no way directly or indirectly responsible for the delay in realisation of proceeds and that by grant of an extension, the exporter will be able to realise the proceeds. Change of Buyer / Consignee Approval of RBI is not necessary; if the goods which have been shipped, are to be transferred to a party other than the original buyer in the event of default by the latter provided. The prescribed period for realisation of export proceeds is not exceeded and Reduction in invoice value, if any, involved, does not exceed 10 percent. In case of reduction in invoices value exceeds 10% then conditions stipulated in para. 6C 13 of ECM Vol-I, 1993 Edition should be adhered to. Part Drawings In certain lines of trade, exporters leave a small part of invoice value undrawn. This is for payment by overseas buyer after adjustments due to weight, quality etc. In such cases, authorised dealers shall negotiate bills provided: Undrawn balances does not exceed 10% of full export value An undertaking is given by exporter that he will account for the balance proceeds within the prescribed period for realisation. The duplicate copy of the GR/ PP forms will be submitted to RBI by the authorised dealer only on receipt of the amount in settlement of undrawn balance. (As an exception, where the authorised dealers are satisfied about the bonafides of the case, submission of GR/PP duplicate to RBI without receipt of undrawn balance is permitted provided the exporter has realised at-least the value for which the bill was initially drawn (excluding undrawn balance) or 90 per cent of the value declared on GR/PP form whichever is more and a period of one year has expired from shipment). The items should however, continue to be reported in the half yearly statement of outstanding export bills. Reduction in Invoice Value If after a bill has been negotiated or sent for collection, the amount thereof is desired to be reduced for any reason, authorised dealer may approve such reduction, on submission of an application by a letter with full particulars of shipment, an attested copy of invoice and documentary evidence in support of the reduction sought for provided, The reduction does not exceed 10% It does not relate to an export of gold or silver jewellery or articles made out of cut and polished diamonds The exporter is not on the exporters caution list of RBI The items are not subjected to export quota allocation / or not subject to floor price restrictions. In the case of exporters who have been in the export business for more than three years, reduction in invoice value may be allowed, without any percentage ceiling, subject to the above conditions as also subject to their track record being satisfactory, i.e. the export outstandings do not exceed 5% of the average annual export realisations during the preceding three calendar years. For this purpose, the exporter's declaration, duly certified by his auditor or by a Chartered Accountant, indicating the total export realisations during each of the preceding three calendar years and the export bills outstanding beyond the prescribed period for realisation of export proceeds and average outstandings in absolute and percentage terms. Outstanding export in respect of exports made to countries facing

externalisation problems may be ignored provided the payments have been made by the buyer in the local currency. Authorised dealers should obtain the above declaration duly certified as on January and July every year. If exporters approach ADs for reduction of invoice value on account of cash discount for prepayment of usance bills, ADs may allow reduction to the extent of amount of proportionate interest on the un-expired period of usance calculated at the rate of interest stipulated in the export contract OR at the prime rate of the currency of invoice where rate of interest is not stipulated in the contract. Trade Discount ADs may permit deduction of trade discount from the bill and where the shipment has been effected by sea or air, if the trade discount is declared in the GR form and accepted by customs authorities. In case of post parcels through PP forms, post office will not undertake the scrutiny of trade discount and ADs only may have to accept the trade discount deductions in PP from provided the discount is in conformity with the normal level of discount usually offered in the particular line of export. Write Off of un-realised Export Bills In cases where the exporter has not been able to realise the outstanding export dues despite his best efforts, he may approach the authorised dealer, who had handled the relevant shipping documents, with appropriate supporting documentary evidence with a request for write off the un-realised portion. Authorised dealers may accede to such requests (the branch concerned should obtain the approval of its controlling office) subject to the conditions listed in paragraph 6C 14 of Exchange Control Manual (1993 Edition). Agency Commission Authorised dealers may allow remittance of commission of exports within the prescribed limit (i.e., 12.5% of invoice value) if it is declared in the GR form and accepted by the customs. Even in cases where the amount of commission has not been declared on Export Declaration form by the exporters, Ads may allow without insisting for NOC from Customs / Department of Electronics, after satisfying themselves about the reasons given by the exporter for not declaring the amount of commission on GR/PP/Softex and provided a valid agreement/written understanding between the exporter and the overseas agent/beneficiary for payment of commission subsists. XOS Statement Authorised dealers should closely watch the realisation of bills and in case where bills remain outstanding beyond the due date for payment, they should take up the matter promptly with the exporter concerned. Authorised dealer should furnish to RBI half yearly consolidated statement in form XOS giving details of all export bills outstanding beyond the prescribed period for realisation at the end of June and December every year. This Statement should be submitted within 15 days from the close of the relative half year.