Вы находитесь на странице: 1из 5

THE foreign exchange law, in general, and, the regulation of export, in particular, are moving towards a trust-based self-regulation,

from the earlier `suspicioncontrol' regime. `Managing cash is managing profits' is the dictum in business. Trade receivables, or technically the debtor-turnover ratio, should be healthy enough to help a business realise its true value. In export sale, if the export proceeds become fully bad and are to be written off or partially reduced, in addition to erosion of what is already a wafer-thin margin to the seller, the precious foreign exchange is lost to the country as well. The problem also arises out of other complex factors. First, the global market conditions, for a country like India, are fiercely competitive. The country may have strengths in IT/ITES segment, but other players such as China, Taiwan, and Korea are not far behind. Second, with too many small players and too few branded firms, buyers of goods and services have the upper hand in the bargaining, given their large resources. Third, any extreme situation such as litigation against overseas buyers remains in legal documents more as a form, than to actually strike with, since the cost of litigation abroad is expensive that, in most cases, suffering damage may be better; the exporter would not like to throw good money after bad. The challenges are going to increase, even as India strives for one per cent share of the global trade. Given this background, it is worthwhile understanding the law governing exports and its developments in the past five years. The Foreign Exchange Regulation Act, 1973 (FERA 1973) was perceived as a draconian piece of legislation that gave the Enforcement Directorate and other authorities under that Act vast powers, including to control every conceivable trade/business-related transaction, arrest persons for interrogation, levy huge penalties, presume documents against suspects and so on. The Act was a quasi-criminal legislation. Regulation of export was controlled by the Exchange Control Manual (Chapter 6 of the Exchange Control Manual 1993 Edition). Consistent with the legacy of `control and permission', the law and its regulation required every export to be monitored, right from payment terms, manner of payment, period within which realisation takes place, extension of time, reduction in invoice value, to write off. In some cases, the law was oblivious to international competition/market conditions. In 1999, the law was thoroughly amended and in came the Foreign Exchange Management Act, 1999 (FEMA) that was more a civil law, giving no automatic powers to authorities to arrest; diluting the penal provisions, the whole thrust of the new law is one of orderly development of the foreign exchange market and facilitating external trade.

This law vests the residuary power with the Centre, to amend, relax or tighten the law, in public interest. This is the obvious requirement, since the law, unlike many other statutes, is contingent upon the country's foreign exchange reservoir. Fortunately, the forex kitty has more than trebled in the last five years, giving hope that FEMA is only set for progressive liberalisation, ultimately leading to full convertibility, though the timing for this will be set by the Reserve Bank of India after considering various factors. But FEMA has accelerated the liberalisation of exports by "facilitating" rather than "regulating". FEMA contains provisions (Section 7) to regulate export of both goods and services. The inclusion of `services' is consequent to the growing opportunity for India in the last decade.

The law regulates such exports through the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 contained in Notification No FEMA 23 /2000-RB dated May 3, 2000 [Regulation] as seen in Table 1. The Regulation still obliges an exporter to file the required declaration and makes him responsible for realising the full value of exports. The period of six months for realisation and repatriation of export proceeds is the general requirement under the Regulation as originally enacted.

The RBI continues to have the power to give any directions, including approval of longer credit period and extension of time for receiving export proceeds.

However, these powers have been diluted to a larger extent by the central bank itself in the last five years (Table 2). Such liberalisation started in September 2000 through A.P. (DIR Series) Circular 12 wherein the RBI extensively dealt with the various issues on exports, including follow up of overdue export bills, reduction in value, extension of time limit for realising export proceeds, write-off of such proceeds where realisation is not possible and dealing with defaulting exporters placed in the caution list. Since then the relaxation of rules has happened in phases, classifying exporter in different categories. Thus, status holder exporters (that is, thosewho enjoy special status such as export house or star house under the EXIM Policy) have relaxed norms for write off, and extension of time for export realisation up to 12 months. Units in Special Economic Zones have been granted one year to realise export proceeds, eventually removing the time restriction, allowing them decide for themselves the credit terms, based on market conditions. The RBI withdrew from granting extensions of time or reducing the value of realisation of export proceeds, delegating these powers to banks (authorised dealers), though subject to certain conditions. Now, banks themselves can write off bad debt up to 10 per cent of the export proceeds due in a calendar year. With assured documents covering payments, banks can now deal with even the caution list exporters. In addition, a number of other simplifications of documents/procedures/reporting has been made in external trade, in line with the Commerce Ministry's thrust to promote exports. Thus, in about four years, the de-regulation of exports has seen a conscious acceleration, which also reduced the transaction costs. All this change are predicated on a trust in the business community and on the belief that no business would allow generation of bad debt. There is also a realisation that an official of a regulatory body can hardly decide better than the business community on how to deal with a customer.

Though abuse of this trust cannot be ruled out, in general, businesses will regulate themselves in their best interests in realising and repatriating the full value of export sale. Any any contravention can be compounded by the RBI or the Enforcement Directorate in terms of Section 15 of FEMA. In February, the rules for compounding were extended to cover every contravention and the necessary procedures are in place to make the process transparent. This provides for a quicker and an effective mechanism to settle litigation, which otherwise may be long-drawn, uncertain and expensive. The law maker and the regulator have reposed confidence in the business community, going far from their earlier approach, and it is time to wait and see whether business, in turn, responds in similar fashion in its responsibility to the nation