RBI’s Draft Trading Norms Provide More Freedom for ADs

The Reserve Bank of India (RBI) last Tuesday posted on its website the draft of new regulations and guidelines for export and import of goods and services, which will come into effect later, with amendments, if any, to be made based on feedback received from exporters, importers and authorised dealer (AD) banks.

At first glance, the brevity of the proposed regulations and guidelines is striking. The draft regulation (872 words) is less than one-fourth of the current export regulations (3,700 words). The proposed guidelines for ADs on export and import (2,284 words) are about one-twelfth of the current main guidelines on export of goods and services (16,122 words) and import of goods and services (10,828 words) put together. Exporters and importers accustomed to detailed RBI guidelines will now have to wait for guidelines from ADs, who have been asked to implement a comprehensive, well-documented policy approved by their Board of Directors within six months to handle payment transactions related to export/import of goods and services and commercial trade.

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The current system of monitoring payments and receipts for imports and exports through the Import Data Processing and Monitoring System (IDPMS) and Export Data Processing and Monitoring System (EDPMS) respectively will continue. Exporters will have to file a declaration of value in the prescribed form, which will also include an undertaking to realise the export proceeds within the stipulated period of 9 months applicable in the draft regulations for all types of export transactions. Their lack of provisions for waiver of such declarations in case of export of samples, free substitutes or materials, gifts, goods sent abroad for testing etc. is noteworthy.

The draft guidelines allow ADs to grant a longer period in cases where the exporter has been unable to realise the export proceeds due to reasons beyond his control and also in cases where the exporter has been unable to fulfil the export obligations in return for an export advance payment. In case of imports, ADs can also grant an extension of time for making payments. The normal period for making payments for imports would be the period specified in the contract between the buyer and the seller. Exporters accepting advance payments from buyers must fulfil their obligations within the contractual period. ADs can allow the set-off of export duties against import duties in respect of the same contractors but cannot allow the set-off of export duties for goods against import duties in case of

services and vice versa. ADs may allow reductions in the full value of exports in justified cases, but all cases of reductions of more than 25 per cent of the full value of exports must be submitted to their Boards for post facto ratification.

An exporter may be placed on the “Warning List” in EDPMS if payment for an export is outstanding for more than two years from the due date of the export proceeds, including any extensions granted. ADs will provide the defaulting exporter with notice and an opportunity to comment before his name is placed on the Warning List. ADs will process the “Warning Listed” exporter’s documents only in the event of full prepayment from the buyer or an irrevocable letter of credit.

The draft regulations and guidelines provide for greater freedom for ADs in operational matters related to import and export. Much depends on their reaction.

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