Exchange Control - Export of Goods and Services
[Source: Master Circular No. / 8 /2004-05 by RBI Dated July 1st, 2004]

Introduction

Export trade is regulated by the Directorate General of Foreign Trade (DGFT) and its regional offices, functioning under the Ministry of Commerce and Industries, Department of Commerce, Government of India. Policies and procedures required to be followed for exports from India are announced by the DGFT. Authorised dealers may conduct export transactions in conformity with the Export-Import Policy in vogue and the Rules framed by the Government of India and the Directions issued by Reserve Bank from time to time under the Act.

As per the Foreign Exchange Management (Current Account Transactions) Rules, 2000, drawal of exchange for certain current account transactions has been prohibited and restrictions have been placed on certain other transactions. In terms of Rule 4 ibid, the transactions specified in Schedule II to the said Notification require prior approval of the Government of India and in terms of the Rule 5, the transactions specified in Schedule III to the Notification require prior approval of the Reserve Bank. Authorised dealers may follow directions contained in Part III while dealing with applications relating to export of goods and services from India.

It is further clarified that the directions contained in this Circular should be read with the Rules notified by the Government of India, Ministry of Finance, vide Notification dated May 3, 2000, as also Regulations notified by Reserve Bank vide its Notification No.FEMA 23/2000-RB dated 3rd May 2000 as amended from time to time

The Reserve Bank has made the Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 vide its Notification No.FEMA 6/RB-2000 dated 3rd May 2000 and subsequently modified vide Notification No.FEMA 38 / 2001 – RB dated 27th February, 2001. Any export of Indian currency of value exceeding Rs.5000/- except to the extent permitted under any general permission granted under the Regulations, will require prior permission of Reserve Bank.

In terms of Regulation 4 of the Foreign Exchange Management (Guarantees) Regulations, 2000, notified vide Reserve Bank Notification No.FEMA 8 / RB dated 3rd May 2000, authorised dealers have been permitted to issue guarantees on behalf of exporter clients on account of exports out of India.

Export of goods and services against repayment of state credits granted by erstwhile Soviet Union will continue to be governed by the extant directions issued by Reserve Bank, as amended from time to time. Further, Reserve Bank will continue to consider as hitherto, counter trade proposals from Indian exporters with Romania involving adjustment of value of exports from India against value of imports made into India in terms of a voluntarily entered arrangement between the concerned parties, subject to the condition, among others that the Indian exporter should utilise the funds for import of goods from Romania into India within six months from the date of credit to Escrow Accounts allowed to be opened.

1. In exercise of the powers conferred by clause (a) of sub-section (1), sub-section (3) of section 7 and sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank has made the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 relating to export of goods and services from India, hereinafter referred to as the ‘Export Regulations’. These Regulations have been notified vide Notification No. FEMA 23/2000-RB, dated 3rd May, 2000, as amended from time to time.

2. Any reference to Reserve Bank should be made to the office of Foreign Exchange Department within whose jurisdiction the applicant person, firm or company resides or functions unless otherwise indicated. If for any particular reason, a firm or company desires to deal with a different office of the Foreign Exchange Department, it may approach the office within whose jurisdiction it functions for necessary approval.

1. The requirement of declaration of export of goods and software in the prescribed form will not apply to the cases indicated in Regulation No. 4, ibid. The requirement of declaration also shall not apply to goods sent for testing abroad, subject to re-import. Exporters have been exempted from submission of declaration in prescribed format for exports of value not exceeding US $ 25,000 or its equivalent. The exporters shall however, be liable to realize and repatriate export proceeds as per FEMA regulations.

2. Gift of goods exceeding rupees five lakhs in value require approval of the Reserve Bank.

3. Authorised Dealers may consider requests for grant of GR waiver from exporters for export of goods free of cost, for export promotion upto 2 percent of average annual exports of the applicant during the preceding three years subject to a ceiling of Rs.5 lakhs.

4. Export of goods not involving any foreign exchange transaction directly or indirectly, requires the waiver of GR/PP procedure from Reserve Bank

GR, PP and SOFTEX forms will bear specific identification numbers. In all applications/ correspondence with the Reserve Bank, this identification number should invariably be cited. In the case of declarations made on SDF form, the port code number and shipping bill number should be cited.

1. The amount representing the full export value of the goods exported shall be received through an authorised dealer in the manner specified in the Foreign Exchange Management (Manner of Receipt & Payment) Regulations, 2000 notified vide Notification No. FEMA 14/2000-RB, dated 3rd May, 2000.

2. Payment for export may also be received by the exporter in the following manner :

   1. In the form of bank draft, pay order, banker’s or personal cheques.

   2. Foreign currency notes/foreign currency travellers’ cheques from the buyer during his visit to India.

   3. Payment out of funds held in the FCNR/NRE account maintained by the Buyer

   5. All transactions between a person resident in India and a person resident in Nepal may be settled in Rupees. However, in case of export of goods to Nepal, where an importer resident in Nepal has been permitted by the Nepal Rashtra Bank to make payment in free foreign exchange, such payments shall be routed through the ACU mechanism.

   6. Payment of export may also be received by the Gem & Jewellery units in SEZs and EOUs in the form of precious metals i.e. Gold / Silver / Platinum equivalent to value of jewellery exported on the condition that the sale contract provides for the same and the approximate value of the precious metals is indicated in the relevant GR / SDF / PP Forms.

Prior approval of Reserve Bank should be obtained by authorised dealers for issue of guarantees in respect of caution-listed exporters.

Paragraph: A6

1. Foreign Currency Accounts
   Reserve Bank may consider applications in Form EFC from exporters having good track record for opening foreign currency accounts with banks subject to certain terms and conditions. Applications for opening such an account with a branch of an authorised dealer in India may be submitted through the branch at which the foreign currency account is to be maintained. If the foreign currency account is to be maintained abroad the application should be made by the exporter giving details of the bank with which the account will be maintained. An Indian entity has also been permitted to open, hold and maintain in the name of its office/branch set up outside India, a foreign currency account with a bank outside by making remittance for the purpose of normal business operations of the said office/branch or representative subject to certain conditions. Indian corporates who have set up overseas offices abroad have been permitted to acquire immovable property outside India for their business as also staff residential purposes with prior permission of RBI, until further notice.

   A unit located in a Special Economic Zone (SEZ) may be allowed to open , hold and maintain a Foreign Currency Account with an authorised dealer in India subject to certain specified conditions.

   A person resident in India being a project /service exporter may open , hold and maintain Foreign Currency Account with a bank outside or in India , subject to certain terms and conditions.

2. Diamond Dollar Account
   Under the scheme of Government of India, firms and companies dealing in purchase/sale of rough or cut and polished diamonds / diamond studded jewellery, with track record of at least three years in import or export of diamonds and having an average annual turnover of Rs. 5 crores or above during preceding three licensing years (licensing year is from April to March) are permitted to transact their business through Diamond Dollar Accounts and may be allowed to open not more than five Diamond Dollar Accounts with their banks. Accordingly, eligible firms and companies may apply for permission to the Chief General Manager, Foreign Exchange Department, Trade Division, Reserve Bank of India, Central Office, Mumbai 400 001, through their authorised dealer.

3. Exchange Earners’ Foreign Currency (EEFC) Account
   A person resident in India may open, hold and maintain with an authorised dealer in India, a foreign currency account to be known as Exchange Earners’ Foreign Currency (EEFC) Account. This account will be maintained only in the form of non-interest bearing current account and no credit facilities either fund-based or non-fund based, should be permitted against the security of balances held in EEFC accounts, by the authorised dealers. The limits of eligible credits to the EEFC accounts are 100% for Status Holder Exporter (as defined in Exim Policy in force), a resident in India for professional services rendered in his personal capacity and 100% Export Oriented Unit/s, Unit/s in Export Processing Zones (EPZs), Software Technology Park (STP) and Electronic Hardware Technology Park (EHTPs) and 50% for other persons resident in India in respect of inward remittance received through normal banking channel, other than the remittance received pursuant to any undertaking given to the Reserve Bank or which represents foreign currency loan raised or investment received from outside India or those received for meeting specific obligations by the account holder.

   Payments received in foreign exchange by a unit in Domestic Tariff Area (DTA) for supply of goods to a unit in Special Economic Zones out of its foreign currency a/c. are to be treated as eligible foreign exchange earnings for the purpose of credit to the EEFC A/c. Authorised Dealers may credit such payments received in foreign exchange by a unit in DTA to its EEFC A/c.

   Authorised Dealers may till further notice, permit their exporter constituents to extend trade related loans / advances to overseas importers out of their EEFC balances without any ceiling subject to compliance of provisions of Notification No.FEMA 3/2000-RB dated 3rd May 2000 as amended from time to time

   Authorised Dealers may permit exporters to repay packing credit advances whether availed in Rupee or in foreign currency from balances in their EEFC A/c. and / or rupee resources to the extent exports have actually taken place.

4. Supply of goods from units in Special Economic Zones (SEZs) to units in Domestic Tariff Area (DTA)
   Authorised Dealers may permit units in DTAs to purchase foreign exchange for making payment for goods supplied to them by units in SEZs.