Foreign Exchange Management Act (India)

commodities, stipulate that the export of certain other commodities would be subject to licence, prescribe minimum export prices or methods by which payments for exports of some commodities will have to be received. Export of certain commodities might be subject to restrictions placed in other statutes also. Nothing in the Exchange Control regulations outlined in this Manual shall relieve the exporter from complying with those laws and/or conditions imposed under those laws.

(ii)

In exercise of the powers conferred by section 18(1) of Foreign Exchange

Regulation Act, 1973, Government of India have issued Notifications No. F1/67/EC/73-1 and No. F1/67/EC/73-2 both dated 1st January 1974, prohibiting the export of any goods directly or indirectly to any place outside India, other than Nepal and Bhutan, unless a declaration in the prescribed form is furnished to the prescribed authority. The various forms of declarations have been prescribed in the Second Schedule to the Foreign Exchange Regulation Rules, 1974. These Rules also lay down regulations relating to the prescribed period for realisation of export proceeds and the manner of payment of export value of goods.

Exemptions from Declarations

6A.2

In terms of Notifications Nos.F1/67/EC/73-1 and 2 both dated 1st January 1974, the

requirement of declaration on one of the prescribed forms does not apply to the exports listed

therein. Copies of these notifications are given in Volume II of the Manual. In terms of these notifications, the requirement of declaration does not, inter alia, apply to 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. Reserve Bank, by its Order No. EC.CO.COX.126/5/Policy/93 dated 5th March 1993, has granted general permission to airline companies/air taxi operators to despatch aircraft engines and spare parts out of India for overhauling/repairs and their subsequent return to India, free of payment, without furnishing a declaration on GR / PP form. [Please also see paragraph 6F.3 regarding replacement of goods]

Export Declaration Forms

6A.3

The Foreign Exchange Regulation Rules, 1974 prescribe export declaration forms

called Exchange Control Declaration (GR) form, hereafter referred to as GR form, PP

and VP/COD forms. All exports to which the requirement of declaration applies must be declared on appropriate forms as indicated below:

(a)	Exchange Control Declaration	:	Exports to all countries made
	(GR)Form		otherwise than by post.
(b)	PP Form		Exports to all countries by parcel post, except when made on 'value payable' or 'cash on delivery' basis.
(c)	VP/COD Form		Exports to all countries by parcel post, under arrangements to realise proceeds through postal channels on 'value payable' or 'cash on delivery' basis.

NOTE:

Export declarations are to be made in a set of two copies (original and duplicate) of GR or PP form. VP/COD forms are to be submitted in a single copy.

A.D.(M.A. Series) Circular No.4

Numbering of forms

6A.4

GR and PP forms are printed by Reserve Bank for sale to authorised dealers for supply to their customers. VP/COD forms are sold directly to exporters by the offices of the Exchange

Control Department of Reserve Bank. GR / PP forms are printed in distinctive colours and each set bears a printed number which appears on both copies in the set. In all remittance applications and correspondence with the Reserve Bank relating to any export transaction, the printed number of GR / PP form on which the relative export was declared should invariably be cited. In case of exports declared on GR form, the 10 digit number allotted to the GR form by Customs should also be cited in full.

Importer-Exporter Code Number

6A.5

Every person/firm/company engaged in export business in India should obtain Importer-Exporter Code Number from the Director General of Foreign Trade (DGFT) as required

under the Export and Import Policy. The Head/Registered office as well as its branches in India should invariably cite the number so allotted by DGFT on GR, PP or VP/COD forms as also SOFTEX form used for declaration of exports. Customs/Post Office/Department of Electronics will not entertain any export forms which do not bear the Importer-Exporter Code Number issued by DGFT.

Methods of Payment

6A.6

(i)

The methods for receipt of payment for exports are given in Chapter 2. Normally, payment must be received through the medium of an authorised dealer. It will, however, be in order for authorised dealers to handle documents in cases where the exporter has received the export proceeds directly from the overseas buyer in the form of bank draft, pay order, banker's cheque, personal cheque, foreign currency notes, foreign currency travellers' cheques, etc., without any monetary limit provided the exporter's track record is good, he is a customer of the concerned authorised dealer and prima facie the instrument represents payment for exports.

(ii)

It will also be in order for authorised dealers to handle documents in cases where the exporter has received the export proceeds in respect of goods sold to overseas buyers during their visits to India in rupees from the Credit Card Servicing banks either by way of reimbursement against charge slips signed by the ICC holders (overseas buyers) or as instantaneous credit to his bank account in India. GR(duplicate) should be released by the authorised dealers on receipt of funds in their Nostro account or on production of a certificate by the exporter from the Credit Card Servicing bank in India to the effect that it has received the equivalent amount in foreign exchange, if the authorised dealer concerned is not the Credit Card Servicing bank.

(iii)

Payments towards export proceeds out of funds held in the Foreign Currency (Non-resident) account and Non-resident (External) Rupee account is also permitted.

(iv)

Payments towards export proceeds from a rupee account, held in the name of an Exchange House with an authorised dealer, is also permissible up to Rs.2,00,000 per transaction.

Time limit for Realisation of Export Proceeds

6A.7

In terms of Rule 8 of the Foreign Exchange Regulation Rules, 1974, as amended, the

amount representing the full export value of goods exported must be realised by an exporter on the due date for payment or within six months from the date of shipment, whichever is earlier. In respect of exports made to Indian-owned Warehouses abroad established with the permission of the Reserve Bank, a maximum period of 15 months is allowed for realisation of export proceeds. As regards consignment exports to CIS countries and East European countries, see Note C under paragraph 6C.8(ii).

Exports under Trade Agreements/Rupee Credits

6A.8

(i)

Export of goods under special arrangements or rupee credits extended by

Government of India to foreign Governments will be governed by terms and conditions

set out by Export Trade Control authorities in the relative Public Notices. These notices will cover various aspects such as type of goods eligible for export, procedure for obtaining approval for individual export contracts, manner of receiving payment and other matters. Important instructions relating to such exports will also be communicated by Reserve Bank to authorised dealers in the form of A.D. Circulars. Authorised dealers should refer to these Public Notices and A.D. Circulars while handling documents covering exports under these arrangements and ensure that prescribed procedure is meticulously followed.

(ii)

The Export-Import Bank of India (Exim Bank) also extends, from time to time,

lines of credit to commercial banks/financial institutions in foreign countries for financing exports from India to those countries. Terms and conditions governing such credits are communicated by Reserve Bank to authorised dealers by means of A.D. Circulars. Authorised dealers should be guided by the instructions contained in such circulars while handling documents covering exports under these arrangements and should meticulously follow the procedure prescribed therein.

Protection against Transit Risks under f.o.b., c.& f.,etc. Contracts

6A.9

In case of exports contracted on f.o.b., c.& f., etc. terms and not covered by irrevocable letter of credit opened by buyers, exporters will be well advised to ensure even before

cargoes are shipped that the shipment has been adequately insured against all risks of loss or damage during the entire course of transit and that such insurance cover incorporates seller's interest clause in the relative policy, permitting claims being paid to exporter in India in the event of loss/damage to the shipment before ownership in the goods passes to buyer (See Note under paragraph 15A.2 and also paragraph 15A.3).

Bid Bonds and Other Guarantees against Commodity Exports

6A.10

In terms of the Notification No. FERA.132/93-RB dated 26th April 1993, issued under Section 26 of FERA 1973, authorised dealers have the permission to give performance

bond or guarantee in favour of overseas buyers on account of bonafide exports from India. Before issuing any such guarantees, they should satisfy themselves with the bona fides of the applicant and his ability to perform the contract and also that the value of the bid/guarantee as a percentage of the value of the contract/tender is reasonable and according to the normal practice in international trade and that the terms of the contract are in accordance with the Exchange Control regulations. Authorised dealers may also, subject to what has been stated above, issue counter-guarantees in favour of their branches/correspondents abroad in cover of guarantees required to be issued by the latter on behalf of Indian exporters in cases where guarantees of only resident banks are acceptable to overseas buyers in accordance with local laws/regulations. If and when the bond/guarantee is invoked, authorised dealers may make payments due thereunder to non-resident beneficiaries but a report should be sent to Reserve Bank where the amount of the remittance exceeds U.S.$ 5000 or its equivalent.

NOTE:

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

Minor Guarantees

6A.11

Authorised dealers may freely give on behalf of their customers and overseas branches and correspondents, guarantees in the ordinary course of business in respect of missing

or defective documents, authenticity of signatures and for other similar purposes.

Foreign Currency Accounts

6A.12

Reserve Bank may consider selectively applications from exporters having good track record for opening foreign currency accounts with banks abroad for crediting the proceeds of export

shipments made (except to countries which are members of Asian Clearing Union) subject to certain terms and conditions. The facility will generally be extended to Export/Trading/Star Trading/Super Star Trading Houses and other exporters whose net foreign exchange earnings during the preceding year on account of exports after adjusting payments towards imports are not less than Rs.4 crores. A designated branch of an authorised dealer in India will monitor the operations in the account abroad. Applications for this purpose may be submitted through the designated branch on form EFC to the concerned office of the Exchange Control Department under whose jurisdiction the exporter is functioning.

Counter Trade

6A.13

(i)

Counter-trade proposals involving adjustment of value of goods imported into India against value of goods exported from India in terms of an arrangement voluntarily entered into between the Indian party and the overseas party through an Escrow Account opened in India in U.S. dollar will be considered by the Reserve Bank. All imports and exports under the will be payable on balances standing to the credit of the Escrow Account but the funds temporarily rendered surplus may be held in a short-term deposit up to a total period of three months in a year (i.e. in a block of 12 months) and the banks may pay interest at the applicable rate. No overdraft will be permitted in the Escrow Account nor any loans will be permitted to be granted against funds in the account.

(ii)

Application for permission for opening an Escrow Account may be made by the

overseas exporter/organisation through the authorised dealer with whom the account is proposed to be opened, to the office of Reserve Bank under whose jurisdiction the authorised dealer is functioning.

(iii)

Reserve Bank will also consider counter trade proposals from Indian exporters

with Romania involving adjustment of value of goods exported from India to Romania against value of goods imported from Romania into India in terms of an arrangement voluntarily entered into with a party in Romania through an Escrow account in U.S. Dollar maintained with a bank in Romania for the purpose. The Indian exporter should utilise the Escrow account funds within three months from the date of credit to the Escrow account for import of goods from Romania into India. Application for necessary permission to open a U.S. Dollar Escrow Account may be submitted by an Indian exporter through an authorised dealer to the concerned office of Reserve Bank under whose jurisdiction the applicant is situated. The concerned authorised dealer will be required to monitor the transactions in the U.S. Dollar Escrow Account with banks in Romania through a mirror account.

Export of goods on lease, hire, etc.

6A.14

Machinery, equipment, etc. are sometimes exported on lease, hire, etc. basis under

agreement with the overseas lessee against collection of hire charges and ultimate reimport of the goods exported. Exporters who wish to export goods on such terms should approach, through an authorised dealer, the office of the Reserve Bank under whose jurisdiction the exporter is situated, giving full particulars.

Participation in Trade Fairs Abroad

6A.15

(i)

Firms, companies as also Export Promotion Councils and other grantee organisations (list given in the Annexure) which are autonomous organisations under the Ministries

of Commerce and Textiles of the Government of India and other Agencies/Commodity Boards regarded as Export Promotion Councils which are notified in the Export and Import Policy wishing to participate in trade fairs and exhibitions abroad and private publishers, printers etc. wishing to participate in book fairs/exhibitions abroad should apply to authorised dealers for exchange with necessary particulars. Authorised dealers may, on receipt of application from the aforesaid entities, release exchange subject to the condition that the participants render proper account of the expenditure incurred for the above purpose.

(ii)

Exporters participating in international exhibition/trade fairs have been granted

general permission vide Reserve Bank Notification No.FERA.161/95-RB dated 31st January 1995 for opening temporary foreign currency account abroad for depositing the foreign exchange obtained by sale of goods sent for display-cum-sale at the international exhibition/trade fair and operate thereon during their stay outside India provided that the account is closed immediately after close of exhibition/trade fair and the balances therein is repatriated to India through normal banking channel. Exporters are also required to render full account of the transactions and the sale of goods exported for display-cum-sale in exhibition/trade fair to Reserve Bank duly certified by their bankers and produce documentary evidence regarding reimport of goods unsold within a period of 15 days from the close of the exhibition/fair.

NOTE:

Authorised dealers may release exchange up to the amount requested for, on application to the All-India trade / industry bodies for organising trade fairs/exhibitions abroad. Authorised dealers should ensure that proper account of the expenditure incurred in foreign exchange so released for the above purpose is rendered by the organisation as soon as the trade fair/exhibition is over.

Project Exports and Service Exports

6A.16

(i)

Export of engineering goods on deferred payment terms and execution of

turnkey projects and civil construction contracts abroad are collectively referred to as

'Project Exports'. Project export contracts are generally of high value and exporters undertaking them are required to offer competitive credit terms to be able to secure orders from foreign buyers in the face of stiff international competition. Indian exporters offering deferred payment terms to overseas buyers in respect of export of goods and those participating in global tenders for undertaking turnkey/civil construction contracts abroad require specific prior approval of Reserve Bank for credit terms to be offered, third country imports and opening of liaison office. Regulations relating to 'Project Exports' and 'Service Exports' are laid down in the Memorandum on Project Exports (PEM).

(ii)

Pure supply contracts i.e. contracts for export of goods where at least 90 per cent

of the export value is realised within the prescribed period i.e. six months from the date of shipment and the balance amount within a maximum period of two years from the date of shipment, are not treated as deferred payment exports, provided the exporter does not require/avail of any funded or non-funded facility/ies for such exports from authorised dealers. Exporters should, therefore, directly approach ECGC for appropriate cover and Reserve Bank for approval of the terms of payment in accordance with the procedure laid down in Memorandum PEM.

Export on Elongated Credit Terms

6A.17

Normally, proceeds of export of goods, other than those for which exporters have been permitted to offer commercial credit, (cf. paragraph 6A.16) have to be realised on the

due date for payment or within six months from the date of shipment whichever is earlier (or 15 months from the date of shipment in respect of exports to Indian-owned warehouses established abroad with the permission of the Reserve Bank). In some cases, however, the overseas buyers may be seeking longer period for payment of proceeds of commodities which are normally exported from India on "cash" terms generally on the ground that remittances of proceeds are not permitted within 6 months or earlier by the buyers' country, in view of its difficult balance of payments position. Exporters intending to export goods on such terms may submit their proposals in form ECT through their banks to the concerned regional office of Reserve Bank for consideration.

Forfaiting

6A.18

(i)

Export-Import Bank of India (Exim Bank) has introduced a scheme of forfaiting

as an instrument of financing exports. It would be in order for authorised dealers to

allow remittance of commitment fee/service charges payable by the exporter as certified by the Exim Bank. Such remittance may be permitted in advance in one lump-sum or at monthly intervals as certified by the Exim Bank. Payment of these fees may be treated analogous to bank charges. In case, however, the commitment fee and other charges exceed 1.5% of the invoice value, the exporter should be advised to obtain prior approval of Reserve Bank.

(ii)

Authorised dealers have also been permitted to introduce a scheme of forfaiting

of medium term export receivables, if they so desire. The procedure as followed by Exim Bank may be followed by authorised dealers in this regard.

PART B - GR/PP PROCEDURE

Disposal of Copies of Export Declaration Forms

6B.1

(i)

Copies of export declaration forms should be disposed of as under:

(a)

GR forms should be completed by the exporter in duplicate and both the copies submitted to the Customs at the port of shipment along with the shipping bill. Customs will give their running serial number on both the copies after admitting the corresponding shipping bill. The Customs serial number will have ten numerals denoting the code number of the port of shipment, the calendar year and a six digit running serial number. Customs will certify the value declared by the exporter on both the copies of the GR form at the space earmarked and will also record the assessed value. They will then return the duplicate copy of the form to the exporter and retain the original for transmission to Reserve Bank. Exporters should submit the duplicate copy of the GR form again to Customs along with the cargo to be shipped. After examination of the goods and certifying the quantity passed for shipment on the duplicate copy, Customs will return it to the exporter for submission to the authorised dealer for negotiation or collection of export bills.

(b)

Within twenty one days from shipment of goods, exporter should lodge the duplicate copy together with relative shipping documents and an extra copy of the invoice with the authorised dealer named on the GR form. After the documents have been negotiated/sent for collection, the authorised dealer should report the transaction to Reserve Bank in statement ENC under cover of appropriate R-Supplementary Return. The duplicate copy of the form together with a copy of invoice will be retained by the authorised dealer till full export proceeds have been realised and thereafter submitted to Reserve Bank duly certified under cover of appropriate R-Supplementary Return.