Foreign Exchange Management

-
an overview of Current account
Transactions
Santha Paul
Asst. General Manager
Reserve Bank Of India, Chennai

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 What is new in FEMA regime ?

 Preamble itself is changed

 All current account transactions are free
 Capital account transactions are deregulated
 Definition of NRI changed from purpose to
residence
 From Criminal law to Civil Law
 Less punishment – No Imprisonment
 Compounding powers to RBI
 Less stringent & more business friendly

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 Forex Management– Shift in focus
 1991-Downward correction of exchange rate
( Devaluation)
 1992- LERMS (Liberalised Exchange Rate
Management System)
 1993- Modified LERMS
 1994 – Current Account Convertibility - declared
 1997 – Capital Account Convertibility – debate started

 2000 – FEMA 1999 replaced FERA 1973 w.e.f.1.6.2000

IMF loans repaid
 2003 - Money Laundering Act, 1999 passed
- IMF designates India as Creditor under its
Financial Transaction Plan (FTP)
 2004 – Reserves exceed external debt
 2006 – Capital Account Convertibility– further steps
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 Foreign Exchange Market in
India
Tier-I

Regulator: Reserve Bank of India

Regulation: Foreign Exchange Management Act, 1999

Tier - II

Authorised Dealers, Money changers

Tier-III
Buyers and sellers: exporters, importers, individuals,
Corporates, FIIs, Non-Residents, NRIs etc. 4
 Forex Activities in India –
Facilitators
 Ministry of Finance
 Ministry of Commerce , DGFT
 Directorate of Enforcement
 Customs
 Export Promotion Councils – FIEO
 Export Inspection Units
 Authorised Persons
 FEDAI
 EXIM Bank
 ECGC
 RBI
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 FOREIGN EXCHANGE TRANSACTIONS

Current Account Capital Account

FDI Portfolio Loan

Trade Invisibles
Tour (Govt/
Travel Pvt(ECB)
Remittance
Imports Gift Foreign Indian
Exports Profit/Div/int Source Source
Fcy A
(FII) (GDR/ADR) 6 RI &
 Forex – the Concept ( contd. ) –
Current & Capital Account
 Current account transaction – All transactions
undertaken by a resident that do not alter his assets or
liabilities outside India are current account transactions.
 affects cash position of an entity – Trade-related
remittances & miscellaneous remittances fully
convertible - fully delegated to ADs
 Capital account transaction – affects asset &
liability position of an entity - borrowing, lending
& investment – FDI , FII, ECBs , NRI deposits ,
Overseas Investments – expanding convertibility

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 General
In terms of the Rules -Foreign Exchange
Management (Current Account Transactions)
Rules, 2000 (Annex I)- drawal of exchange for
certain categories of transactions as listed in
 Schedule I - expressly prohibited
 Schedule II - permitted by the ADs if approval
from the Ministry/Dept of GoI is secured
 Schedule III- prior approval of the RBI required
for remittance exceeding limits.

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 Limits upto which ADs can release
foreign Exchange
Sl no
Transaction Limit in US $

1 Private visit USD 10,000 per financial year

2 Business travel, USD 25,000 per trip

Conference,
Training

3 Medical USD 100,000 or its equivalent on self declaration

treatment basis

4 Higher studies USD1,00,000 per academic year

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 Limits upto which ADs can release
foreign Exchange
Sl. Transaction Limit
no.

5
Employment Upto USD 1,00,000

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Emigration Upto USD 1,00,000

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Gift/donation USD 5,000 per remitter/donor per annum.

8 Maintenance of close USD 1,00,000 per recipient

relatives abroad –

9 Cultural as sanctioned by GoI

10 LRS USD 2,00,000 per financial year 10

 Release of Foreign Currency-restrictions

 No release of foreign exchange for any

kind of travel to Nepal and Bhutan or for
any transaction with persons resident in
Nepal and Bhutan.
 Travellers allowed to purchase/carry
foreign currency notes/coins only up to
USD 2000.
 Balance amount in the form of traveller’s
cheque or banker’s draft.

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 Release of foreign Currency-
Restrictions
 Exceptions to this are

• (a) travellers proceeding to Iraq and

Libya - not exceeding USD 5000 or its
equivalent;

• (b) travellers proceeding to the Islamic

Republic of Iran, Russian Federation and
other Republics of Commonwealth of
Independent States - entire foreign
exchange released in the form of foreign
currency notes or coins.
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 Resident Going Abroad-
Indian Currency
 Residents are free to take outside India (other
than to Nepal and Bhutan) currency notes of GOI
and RBI notes up to not exceeding Rs. 25,000/ -
per person.

 They may take or send outside India (other than

to Nepal and Bhutan) commemorative coins not
exceeding two coins each.

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 Utilisation of forex
 The foreign exchange acquired has to be used
within 180 days of purchase.
 If not possible, to be surrendered to an AD
within 180 days.
 Can retain upto USD 2000 in currency
notes/travellers cheque.
 Foreign Exchange purchased for a specific
purpose is not utilized for that purpose, it could
be utilized for any other eligible purpose
permitted under the relevant regulation.

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 FACILITIES FOR
NON-RESIDENT INDIANS(NRI)/
PERSON OF INDIAN ORIGIN(PIO)
 Definition
Non-Resident Indian (NRI):
is a person  resident outside India who is a citizen of
India or is a person of Indian origin .
(defined in Regulation 2 of FEMA Notification No.5 dated May 3, 2000)
Person of Indian Origin (PIO) :
(defined in Regulation 2 of FEMA)
is a citizen of any country other than Bangladesh or
Pakistan, if
(a) he at any time held Indian passport; or
(b) he or either of his parents or any of his grand-
parents was a citizen of India by virtue of the
Constitution of India or the Citizenship Act, 1955
or
(c) the person is a spouse of an Indian citizen or a
person referred to in sub-clause (a) or (b) above.
 Accounts and Deposits-NRI
 Non-Resident (External) Rupee (NRE)
Accounts

 Foreign Currency (Non-Resident)

Account (Banks) Scheme (FCNR(B)
Account

 NRO Accounts
 NRO/NRE/FCNR accounts can be maintained
with ADs.
 Also certain co-operative banks and RRBs
have been authorised.
 Non Resident Accounts

 NRO A/c:-
• Any person resident outside India other than
those resident in Nepal/Bhutan can open an
NRO a/c. with an AD for the purpose of putting
through bonafide transcations in Rupees.

• POA cannot open any a/c. on behalf of the

Non-resident.

• Individuals / entities of Bangladesh / Pakistan

nationality / ownership require prior approval
of RBI.
 GR approval for Export of Goods
for re-imports
 AD banks may consider request from exporters for granting
GR approval in cases where goods are being exported for
re-import after repairs / maintenance / testing / calibration
etc. subject to the condition that the exporter shall;

• produce relative Bill of Entry within one month of re-

import of the exported item from India.
• Where the goods being exported for testing are
destroyed during testing, AD banks may obtain a
certificate issued by the testing agency that the goods
have been destroyed during testing, in lieu of Bill of
Entry for import.
• Ap dir 21 dated Jan 10, 2006

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 Direct dispatch of documents by the
exporter
 AD Banks should normally dispatch shipping documents to
their overseas branches/correspondents expeditiously.
 However, they may dispatch shipping documents direct to
the consignees where:
 Advance payment or an irrevocable letter of credit

 The exporter is a regular customer and the AD Banks

is satisfied, on the basis of standing and track record

of the exporter
 Status Holder Exporters' and SEZ units may be
permitted to dispatch the export documents to
the consignees outside India subject to the terms
and conditions that:
 The export proceeds are repatriated through the AD Banks
named in the GR Form.
 The duplicate copy of the GR form is
submitted to the AD Banks for monitoring purposes, by the
exporters within 21 days from the date of export.

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 Period of realisation
 the prescribed period of realization and
repatriation of export proceeds has been
increased from six months to twelve months
from the date of export, subject to review after
one year.
 The provisions in respect of Special Economic
Zone (SEZ) and exports made to warehouses
established outside India (with the permission of
Reserve Bank) remain unchanged.

• AP DIR 50 dated June 3, 2008

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Time Limit for Settlement of Import Payments

 remittances against imports should be

completed not later than six months from
the date of shipment except in cases
where amounts are withheld towards
guarantee of performance etc.

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Time Limit for Settlement of Import Payments…

 Authorised Dealers may permit settlement

of import dues delayed due to disputes,
financial difficulties etc.

 Interest in respect of such delayed

payments may be permitted in terms of
the directions/guidelines on trade credit.

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 Non Physical Imports

 Where imports are made in non-physical

form,
• i.e., software or data through internet /
datacom channels and drawings and designs
through e-mail/fax,
• a certificate from a Chartered Accountant that
the software / data / drawing/ design has been
received by the importer, may be obtained.

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 Receipt of import documents by the importer
directly from overseas suppliers
 Import bills and documents should be received from the banker of
the supplier by the banker of the importer in India. AD bank
should not, therefore, make remittances where import bills have
been received directly by the importers from the overseas
supplier, except in the following cases:
i. Where the value of import bill does not exceed USD 300,000.
 ii. Import bills received by wholly-owned Indian subsidiaries of
foreign companies from their principals.
 iii. Import bills received by Status Holder Exporters as defined in
the Foreign Trade Policy, 100% Export Oriented Units / Units in
Free Trade Zones, Public Sector Undertakings and Limited
Companies.
 iv. Import bills received by all limited companies viz. public
limited, deemed public limited and private limited companies.

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Thank you
Santha Paul
RBI, Chennai