Exporters Raise Concerns Over Revised FEMA Rules Ahead of New Regulations

Industry bodies seek changes to export credit, merchanting trade provisions and shipment regulations before revised FEMA rules take effect later this year.

Indian exporters have highlighted at least half-a-dozen concerns over the revised Foreign Exchange Management Act (FEMA) rules that are expected to come into force later this year. According to industry executives, the Reserve Bank of India (RBI) has responded positively to several suggestions submitted by industry associations.

RBI Governor Sanjay Malhotra met representatives of industry bodies on Thursday to discuss the proposed changes.

The Federation of Indian Export Organisations (FIEO) has expressed concern over a decline in priority sector export credit, which was down 14% by February, despite goods and services exports rising 4% during the period.

Industry bodies stated that access to export credit remains a significant issue, particularly due to liquidity constraints. They have urged the RBI to facilitate timely pre-shipment and post-shipment credit at competitive rates and improve the transmission of interest equalisation benefits.

One of the key concerns relates to a provision under the revised FEMA rules requiring exporters to undertake exports only against full advance payment or receipt of an irrevocable Letter of Credit if export proceeds remain unrealised for more than one year from the due date of realisation or the extended period.

Export organisations have argued that such a provision could adversely affect exporters dealing with multiple buyers. They have proposed that the restriction should apply only to the defaulting buyer rather than extending it across all buyers. According to industry representatives, the RBI has responded positively to this suggestion.

The industry has also sought amendments to merchanting trade provisions covering "restricted or prohibited exports" that do not involve Indian shores but include transactions between other countries.

Exporters stated that they continue to face difficulties in regularising trade data on the EDPMS platform in cases involving sanctions, as banks often decline to process such bills due to commercial risks. This has resulted in unregularised shipping bills, prompting industry bodies to call for a review of the existing framework.