RBI proposes rationalising norms on EXIM deals

RBI proposes rationalizing norms on EXIM deals

Context:

The RBI has proposed rationalizing regulations for export and import transactions to enhance ease of doing business.

Relevance:

GS-03 (Economy)

Key highlights:

  • The aim is to empower banks to provide more efficient services to their foreign exchange customers.
  • The central bank has released ‘Regulation of Foreign Trade under Foreign Exchange Management Act (FEMA), 1999 – Draft Regulations and Directions’.
  • Exporter Declaration Requirement: According to the draft, every exporter must furnish a declaration to the specified authority detailing the full export value of goods or services.

Export-Import Bank of India (EXIM Bank)

  • Overview:
    • EXIM Bank is India’s premier export finance institution.
    • Established under the Export-Import Bank of India Act, 1981.
    • Wholly owned by the Government of India.
  • Services:
    • Provides financial assistance to exporters and importers.
    • Extends Lines of Credit (LOCs) to overseas financial institutions, regional development banks, sovereign governments, and other entities to facilitate the import of developmental and infrastructure projects, equipment, goods, and services from India on deferred credit terms.
    • Acts as the principal financial institution coordinating the financing of export and import of goods and services to promote international trade.
  • Structure:
    • Governed by a Board of Directors.
    • The Board includes a chairman, a managing director, two deputy managing directors, and one director each nominated by the Reserve Bank of India, IDBI Bank Ltd., and ECGC Ltd.
    • Up to 12 additional directors are nominated by the Central Government.

What is FEMA?

  • FEMA is a set of regulations empowering the Reserve Bank of India to issue regulations and enabling the Government of India to establish rules related to foreign exchange in alignment with India’s foreign trade policy.
  • Main Features of the Foreign Exchange Management Act, 1999 (FEMA Act)
    • Regulation of Payments: The Central Government is empowered to regulate payments to and from individuals situated outside India.
    • Approval Requirement: All financial transactions involving foreign securities or exchange require approval from FEMA and must be conducted through “Authorized Persons.”
    • Public Interest Restrictions: The Government of India can restrict an authorized person from conducting foreign exchange transactions within the current account for public interest.
    • Capital Account Restrictions: The RBI is authorized to place restrictions on capital account transactions, even when conducted via an authorized person.
    • Rights for Indian Residents: Indians residing in India are permitted to conduct foreign exchange and foreign security transactions or hold immovable property abroad if acquired or inherited when they were abroad.