TNC Rajagopalan: Exim matters

RBI hobbles a needed step

The Reserve Bank of India (RBI) has issued a circular, allowing authorised dealers to accept payment for exports from a person other than the buyer and to also remit payments for imports to a person other than the seller.

This useful decision gives a flexibility that evolving international trade practices warrant. However, it does contain certain restrictive conditions.

Normally payments for export are received from the buyer abroad and those for imports are made to sellers abroad. The Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000, only say the payment for export must be had in a currency appropriate to the place of final destination, and payment for import should be in a currency appropriate to the country of shipment. So, whenever a payment for export was had from a third party or a remittance for import was sought to be made to a third party, most authorised dealers would only examine the circumstances that warranted these and accept or allow it.

However, in the absence of specific instructions from RBI, the practices were not uniform and there were circumstances when some authorised dealers preferred to refer the matter to the central bank, get approval and then proceed. The latest AP (DIR) Circular no 70, dated November 8, now prescribes a uniform procedure and, to that extent, is welcome.

The circular says third party payment for export/import transactions can be accepted if a firm and irrevocable order, backed by a tripartite agreement, is in place. Also, if the payment is had from or made to a Financial Action Task Force-compliant country through banking channels, relevant documents like the invoice, bill of entry, GR/SDF/Softex mention payment from or to the third party and so on. For import, the facility of payment to a third party has been allowed for remittances up to $100,000 only.

These instructions are somewhat unrealistic. In most transactions, receipt for export from a third party or payment for import to a third party are not envisaged or planned upfront. A buyer abroad might purchase goods and re-sell to a third party and, instead of taking payment from the latter and sending to the exporter in India, might ask that third party to send the money directly, to save on transaction costs.

Similarly, a seller abroad might buy goods from a third party, ship the goods to India and, instead of taking payment from the Indian importer and then giving it to the third party, ask the Indian buyer to send the money directly, again to save transaction costs on two remittances.

In most cases, originally the seller expects to receive payment from the buyer but later developments might make direct payment to the third party more worthwhile. Even financing options might make third party payments a better possibility, one which might not have been envisaged initially by way of tripartite agreements.

RBI would be right in monitoring such third party payments for export/import transactions. However, that objective can best be served by allowing such transactions, subject to satisfaction of the authorised dealers and asking for suitable reports of these for further monitoring. RBI should reconsider whether allowing such transactions with impractical conditions is the best way.

email: tncr@sify.com