TNC Rajagopalan: RBI should reconsider provisions of master circular on export of goods and services

The Reserve Bank of India (RBI) needs to revisit certain provisions in its Master Circular on Export of Goods and Services, so as to make them more exporter-friendly.

The provision relating to opening warehouses abroad says that banks may consider the applications received from exporters and grant permission for opening/hiring warehouses abroad provided the applicant’s export outstanding does not exceed five per cent of exports made during the previous financial year.

It means that in a case where the exporter’s previous year exports amount to Rs 100 crores, banks cannot consider the application if the outstanding export proceeds exceed Rs 5 crore, which works out to less than 20 days sales. Most exporters cannot get their payments within 20 days and in fact, quite a few extend credits to their buyers. So, they cannot meet the stipulated condition.

For seeking extension and self write off by exporters, the RBI says “for export proceeds due within the prescribed period during a financial year all exporters (Including Status Holder exporters) have been allowed to write-off (including reduction in invoice value) outstanding export dues and extend the prescribed period of realisation beyond 12 months or further period as applicable, provided the aggregate value of such export bills written-off (including reduction in invoice value) and bills extended for realisation does not exceed 10 per cent of the export proceeds due during the financial year”. This provision, first of all, is not too clear.

One can understand “export proceeds due within the prescribed period” but not “export proceeds due within the prescribed period during a financial period”. Export proceeds due can spill over from financial year to another. Secondly, the provision puts an exporter who realises payments promptly at a disadvantage because his entitlements go down. In other words, it gives higher limit to an exporter who is tardy in realising export proceeds. A provision that says “export bills due in the financial year for which the exporter has extended the period of realisation on his own (within the 10 per cent limit) or sought extension of time from the AD Category — I banks but unrealised as at the end of financial year will be computed for export proceeds due in the following financial year” is more confusing than some of the confounding provisions under the Income Tax laws.

RBI allows banks to extend the period of realisation of export proceeds beyond 12 months from the date of export, up to a period of six months, at a time, irrespective of the invoice value of the export if the total outstanding of the exporter does not exceed $1 million or 10 per cent of the average export realisations during the preceding three financial years, whichever is higher. In a situation where the exporter can give 12 months credit, the total outstanding at any point of time will be more than the limits prescribed, more often than not.

RBI issues a fresh Master Circular every year incorporating the changes made during the previous year. However, it does not help to retain year after year the provisions that are illogical or too complexly worded. RBI must also review the necessity to retain outstanding or export proceeds due as the basis for determining eligibility. A better basis would be export performance or outstanding beyond the permissible period.

Email : tncr@sify.com