Unit 2 - Guidelines and Regulatory Institutions PDF

 Unit 2 Guidelines and Regulatory Institutions Guidelines and Regulatory Institutions - DGFT & impact of Foreign Trade Policy on International Trade, Reserve Bank of India (RBI) and FEMA guidelines for doing International Trade from India, ECGC...

 Unit 2 Guidelines and Regulatory Institutions Guidelines and Regulatory Institutions - DGFT & impact of Foreign Trade Policy on International Trade, Reserve Bank of India (RBI) and FEMA guidelines for doing International Trade from India, ECGC & policies for Exporters, Export Promotions councils for different sectors, Relevance of International Chamber of Commerce (ICC) & their guidelines for various Cross Border transactions ❖ DGFT- Directorate General of Foreign Trade History and Establishment The Directorate General of Foreign Trade (DGFT) is an attached office of the Ministry of Commerce and Industry, Government of India. It was established in 1991 with the primary objective of regulating and promoting foreign trade in India. The DGFT replaced the office of the Chief Controller of Imports and Exports (CCI&E), which had been in existence since 1950. This transition marked a significant shift in India's trade policy from a highly regulated and controlled regime to a more liberalized and open market economy. The establishment of DGFT came at a crucial time when India was undergoing economic reforms, often referred to as the Liberalization, Privatization, and Globalization (LPG) reforms. These reforms were aimed at making the Indian economy more market-oriented and expanding the role of private and foreign investment. The DGFT was thus entrusted with the responsibility of facilitating India's integration into the global economy by formulating and implementing trade policies that would promote exports and regulate imports. ❖ DGFT- Directorate General of Foreign Trade Role and Functions The DGFT plays a pivotal role in India's foreign trade sector through the following functions: 1. Formulation and Implementation of Foreign Trade Policy (FTP): The DGFT is responsible for formulating the Foreign Trade Policy (FTP) of India. The FTP is a comprehensive set of guidelines and incentives designed to promote and facilitate exports and imports. It is revised periodically to adapt to changing global trade dynamics and domestic economic needs. 2. Regulation of Imports and Exports: The DGFT issues licenses and permits for the import and export of goods and services. This includes the regulation of items that are restricted, prohibited, or subject to quotas. The DGFT ensures that trade practices comply with national laws and international agreements. 3. Promotion of Exports: To boost exports, the DGFT provides various incentives and schemes such as the Merchandise Exports from India Scheme (MEIS), Service Exports from India Scheme (SEIS), and Export Promotion Capital Goods (EPCG) scheme. These initiatives aim to make Indian goods and services more competitive in the global market. 4. Monitoring and Enforcement: The DGFT monitors trade activities to ensure compliance with the Foreign Trade Policy and other regulations. It has the authority to take enforcement actions against violations, including imposing penalties and suspending or canceling licenses. ❖ DGFT- Directorate General of Foreign Trade 5. Data Collection and Analysis: The DGFT collects and analyzes trade data to provide insights into trade trends and patterns. This data is crucial for policymaking and for identifying opportunities and challenges in foreign trade. 6. Trade Facilitation: The DGFT works to simplify and streamline procedures related to foreign trade. This includes the digitization of processes, reducing paperwork, and improving the ease of doing business for exporters and importers. 7. Capacity Building and Outreach: The DGFT conducts training programs, workshops, and seminars to educate and empower stakeholders involved in foreign trade. This includes exporters, importers, and trade officials. 8. Coordination with International Trade Bodies: The DGFT represents India in various international trade forums and negotiations. It collaborates with international trade bodies to protect and promote India's trade interests. ❖ Impact of Foreign Trade Policy (FTP) Overview of FTP The Foreign Trade Policy (FTP) is a vital framework formulated by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry, Government of India. The FTP outlines the strategies, policies, and measures to promote India's exports, regulate imports, and enhance the overall trade environment. Typically revised every five years, the FTP aims to adapt to global trade dynamics and national economic objectives. The FTP serves as a roadmap for achieving balanced trade growth, boosting foreign exchange earnings, and integrating India more deeply into the global economy. It addresses various aspects of foreign trade, including export promotion, import regulation, trade facilitation, and compliance with international trade agreements. ❖ Impact of Foreign Trade Policy (FTP) Objectives of FTP: 1. Boost Export Growth: Increase the volume and value of exports to enhance foreign exchange earnings and reduce the trade deficit. 2. Diversify Export Markets and Products: Expand the range of export destinations and products to reduce dependence on a few markets or sectors. 3. Enhance Competitiveness: Improve the global competitiveness of Indian goods and services through various incentives, schemes, and infrastructure support. 4. Simplify Trade Procedures: Streamline and simplify trade-related procedures to reduce transaction costs and improve the ease of doing business. 5. Promote Employment: Generate employment opportunities through export-led growth, particularly in labor-intensive sectors. 6. Support Small and Medium Enterprises (SMEs): Provide special incentives and support to SMEs to encourage their participation in international trade. ❖ Impact of Foreign Trade Policy (FTP) Features of FTP: 1. Incentive Schemes: Merchandise Exports from India Scheme (MEIS): Provides duty credit scrips to exporters based on the value of their exports to specific markets. Service Exports from India Scheme (SEIS): Offers incentives to service providers based on their net foreign exchange earnings. Export Promotion Capital Goods (EPCG) Scheme: Allows import of capital goods at zero customs duty, subject to export obligation. 2. Export Promotion Measures: Establishment of Export Promotion Councils (EPCs) and Commodity Boards to provide sector-specific support and guidance to exporters. Implementation of sector-specific initiatives to promote high-potential industries like textiles, pharmaceuticals, IT, and agriculture. 3. Trade Facilitation: Digitization and automation of trade processes through platforms like the DGFT's e-BRC (Electronic Bank Realization Certificate) and e-IEC (Electronic Importer Exporter Code) and RCMC (Registration-Cum Membership Certificate). Simplification of documentation and reduction of procedural complexities to expedite trade transactions. ❖ Impact of Foreign Trade Policy (FTP) 4. Market Access Initiatives: Identification and penetration of new and emerging markets through trade missions, fairs, and exhibitions. Negotiation of trade agreements and partnerships to secure favorable market access for Indian products. 5. Export Credit and Insurance: Provision of export credit through institutions like the Export-Import Bank of India (EXIM Bank) and export credit guarantee through the Export Credit Guarantee Corporation (ECGC). 6. Skill Development and Capacity Building: Training programs, workshops, and seminars to enhance the skills and knowledge of exporters, especially in emerging areas like e-commerce and digital trade. 7. Trade Policy Governance: Regular review and updating of the FTP to align with changing global trade scenarios and domestic economic priorities. Consultation with stakeholders, including industry associations, exporters, and trade experts, to incorporate feedback and improve policy effectiveness. ❖ FTP and International Trade Impact on Exports: 1. Enhancing Competitiveness: By offering various incentives and support measures, the FTP helps Indian exporters become more competitive in the global market. This includes financial incentives, tax exemptions, and duty concessions. 2. Market Diversification: The FTP encourages exporters to explore new and emerging markets, reducing dependence on traditional markets and spreading risk. This diversification helps in stabilizing export revenues even when some markets face economic downturns. 3. Streamlined Procedures: Simplified export procedures and digitization of processes reduce the administrative burden on exporters, making it easier and quicker to engage in international trade. 4. Export Promotion Initiatives: The FTP includes various sector-specific initiatives and export promotion schemes that provide targeted support to high-potential industries. This leads to increased export volumes in these sectors. 5. Capacity Building: Training programs and skill development initiatives under the FTP enhance the capabilities of exporters, enabling them to meet international standards and demand. ❖ FTP and International Trade Impact on Imports: 1. Regulation and Control: The FTP regulates the import of goods through licensing and permits. This control ensures that imports align with national economic priorities and do not harm domestic industries. 2. Facilitating Essential Imports: While regulating non-essential imports, the FTP facilitates the import of critical goods and raw materials required for domestic industries, thus supporting the overall economic growth. 3. Balancing Trade Deficit: By promoting exports and regulating imports, the FTP aims to reduce the trade deficit. A balanced trade approach ensures a healthy foreign exchange reserve and economic stability. 4. Technology and Capital Goods: Schemes like the Export Promotion Capital Goods (EPCG) scheme allow the import of capital goods at concessional rates, encouraging technological upgradation and enhancing production capabilities in India. ❖ Incentives and Schemes under FTP 1. Merchandise Exports from India Scheme (MEIS): Provides duty credit scrips to exporters based on the FOB (Free on Board) value of exports. These scrips can be used to pay various duties or be traded in the market, thus reducing the cost burden on exporters. 2. Service Exports from India Scheme (SEIS): Offers incentives to service providers based on their net foreign exchange earnings. This scheme aims to enhance the competitiveness of Indian service providers in the global market. 3. Export Promotion Capital Goods (EPCG) Scheme: Allows the import of capital goods at zero customs duty, subject to an export obligation. This helps in modernizing the production process and improving the quality of exports. 4. Advance Authorization Scheme: Permits duty-free import of inputs required for the production of export goods. This scheme lowers the cost of production for exporters, making their products more competitive internationally. {The Advance Authorization Scheme is a scheme where the import of inputs will be allowed to be made duty-free (after making normal allowance for wastage) if they are physically incorporated in a product which is going to be exported.} ❖ Incentives and Schemes under FTP 5. Duty Drawback Scheme: Provides a refund of duties and taxes paid on inputs used in the manufacture of export goods. This scheme helps in neutralizing the tax incidence on export products, thus enhancing their price competitiveness. 6. Export Oriented Units (EOUs) and Special Economic Zones (SEZs): These units and zones enjoy various benefits like tax holidays, duty-free imports, and simplified procedures, aimed at creating a conducive environment for export production. 7. Interest Equalization Scheme: The Interest Equalization Scheme (IES) is a financial aid program introduced by a government to provide support to exporters by offering them loans at reduced interest rates. The primary goal of this scheme is to make the cost of borrowing more affordable for exporters, thereby encouraging exports and enhancing the country's competitiveness in international markets. 8. Market Access Initiative (MAI): Supports activities aimed at exploring new markets and promoting Indian products globally. This includes trade fairs, buyer-seller meets, and marketing campaigns. 9. Niryat Bandhu Scheme: A capacity-building initiative aimed at mentoring new and potential exporters on various aspects of international trade, ensuring they have the necessary knowledge and skills to succeed. ❖ Export and Import Licensing by DGFT Types of Licenses Issued by DGFT The Directorate General of Foreign Trade (DGFT) issues various types of licenses to regulate and facilitate the export and import of goods in India. These licenses ensure that trade activities are conducted in compliance with the Foreign Trade Policy (FTP) and other regulatory frameworks. The main types of licenses issued by DGFT are: 1. Import Licenses: Restricted Items License: For items listed in the restricted category of the import policy, importers need to obtain a specific license from DGFT. This includes items that require government control due to safety, health, or environmental concerns. Example: Defense and Military Equipment, Nuclear Materials and Equipment, Pharmaceuticals and Chemicals etc. Canalized Items License: Certain items can only be imported through designated agencies or government bodies. A canalized items license is required for such imports. Example: Petroleum Products, Forest Products, Livestock and Animal Products etc. Open General License (OGL): This allows the import of goods that are freely importable without any specific restrictions. ❖ Export and Import Licensing by DGFT 2. Export Licenses: Restricted Items License: For items listed in the restricted category of the export policy, exporters need to obtain a specific license from DGFT. This includes items that require government control due to strategic, health, or environmental concerns. Canalized Items License: Certain items can only be exported through designated agencies or government bodies. A canalized items license is required for such exports. Special Chemicals, Organisms, Materials, Equipment, and Technologies (SCOMET) License: This is required for exporting sensitive items, including nuclear materials, chemicals, and related technologies. 3. Duty Exemption and Remission Schemes: Advance Authorization: Allows duty-free import of inputs used in the production of export products, provided that the finished goods are exported within a specified time. Duty-Free Import Authorization (DFIA): Similar to Advance Authorization but with post-export fulfillment of export obligation. Export Promotion Capital Goods (EPCG) Scheme: Allows duty-free import of capital goods used in the production of export products, subject to an export obligation. ❖ Information Purpose Only Procedures for Obtaining Licenses The process of obtaining licenses from DGFT involves several steps, primarily conducted through the DGFT's online platform. Here’s a general procedure for obtaining export and import licenses: 1. Registration and IEC Code: IEC Code Application: The first step for any exporter or importer is to obtain an Importer Exporter Code (IEC) from DGFT. This is a mandatory unique identification number for trading purposes. Online Application: The IEC code can be applied for online through the DGFT website by submitting necessary documents such as PAN, bank details, and address proof. 2. Identify the Appropriate License: Determine the Requirement: Identify whether the goods fall under the restricted, canalized, or SCOMET categories and require a specific license. 3. Online Application for License: DGFT Portal: Access the DGFT e-portal and log in using the IEC code. Form Submission: Fill out the relevant application form for the required license. Forms differ based on the type of license (e.g., Form ANF 2A for import licenses, ANF 4A for advance authorization). Supporting Documents: Upload necessary supporting documents, such as a copy of the IEC, technical specifications, justification for import/export, and financial statements ❖ Procedures for Obtaining Licenses 4. Application Fee: Payment of Fees: Pay the prescribed application fee online through the DGFT portal. 5. Submission and Tracking: Submit Application: After completing the form and attaching the required documents, submit the application online. Track Application: Use the application number to track the status of the application on the DGFT portal. 6. Review and Approval: Scrutiny by DGFT: The DGFT officials review the application and may request additional information or clarification. Grant of License: Once the application is approved, the license is issued electronically. The exporter/importer can download it from the DGFT portal. ❖ RBI – Reserve Bank of India The Reserve Bank of India (RBI) was established on April 1, 1935, under the Reserve Bank of India Act, 1934. Initially, it was privately owned, but it was nationalized in 1949, after India's independence, making it fully owned by the Government of India. The RBI was set up based on the recommendations of the Hilton Young Commission to manage India's currency and monetary system. The primary objectives were to control the issue of banknotes, maintain reserves to secure monetary stability, and operate the credit and currency system of the country. ❖ Role of RBI in the Indian Economy 1. Central Banking Authority: The RBI is the central banking authority of India, responsible for regulating the supply of money, maintaining monetary stability, and ensuring economic growth. 2. Monetary Policy: The RBI formulates and implements monetary policy to control inflation, manage interest rates, and stabilize the currency. This involves adjusting the repo rate, reverse repo rate, and other policy rates. 3. Financial Supervision: The RBI supervises and regulates the banking sector, including commercial banks, cooperative banks, and non-banking financial companies (NBFCs), to ensure financial stability and protect depositors' interests. 4. Currency Management: The RBI manages the issuance and supply of the Indian Rupee, ensuring an adequate supply of clean and secure currency notes and coins. 5. Developmental Role: The RBI undertakes various developmental activities to promote financial inclusion, enhance financial literacy, and support the rural and agricultural sectors. 6. Government's Banker: The RBI acts as the banker to the government, managing its accounts, facilitating transactions, and handling public debt. ❖ Functions Related to International Trade 1. Exchange Rate Management: Foreign Exchange Reserves: The RBI manages India's foreign exchange reserves, ensuring adequate liquidity for international transactions and maintaining confidence in the country's external position. Exchange Rate Policy: The RBI formulates and implements exchange rate policies to ensure stability and competitiveness of the Indian Rupee in the global market. 2. Foreign Exchange Regulation: Foreign Exchange Management Act (FEMA): The RBI administers FEMA, which governs foreign exchange transactions in India. This includes regulating cross-border transactions, investments, and remittances. Authorized Dealers: The RBI designates authorized dealers, such as banks and financial institutions, to facilitate foreign exchange transactions and provide related services. ❖ Functions Related to International Trade 3. Facilitating Trade Finance: Export Credit: The RBI provides guidelines and frameworks for extending export credit to Indian exporters through banks. This includes pre-shipment and post-shipment finance to support exporters in meeting their working capital needs. External Commercial Borrowings (ECBs): The RBI regulates and monitors ECBs, allowing Indian companies to raise funds from international markets for trade and other purposes under specific conditions. 4. Balance of Payments (BoP): Monitoring BoP: The RBI monitors and manages India's Balance of Payments, ensuring that the country can meet its international financial obligations. This involves tracking the inflow and outflow of foreign exchange and maintaining external sector stability. Policy Interventions: The RBI intervenes in the foreign exchange market to correct imbalances in the BoP, stabilize the currency, and prevent excessive volatility. ❖ Functions Related to International Trade 5. Trade Facilitation: Export Promotion Measures: The RBI collaborates with other government agencies and export promotion councils to implement measures that enhance India's export competitiveness. This includes providing incentives, simplifying procedures, and improving the export credit infrastructure. Liberalization Policies: The RBI periodically introduces liberalization measures to facilitate international trade, such as easing foreign exchange regulations, simplifying documentation, and promoting digital transactions. 6. International Cooperation: Global Partnerships: The RBI actively participates in international forums, such as the International Monetary Fund (IMF), World Bank, Bank for International Settlements (BIS), and various bilateral and multilateral agreements. These partnerships help in shaping global economic policies and securing India's interests in international trade. Cross-Border Payments: The RBI collaborates with central banks of other countries to enhance cross-border payment systems, ensuring efficient and secure transactions for international trade. ❖ Foreign Exchange Management Act, (FEMA) Foreign Exchange Management Act, 1999 (FEMA) came into force by an act of Parliament. It was enacted on 29 December 1999. This new Act is in consonance with the frameworks of the World Trade Organisation (WTO). It also paved the way for the Prevention of Money Laundering Act, 2002 which came into effect from July 1, 2005. It is a set of regulations that empowers the Reserve Bank of India to pass regulations and enables the Government of India to pass rules relating to foreign exchange in tune with the foreign trade policy of India. What is FERA and when was it passed? FERA (Foreign Exchange Regulation Act) legislation was passed in 1973. It came into effect on January 1, 1974. FERA was passed to regulate the financial transactions concerning foreign exchange and securities. FERA was introduced when the Forex reserves of the country were very low. Why was FERA replaced? FERA did not comply with the post-liberalization policies of the Government. ❖ Information Purpose Only Foreign Exchange Regulation Act (FERA) Foreign Exchange Management Act (FEMA) Parliament of India passed the Foreign Exchange Regulation Act in 1973 Parliament of India enacted the Foreign Exchange Management Act (FEMA) on 29 December 1999 replacing FERA. FERA came into force from January 1, 1974. FEMA came into force from June 2000. FERA was repealed in 1998 by Vajpayee Government FEMA succeeded FERA FERA has 81 sections FEMA has 49 sections FERA was conceived with the notion that Foreign Exchange is a scarce FEMA was conceived with the notion that Foreign Exchange is an asset. resource. FERA rules regulated foreign payments. FEMA focused on increasing the foreign exchange reserves of India, focused on promoting foreign payments and foreign trade. The objective of FERA was conservation of Foreign Exchange The objective of FEMA is Management of Foreign Exchange The definition of “Authorized Person” was narrow. The definition of “Authorized Person” was widened Banking units did not come under the definition of Authorized Person. Banking units came under the definition of Authorized Person. If there was a violation of FERA rules, then it was considered as Criminal If there was a violation of FEMA rules, then it is considered as civil offence offence. A person accused of FERA violation was not provided legal help. A person accused of FEMA violation will be provided legal help. There was no provision for Tribunal, the appeals were sent to High Courts There is provision for Special Director (Appeals) and Special Tribunal For those guilty of violating FERA rules, there was provision for direct For those guilty of violating FEMA rules, they have to pay a fine, starting from punishment. the date of conviction, if the penalty is not paid within 90 days, then the guilty will be imprisoned. If there was a need for transferring of funds for external operations, then prior For External trade and remittances, there is no need for prior approval from the approval of the Reserve Bank of India (RBI) is required. Reserve Bank of India (RBI). There was no provision for IT There is provision for IT ❖ Objectives of FEMA Facilitating External Trade and Payments: FEMA aims to simplify and streamline foreign exchange transactions to facilitate smooth external trade and payments. It provides a legal framework that allows individuals and businesses to engage in cross-border transactions, including imports, exports, and remittances. Promoting Foreign Investment: FEMA encourages foreign investment in India by providing a regulatory framework for non-residents to invest in various sectors. It defines the rules for foreign direct investment (FDI) and foreign portfolio investment (FPI) in the country. Maintaining Stability of the Indian Rupee: The act seeks to maintain the stability of the Indian rupee by regulating the flow of foreign exchange in and out of the country. It aims to prevent excessive fluctuations in the exchange rate, which can impact the economy’s stability. Monitoring and Control of Capital Movements: FEMA empowers the Reserve Bank of India (RBI) to regulate and control capital movements, ensuring that foreign exchange resources are used efficiently and in line with the country’s economic goals. Preventing Money Laundering and Illegal Activities: One of the important objectives of FEMA is to prevent money laundering and illegal activities related to foreign exchange transactions. The act includes provisions to detect and deter financial crimes and unauthorized dealings in foreign exchange. ❖ Objectives of FEMA Promoting Financial Stability: FEMA contributes to the overall financial stability of the country by ensuring a well-regulated foreign exchange market. It helps maintain confidence in the financial system and prevents undue disruptions. Harmonizing with International Standards: FEMA aims to align India’s foreign exchange management practices with global standards. This is important for fostering international trade, investment, and cooperation. Facilitating Cross-Border Transactions: The act provides a legal framework for various types of cross-border transactions, including remittances, acquisitions of foreign assets, and borrowing from foreign sources. This helps individuals and businesses engage in international financial activities. Promoting Economic Growth: By promoting international trade and investment, FEMA contributes to overall economic growth and development. It encourages businesses to expand their operations globally and attract foreign investment into the country. Adapting to Economic Changes: FEMA is designed to be flexible and adaptable to changing economic circumstances. It provides the regulatory framework needed to respond to evolving global economic trends and challenges. ❖ Reporting Obligations for Businesses A. Periodic Reporting: Annual Return on Foreign Liabilities and Assets (FLA): Indian companies receiving FDI or making overseas direct investments must file an annual return on their foreign liabilities and assets. The FLA return must be submitted by July 15th of each year. External Commercial Borrowings (ECBs) Reporting: Borrowers must submit monthly ECB-2 returns to the RBI, detailing the utilization of ECBs and the repayment schedule. B. Transaction-Specific Reporting: Single Master Form (SMF): Businesses receiving FDI must report the details of the investment through the Single Master Form on the RBI’s Foreign Investment Reporting and Management System (FIRMS) portal. The SMF must be filed within 30 days of the allotment of shares to the foreign investor. Overseas Direct Investment (ODI) Reporting: Indian entities making investments abroad must submit Form ODI to the RBI, detailing the investment particulars and subsequent transactions. The initial filing must be made before making the remittance, with annual performance reports to be submitted subsequently. ❖ Reporting Obligations for Businesses C. Ad-Hoc Reporting: Trade Credits Reporting: Businesses availing trade credits for imports must report the details to the RBI through authorized dealers. Reporting must be done using specific forms like TC (Trade Credit) within the stipulated timelines. Foreign Currency Account Reporting: Businesses must report the opening of foreign currency accounts abroad to the RBI. Regular updates on the account balance and transactions must be provided as per the RBI’s guidelines. D. Compliance Certification: Statutory Auditors’ Certificate: Businesses must obtain a certificate from their statutory auditors, confirming compliance with FEMA regulations for specific transactions like External Commercial Borrowings (ECBs) and Overseas Direct Investments (ODIs). The certificate must be submitted to the RBI or authorized dealers, as applicable. ❖ Authorized Dealer (AD) Banks Authorized Dealer (AD) banks play a crucial role in facilitating international trade and managing foreign exchange transactions under the Foreign Exchange Management Act (FEMA). These banks are authorized by the Reserve Bank of India (RBI) to deal in foreign exchange and offer a range of services to businesses and individuals involved in international trade. Role of AD Banks in Facilitating International Trade A. Handling Foreign Exchange Transactions: Currency Exchange: AD banks are responsible for buying and selling foreign currencies, enabling businesses and individuals to conduct cross-border transactions. This includes converting foreign currency into Indian Rupees and vice versa. Foreign Currency Accounts: They offer services related to opening and maintaining foreign currency accounts, such as Foreign Currency Non-Resident (FCNR) accounts and Exchange Earners' Foreign Currency (EEFC) accounts, which are essential for managing foreign exchange earnings and payments. ❖ Authorized Dealer (AD) Banks B. Processing Trade Payments: Import Payments: Letter of Credit (LC): AD banks facilitate the issuance of Letters of Credit, which are widely used in international trade to guarantee payment to exporters. Remittances: They process import payments on behalf of importers, ensuring compliance with FEMA regulations and verifying that proper documentation is provided. Export Receipts: Collection and Settlement: AD banks assist exporters in collecting payments from foreign buyers and settling export transactions. They ensure that the export proceeds are realized within the stipulated time frame and repatriated to India. Trade Credits: They also facilitate the use of trade credits, such as buyer’s credit and supplier’s credit, to finance exports and imports. C. Financing International Trade: Pre-shipment and Post-shipment Finance: AD banks provide financing to exporters at various stages of the trade cycle, including pre-shipment (before goods are shipped) and post-shipment (after goods are shipped) finance, to meet working capital needs. External Commercial Borrowings (ECBs): AD banks assist companies in raising funds from foreign sources through ECBs, ensuring that these borrowings comply with RBI guidelines. ❖ Authorized Dealer (AD) Banks D. Managing Trade Documentation: Document Handling: AD banks manage the documentation required for international trade, including shipping documents, bills of lading, invoices, and certificates of origin. Documentary Collections: They handle documentary collections on behalf of exporters and importers, facilitating the exchange of trade documents against payment. E. Facilitating Trade-Related Remittances: Inward Remittances: AD banks process inward remittances received from foreign buyers, ensuring that these funds are credited to the exporter’s account in compliance with FEMA. Outward Remittances: They handle outward remittances for import payments, foreign investments, and other international transactions, ensuring compliance with exchange control regulations. ❖ Information Purpose Only Categories of Authorized Dealer (AD) Banks in India 1. Authorized Dealer Category I (AD-I) Banks: Scope of Services: AD-I banks are permitted to offer the full range of foreign exchange services. These services include currency exchange, handling import and export transactions, offering trade-related financing, managing foreign currency accounts, and processing remittances. Examples: Most large commercial banks, both public and private sector banks, fall under this category. Some of the prominent AD-I banks in India include: State Bank of India (SBI) HDFC Bank ICICI Bank Axis Bank Punjab National Bank (PNB) Bank of Baroda (BoB) Kotak Mahindra Bank ❖ Information Purpose Only 2. Authorized Dealer Category II (AD-II) Banks: Scope of Services: AD-II banks are allowed to provide limited foreign exchange services. These services typically include non-trade-related transactions such as remittances, currency exchange for travel purposes, and maintaining foreign currency accounts for specific purposes like education or medical treatment abroad. Examples: AD-II banks usually include smaller banks, cooperative banks, regional rural banks, and certain financial institutions. Examples might include: Small Finance Banks (like AU Small Finance Bank) Regional Rural Banks (like Karnataka Gramin Bank) Cooperative Banks (like Saraswat Cooperative Bank) 3. Authorized Dealer Category III (AD-III) Entities: Scope of Services: AD-III entities have a very restricted license to operate in foreign exchange. They are typically allowed to offer specific foreign exchange services, such as facilitating the import and export of goods and services, managing foreign currency accounts, and handling specific remittances under the Liberalized Remittance Scheme (LRS). Examples: AD-III entities include non-banking financial companies (NBFCs) and other specialized financial institutions that may provide niche services under strict RBI guidelines. ❖ Penalties for Non-Compliance under FEMA A. Monetary Penalties: Basic Penalty: Amount: If any person contravenes any provision of FEMA or any rule, regulation, notification, or direction issued under the Act, they are liable to a penalty up to three times the amount involved in the contravention or Rs. 2 lakhs, whichever is higher. Continuing Contravention: In case of a continuing contravention, an additional penalty of up to Rs. 5,000 per day may be levied for every day during which the contravention continues. Confiscation of Property: Asset Forfeiture: If the contravention involves the acquisition, holding, or disposal of foreign exchange, foreign security, or any immovable property situated outside India, the involved property may be confiscated by the authorities. Seizure of Documents: Documents or currency related to the contravention may also be seized by enforcement authorities. ❖ Penalties for Non-Compliance under FEMA B. Imprisonment: Serious Violations: Although FEMA is primarily a civil law and does not generally prescribe imprisonment, serious violations involving large sums of money or willful default may lead to criminal prosecution under related laws, such as the Prevention of Money Laundering Act (PMLA). Wilful Non-Payment: In cases where penalties imposed under FEMA are not paid, the defaulter may face imprisonment after adjudication, as per the Enforcement Directorate’s recommendations and court orders. C. Adjudication Process: Appointment of Adjudicating Officer: Role: The RBI or Enforcement Directorate appoints an adjudicating officer who is responsible for assessing the contravention and determining the penalty. Hearing: The accused person or entity is given an opportunity to present their case before the adjudicating officer, ensuring a fair hearing process. Issuance of Penalty Order: Decision: After the hearing, the adjudicating officer issues an order specifying the penalty amount or any other enforcement action. Appeal: The person or entity can appeal against the adjudicating officer’s decision to the Appellate Tribunal for Foreign Exchange within 45 days ❖ Penalties for Non-Compliance under FEMA D. Enforcement by the Directorate of Enforcement (ED): Investigation: The Directorate of Enforcement (ED) is the primary agency responsible for investigating and enforcing FEMA violations. They have the power to conduct inquiries, inspections, and searches to detect non-compliance. Prosecution: In cases of severe violations, the ED may initiate prosecution under FEMA or related statutes, leading to further legal consequences. E. Compounding of Offences: Voluntary Admission: Offenders can apply for compounding, which is a voluntary process where the person or entity admits the contravention and agrees to pay a compounding fee. Resolution: Compounding allows the matter to be settled without protracted litigation, usually resulting in lower penalties and avoiding criminal prosecution. Authority: The RBI and ED have the authority to compound certain offences under FEMA, typically within 180 days of receiving the compounding application. ❖ Examples 1. Bharti Airtel Case - Unauthorized Overseas Investments Overview: Bharti Airtel, one of India’s leading telecom companies, was found to have made unauthorized investments in its foreign subsidiaries without obtaining the necessary approvals from the Reserve Bank of India (RBI), which is a violation of FEMA regulations regarding Overseas Direct Investments (ODIs). Violation: The company made overseas investments that exceeded the permissible limits without prior RBI approval, violating FEMA's provisions on capital account transactions. Penalty: The Enforcement Directorate (ED) imposed a penalty of Rs. 1,050 crore (approximately $140 million) on Bharti Airtel for this violation. Outcome: To avoid further legal action, Bharti Airtel applied for compounding the offence, paid the compounding fee, and regularized the transaction by obtaining the necessary approvals from the RBI. This case highlights the importance of adhering to FEMA guidelines when making foreign investments. ❖ Examples 2. Nokia India Case - Repatriation of Export Proceeds Overview: Nokia India, a subsidiary of the Finnish multinational, was involved in a FEMA violation related to the repatriation of export proceeds. Violation: Nokia India had failed to repatriate export proceeds worth Rs. 2,500 crore (approximately $350 million) within the stipulated 9-month period required under FEMA. The company had instead kept these proceeds in offshore accounts. Penalty: The Enforcement Directorate (ED) issued a show-cause notice to Nokia India and initiated an investigation. The company was fined heavily and was required to bring back the entire amount to India. Outcome: Nokia India complied with the ED's directives, repatriated the export proceeds, and paid the penalty. This case underscores the critical need for businesses to adhere to the repatriation requirements under FEMA to avoid severe penalties. ❖ Export Credit Guarantee Corporation (ECGC) The Export Credit Guarantee Corporation of India (ECGC) is a government-owned enterprise that plays a pivotal role in promoting and supporting India's exports by providing credit risk insurance and related services. Established to protect exporters against potential losses due to non-payment by foreign buyers, ECGC has been instrumental in boosting the confidence of Indian exporters in venturing into new and risky markets. ECGC was established in 1957 as the Export Risks Insurance Corporation (ERIC). The primary objective was to encourage exports by providing insurance protection to Indian exporters against payment risks. The corporation was renamed the Export Credit Guarantee Corporation of India Limited in 1964, reflecting its broader mandate and expanding role in promoting India's exports. ❖ Objectives: Export Credit Guarantee Corporation (ECGC) Credit Risk Insurance: The primary objective of ECGC is to provide insurance coverage to Indian exporters against the risk of non-payment by foreign buyers. This includes protection against both commercial risks (such as insolvency of the buyer) and political risks (such as war or exchange transfer delays). Facilitating Export Credit: ECGC aims to facilitate the extension of credit to exporters by banks and financial institutions. By offering credit risk guarantees, ECGC enables banks to lend more confidently to exporters, even in cases where the risk is perceived to be high. Promoting Indian Exports: By mitigating the risks associated with international trade, ECGC encourages Indian businesses to explore new and emerging markets. This, in turn, contributes to the growth of India's export sector. ❖ ECGC Policies for Exporters 1. Shipments (Comprehensive Risks) Policy: Coverage: This policy covers both commercial risks (such as insolvency or protracted default by the buyer) and political risks (such as war, import restrictions, or currency transfer delays). It is designed for exporters who regularly ship goods on credit terms to multiple buyers in different countries. 2. Shipments (Political Risks) Policy: Coverage: This policy specifically covers political risks, including wars, government actions, or restrictions that might prevent payment. It is ideal for exporters who want to safeguard against non-commercial risks when dealing with buyers in politically unstable regions. 3. Multi-Buyer Exposure Policy (MBEP): Coverage: MBEP offers coverage for exporters who deal with multiple buyers and need protection across all their buyer relationships. Applicability: Best suited for companies that have diversified their client base and require broad coverage. ❖ ECGC Policies for Exporters 4. Specific Shipment Policy (SSP): Coverage: Tailored for exporters with single or specific contracts. This policy covers risks related to a particular shipment or transaction. Useful for exporters who have large contracts with individual buyers and want to ensure that particular transactions are protected. 5. Specific Contracts Policy (SCP): Coverage: This policy is designed for exporters who engage in contracts involving multiple shipments. It covers the entire contract and offers protection against default by the buyer. It is particularly beneficial for projects or bulk orders that are executed over a period. 6. Small Exporter’s Policy: Coverage: Tailored for small exporters, this policy covers both commercial and political risks. It is simplified to cater to the needs of small and medium enterprises (SMEs). Designed for SMEs that may not have the resources to manage complex risk assessment but still need protection for their international trade activities. ❖ ECGC Policies for Exporters 7. Buyer Exposure Policy: Coverage: This policy provides protection for exporters who deal with a limited number of buyers and want to cover their exposure to specific buyers. It is beneficial for exporters who have significant business with a few key buyers and want to mitigate the risk of default by these buyers. 8. Consignment Export Policy: Coverage: This policy is intended for exporters who ship goods on consignment basis, where payment is received after the sale of goods by the consignee. It provides coverage for the period during which the goods are held by the consignee and protects against risks of non-payment. 9. Export Turnover Policy (ETP): Coverage: This policy is for large exporters with significant turnover. It covers all shipments made by the exporter during the policy period. Suitable for large companies that require broad coverage for a large volume of transactions over a fiscal year. ❖ Export Promotion Councils (EPCs) Export Promotion Councils (EPCs) are vital institutions in India that play a significant role in promoting and facilitating the export of goods and services from the country. These councils act as a bridge between the government and the export industry, providing support, guidance, and advocacy to help Indian exporters succeed in the global market. ❖ Role and Functions of EPCs 1. Promotion of Exports 2. Policy Advocacy 3. Capacity Building 4. Information Dissemination 5. Export Facilitation 6. Dispute Resolution ❖ International Chamber of Commerce (ICC) The International Chamber of Commerce (ICC) is a global business organization that plays a critical role in facilitating international trade and commerce. Founded in the early 20th century, the ICC has grown to become a powerful advocate for business interests worldwide, promoting open markets, sustainable economic growth, and global trade policies that benefit businesses of all sizes. The ICC was founded in 1919, in the aftermath of World War I, by a group of entrepreneurs and business leaders from Europe and the United States. Their vision was to create an organization that would foster international trade and cooperation, helping to rebuild the global economy. Over the decades, the ICC expanded its presence globally, establishing national committees and chapters in over 100 countries. Today, the ICC represents more than 45 million companies from all sectors of the economy, making it the largest and most representative business organization in the world. The ICC's influence extends to major international organizations and forums, including the United Nations, the World Trade Organization (WTO), and the G20. The ICC works closely with these bodies to shape global economic policies and advocate for the interests of the global business community.