Syllabus: Indian Economy
Source: The Hindu BL
Context: The RBI has proposed draft regulations (Draft Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2024) to streamline export-import transactions, enhancing ease of business for small exporters and importers.
Key Highlights of the Draft Regulation:
- Exporters must declare the full export value of goods or services to the specified authority.
- The full export value must be realized and repatriated to India within nine months from the date of shipment for goods and the date of invoice for services.
- Authorized Dealers (AD) may extend the specified period for reasonable and sufficient cause.
- No advance remittance for the import of gold and silver is permitted unless specifically approved by RBI.
Aim of the Draft: The draft regulations aim to enhance business convenience, particularly for small exporters and importers, while enabling Authorized Dealer Banks to offer faster and more efficient services to foreign exchange clients. These regulations align with India’s progressive liberalization policies governing foreign exchange transactions under FEMA.
What is FEMA?
| Aspect | Details |
| FEMA, or the Foreign Exchange Management Act, 1999, is Indian legislation that regulates foreign exchange transactions, payments, and dealings | |
| Enactment Date | June 1, 2000 |
| Objective | Facilitate external trade and payments, promote orderly development of foreign exchange market. |
| Scope | Regulates foreign exchange transactions, acquisitions, payments, exports, imports, and related activities |
| Regulatory Authority | Reserve Bank of India (RBI) |
| Nature of Offence | Civil offence |
| Penalties | Penalties and fines for violations |
| Applicability | Entire India; includes agencies and offices managed by Indian citizens outside India. |
| Entities Covered | Foreign exchange, foreign securities, export and import of commodities/services, securities under the Public Debt Act 1994, banking, financial, and insurance services |
| Control of Foreign Exchange | RBI controls through Authorized Persons: authorized dealers, money changers, offshore banking units, etc. |
Under FEMA all foreign exchange transactions are categorized into two types: current account transactions and capital account transactions.
- Current Account Transactions: These include transactions that do not significantly impact the resident’s assets or liabilities outside India. Examples include payments for foreign trade, expenses related to foreign travel, and educational expenses abroad.
- Capital Account Transactions: These involve transactions that alter the resident’s assets or liabilities outside India, such as investments in foreign securities or acquisition of immovable property overseas.
Resident Indians: Defined under Section 2(v) of FEMA, 1999, a resident in India typically includes individuals residing in India for more than 182 days during the preceding financial year, Indian-registered corporations, and offices or agencies in India owned or controlled by non-residents or vice versa.
Mains Link:
Discuss how emerging technologies and globalisation contribute to money laundering. Elaborate measures to tackle the problem of money laundering both at national and international levels. (UPSC 2021)
Prelims Links:
Which one of the following groups of items is included in India’s foreign exchange reserves? (UPSC 2013)
(a) Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
(b) Foreign-currency assets, gold holdings of the RBI and SDRs
(c) Foreign-currency assets, loans from the World Bank and SDRs
(d) Foreign-currency assets, gold holdings of the RBI and loans from the World Bank
Ans: (b)
