RECENT DEVELOPMENTS IN FOREIGN EXCHANGE REGULATIONS

RECENT DEVELOPMENTS IN FOREIGN EXCHANGE REGULATIONS
- APRIL 2002

Extension of Time for realisation of Export Proceeds

As per the FEMA Regulations, every exporter of goods / services is required to realise and repatriate back to India , the export proceeds within a period of 6 months from the date of export. In case the exporter is unable to realise the export proeeds within such time period, then, he is required to apply to the RBI seeking extension of time.

However, the RBI has now liberalised the said provision vide APDIR Circular No: 20, dated January 28^th 2002. The concerned Authorised Dealer through whom the export has been made, is now permitted to grant extension of time, subject to certain conditions.

Value of Export	Category	Extension Granted by	Conditions to be satisfied	Period of Extension
Not exceeding US $ 1 Lakh	General	Authorised Dealer	AD is to be satisfied that realisation was not possible due to reasons beyond the control of the Exporter Exporter submits a declaration that he wil realise export proceeds during the extended period	Upto 3 months at a time In case the extension is beyond 1 year from the date of export, then, the total export outstandings of the Exporter should not be more than 10% of the average of export realisations during the preceeding 3 financial years.
	Where the Invoices are under investigation by ED /CBI/Other Agencies	Regional Office of RBI

Value of Export	Category	Extension Granted by	Conditions to be satisfied	Period of Extension
Exceeding US $ 1 Lakh	Where Exporter has filed a case against the Importer abroad	Authorised Dealer		Upto 6 months at a time In case the extension is beyond 1 year from the date of export, then, the total export outstandings of the Exporter should not be more than 10% of the average of export realisations during the preceeding 3 financial years.
	General	Regional Office of RBI

Opening of Foreign Currency Accounts Outside India

Earlier, Indian Companies which needed to open foreign currency accounts outside India, needed to take the approval of the RBI. This was a cumbersome and time consuming process.

This has now been liberalised by the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) (Second Amendment) Regulations, 2001issued by the RBI on December 5^th 2001.

Under these regulations, an Indian Entity can now open a Bank Account outside India without any prior approval from the RBI / Authorise Dealer, subject to the following limits on remittances :

Type of Company setting up the overseas office	Source of Remittance	Amount which can be remitted for initial expenses	Amount which can be remitted for recurring expenses
A 100% EOU or a unit in EPZ or in a Hardware Technology Park or in a Software Technology Park, within two years of establishment of the Unit	From out of its Current A/c or out of its EEFC A/c	No Limit	No Limit
Other Companies	From out of its Current A/c	2 per cent of the average annual sales/income or turnover during last two accounting years of the Indian Entity.	1 per cent of the average annual sales/income or turnover during last two accounting years of the Indian Entity.
	From out of its EEFC A/c	No Limit	No Limit

Additional Conditions to be satisfied

The overseas branch/office/representative shall not enter in any contract or agreement in contravention of the Act, Rules or Regulations made thereunder;

The account so opened, held or maintained shall be closed,

if the overseas branch./office is not set up within six months of opening the account, or
within one month of closure of the overseas branch/office, or
where no representative is posted for six months.

and the balance held in the account shall be repatriated to India;

Note:

It should be borne in mind that the limits given above are not the limits for transfer to one overseas bank account. These are the limits upto which the Indian Entity is permitted to transfer to all its Overseas Bank Accounts, in one accounting year.

In case the Indian Entity proposes to remit funds in excess of the limits specified above, then, approval from the RBI has to be obtained.

Two way Fungibiltiy for ADR / GDRs

Two Way fungibility of ADR / GDR issued by Indian Companies was permitted by the Government of India & the RBI. The RBI has now, vide APDIR Circular No : 21 dated February 13^th 2002, issued operative guidelines for the 2 way fungibility of ADR / GDR.

Earlier, once a company issues ADR / GDR, and if the holder wanted to obtain the underlying equity shares of the Indian Company, then, such ADR / GDR would be converted into shares of the Indian Company. Once such conversion has taken place, it was not possible to reconvert the equity shares into ADR / GDR.

The present rules of the RBI make such reconversion possible, to the extent of ADR / GDR which have been converted into equity shares and sold in the local market. This would take place in the following manner :

Stock Brokers in India have been authorised to purchase shares of Indian Companies for reconversion.
The Domestic Custodian would coordinate with the Overseas Depository and the Indian Company to verify the quantum of reconversion which is possible and also to ensure that the sectoral cap is not breached.
The Domestic Custodian would then inform the Overseas Depository to issue ADR / GDR to the overseas Investor.

Investment outside India by Indian Companies

Pursuant to the Union Budget, outbound investment by Indian Companies has been further liberalised. The highlights of these changes are :

Indian Companies are now permitted to invest upto 100 Million US Dollars per financial year under the automatic route, provided the other conditions as specified in FEMA Notification No: 19/2000 dated 3th May 2000 are complied with. Earlier the limit for investment under the Automatic Route was 50 Million US Dollars per financial year.
Companies which do not have access to foreign exchange for overseas investments are permitted to purchase foreign exchange from the Authorised Dealers upto 50% of their net worth. Earlier, the limit was 25% of their networth.

These changes have been made vide FEMA Notification No : 53 dated 1^st March, 2002.

Issue of Foreign Currency Convertible Bonds by Indian Companies.

Earlier, Indian Companies required approval of the Government of India before issue of Foreign Currency Convertible Bonds (FCCBs). The RBI, has vide FEMA Notification No : 55 dated March 7^th 2002, liberalised these rules. Accordingly, :

Indian Companies seeking to raise FCCBs are permitted to raise them under the Automatic Route upto US 50 Million Dollars per financial year without any approval.
The FCCBs raised shall be subject to the sectoral limits prescribed by the Government of India.
Maturity period for the FCCBs shall be atleast 5 years and the "all in cost" atleast 100 basis points less than that prescribed for External Commercial Borrowings.

New provisions for a "Status Holder"

The Export Import Policy issued by the Government of India, has created a new class of Exporters termed as "Status Holder". A "Status Holder" has been granted the following concessions under the FEMA Regulations :

A Status Holder is entitled to credit 100% of his foreign exchange earnings into the EEFC A/c. Earlier, this facility was available only to units in the Special Economic Zones and other companies which had obtained specific RBI approval for doing so.
In case of exports made by a Status Holder, a time limit of 12 months has been granted to realise the export proceeds, as against 6 months in the case of other exporters. The time limit of 12 months was earlier available only in case of exports made by units in the Special Economic Zones.

Other Changes

Indian Companies can set up chairs in educational institutions abroad after obtaining approval from the RBI – vide APDIR Circl No. 25 dated 1^st March 2002.

With the approval of the RBI, Indian Companies can credit a higher percentage of their Foreign Exchange earnings to their EEFC A/c for the purpose of prepayment of their External Commercial Borrowings. - vide APDIR Circl No. 26 dated 1^st March 2002.

Deposit accounts maintained by Non Residents with Indian Banks are made fully convertible. Accordingly, NRSR A/c and NRNR A/c would cease to be effective from 1^st April 2002 and the balances in them would be credited to the NRO A/c and the NRE A/c , respectively, of the NRI. - vide APDIR Circl No. 28 dated 4^th March 2002.

Residents are permitted to take / export goods for exhibition and sale outside India without the prior approval of the Reserve Bank of India. Now, vide APDIR Circl No. 30 dated 26^th March 2002, Authorised Dealers are permitted to approve GR Forms for exhibitions outside India, subject to the following conditions :

Goods can be sold there locally at any price and the proceeds repatriated back to India
Exporter can "gift" the items upto a limit of US $ 5,000 per exporter per exhibition
Unsold items are to be imported back into India.