FOREIGN TRADE, NRIs AND INTERNATIONAL BUSINESS

by : DR. T.K. JAIN AFTERSCHO☺OL centre for social entrepreneurship sivakamu veterinary hospital road

bikaner 334001 rajasthan, india
AFTERSCHOOOL@IN.COM mobile : 91+9414430763
5 DECEMBER 09 www.afterschoool.tk 1

IMPORTANT INFORMATION DOCUMENTS
EXIM POLICY HANDBOOK OF IMPORT AND EXPORT PROCEDURE FEMA EXCHANGE CONTROL MANUALS FEDAI DOCUMENTS
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IMPORTANT DOCUMENTS AT THE TIME OF IMPORT
IMPORT LICENSE FOREIGN EXCHANGE CONTROL COPY BILL OF ENTRY FOR HOME CONSUMPTION CUSTOMS ASSESSMENT CERTIFICATE OR POSTAL ASSESSMENT FORM
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OPENING L/C
Importer will approach his bank for opening an L/C L/C = Letter of credit the bank of the importer will give a guarantee about payment to the bank of the exporter under L/C. When the exporter exports, he can obtain immediate payment from his bank on producing L/C of the importer's bank. The banks will have transaction between 5 DECEMBER 09 www.afterschoool.tk 4 themselves.

Difference between packing credit and L/C
Packing credit is issued to exporter, but L/C is issued to importer. Packing credit covers all the expenditure till export, L/C covers the price of import = and as per this the exporter gets payment as soon as he exports. The bank of the importer provides this facility to the importer against some charges.
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Foreign exchange requirements
Importer requires foreign exchange for imports. The banker / authorised dealer provides foreign exchange after looking at the necessary documents like import licence etc. The foreign exchange must be used for the purpose for which it has been obtained. The banker / authorised dealer has to ensure that only that amount is released which is actually required.
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Mode of payment
Authorised dealers will ensure that payment regarding impor is made in account. Cash payments are not permitted. In case advance payment is made, physical goods must come in 3 months. If the amount is more than $25000 then there must be a guarantee from some international bank. Proper EC copy must be submitted by the importer
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Time limit for settlement

Import payments must be settled within 6 months from the date of import. If it is more than 6 months, then it will be treated as ECB (external commercial borrowing) and will require prior permission of RBI/ Government
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Export remittances
The exporter has to declare exports to RBI and has to ensure that payments are received within time and as per approved methods of payments. Payments can be collected through bank account / international credit card / FCNR / NRE account / escrow account etc
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Exports that dont require declarations....
Demonstrations / sales promotions (UPTO 2% OF TOTAL EXPORTS ONLY) , gifts (upto 1 lakhs), exports for reimports only, goods sent for repairs, goods less than 25000 rupees in value, samples, publicity material, personal goods of travellers.
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What is consignment export ?
Consignment means you are sending goods to someone for trade on your responsibility – and if goods are not sold, they are your property and you may get it back. Consignment export means sale or return back. It has to be settled in 6 months.
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Exports requiring RBI approval

Examples : project exports, export as contract against imports, elongated payment period, exports relating to agrements of government of India or other governments

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Remittances relating to exports...

These include : agency commission, export claims etc.

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SEZ

If you are operating from SEZ you are permitted to have foriegn currency account with an authorised dealer

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Authorised dealers
These are listed with RBI as per FEMA, they have to obtain RBI permission for some specified business transactions. Example: they cannot give guarantee in favour of exporters without RBI permission unless that exporter is listed as non-caution exporter.
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Forfaiting

Factoring and forfaiting can be undertaken by EXIM bank / authorised dealers. Under this they collect payments regarding export receivables against commission.

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New trends....
Indian companies are now permitted to have foreign exchange accounts in other countries and to have properties in other coutnries (with prior approval from RBI) and they can acquire businesses / firms in other countries also as per their business requiremetns (as per govt. Policies) .
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PEM
PEM stands for Project Export memorandum – when companies are entering into project exports, they have to follow guidelines relating to this. Project exports generally has deferred payments - therefore prior permission must obtained before enteringi into PEM.
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Other provisions

Authorised dealers have to ensure that they get copesof GR Form and other documents required andforeign currency is used for acutal import / export and all required documents are submitted.
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FDI
Upto 100% Foreign Direct Investment is permitted under automatic route in many sectors. Investors will have to inform regional office of RBI in 30 days of remittances. In some sectors industrial licence is required and in some sectors, FDI is not permitted. But in most of the sector, now it is permitted including atomic energy etc.
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Shares issue to NRIs

Within 30 days of share issue to Non-residents, FC – GPR form has to be submitted. They have to submit all the details like they have implemented all the provisions of companies act & FEMA for this purpose.
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Transfer from NR
Now non residents can transer shares to other non-residents / residents and such transfer can be for consideration / as a gift. This tranfer can be only to an NRI / resident Indian. They can also sell it in stock exchanges through brokers. They will have to take NOC from income tax department
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Tranfer by residents
As per RBI notification of 2000, residents can also tranfer to non-residents – as per FEMA – so long as it is in automatic route. You have to keep in mind SEBI (Substantial acquisition of shares and takeover) regulation 1997 + required regulations under IRDA or other such laws.
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Permission from RBI
If it is not falling in automatic route, apply for permission to RBI with a copy of FIPB approval and details like pric, mode of payment etc. Price must not be lower than the higher of the average weekly high / low of last 6 months. FC-GPR form with details of existing shareholding must also be submitted.
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FDI in different modes
FEMA regulations 2000 give schedule I which gives list of industries for which automatic route is there. It doesnt requre prior RBI permission, for othe industries, take prior permission from RBI. Rate of dividend should not exceed SBI prime lending rate + 300 basis points. For other sectors take permission from SIA / FIPB/ RBI for investments.
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PORTFOLIO INVESTMENT
FIIs including asset management companies, mutual funds, hedge funds etc. Are permitted to invest in shares in India. FII have to invest in ratio of 70:30 in equity and debt when they invest in India, they are also permitted to invest as 100% debt.
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Limits for FII investment
An NRI / PIO can buy upto 5% in a company. All NRI/PIO/OCB can invest upto 10% in a company. A single FII can invest upto 10% in a company and all FIIs together can invest upto 24% in a company. Companies can raise this limit by passing board resolution and special resolution in general meeting subject to sectoral cap (like 49'% or 74% etc.)
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FII dealings

FII can deal through stock exchanges without RBI permission, but if they are dealing without stock exchanges, they have to obtain permission from RBI.

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NRI dealings

NRIs have to deal through NRE /FCNR account only. Sometimes they are permitted to deal in NRO account also – when they are investing on non-repatriation basis.

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PERMITTED FIIs

FOLLOWNG CAN REGISTER AS FII WITH RBI & SEBI: banks, pension funds, hedge funds, mutual funds, insurance companies, investment funds etc.
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ECB
External commercial borrowings : Indian comapnies can raise loans from other countries through various routes like : FRN (floating rate note), ECP (euro commercial paper), FCCB (foreign currency convertible bond), NIF (note issue facility), syndicate loan, etc.
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ECB MECHANISMS
Companies engage in many ECB mechanisms like : arbitrage hedging underwriting fund raising etc.
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ADR /GDR
American depository receipt / Global depository receipt are permitted by RBI as per scheme of 1993, companies can also sponsor issue of ADR / GDR. Infosys, Wipro etc. Are some of the companies which went for ADR / GDR during 1990s. After ADR/ GDR company will have to submit return in proforma as per annexure C of RBI notification 2000.
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Royalty / technical fees

Upto $2million of royalty upto 5% of domestic sale or 8% of export sale is permitted as royalty.

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EEFC account
Exchange Earners Foreign Currency account – a person who has earned foreign currency can retain 50% of the foreign currency earned in EEFC account with authorised dealers. This account can be used for current account transactions or for permitted capital account transactions.
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RFC account

Resident foreign currency account – if an NRI is returning India for ever, he can keep his foreign currency in RFC account and there are no restriction on use of funds in RFC account.

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RFC (DOMESTIC) ACCOUNT

A Resident who lives in India but receives foreign exchange payments / honorarium can open RFC (Domestic) account for retaining such payments.

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Liberalised Remittance Scheme

Residents can use upto $25000 for payments for permitted transactions per annum in this scheme Foreign Exchange Management (current account transactions) rules 2000 schedule I and II.
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