Exporters have raised at least half-a-dozen concerns regarding the revision of Foreign Exchange Management Act (FEMA) rules during a meeting with Reserve Bank of India (RBI) Governor Sanjay Malhotra on Thursday, according to a report by the Economic Times. The meeting, attended by representatives of export promotion bodies, saw industry executives flag issues ranging from export credit contraction to proposed restrictions on future exports. The central bank indicated it was receptive to several suggestions and is examining them, the report said.
Export credit contraction flagged
A key issue highlighted by the Federation of Indian Export Organisations (FIEO) relates to the availability of export credit. Industry data presented to the RBI showed that priority sector export credit had contracted 14% by February, even as India's combined goods and services exports registered nearly 4% growth during the same period, according to the Economic Times. Exporters argued that the decline in credit availability has become a major constraint for businesses, particularly small and medium enterprises grappling with liquidity pressures.
| Indicator | Change (by February) |
|---|---|
| Priority sector export credit | -14% |
| Combined goods & services exports | ~4% growth |
Proposed FEMA provision draws concern
Among the most significant concerns is a proposed FEMA provision that would require exporters whose export proceeds remain unrealised beyond one year from the prescribed due date, or any extended timeline, to undertake future exports only after receiving full advance payment or an irrevocable letter of credit. Exporters argued that such a blanket restriction could adversely affect companies with diversified overseas customer bases because a payment default by one overseas buyer would effectively constrain business with all other buyers. Instead, they proposed that the restriction should apply only to transactions involving the defaulting importer while allowing normal trade with compliant customers to continue. Industry executives said the RBI responded positively to the suggestion and is examining the proposal.
Merchanting trade and EDPMS issues
Merchanting trade has also emerged as an area requiring regulatory clarity. Exporters have recommended that transactions involving goods classified under restricted or prohibited export categories, but which do not physically enter or leave India, should be treated differently under the revised framework. They argued that existing rules create unnecessary procedural hurdles for such offshore transactions.
Another operational issue relates to the Export Data Processing and Monitoring System (EDPMS). Exporters said shipping bills linked to markets facing international sanctions often remain pending because banks are reluctant to process the underlying trade documents owing to commercial and compliance risks. This leaves transactions unregularised on the RBI's monitoring platform despite exporters having limited control over the circumstances. Industry representatives have sought a review of the mechanism to enable closure of such pending cases.
Consultations ongoing
The discussions assume significance as the central bank continues consultations with stakeholders before the revised FEMA framework is implemented. In recent interactions with industry, the RBI has maintained that simplifying foreign exchange regulations while preserving prudential safeguards remains a priority. Exporters, meanwhile, are pressing for a framework that addresses compliance requirements without increasing transaction costs or restricting legitimate trade, particularly as India seeks to sustain export momentum amid a volatile global economic environment.
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