When two hands don’t coordinate

In a welcome move, the Directorate General of Foreign Trade (DGFT) has extended the benefit under the Services Exports from India Scheme (SEIS) for the period between April 1, 2016, to March 31, 2017. This ends uncertainty and comes when exporters are reeling under the impact of lower realisations, due to a stronger rupee.

DGFT should now try to resolve a new problem that exporters of services face. The procedures for claiming the SEIS benefit include a certificate from a chartered accountant (CA) in the format prescribed, as an annexure to application form ANF-3B. It requires the CA to verify bills, invoices, the Foreign Inward Remittance Certificate (FIRC), etc.

The FIRC is a document that banks used to issue whenever any inward remittance was received. So, exporters of services had no difficulty in getting the FIRC whenever they realised the payment for their bills from customers. Of late, however, some banks are refusing to give the FIRC to exporters of services, on the ground that the Foreign Exchange Dealers Association of India (FEDAI) restrains them from doing so.

FEDAI is a self-regulatory body of banks dealing in foreign exchange (typically called Authorised Dealers), incorporated under Section 25 of the Companies Act. Its major activity includes framing of rules governing the conduct of the inter-bank foreign exchange business among banks vis-à-vis the public, beside liaisoning with the Reserve Bank (RBI) for reforms and development of the forex market. Although its rules affect exporters, importers and the public, none of these categories are represented in its committees. Its rules, publications, circulars and even study material are available only to its members.

In its circular SPL-04/2016, dated April 21, 2016, FEDAI asked its members to issue an FIRC only for receipt of export proceeds by a bank other than the one that handles export documents and for inward remittances covering foreign direct investment (FDI) or foreign institutional investment (FII). In its Circular SPL-09/2016 dated June 8, 2016, FEDAI said RBI had by its AP (DIR) Circular no. 74 of May 26, 2016, expanded the scope of the Export Data Processing & Monitoring

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System (EDPMS). And, that the additional modules would now capture details of all inward remittance, including advance payment, and also handle issuance of eFIRC when necessary. It is, therefore, decided to discontinue with immediate effect the issuance of FIRC for any exportrelated payment, it said. Hereafter, an FIRC may be issued only for inward remittances covering FDI/FII.

It appears from the RBI circulars that EDPMS relates only to export of goods or software, not export of services. An e-FIRC facilitates adjustment of export documents handled by one bank against the inward remittance reported by another bank. Second, DGFT has not modified the instruction that a CA should certify net foreign exchange earnings of services exporters, after verification of FIRC. So, exporters now have difficulty in getting CA certificates for making their SEIS claims, as banks are refusing to give the FIRC for inward remittances representing the realisation of bills for services rendered.

DGFT should either remove the requirement that a CA verify the FIRC or take up the matter with FEDAI, through RBI, to ensure banks give the FIRC to services exporters. RBI should also consider whether to make FEDAI more transparent to all stakeholders which are affected by its decisions. # 2217