Foreign Trade, Nris and International Business

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
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
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
themselves.
www.afterschoool.tk 4
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.
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.
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
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
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
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.
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.
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
Remittances relating to exports...
These include : agency commission, export

claims etc.
SEZ
If you are operating from SEZ you are

permitted to have foriegn currency account
with an authorised dealer
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.
Forfaiting
Factoring and forfaiting can be undertaken by

EXIM bank / authorised dealers. Under this
they collect payments regarding export
receivables against commission.
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) .
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.
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.
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.
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.
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
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.
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.
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.
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.
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.)
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.
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.
PERMITTED FIIs
FOLLOWNG CAN REGISTER AS FII WITH

RBI & SEBI:
banks, pension funds, hedge funds, mutual
funds, insurance companies, investment funds
etc.
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.
ECB MECHANISMS
Companies engage in many ECB mechanisms

like :
arbitrage
hedging
underwriting
fund raising etc.
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.
Royalty / technical fees
Upto $2million of royalty upto 5% of

domestic sale or 8% of export sale is permitted
as royalty.
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.
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.
RFC (DOMESTIC) ACCOUNT
A Resident who lives in India but receives

foreign exchange payments / honorarium can
open RFC (Domestic) account for retaining
such payments.
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.
THANKS....
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FOREIGN TRADE, NRIs AND

Import payments must be settled within 6

The exporter has to declare exports to RBI and

Demonstrations / sales promotions (UPTO 2%

Consignment means you are sending goods to

Examples : project exports, export as contract

These include : agency commission, export

If you are operating from SEZ you are

These are listed with RBI as per FEMA, they

Factoring and forfaiting can be undertaken by

Indian companies are now permitted to have

PEM stands for Project Export memorandum –

Authorised dealers have to ensure that they get

Upto 100% Foreign Direct Investment is

Within 30 days of share issue to Non-residents,

Now non residents can transer shares to other

As per RBI notification of 2000, residents can

If it is not falling in automatic route, apply for

FEMA regulations 2000 give schedule I which

FIIs including asset management companies,

An NRI / PIO can buy upto 5% in a company.

FII can deal through stock exchanges without

NRIs have to deal through NRE /FCNR

FOLLOWNG CAN REGISTER AS FII WITH

External commercial borrowings : Indian

Companies engage in many ECB mechanisms

Upto $2million of royalty upto 5% of

Exchange Earners Foreign Currency account –

Resident foreign currency account – if an NRI

A Resident who lives in India but receives

Residents can use upto $25000 for payments

GIVE YOUR SUGGESTIONS AND JOIN

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