RBI seeks to simplify forex rules
By Manoj Kumar
NEW DELHI (Reuters) - The Reserve Bank of India (RBI) is working to liberalise its foreign exchange rules to make it easier to do business with Asia's third-largest economy, Deputy Governor H.R. Khan said on Thursday, a step that could support flagging exports.
In line with Khan's announcement, the central bank took a small step by simplifying the process for Indian companies to raise rupee funds offshore.
Exporters asked the RBI to ease rules for tracking cross-border trade amounting to over $15 billion annually via third countries to boost exports, said industry officials who attended a town-hall meeting with Khan.
"We have got a positive response from the RBI and it could soon issue directions to banks," said S.C. Ralhan, president of the Federation of Indian Export Organisations (FIEO).
India's exports contracted by 14 percent in April from a year earlier, falling for the fifth straight month and casting a shadow over Prime Minister Narendra Modi's goal of achieving over 8 percent economic growth in 2015/16 fiscal year.
Rules on cross-border transactions aimed at curbing money laundering, terrorist financing and drug trafficking were hurting trade, and locking up $2 billion of payments in banks, the exporters told Khan.
Following a global anti-money-laundering campaign, the RBI now insists on complete information about importers and wants payments to be made directly into the bank accounts of exporters so that it can track transactions.
Bankers estimate the global flow of funds through money laundering could be in the range of $600 billion to $2 trillion a year, while including exporters and importers among the high risk category.
"While appreciating RBI's money-laundering concerns, we have urged to trail documents after payments and not at the time of shipments," said Ajay Sahai, a senior executive at FIEO.
"Indian exporters are working in a buyers' market, not in a sellers' market."
Earlier this year, RBI ordered banks to tighten monitoring of export finance deals after investigators uncovered an invoicing scam they suspect is part of a multi-billion-dollar scheme to exploit Western financial sanctions against Iran.
Exporters said strict banking rules were hurting trade with African and Latin American countries such as Brazil and Venezuela where buyers preferred to pay through intermediaries due to higher currency transaction costs and other reasons.
Currently, due to issues such as inadequate banking facilities, half of India's $30 billion exports to Africa go via Dubai and other countries, Sahai said.
Many buyers in Africa and even Russia preferred to make payments via intermediaries in third countries due to wide-differences on exchange rate transaction fees.
(Additional reportng by Suvashree Dey Choudhury in MUMBAI; Editing by Douglas Busvine/Ruth Pitchford)
