Amendment to FTP a positive for pharma industry in India
With the amendment to the Foreign Trade Policy (FTP), invoicing, payment, and settlement of trade can now take place in Indian rupees
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As per the RBI circular on July 11, settlement of trade transactions in INR may take place through special rupee vostro accounts opened by authorised dealer banks in India. Indian importers undertaking imports through this mechanism will make payment in INR which will be credited into the special vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier
The Union Ministry of Commerce and Industry has recently made certain amendments in the Foreign Trade Policy (FTP) to allow for international trade settlement in Indian rupees for the export promotion schemes of the industries, including the pharmaceutical industry. FTP aims to grow the Indian export of goods and services, generating employment and increasing value addition in the country. With the amendment to the FTP, invoicing, payment, and settlement of trade can now take place in Indian rupees. The Directorate General of Foreign Trade (DGFT), an arm of the Union Commerce and Industry Ministry, had earlier introduced Para 2.52(d) vide notification no. 33/2015-20 dated September 16, 2022 to permit invoicing, payment and settlements exports and imports in Indian rupees in sync with Reserve Bank of India (RBI)'s A.P. (DIR Series) circular no.10 dated July 11, 2022. In order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in rupees, the RBI came out with a circular on July 11, 2022 stating that it has decided to put in place an additional arrangement for invoicing, payment and settlement of exports/imports in rupees. Before putting in place this mechanism, authorised dealer (AD) banks shall require prior approval from the RBI. In continuation to the above notification, changes have been introduced under Para 2.53 of the Foreign Trade Policy, for grant of exports benefits/fulfilment of export obligation under the Foreign Trade Policy, for export realisations in Indian rupees as per the RBI guidelines.
The updated provisions for export realisation in Indian rupees have been notified for, imports for exports (Para 2.46 of FTP), export performance for recognition as Status Holders (Para 3.20 of FTP), realisation of export proceeds under Advance Authorisation (AA) and Duty Free Import Authorisation (DFIA) schemes (Para 4.21 of FTP) and Realisation of Export Proceeds under Export Promotion Capital Goods (EPCG) Scheme (Para 5.11 of HBP). Accordingly, benefits/fulfilment of export obligation under the Foreign Trade Policy has been extended for realisations in Indian rupees as per the RBI guidelines. Given the rise in interest in internationalisation of Indian rupee, the policy amendments in FTP have been undertaken to facilitate and to bring ease in international trade transactions in Indian rupees. As per the RBI circular on July 11, settlement of trade transactions in INR may take place through special rupee vostro accounts opened by authorised dealer banks in India. Indian importers undertaking imports through this mechanism will make payment in INR which will be credited into the special vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller/supplier. Indian exporters undertaking exports of goods and services through this mechanism shall be paid the export proceeds in INR from the balances in the designated special vostro account of the correspondent bank of the partner country.
Of course, it is a welcome move by the government as exim trade settlement in Indian rupees for export promotion schemes will be a positive for the exporters in the country. Obviously, the pharmaceutical manufacturers and exporters in the country are encouraged by the central government's decision permitting international trade settlement in Indian rupees for the export promotion schemes. A significant number of pharmaceutical exporters have imported goods under several schemes including Advance Authorization. They were looking for clarity on acceptance of export obligation in Indian Rupee against imports made in free foreign currency. The latest amendments will surely benefit the pharmaceutical industry as a whole, and particularly the MSME units, which are exporting products to African, Asian and Latin American countries facing huge foreign exchage shortage. Most of the MSMEs are not well versed in hedging US Dollar to be certain about the amount they will receive for exporting goods in case of sharp rise in the value of the domestic currency against the Greenback. They will benefit from exim trade settlement in rupees.
Earlier, the Union Commerce and Industry Ministry had extended the existing Foreign Trade Policy by six months till March 31, 2023 following feedback against releasing any long-term strategy in the wake of volatile global economic and geo-political situation, supply chain disruptions, and the currency depreciation. The current policy was to expire on September 30 this year. The DGFT on September 29, 2022 issued a notification stating that the existing FTP 2015-20 which is valid up to September 30, 2022 is extended up to March 31, 2023. It was first extended on March 31, 2020 for one year due to the coronavirus outbreak and the lockdown. Besides FTP, the validity of existing Handbook of Procedures, 2015-20 is extended up to March 31, 2023. Now, the government should announce the list of countries permitting settlement of exim trade in Indian Rupee.
(The author is a freelance journalist with varied experience in different fields)
