Reserve Bank of India makes the following amendments in the Foreign Exchange Management

## Report on Foreign Exchange Management Export of Goods and Services Amendment Regulations, 2021 **1. Executive Summary:** This report analyzes the Foreign Exchange Management (Export of Goods and Services) Amendment Regulations, 2021, as notified by the Reserve Bank of India (RBI) on September 8, 2021. This amendment modifies the existing Foreign Exchange Management (Export of Goods and Services) Regulations, 2015. The key change pertains to the rate of interest payable on advance payments received for exports, setting a maximum limit above a specified benchmark. This amendment aims to provide clarity and potentially regulate the interest rates applicable to advance payments in export transactions, impacting exporters and financial institutions involved in foreign exchange management. **2. Introduction:** The purpose of this report is to provide an informative overview of the Foreign Exchange Management (Export of Goods and Services) Amendment Regulations, 2021, based solely on the text of the official notification. This report aims to clarify the specific changes introduced by the amendment and their potential implications for relevant stakeholders. **3. Policy Overview:** * **Original Policy:** The amendment modifies the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015, Notification No. FEMA 23R/2015-RB dated January 12, 2016. * **Core Objective(s):** Based on the title, the original policy's core objective is to manage foreign exchange related to the export of goods and services. This amendment specifically addresses the regulation of advance payments related to these exports. **4. Background and Rationale:** This amendment likely addresses the need to regulate the interest rates associated with advance payments received by exporters. Previously, the regulations might have been unclear or lacked specific limits on such interest rates. The amendment appears designed to provide a clear upper limit, potentially protecting exporters from excessively high interest charges and ensuring a more predictable financial environment for export transactions. **5. Key Provisions / Changes:** This amendment focuses *specifically* on Regulation 15, subregulation 1, clause ii of the Principal Regulations (Foreign Exchange Management (Export of Goods and Services) Regulations, 2015). * **What Specific Part is Being Changed:** Regulation 15, subregulation 1, clause ii. This clause likely deals with conditions related to advance payments received for exports. * **What the New Rule/Provision Is:** The original clause ii is being *substituted* with the following: "the rate of interest, if any, payable on the advance payment shall not exceed 100 basis points above the London InterBank Offered Rate LIBOR or other applicable benchmark as may be directed by the Reserve Bank, as the case may be; and." * **Difference/Effect of the Change:** The amendment introduces a *cap* on the interest rate that can be charged on advance payments. The rate cannot exceed 100 basis points (1%) above LIBOR (London InterBank Offered Rate) or any other benchmark rate specified by the RBI. This provides a quantifiable upper limit where none explicitly existed before, and replaces the previous allowance with a defined benchmarked rate. It impacts the profitability of loans given to exporters in cases where market rates would dictate higher interest rates. **6. Target Audience and Stakeholders:** The direct target audience and stakeholders are: * **Exporters:** Receiving advance payments for goods and services. * **Banks and Financial Institutions:** Involved in processing and financing export transactions, specifically those providing advance payment facilities. * **Reserve Bank of India:** Responsible for overseeing and regulating foreign exchange management. **7. Implementation Aspects (Inferred):** * **Responsible Agency/Bodies:** The Reserve Bank of India (RBI) is the primary responsible body, as it issued the notification and has the power to direct applicable benchmarks beyond LIBOR. * **Timelines/Procedures:** The amendment came into force from the date of its publication in the Official Gazette (September 10, 2021). The procedures for calculating the interest rate on advance payments will need to be adjusted by banks and financial institutions to comply with the new limit. **8. Expected Outcomes / Impact of Changes:** The likely intended outcomes of these changes are: * **Clarity and Transparency:** Providing a clear and quantifiable limit on interest rates for advance payments. * **Fairness:** Protecting exporters from potentially exorbitant interest charges. * **Stability:** Ensuring predictability in the financial aspects of export transactions. * **Regulatory Control:** Allowing the RBI to influence the cost of financing exports through advance payments, if LIBOR is deprecated by specifying alternative benchmarks. **9. Conclusion:** The Foreign Exchange Management (Export of Goods and Services) Amendment Regulations, 2021, introduces a significant change by capping the interest rates on advance payments received by exporters. This amendment aims to provide clarity, ensure fairness, and promote stability in export financing. The RBI's active role and specification of appropriate benchmark rates will be crucial for the successful implementation and impact of this amendment. It is recommended that exporters and financial institutions carefully review and adapt their practices to comply with these new regulations.

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