The Reserve Bank of India headquarters in Mumbai. 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.
Reuters/New Delhi
India’s central bank is working to liberalise its foreign exchange rules to make it easier to do business with Asia’s third-largest economy, deputy governor HR Khan said yesterday, 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 Reserve Bank of India to ease rules for tracking cross-border trade amounting to over $15bn 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 SC Ralhan, president of the Federation of Indian Export Organisations (FIEO).
India’s exports contracted by 14% 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% 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 $2bn 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 $600bn to $2tn 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 multibillion-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 $30bn 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.
