Foreign Exchange Developments

1. Money Transfer Service Scheme

It has been decided to increase the number of remittances from 12 to 30 to be received by a single individual beneficiary in a calendar year under the Money Transfer Service Scheme (MTSS). All other instructions contained in the paragraph 5 (c) of the the Notification dated June 4, 2003, as amended from time to time remain unchanged.

These guidelines would also be applicable mutatis mutandis to all Sub-Agents of the Indian Agents under MTSS and it will be the sole responsibility of the APs (Indian Agents) to ensure that their Sub-Agents also adhere to these guidelines.

[A.P. (DIR Series) Circular No 132 dated June 8, 2012]

2. Annual return on Foreign Liabilities and Assets Reporting by Indian Companies – Revised format

The Annual Return on Foreign Liabilities and Assets (FLA) is now modified an easy-to-fill soft form of the return with guidance to users and in-built validations is now being made available on the RBI website (www. rbi.org.in → Forms category → FEMA Forms) which can be duly filled-in, validated and sent by e-mail, by July 15 every year.

[A.P. (DIR Series) Circular No 133 dated June 20, 2012]

3. External Commercial Borrowings (ECB) – Repayment of Rupee loans

On a review, it has been decided to allow Indian companies to avail of ECBs for repayment of Rupee loan(s) availed of from the domestic banking system and/or for fresh Rupee capital expenditure, under the approval route, subject to them satisfying the following conditions:-

i. Only companies in the manufacturing and infrastructure sector will be eligible to avail of such ECBs;

ii. Such companies shall be a consistent foreign exchange earner during the past three financial years;

iii. Such companies are not in the default list/caution list of the Reserve Bank of India; and

iv. Such ECBs shall only be utilised for repayment of the Rupee loan(s) availed of for ‘capital expenditure’ incurred earlier and are still outstanding in the books of the domestic banking system and/or for fresh Rupee capital expenditure.

The overall ceiling for such ECBs as in para above shall be US$ 10 (ten) billion. The maximum permissible ECB that can be availed of by an individual company will be limited to 50 per cent of the average annual export earnings realised during the past three financial years. The ECBs will be allowed to companies based on the foreign exchange earnings and its ability to service the ECB. The companies should draw down the entire facility within a month after taking the Loan Registration Number (LRN) from the Reserve Bank.

Companies desirous of availing such ECBs may submit their applications in Form ECB through their designated Authorised Dealer bank with certification from the Statutory Auditor regarding the utilisation of Rupee loan(s) with respect to ‘capital expenditure’ incurred earlier. Statutory Auditor shall also certify that the company is a consistent foreign exchange earner during the past three financial years. The outstanding Rupee loan(s) shall be duly certified by the domestic lending bank(s) concerned and the designated Authorised Dealer bank. Authorised Dealer should ensure that the foreign exchange for repayment of ECB is not accessed from Indian markets and the liability arising out of ECB is extinguished only out of the foreign exchange earnings of the borrowing company.

The designated AD – Category I bank shall monitor the end-use of funds and bank(s) in India will not be permitted to provide any form of guarantee(s). All other conditions of ECB, such as recognised lender, all-in-cost, average maturity, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged and shall be complied with. This facility will come into with immediate effect and is subject to review at an appropriate time depending upon evolving macroeconomic conditions and other relevant factors. The existing policy for repayment of Rupee loans as per A.P. (DIR Series) Circular No. 25 dated September 23, 2011 and A.P. (DIR Series) Circular No. 111 dated April 20, 2012 will continue to be applicable, as hitherto, to companies in the infrastructure sector without natural hedge.

[A.P. (DIR Series) Circular No 134 dated June 25, 2012]

4. Foreign Investment in India by SEBI Registered FIIs in Government Securities and SEBI Registered FIIs and QFIs in Infrastructure Debt

On a review it has been decided as under :

Government Securities

i) The limit of US$ 15 billion for FII investment in Government securities stands enhanced with immediate effect by US$ 5 billion to US$ 20 billion. It has also been decided to rationalise the conditions governing the investments under this scheme by making the residual maturity of the instrument at the time of first purchase by FIIs and SEBI registered eligible non- resident investors in IDFs and foreign Central Banks to be at least three years for a sublimit of US$ 10 billion. Further, in order to broad base the non resident investor base for Government securities, it has also been decided to allow long term investors like Sovereign Wealth Funds (SWFs), Multilateral agencies, endowment funds, insurance funds, pension funds and foreign Central Banks to be registered with SEBI to also invest in Government securities within this enhanced limit of US$ 20 billion.

Infrastructure Debt

ii) The conditions for the limit of US$ 22 billion including the sub-limit of US$ 5 billion with one year lock-in/residual maturity requirement and US$ 10 billion for non resident investment in IDFs (which are all within the overall limit of US$ 25 billion for investment in infrastructure corporate bonds) have been changed as under :

• The lock-in period for investments under this limit has been uniformly reduced to one year; and

• The residual maturity of the instrument at the time of first purchase by an FII/eligible IDF investor would be at least fifteen months.

(iii) Further, as a measure of relaxation, QFIs can now invest in those MF schemes that hold at least 25 per cent of their assets (either in debt or equity or both) in the infrastructure sector under the current US$ 3 billion sub-limit for investment in mutual funds related to infrastructure. This relaxation would be subject to review.

[A.P. (DIR Series) Circular No 135 dated June 25, 2012]

5. External Commercial Borrowings (ECB) – Rationalisation of Form-83

On a review, it has been decided to rationalise the Form-83 submitted to the Reserve Bank for obtaining Loan Registration Number (LRN) to reflect the liberalisation and rationalisation measures that have been carried out over a period of time. Accordingly, borrowers desirous of obtaining Loan Registration Number (LRN) with effect from July 1, 2012 may submit Form-83 in the revised format. An illustration of calculation of average maturity period is provided for guidance. All other conditions of ECB, such as eligible borrower, recognised lender, end use, all-in-cost, average maturity, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged and shall be complied with.

[A.P. (DIR Series) Circular No 136 dated June 26, 2012]

6. Foreign Investment in India – Sector Specific Conditions

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India has been updating/notifying the FDI policy through issue of Consolidated FDI Policy Circular. Accordingly, Government has notified the latest FDI policy changes vide FDI Policy Circular 1 of 2012 dated April 10, 2012 and the same is available at Government website www.dipp.gov.in. In order to bring uniformity in the sectoral classification position for FDI as notified under the Consolidated FDI Policy Circular with the FEMA Regulation, the revised position on Annex A and Annex B of Schedule 1 to Notification No. FEMA 20/2000-RB dated 3rd May 2000, has been suitably revised.

[A.P. (DIR Series) Circular No 137 dated June 28, 2012]

7. Exim Bank’s Line of Credit of US$ 50 million to the Government of the Republic of Zambia

Export-Import Bank of India (Exim Bank) has concluded an Agreement dated March 29, 2012 with the Government of the Republic of Zambia, making available to the latter, a Line of Credit (LOC) of US$ 50 million (US$ Fifty million) for financing eligible goods, services, machinery and equipments including consultancy services for the purpose of pre-fabricated health posts in the Republic of Zambia. The machinery, equipment, goods and services including consultancy services from India for exports under this Agreement are those which are eligible for export under the Foreign Trade Policy of the Government of India and whose purchase may be agreed to be financed by the Exim Bank under this Agreement. Out of the total credit by Exim Bank under this Agreement, the goods and services including consultancy services of the value of at least 75 per cent of the contract price shall be supplied by the seller from India and the remaining 25 percent goods and services (other than consultancy services) may be procured by the seller for the purpose of Eligible Contract from outside India.

The Credit Agreement under the LOC is effective from June 8, 2012 and the date of execution of Agreement is March 29, 2012. Under the LOC, the last date for opening of Letters of Credit and Disbursement will be 48 months from the scheduled completion date(s) of contract(s) in the case of project exports and 72 months (March 28, 2018) from the execution date of the Credit Agreement in the case of supply contracts. Shipments under the LOC will have to be declared on GR/SDF Forms as per instructions issued by the Reserve Bank from time to time.

No agency commission is payable under the above LOC. However, if required, the exporter may use his own resources or utilise balances in his Exchange Earners’ Foreign Currency Account for payment of commission in free foreign exchange. Authorised Dealer Category- l (AD Category-l) banks may allow such remittance after realisation of full payment of contract value subject to compliance with the prevailing instructions for payment of agency commission.

[A.P. (DIR Series) Circular No 138 dated June 28, 2012]