Importers can escape a falling rupee

EXIM MATTERS

Last week, the Indian rupee weakened against the US dollar causing some anxiety to importers and joy to exporters. At weekend, the exchange rate, after crossing Rs 47 to a US dollar during the week, settled at about Rs 46.75. The oil prices also fell to about USD 74 a barrel after reaching a peak of about USD 78.5 per barrel.

With the government and the Reserve Bank of India quite concerned about the inflationary impact of a falling rupee, it is far from certain that the rupee will be allowed to fall much. Even fears that the Middle-East conflict might result in disruption of oil supplies seem a bit exaggerated.

However, it is reasonably certain that the Central Board of Excise and Customs (CBEC) will revise the exchange rate during the coming week to reflect the market rates for imports and exports during August 2006. For July, the CBEC notified exchange rate for imports is Rs 46.55 to a US dollar and for exports at Rs 45.95 to a US dollar.

In such a scenario, the importers will benefit by filing a bill of entry before the month-end because, as per a proviso to Section 14(1) of the Customs Act, 1962, the exchange rates for the purpose of arriving at the assessable value will be freezed at the CBEC notified rate on the date of filing the bill of entry. The importers can take a view after a look at the notified rates, as the CBEC normally notifies the exchange rate for next month around the 27th or 28th of the previous month.

Section 46(3) of the Customs Act, 1962 says that importers may present a bill of entry at any time after the carriers or their agents file the Import General Manifest (IGM). However, a bill of entry may be presented even before the IGM is filed, if the vessel or aircraft by which goods have been shipped is expected to arrive within 30 days of such presentation. Of course, if the vessel does not arrive within 30 days of filing the bill of entry, a fresh bill of entry will have to be filed and the exchange rate will be as on the date of filing the fresh bill of entry, says the CBEC.

Exporters using the All Industry Rates of duty drawback or the Duty Entitlement Passbook scheme get their benefits as a percentage of FOB value of exports calculated on the basis of the CBEC notified exchange rate on the date of grant of 'Let Export' order by the Customs.

A fall in the Indian rupee value vis-à-vis the US dollar usually ought to mean not only higher rupee realisations against the export bills but also more DEPB credit or duty drawback at All Industry Rates.

A falling rupee can, however, hurt the exporters who have contracted to pay the ocean freight on export consignments. As it is, the shipping companies do not adopt a very transparent mechanism to determine the exchange rates. What can help the exporters are the contracts with the shipping companies that specify the manner in which the exchange rate will be arrived at for payment of freight.

tncr@sify.com