RBI vs exporters: Understanding the genesis and solution to the EDPMS issue

The Reserve Bank of India and the exporters are at loggerheads over the use of the Export Data Processing and Monitoring System online software. What is the genesis of the problem and is there a resolution in sight? Subhomoy Bhattacharjee explains.

What is the point of contention between the Reserve Bank of India on the one hand, and the exporters on the other?

The Reserve Bank of India (RBI) has asked banks to get tough with exporters that do not file details of their export consignments through the online software known as Export Data Processing and Monitoring System (EDPMS). Since the exports are booked in foreign currency, any violation of the rules relating to the declaration of proceeds fall under the purview of the Foreign Exchange Management Act. Prosecutions under this Act are handled by the Enforcement Directorate on reference from the RBI. However, the RBI does not automatically refer all cases of violations to the Directorate, but only those above a threshold and those that are repetitive and so on. 

What is EDPMS? Why is it suddenly in focus?

The EDPMS system was introduced by the RBI in 2014 for all banks to bring their transactions with the exporters online. Under the system, the banks download the shipping bills or softex forms issued by export agencies such as customs, special economic zones (SEZ) and Software Technology Parks of India (STPIs), note the bill of entry issued by ports and match those with data on inward remittance of the export proceeds from the exporting company. The data set allowed banks to immediately track the status of each consignment exported with their letters of credit or other instruments and also allowed exporters to claim benefits faster, instead of both being immersed under tonnes of paper work. It has been cited as an example of improved foreign trade operations done by India and has contributed to the country’s improved score in the Ease of Doing Business index. 

What is the source of the current problem? 

The plan has had trouble since inception as banks figured it does not give them any additional business. The faster turnaround time for processing of exports is bank agnostic and so there is no advantage to be derived from there. Since it also created transparency, some exporters were also not keen to fill in the details of their inward remittances with the system. 

There has been several reminders from the RBI to banks and through them to the exporters to bring the data up to date. Banks have pointed fingers at the exporters who in turn have accused banks of putting very little manpower to man the desks to update the data. The RBI has also warned the banks that those exporters whose data are not captured by the software will figure in a Caution List. Once on the list, exporters are denied packing credit which hampers their exports. Caution listing also leads to non negotiation of ‘non-letter of credit bills’. So even if the goods reach the buyer on time, the banking documents get delayed. This leads to delays that has a cost for them as well as incurring of demurrage charges that too need to be cleared by the exporters. Currently, about 90,000 exporters figure on the Caution List, of which about 65,000 are active exporters.

Incidentally, this is not the only upgrade RBI has done for exporters. Remember, Nirav Modi! His case came to light when RBI did a similar upgrade for matching Letters of Undertaking through SWIFT. He was able to take advantage of the fact that Punjab National Bank and others had no system to reconcile such data, with lags often spread over years. 

Why is the RBI keen on EDPMS? 

RBI not only wants the EDMPS to run to improve India’s business climate, it is also keen to use the data to discover at any point of time how much of the dollar remittances meant for India are floating abroad. This is a significant data used to discover the extent of hedging against the Indian rupee and can help the central bank to manage operations in the forex market. So it has kept on giving deadlines, the last of which expired on September 30, 2018. While there is no public data of what percentage of EDPMS data has been captured, the RBI has given one more deadline which will expire on December 31. To make the warning stick, the RBI has said exporters with missing entries will find their names forwarded to the ED. This seems to have scared the exporters’ bodies. 

So what is the way forward? 

Prominent export bodies such as the Engineering Export Promotion Council has remonstrated with the government. The Council has argued that it has regularly advised its members to reconcile their remittances records, but “several banks are not issuing the clearances, especially with regard to shipments to countries like Syria, Iran, Sudan etc”. The Council has voiced a feeling among exporters that at a time when exports are facing global headwinds like a slowdown in the US economy, the uncertainty of Brexit and the trade war between the US and China, “the RBI and the government should be dealing with issues like remittances in a friendly manner”.