The Central government has come out with more relief for exporters by way of one per cent reduction in the export credit interest rate ceiling, extension in the period for export proceeds realization to one year for select sectors, enhancement in duty drawback rates on 300 items etc. These steps will help but may not significantly impact the exports.
The present situation calls for drastic steps. One step that Reserve Bank can immediately take is to abolish the GR form. This may be accompanied by 100 per cent retention of foreign exchange in EEFC accounts. These steps would mean a lot more than mere simplification.
GR form is a declaration that exporter gives against each shipment that he will realize the full export proceeds. He submits the declaration in duplicate to the Customs at the time of shipment.
After allowing exports, the Customs send the original to RBI and return the duplicate duly endorsed to the exporter.
The exporter submits the duplicate GR form to the bank along with other shipping documents. The bank sends the duplicate GR form to RBI after realization of full payment against the shipment.
The idea of GR form procedure is to monitor realization of export proceeds against each shipment. This is like putting a policeman behind each transaction.
Realisation of foreign exchange is also an essential condition to admit discharge of export obligation against advance licenses or for grant of DEPB (duty exemption pass book scheme) or duty drawback.
The condition that each shipment must be monitored for full realisation is based on pre-Fema (Foreign Exchange Management Act) perceptions.
There was a time when for any person getting foreign exchange was very difficult and RBI felt that businessmen did resort to exports as a means to stash away some funds abroad.
Today, the position is quite different. Almost all current account payments and quite a few capital account payments are under automatic route. Even gifts or donations upto $5,000 to each beneficiary can be made every year to any number of persons - no questions asked. Each business traveler can spend $25,000 even on a day's visit abroad.
How much money has left our shores because of such liberalisation? Not much - as the bulging foreign exchange reserves and the figures of outward remittances show. Fears that exporters will not realise export proceeds are unfounded.
The truth is that there is no reason to keep any money abroad where the funds earn poor interest. It makes a lot more sense for an exporter to use his funds in India. If need be, he can always get foreign exchange to meet his needs. Even the hawala premium is meager.
Abolition of GR form would essentially liberate the exporter from anxiety about each transaction coming good. He can take risks in exports as he does in the domestic market. He can diversify his presence in several markets, where payment difficulties may arise - after all, it is his money.
The exporter will be able to examine a number of trade financing options in India or abroad. Lot of unproductive work in the offices of exporters, customs, banks and RBI would end thereby.
Abolition of GR form and 100 per cent retention in EEFC accounts would be important steps towards full convertibility of the rupee without the ill-effects of speculative inflows/outflows.
If RBI still feels the need to keep track, an annual return regarding realisation of foreign exchange can be called for from exporters.
