Chinmaya IAS Academy – Current Affairs Chinmaya IAS Academy – Current Affairs
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The buying house transfers import risks to the manufacturer The Punjab National Bank (PNB) grabbed headlines with a Rs. 13,000-crore loss on account of its high-profile client, Nirav Modi. Subsequently, lacunae were identified in the procedures of its foreign exchange transactions. An examination of the modus operandi revealed the ease with which a handful of employees could successfully subvert the internationally established SWIFT to the advantage of the jeweller. It would be well worth raising the question of whether this lackadaisical approach was an exception or whether bankers are easily influenced by the rich and powerful. Is our banking system jeopardising ‘Make in India’ because of its naïve understanding of cross-border financial transactions? Exporters occupy pride of place as foreign exchange earners. It is well understood that an exporter is under an obligation to repatriate foreign exchange proceeds, against an order backed by a shipping bill as proof of shipment. Further, to make exports competitive, the government of India exempts the exporter from the burden of the Goods and Services Tax (GST). However, a closer scrutiny reveals anomalies that are weakening the domestic manufacturing sector. An unequal playing field At the epicentre are the banks misinterpreting the Foreign Exchange Management Act (FEMA) rules in favour of the buying houses, and thus creating an unequal playing field for the supporting manufacturer. The buying house does not have its own manufacturing unit and hence outsources execution of the export order to a supporting manufacturer. The manufacturer produces the goods, ships them to the destination outside India, and signs a declaration for repatriation of foreign exchange. The export documents are handed over to the buying house. Subsequently, the importer makes payment to the banker of the buying house.
