Export of Goods and Services

In one line

An exporter must declare the full export value and must bring the money home. Precisely: section 7 requires a declaration in the specified form containing true and correct material particulars, including the amount representing the full export value, and permits the Reserve Bank to direct compliance with requirements ensuring realisation; section 8 requires a resident to whom foreign exchange is due or has accrued to take all reasonable steps to realise and repatriate it within the period specified by the Reserve Bank; and section 9 exempts specified cases from sections 4 and 8.

Why the obligation exists at all

Because an export that is never paid for is not an export in the sense the economy needs. Goods have left the country and nothing has come back. In balance of payments terms the transaction is indistinguishable from a gift abroad, and if it is deliberate it is a means of moving capital out of the country under cover of trade.

Under-invoicing and non-realisation are therefore the classic instruments of capital flight, and they are why a liberalised regime which freed the current account nevertheless retained the realisation obligation. An exporter may sell to whom he likes on what terms he likes; what he may not do is fail to bring the proceeds home.

The obligation is also what makes trade statistics meaningful, since the declaration under section 7 is the record against which the inward remittance is matched, and an unmatched declaration is what triggers enquiry.

Section 7: the declaration

Section 7(1) provides that every exporter of goods shall:

(a) furnish to the Reserve Bank or to such other authority a declaration in such form and in such manner as may be specified, containing true and correct material particulars, including the amount representing the full export value or, if the full export value of the goods is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions, expects to receive on the sale of the goods in a market outside India;

(b) furnish to the Reserve Bank such other information as may be required by the Reserve Bank for the purpose of ensuring the realisation of the export proceeds by such exporter.

Three features of section 7(1)(a) deserve comment.

The particulars must be "true and correct" and "material", so an understatement of value is a contravention at the moment of the declaration, independently of whether the money is later realised. That is how under-invoicing is caught.

The alternative for an unascertainable value is carefully drawn: where the full export value is not ascertainable at the time of export, the exporter declares the value which he, having regard to the prevailing market conditions, expects to receive on the sale of the goods in a market outside India. The test is an honest commercial expectation, not a guess and not a nominal figure, and it accommodates consignment sales and goods sold on arrival.