The RBI’s new foreign exchange reporting framework went live October 1, requiring all services exporters to file an Export Declaration Form. While policymakers want to track non-software exports, many freelancers and small firms worry about extra paperwork. Rohan Sewani said, "The immediate friction relates to bankers preparing themselves."
The RBI's new foreign exchange reporting framework that went live October 1 will help policymakers track the growing pool of India's non-software services exports, but individual and small-ticket service providers who have never had to file such paperwork are up in arms.
The new RBI FEMA Regulations require all services exporters to file an Export Declaration Form (EDF) with their bank (or STPI for software) within 30 days from the end of the invoice month.
For software exporters, the change is just a transition from the erstwhile SOFTEX Forms to the new EDFs. However for freelancers, consultants and other small firms, the change brings in a new set of documentation and filing requirements.
The friction comes from the lack of clarity at the ground level, as many bank branches are still figuring out their own standard operating procedures (SOPs) around this, financial advisors and small service exporters told businessline. The service providers question the need for such a new declaration, particularly for low-value service exports.
Social media has been abuzz with individual entrepreneurs and consultants noting that the forex is already being tracked via the banking system and the additional form puts their payments and reconciliation at the mercy of the efficiency of the banking partners.
Immediate concerns
Rohan Sewani, Head of Operations & Customer Experience, Skydo, a cross-border payments platform, said that they are already seeing customers reach out for help in understanding and preparing EDF filings. The "immediate friction" relates to bankers preparing themselves for this with adequate SOPs and also communicating this with exporter customers.
"Freelancers and small service firms now have to understand what the EDF is, where to file it, what details are needed, how to identify fields such as SAC codes and AD branch codes, and how to map their export invoices and remittances correctly," he said.
Ajay Srivastava, Founder, Global Trade Research Initiative, said the idea is to make foreign-exchange monitoring easier but with smaller service providers also included, without a threshold limit, it will increase the paperwork for these businesses. Benefits will depend heavily on implementation by banks, he added.
"It is a good change for software exporters who used to file a much larger and complex SOFTEX form. But it's bad for exporters like me who provide low-ticket services. I now need to engage someone to do this. There should have been a threshold limit," a Chennai-based individual tech consultant said. "We are at the mercy of the subjectivity and bureacracy of banks now," the person added.
Neha Aggarwal, Partner, Deloitte India, notes a fair bit of worry around the kind of documentation and details that banks would now ask from the freelancers and others. Banks have been given directions under the Rule to set up SOPs and they should now try to keep documentation burden minimum; all eyes are on how the banks respond, she said.
'Not complicated'
Asish Philip Abraham, Executive Partner, Lakshikumaran Sridharan Attorneys, pointed out that there is also a provision to consolidate all export invoices of the month in a single EDF which should make things manageable. "The immediate challenge is understanding the process and coordinating with the AD banks," he said.
G Vijay Krishnan, Managing Partner, Up North Advisors, too pointed out that the compliance is not too complicated. "The form [EDF] as such is not very complicated and with enough support from their banking partners, the small exporters should be able to tackle it themselves. Some people may outsource it till they get a hang of it," he said.
Sunil Badala, Head of Tax, KPMG in India, said the framework strikes a pragmatic balance between regulatory oversight and ease of doing business. The shorter timelines for realising export proceeds and tighter credit controls, however, make stronger receivables management and credit controls essential, he added.