FEMA rules revision: Exporters flag at least half-a-dozen worries

The Reserve Bank of India (RBI) notified the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, consolidating and repla...

What Happened

The Reserve Bank of India (RBI) notified the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, consolidating and replacing the previous FEMA export and import regulations of 2015 and all related Master Directions, with implementation effective October 1, 2026.
Indian exporters have flagged at least half-a-dozen concerns, urging the RBI to reconsider several provisions before the regulations take effect.
A key concern is the tightening of export credit: any interest on advance export payments must not exceed the all-in-cost ceiling for trade credit, which exporters argue will contract available credit lines.
The regulations introduce a restriction on future exports — if proceeds remain unrealised beyond one year from the due date (or any extended period granted by the Authorised Dealer bank or RBI), exporters may undertake future exports only against full advance payment or an irrevocable Letter of Credit, disrupting established trading relationships.
Procedural difficulties around Merchanting Trade Transactions (MTT) and the Export Data Processing and Monitoring System (EDPMS) have been flagged as compliance burdens, particularly for small and mid-sized exporters.
For transactions up to ₹10 lakh, the regulations allow self-declaration for EDPMS closure — a welcome measure exporters want extended to a higher threshold.

Static Topic Bridges

Foreign Exchange Management Act, 1999 (FEMA)

FEMA, enacted in 1999 and effective from June 1, 2000, replaced the Foreign Exchange Regulation Act, 1973 (FERA). The shift from FERA to FEMA marked a fundamental change in India's approach to foreign exchange management — from a control-and-punish model to a regulate-and-facilitate model reflecting the post-1991 liberalisation consensus.

FERA (1973): Violations were criminal offences with presumption of guilt on the accused; RBI was the enforcement authority with powers of arrest and imprisonment.
FEMA (1999): Violations are civil offences; the burden of proof is on the enforcement authority; the Enforcement Directorate (ED) investigates serious irregularities while RBI regulates routine foreign exchange transactions.
FEMA covers capital account transactions (investment, borrowing, lending in foreign exchange) and current account transactions (trade, services, remittances).
The RBI issues regulations under FEMA; Authorised Dealer (AD) banks serve as the front-line implementing entities.

Connection to this news: The 2026 FEMA regulations are delegated legislation issued by RBI under Section 7 of FEMA 1999. Exporter concerns centre on how the new rules interact with existing trade credit and payment realisation frameworks.

Export Data Processing and Monitoring System (EDPMS)

EDPMS is an RBI-mandated IT platform through which all export transactions of Indian exporters are tracked from the shipment stage through to the realisation of proceeds. Authorised Dealer banks report export data on EDPMS; unreconciled entries remain "open" and attract regulatory scrutiny.

All export shipping bills are uploaded to EDPMS automatically from customs data; banks monitor realisation and match inward remittances against open shipping bills.
If proceeds are not realised within the prescribed period (15 months from shipment under the 2026 regulations), the entry remains open and triggers follow-up by the AD bank and ultimately RBI.
Self-declaration for EDPMS closure (for transactions ≤ ₹10 lakh) is a new provision in the 2026 regulations, reducing compliance burden for small exporters.
Failure to close EDPMS entries can result in penalties under FEMA and restrictions on future exports.

Connection to this news: Exporters are seeking a higher threshold (above ₹10 lakh) for EDPMS self-declaration, and flagging technical difficulties in manual closure processes for larger transactions as a disproportionate compliance burden.

Merchanting Trade Transactions (MTT)

Merchanting Trade (also called Re-export or Third-Country Trade) refers to transactions where an Indian entity purchases goods from one country and sells the same goods to a buyer in another country without the goods physically entering India. MTT allows Indian traders to act as intermediaries in global supply chains.

MTT is governed under FEMA regulations; payment must be settled in foreign currency through AD banks.
Both the import leg (payment to supplier) and the export leg (receipt from buyer) must be completed — the overall MTT must not result in a loss for the Indian entity.
The time between import payment and export receipt must ordinarily not exceed six months (ensuring the Indian entity is not financing the supply chain indefinitely).
MTT has been used by Indian commodity traders, chemical intermediaries, and electronics traders to participate in global trade without domestic warehousing costs.

Connection to this news: The revised FEMA regulations contain new procedural requirements for MTT that exporters argue introduce compliance complexity without commensurate regulatory benefit, particularly for time-sensitive commodity trades.

Export Credit and Trade Finance

Export credit is short-term financing extended to exporters either pre-shipment (to procure raw materials, manufacture, and pack goods) or post-shipment (to bridge the gap between shipment and receipt of foreign exchange). It is governed jointly by RBI (foreign currency credit) and commercial lending regulations.

Pre-shipment credit in foreign currency (PCFC) and Post-shipment credit in foreign currency (PSCFC) are extended by AD banks; interest rates must comply with FEMA Borrowing and Lending Regulations, 2018 all-in-cost ceilings.
Export credit interest rates are benchmarked to LIBOR successor rates (SOFR/SONIA) plus a spread; regulatory ceilings prevent excessive interest charges.
The Export Credit Guarantee Corporation (ECGC) provides insurance to banks covering export credit risk, enabling banks to extend credit to exporters with moderate creditworthiness.

Connection to this news: The provision capping interest on advance export payments to the all-in-cost ceiling, while protective in intent, is being interpreted by exporters as potentially reducing banks' appetite to extend export credit — tightening liquidity for export-oriented industries.

Key Facts & Data

FERA enacted: 1973; FEMA enacted: 1999; FEMA effective from: June 1, 2000
FEMA 2026 Regulations notification: FEMA 23(R)/2026-RB, dated January 13, 2026
Implementation date: October 1, 2026
Export realization period: 15 months from shipment date (retained from earlier period, which had been extended from 9 months)
EDPMS self-declaration threshold (new): ₹10 lakh per transaction
Restriction on future exports triggered if: proceeds unrealised for more than 1 year beyond due date
FEMA penalty for violations: civil penalty up to three times the amount involved (no criminal liability)
ED can adjudicate cases above ₹1 crore; RBI/AD banks handle routine compliance