In a bid to tighten loopholes in the foreign trade system, the government of India has proposed to publish the exchange rate of major global currencies on a daily basis for the benefit of the customs department. This will help customs officials calculate the value of consignments (import or export) based on the current prevailing exchange rates, evade over- or under-pricing of goods because of a delayed conversion rate, and arrive at their actual value at the time of calculation.

The present system allows the Ministry of Finance to announce the currency conversion rate on a fortnightly basis, and notify the same to make these prices effective. During this period of a fortnight, if the currency of any country makes an upward or downward direction, the customs department continues with the same old rate which sometimes brings in losses for traders. Sources said that the old system of currency calculation keeps the trade uncertain and thus, creates a problem in determining the actual value of consignments.

A public notice issued by the Department of Revenue under the Union Ministry of Finance seeks suggestions, views, comments, feedback, etc from stakeholders on a draft circular titled ‘Launch of Exchange Rate Automation Module (ERAM)’. For the purpose of valuation of the import and export of goods, the Ministry of Finance proposed to introduce a system of publishing the currency exchange rates now on the government-owned Icegate website every day. This will replace the existing old system of notifying exchange rates on a fortnightly basis.

Currencies under the automaton module
Australian dollar	Qatari Riyal
Bahraini Dinar	Saudi Arabian Riyal
Canadian Dollar	Singapore Dollar
Chinese Yuan	South African Rand
Danish Kroner	Swedish Kroner
Euro	Swiss Franc
Hong Kong Dollar	Turkish Lira
Kuwaiti Dinar	UAE Dirham
New Zealand Dollar	US dollar
Norwegian Kroner	Japanese Yen
Pound Sterling	Korean Won

Source: Ministry of Finance, Government of India

With the current system, the value of any exported or imported goods will be calculated with reference to the rate of exchange as in force on the same date on which a bill of entry is presented, or a shipping bill/ export bill is submitted. For this purpose, the Ministry of Finance notifies the exchange rates of 22 major currencies twice a month. If the exchange rate of a currency gets fluctuated more than 5 percent on either side, vis-à-vis notified rates, the rate for that currency is notified again.

Now, the entire process will be automated, beginning with the forwarding of exchange rate data by the State Bank of India (SBI) to Icegate through message exchange. Following the adoption of the new module, the old system of fortnightly notification will be dispensed with, the public notice said.

Daily change in consignment value
Once the new module is adopted, the value of consignment will change on a daily basis which mostly would depend on currency fluctuations. For Indian exporters, the change in consignment value may initially hurt overseas importers till they get used to the new module. For importers, however, the daily change in the value of consignments would prompt Indian businessmen to revise the price of their finished products frequently or keep high margins (value at risk or VAR) to absorb minor changes in the value of imported goods.

Meanwhile, the Indian government is in the process to make the local currency tradable across various countries to reduce the demand for the United States dollar. Increasing acceptance of the rupee across more number of countries would also help the rupee remain stable. For the last couple of weeks, the rupee moved in a close range between 82 and 83 against the benchmark United States dollar.


DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com