deemed export and rupee convertibility


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deemed export and rupee convertibility in Internation Business

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  • deemed export and rupee convertibility

    3. 3. Deemed Exports Deemed exports as defined in the export and import policy 1997-2002 means those transactions in which the goods supplied do not leave the country and the supplier in India receiver the payment for the goods go out of India to treat them as deemed export.
    4. 4. Different categories of supplies regarded as deemed exports  Supply of goods against licenses issued under the duty exemption scheme.  Supply of goods to units located in export processing zones or software technology parks or export oriented units.  Supply of capital goods to holders of licenses issued under the export promotion capital goods (EPCA) schemes.
    5. 5.  Supply of capital goods and spares to fertilizer plants if the supply is made under the procedure of international competitive bidding.  Supply of goods to any project or purpose in respect of which the ministry of Finance by a notification permits the import of such goods at zero customs duty coupled with the extension of benefits to domestic supplies.
    6. 6.  Supply of marine Freight containers by 100% (Domestic freight containers manufacturers) to shipping companies including shipping corporation of India provided the said containers are exported out of India within 6 months or such further period as permitted by customs.
    7. 7. Rupee convertibility  Free convertibility of currency means that the currency can be exchanged for any other convertible currency without any restriction at the market determined exchange rates.  Convertibility of rupee means that the rupee can be freely converted in to dollar, yen, pound, euro etc. and vice versa at the rates of exchange determined by the demand and supply forces.
    8. 8.  A currency can be convertible on trade account. If an exporters dollar earnings can be freely converted in to rupees at a market determined exchange rate.  If the free transformation of domestic currency in to foreign currencies is permitted for invisible transactions a currency is said t be convertible on current account
    9. 9.  The capital account involves capital outflows and capital inflows the rupee can be said to be convertible on capital account when the freedom to change currencies applies to all international transactions the currency is said to be full convertible.
    10. 10. Current account convertibility Current account convertibility is defined as the freedom to buy or sell foreign exchange for the following international transactions.
    11. 11.  All payments due in connection with foreign trade other current business including services and normal short term banking and credit facilities.  Payment due as interest on loans and as net income from other investments.  Payments of moderate amount of amortization of loans or for depreciation of direct investment.
    12. 12.  Moderate remittances for family living expenses.  Full convertibility announced on current account on August 19, 1994.
    13. 13. Liberalized Exchange Rate Mechanism System (LERMS)  This system was announced by the finance minister in the budget for 1992-93.  This system introduce the partial convertibility of rupee.
    14. 14.  Under this system a dual exchange rate was fixed under which 40%of foreign exchange earnings were to be surrendered at the official exchange rate which the remaining 60% were to be converted at a market determined rate.  The foreign exchange surrendered at the official rate was to be used for import of essential commodities.
    15. 15. Unified Exchanged Rate System  This system was announced in the 1995- 94 budget which resulted in the full convertibility of rupee on current account.  Under this exchange rate system the 60:40 ration was extended to 100 percent conversion.
    16. 16.  100 percent conversion was extended for : a) almost the merchandise trade transactions. b) all receipts whether on current account or capital account o f balance of payments but not all payments. The official RBI rates also stayed on for the conversion of items not permitted under the unifies exchange rate.
    17. 17. Capital account convertibility (CAC)  Capital account convertibility implies the movement of funds in and out of country without restrictions .  Convertibility of rupee on capital account transactions which can be expected to stimulate greater inflow of foreign investment.  The major risk associated with capital account convertibility is flight of capital i.e.. Withdrawal of foreign investment from the
    18. 18. The Tarapore committee defined Capital Account Convertibility as “the freedom to convert local financial assets with foreign financial assets and vice versa at market determined exchange rates.”
    19. 19. Precondition for CAC The Tarapore committee recommended that before adopting CAC, India should fulfill three crucial preconditions.  Fiscal deficit should be reduced to 3.5%  The Government should fire the annual inflation target between 3 and 5 percent.  The Indian financial sector should be strengthened.
    20. 20. Benefits of CAC  CAC helps in the development of financial markets.  CAC helps in boost the investment and GDP growth.  It allows domestic residents to invest in foreign markets.  It help the domestic residents to reduce risk factor in their investments.  It facilitates the specialization in financial services.
    21. 21. Disadvantages of CAC  CAC facilitates withdrawal of foreign investment from the country.  Companies based in India will find it more difficult in mobilizing capital from the primary market.
    22. 22. Reference  International trade & financial Environment. M.K.Bhat – Ane Books Pvt. Ltd.- New Delhi-2009
    23. 23. THANK YOU