Long-term export advances: A boost for ‘Make in India’

In consonance with the Indian government’s campaign of “Make in India”, the regulators seem to be doing their bit to facilitate business and trade. Data from the Ministry of Commerce and Industry show that India received about ₹12.7 trillion (US$210 billion) by way of exports between April and November 2014.

To provide an impetus to exporters and to make cash flow available to them, the Reserve Bank of India (RBI) issued a circular on 21 May 2014 permitting authorized dealer banks to allow exporters to receive export advances for long-term export contracts up to a maximum term of 10 years subject to the satisfaction of certain conditions stipulated in the May circular. The long-term export advances are required to be adjusted through future exports.

Such long-term export advances are to be backed by export performance bank guarantees issued by authorized dealer banks in India on behalf of Indian exporters to back their obligations under the long-term export contracts. The May circular stipulates that export performance bank guarantees may be issued by authorized dealer banks only for a two-year term with the right to be rolled over every two years. Such export performance bank guarantees are unconditional and assignable bank guarantees. An export performance bank guarantee is assigned to the offshore lenders of the offshore beneficiary as the beneficiaries usually seek funding for long-term export advances.

Babu Sivaprakasam is a partner, Deep Roy is an associate partner and Megha Agarwal is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.