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FEDAI asks banks to align with FTP as RBI clarifies merchanting trade interpretation to facilitate pharma business
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Shardul Nautiyal, Mumbai
August 10 , 2026
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Acting on the Reserve Bank of India (RBI)'s clarification, the Foreign Exchange Dealers' Association of India (FEDAI) has advised all member banks to align their interpretation of merchanting trade provisions with the Foreign Trade Policy (FTP), 2023, to ensure uniform implementation and facilitate legitimate international pharma trade.
FEDAI is a self-regulatory organisation of all authorised dealers in India.
RBI has clarified the interpretation of Merchanting Trade Transactions (MTTs) under the FTP, 2023, following concerns raised by pharma exporters over differing interpretations by Authorised Dealer (AD) banks that had resulted in certain cross-border trade transactions being declined.
In a circular issued to all member banks, FEDAI said the RBI had received feedback from pharma exporters' associations that several AD banks were refusing to process certain MTTs because of varying interpretations of the regulatory requirement contained in RBI's Circular dated January 23, 2020.
MTTs involve the shipment of goods from one foreign country to another without the goods entering India, with an Indian entity acting as the intermediary. Under the RBI's January 2020 circular, such transactions are permitted only for goods that are allowed for export or import under the prevailing FTP applicable on the date of shipment.
According to FEDAI, the RBI has now clarified that the interpretation of the relevant provision in its 2020 circular should be aligned with the merchanting trade instructions contained in Paragraph 2.39 of the Foreign Trade Policy, 2023. The clarification is intended to remove ambiguity and ensure that Authorised Dealer banks adopt a consistent approach while processing merchanting trade transactions.
Quoting the RBI clarification, FEDAI said that under Paragraph 2.39 of the Foreign Trade Policy, merchanting trade involving the shipment of goods from one foreign country to another without touching Indian ports, or shipment of goods within the same foreign country involving an Indian intermediary, is permitted subject to compliance with RBI guidelines. However, the policy excludes goods and items covered under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and the Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) list.
In India, exports of specimens, parts, or derivatives of wild animals and plants listed under CITES are regulated by the Wildlife Protection Act and the Foreign Trade Policy. Pharma exporters require official CITES export permits or comparable certificates issued by India's designated CITES Management Authority (Ministry of Environment, Forest and Climate Change) to ensure trade is legal and non-detrimental to species survival.
AD banks are financial institutions licensed by the RBI under the Foreign Exchange Management Act (FEMA) to undertake foreign exchange transactions. Differences in interpretation of merchanting trade provisions by these banks had created uncertainty for exporters and intermediaries engaged in international trade.
FEDAI, in its communication, said that the RBI's clarification should be taken into account by all member banks while handling MTTs. "Member banks are advised to take note of the above clarification and be guided accordingly," FEDAI said.
The clarification is expected to bring greater regulatory consistency in the processing of MTTs by banks and reduce delays arising from differing interpretations of the FTP. It will also provide greater certainty to Indian intermediaries participating in cross-border trade while ensuring compliance with RBI guidelines and the restrictions applicable to CITES and SCOMET-listed goods.
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