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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Corporate and Economic Laws

Case: Vihaan Pharma Ltd imports raw materials priced in US dollars. Its CFO says a rise in the repo rate and a depreciating rupee will both affect the firm. Under the framework of the Foreign Exchange Management Act, 1999, a current account transaction such as payment for imported raw materials is generally treated how?

Payment for imported raw materials is a current account transaction, which FEMA permits freely. The only limits are reasonable restrictions the Central Government may impose through rules. It is not a capital account transaction and does not need blanket prior RBI approval.

  1. APermitted freely, subject to restrictions the Central Government may impose by rulesCorrect
  2. BProhibited unless the RBI gives prior approval in every case
  3. CPermitted only through the Adjudicating Authority after notice
  4. DTreated as a capital account transaction needing RBI licence

Explanation

Under FEMA, any person may sell or draw foreign exchange for a current account transaction, subject to reasonable restrictions the Central Government may impose by rules. Import payments are current account transactions. They are not capital account transactions, and no blanket prior RBI approval is required.

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