New FEMA can be fatale for e-shoppers

New Fema reporting rules, which came into effect from Oct 1, are causing some disquiet over purchases by individuals of digital services from overseas vendors through international credit cards. Banks have been asked to report data on imports of goods and services to RBI. Buying a music album online would fall into this category. Unlike imports of machinery, where banks have information about the transaction in advance, credit card purchases of entertainment are not reported until quite a bit after the payment is made. The rules do not specifically mention that an individual buying a digital magazine subscription must inform her bank. Yet, the idea is to capture trade data at a granular level. Ideally, the disclosure should be provided by financial intermediaries, not consumers. RBI should clarify what consumers are expected to do in this matter.

Financial reporting mechanisms are designed to tap into nodes where information is collected, such as banks. Credit card issuers are among sources from which information is retrieved. Although the nature of transactions done on credit differs from those done in cash, they are traceable. The reporting handshake between international credit card issuers, which process overseas purchases by Indians, and domestic banks, tasked with reporting them, can be improved. The consumer should not be burdened with the disclosure. Information captured through consumer disclosures after the event will lack the integrity of immediate transaction data. It would be a less efficient way to track activity. Besides, a communication structure would have to be set up for consumers to provide such information to banks. That raises a separate set of issues.

A lag in reporting credit card purchases overseas within limits set by RBI for individuals can be accommodated within the data flow. Some adjustments will be needed, but the money trail exists. Investigators will be able to track foreign exchange movement without inconveniencing buyers and sellers when it comes to retail imports of services.