MSMEs call for relaxations in the new FEMA regulations for exports and imports

Small businesses are calling for relaxations in proposed regulations for exports and imports under the Foreign Exchange Management Act (Fema), saying a one-size-fits-all solution would disadvantage them.

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MSMEs, or micro, small and medium enterprises, say the draft regulations, which were open for public consultations till 30 April, don’t have enough provisions for their exports of digital goods and services, which account for 45% of the country’s exports. 

There is also a policy gap on export procedures for direct-to-customer e-commerce businesses, which are characterized by high-frequency, low-value transaction, according to the India SME Forum.

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Typically, the smallest of these businesses don't even have enough financial resources to legally contest challenges in case they fail to meet the compliance burden.

“While the overarching objective is laudable, the draft regulations in their current form present several structural and operational challenges,” said a set of recommendations by the industry association representing over 98,000 MSMEs. 

“The imposition of uniform compliance requirements, inflexible timelines, and extensive discretionary powers vested in Authorized Dealers—without recognizing the diverse profiles of exporters—risks disproportionately burdening smaller players, particularly MSMEs,” warned these firms.

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Fema regulations on exports and imports previously came in two separate sets of draft directives. But now, these two directives have been consolidated into one document. 

The regulations streamline the procedure for businesses to declare their exports to dealer banks using Export Declaration Forms (EDF) for goods, services and software. Previously, businesses did not need to file EDFs for services, and instead needed to file a separate form for software exports.

Another reason for revising these regulations was to make Indian laws on exports and imports simpler, to invite more businesses into India and to allow Indian exporters to easily secure markets abroad, said Vinod Kumar of India SME Forum.

The April 2025 regulations, once notified after public consultations, will replace the 2015 Fema regulations on export of goods and services.

"The process of declaration of exports proposed in the 2025 Update is much more procedural for the exporters now. In the era of digitalisation, this is an additional paperwork compliance requirement for the traders," said a 16 April article by law firm Lakshmikumaran Sridharan Attorneys.

Ease of doing business

The proposed regulations aim to streamline India’s trade by providing more discretionary powers to authorized dealing banks. A Reserve Bank of India circular making these draft regulations public claimed they were aimed at boosting the ease of doing business in India. 

India SME Forum president Vinod Kumar told Mint that these regulations intend to improve the ease of doing business by merging two separate sets of instructions for exports and imports. However, the draft regulations do not contain adequate provisions for MSMEs. 

With a majority of India’s 63.5 million MSMEs being micro businesses and sole proprietorships, challenges in compliance may pose a challenge for overall exports, Kumar added. 

“Most of these businesses are started with an investment of a few lakh rupees. It is a challenge for them to meet the standard of compliance stated in these regulations,” he said. 

E-commerce has emerged as a silver lining for MSME exporter firms and, in turn, India. A March 2024 Niti Aayog report said a heavy compliance burden on MSMEs, among other hurdles such as managing cost-effective production and logistics, is a challenge in unlocking their export potential. 

“However, the emergence of both broad and niche e-commerce marketplaces addresses many of these barriers,” said the report, titled Boosting Exports From MSMEs. 

MSMEs, however, contended that the April 2025 regulations are silent on a simplified compliance regime for MSME e-commerce exports, despite these transactions being high-volume and low-value.

“Notably, it lacks any mention of a ‘de minimis’ threshold (e.g., $1,000) below which shipping bills could be automatically regularized through a faceless, digital system,” said the India SME Forum in its recommendations. 

“This omission imposes excessive manual compliance burdens on small exporters, who must currently reconcile each shipping bill with bank realization manually—a process that is inefficient and impractical at scale,” it said. 

A de-minimis threshold is useful in public policy when the policy has to cater to a wide range of stakeholders, allowing certain stakeholders to receive exemptions, easing, or benefits of policy.

In this case, for instance, MSMEs said a de-minimis threshold would be useful to segregate their businesses from the compliances required in the draft regulations. If, for instance, the threshold is $100, then a business which earns less than that may be fully or partially exempt from certain compliances.

Moreover, the draft regulations came as the sector was adjusting to new criteria set by the Union government to categorize MSMEs. 

Starting 2025-26, the government raised the investment and turnover limits for all three categories. According to the new definitions, micro businesses can invest up to ₹2.5 crore in plant and machinery and have an annual turnover of up to ₹10 crore. Their earlier limits were ₹1 crore and ₹5 crore, respectively.

The government has similarly tweaked the investment and turnover limits that are used to categorize SMEs. 

Now, small enterprises are defined as those with investment in plant and machinery under ₹25 crore and turnover under ₹100 crore. The definition of medium enterprises has been widened to include investment up to ₹125 crore from ₹50 crore and turnover up to ₹500 crore from ₹250 crore.

Manish Singhal, secretary general, Assocham (Associated Chambers of Commerce and Industry of India) noted that as these draft norms aim to streamline transactions, and empower banks to provide efficient service to foreign exchange customers, the proposed regulations are expected to positively impact and enhance ease of doing business for MSMEs.

Singhal, however, added: The process of declaration of exports is much more procedural for the exporters now. In the era of digitalization, this is an additional paperwork compliance requirement for the traders. There is no clarity of standard documents requirements therefore given the limited resources with MSMEs, standardized list of essential documentation required for export verification would be much helpful for MSMEs."

Although, the specific timeline relaxation in the draft rules is aimed at aiding the exporters who have genuine reasons for any delay in exporting the goods after receiving the advance payment, there is a need for further clarity in the process of refunding the unutilized portion of the advance payment.