The Hidden Costs of Indian Service Exports: Why Passive FX Management is Eroding Profitability

India has established itself as a global powerhouse in IT services, consulting, and digital exports. Yet, while the quality of delivery is world-class, the financial infrastructure behind many of these firms remains rooted in the past. For many Indian exporters, the process of receiving international payments is a passive one: the client sends a SWIFT wire, and the Indian bank automatically converts it to INR.

This “auto-conversion” is one of the single largest drains on the profitability of Indian agencies.

The Spread Gap

When an Indian bank receives a USD payment for an exporter, it typically applies an exchange rate that includes a markup of 1.5% to 3.5% over the interbank rate. On an invoice of $50,000, this can result in a loss of over ₹1,00,000 in a single transaction.

Because this markup is baked into the exchange rate rather than listed as a separate fee, it often goes unnoticed. It is a quiet erosion of margin that happens every time a client pays an invoice.

The Entity Dilemma for the Indian Agency

For a long time, the only way for an Indian agency to get around this was to set up a US LLC or a Singapore entity. But opening a US entity brings its own set of problems. You have to deal with IRS filings, Delaware franchise taxes, and the headache of complying with Indian overseas direct investment (ODI) rules.

Virtual accounts have completely removed this hurdle. Companies do not have to open a local entity to collect from anywhere around the world. You can now get global business bank accounts in the US, UK, and EU or anywhere in the world without ever leaving your office in Bengaluru or Gurgaon.

A New Standard: Multi-Currency Virtual Accounts

The fintech landscape has evolved to offer a more efficient alternative: multi-currency virtual accounts. This technology allows Indian exporters to hold local bank details in markets like the US, UK, and EU without the need for a local entity.

By using virtual accounts, an Indian firm can implement a proactive treasury strategy: collecting in one currency, holding balances in multi-currencies, and paying out to vendors or partners in whichever currencies are needed.

This infrastructure provides three major benefits to the Indian service sector:

1. Avoidance of Double Conversion: Many Indian firms have costs in USD, such as AWS hosting or global freelancers. By keeping export revenue in a USD virtual account, they can pay these expenses directly from that balance. This avoids the loss of selling USD for INR and then buying it back.
2. Timing of Repatriation: While RBI guidelines require that export proceeds be brought back to India within specific timeframes, virtual accounts allow for more strategic timing within those windows. A finance lead can choose to convert funds when the INR is weaker, maximizing the amount of local currency received.
3. Certainty in Reconciliation: Because the funds arrive in the currency you billed in, accounting becomes significantly cleaner. You are no longer trying to figure out why a $5,000 invoice resulted in an odd INR amount that doesn’t seem to match any known exchange rate.

Compliance without the Headache

One of the primary concerns for Indian exporters is maintaining compliance with the Foreign Exchange Management Act (FEMA). Modern virtual account platforms are designed with these regulations in mind, providing the necessary Foreign Inward Remittance Advice (FIRA) documents that banks and auditors require.

By moving away from traditional bank-led “auto-conversion” and toward a controlled, virtual infrastructure, Indian exporters can reclaim a significant portion of their profit margins.

The Hidden Costs of Indian Service Exports: Why Passive FX Management is Eroding Profitability was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.