EXIM TRADE - INTERNATIONAL BUSINESS

Notes 16 Pages

Bengaluru City University

Bachelor of Business Administration

Contributed by

Prajwal Hallale

FACULTY NAME: Mrs NALINI.N
COLLEGENAME: MES INSTITUTE OF MANAGEMENT
SUB:INTERNATIONAL BUSINESS

Unit – V

EXIM TRADE

Export Trade, Procedure, Steps & Documentation, Direction of India‟s Trade – Export
Financing –Documents related to Export Trade – Export Marketing – Import Trade,
Procedure, Steps, Documentations and Problems - EXIM Policy - Balance of Payment –
Disequilibrium and Measures for Rectification - Institutions connected with EXIM
Trade.

EXPORT TRADE
Introduction
India’s Foreign Trade i.e. Exports and Imports are regulated by Foreign Trade Policy notified
by Central government in exercise of powers conferred by section 5 of foreign trade
(Development and Regulation) Act 1992. Presently Foreign Trade Policy 2015-20 is effective
from 1st April, 2015. As per FTD & R act, export is defined as an act of taking out of India
any goods by land, sea or air and with proper transaction of money.
STARTING EXPORTS
Export in itself is a very wide concept and lot of preparations is required by an exporter
before starting an export business. To start export business, the following steps may be
followed:
1) Establishing an Organisation
To start the export business, first a sole Proprietary concern/ Partnership firm/Company has
to be set up as per procedure with an attractive name and logo.
2) Opening a Bank Account
A current account with a Bank authorized to deal in Foreign Exchange should be opened.
3) Obtaining Permanent Account Number (PAN)
It is necessary for every exporter and importer to obtain a PAN from the Income Tax
Department. (To apply PAN Card Click Here)
4) Obtaining Importer-Exporter Code (IEC) Number
An IEC is a 10 digit number which is mandatory for undertaking export/ import. Application
for obtaining IEC Number can be submitted to Regional authority of DGFT in form ANF 2A
along with the documents listed therein.
Applicants can also apply for e-IEC on the DGFT website (http://dgft.gov.in/). Only one IEC
can be obtained against a single PAN.
5) Registration cum membership certificate (RCMC)
For availing authorization to import/ export or any other benefit or concession under FTP
2015-20, as also to avail the services/ guidance, exporters are required to obtain RCMC
granted by the concerned Export Promotion Councils/ FIEO/Commodity Boards/ Authorities.
6) Selection of product
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All items are freely exportable except few items appearing in prohibited/ restricted list.
After studying the trends of export of different products from India proper selection of the
product(s) to be exported may be made.
7) Selection of Markets
An overseas market should be selected after research covering market size, competition,
quality requirements, payment terms etc. Exporters can also evaluate the markets based on
the export benefits available for few countries under the FTP. Export promotion agencies,
Indian Missions abroad, colleagues, friends, and relatives might be helpful in gathering
information.
8) Finding Buyers
Participation in trade fairs, buyer seller meets, exhibitions, B2B portals, web browsing are an
effective tool to find buyers. EPC’s, Indian Missions abroad, overseas chambers of commerce
can also be helpful. Creating multilingual Website with product catalogue, price, payment
terms and other related information would also help.
9) Sampling
Providing customized samples as per the demands of Foreign buyers help in getting export
orders. As per FTP 2015-2020, exports of bonafide trade and technical samples of freely
exportable items shall be allowed without any limit.
10) Pricing/Costing
Product pricing is crucial in getting buyers’ attention and promoting sales in view of
international competition. The price should be worked out taking into consideration all
expenses from sampling to realization of export proceeds on the basis of terms of sale i.e.
Free on Board (FOB), Cost, Insurance & Freight (CIF), Cost & Freight(C&F), etc. Goal of
establishing export costing should be to sell maximum quantity at competitive price
with maximum profit margin. Preparing an export costing sheet for every export product is
advisable.
11) Negotiation with Buyers
After determining the buyer’s interest in the product, future prospects and continuity in
business, demand for giving reasonable allowance/discount in price may be considered.
12) Covering Risks through ECGC
International trade involves payment risks due to buyer/ Country insolvency. These risks can
be covered by an appropriate Policy from Export Credit Guarantee Corporation Ltd (ECGC).
Where the buyer is placing order without making advance payment or opening letter of
Credit, it is advisable to procure credit limit on the foreign buyer from ECGC to protect
against risk of non-payment.(To know more about ECGC Click Here)
Processing an Export Order
i. Confirmation of order
On receiving an export order, it should be examined carefully in respect of items,
specification, payment conditions, packaging, delivery schedule, etc. and then the order
should be confirmed. Accordingly, the exporter may enter into a formal contract with the
overseas buyer.
ii. Procurement of Goods
After confirmation of the export order, immediate steps may be taken for
procurement/manufacture of the goods meant for export. It should be remembered that the
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order has been obtained with much efforts and competition so the procurement should also be
strictly as per buyer’s requirement.
iii. Quality Control
In today’s competitive era, it is important to be strict quality conscious about the export
goods. Some products like food and agriculture, fishery, certain chemicals, etc. are subject to
compulsory pre-shipment inspection. Foreign buyers may also lay down their own
standards/specifications and insist upon inspection by their own nominated agencies.
Maintaining high quality is necessary to sustain in export business.
iv. Finance
Exporters are eligible to obtain pre-shipment and post-shipment finance from Commercial
Banks at concessional interest rates to complete the export transaction. Packing Credit
advance in pre-shipment stage is granted to new exporters against lodgment of L/C or
confirmed order for 180 days to meet working capital requirements for purchase of raw
material/finished goods, labour expenses, packing, transporting, etc. Normally Banks give
75% to 90% advances of the value of the order keeping the balance as margin. Banks adjust
the packing credit advance from the proceeds of export bills negotiated, purchased or
discounted.
Post Shipment finance is given to exporters normally up to 90% of the Invoice value for
normal transit period and in cases of usance export bills up to notional due date. The
maximum period for post-shipment advances is 180 days from the date of shipment.
Advances granted by Banks are adjusted by realization of the sale proceeds of the export
bills. In case export bill becomes overdue Banks will charge commercial lending rate of
interest.
v. Labelling, Packaging, Packing and Marking
The export goods should be labelled, packaged and packed strictly as per the buyer’s specific
instructions. Good packaging delivers and presents the goods in top condition and in
attractive way. Similarly, good packing helps easy handling, maximum loading, reducing
shipping costs and to ensuring safety and standard of the cargo. Marking such as address,
package number, port and place of destination, weight, handling instructions, etc. provides
identification and information of cargo packed.
vi. Insurance
Marine insurance policy covers risks of loss or damage to the goods during the while the
goods are in transit. Generally in CIF contract the exporters arrange the insurance whereas for
C&F and FOB contract the buyers obtain insurance policy.
vii. Delivery
It is important feature of export and the exporter must adhere the delivery schedule. Planning
should be there to let nothing stand in the way of fast and efficient delivery.
viii. Customs Procedures
It is necessary to obtain PAN based Business Identification Number (BIN) from the Customs
prior to filing of shipping bill for clearance of export good and open a current account in the
designated bank for crediting of any drawback amount and the same has to be registered on
the system.
In case of Non-EDI, the shipping bills or bills of export are required to be filled in the format
as prescribed in the Shipping Bill and Bill of Export (Form) regulations, 1991. An exporter
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need to apply different forms of shipping bill/ bill of export for export of duty free goods,
export of dutiable goods and export under drawback etc.
Under EDI System, declarations in prescribed format are to be filed through the Service
Centers of Customs. A checklist is generated for verification of data by the
exporter/CHA. After verification, the data is submitted to the System by the Service Center
operator and the System generates a Shipping Bill Number, which is endorsed on the printed
checklist and returned to the exporter/CHA. In most of the cases, a Shipping Bill is processed
by the system on the basis of declarations made by the exporters without any human
intervention. Where the Appraiser Dock (export) orders for samples to be drawn and tested,
the Customs Officer may proceed to draw two samples from the consignment and enter the
particulars thereof along with details of the testing agency in the ICES/E system.
Any correction/amendments in the check list generated after filing of declaration can be made
at the service center, if the documents have not yet been submitted in the system and the
shipping bill number has not been generated.
In situations, where corrections are required to be made after the generation of the shipping
bill number or after the goods have been brought into the Export Dock, amendments is
carried out in the following manners .
1. The goods have not yet been allowed "let export" amendments may be permitted by the
Assistant Commissioner (Exports).
2. Where the "Let Export" order has already been given, amendments may be permitted only
by the Additional/Joint Commissioner, Custom House, in charge of export section.
In both the cases, after the permission for amendments has been granted, the Assistant
Commissioner / Deputy Commissioner (Export) may approve the amendments on the system
on behalf of the Additional /Joint Commissioner. Where the print out of the Shipping Bill has
already been generated, the exporter may first surrender all copies of the shipping bill to the
Dock Appraiser for cancellation before amendment is approved on the system.
ix. Customs House Agents
Exporters may avail services of Customs House Agents licensed by the Commissioner of
Customs. They are professionals and facilitate work connected with clearance of cargo from
Customs.
x. Documentation
FTP 2015-2020 describe the following mandatory documents for import and export.
 Bill of Lading/ Airway bill
 Commercial invoice cum packing list
 shipping bill/ bill of export/ bill of entry (for imports)
(Other documents like certificate of origin, inspection certificate etc may be required as per
the case.)
xi. Submission of documents to Bank
After shipment, it is obligatory to present the documents to the Bank within 21 days for
onward dispatch to the foreign Bank for arranging payment. Documents should be drawn
under Collection/Purchase/Negotiation under L/C as the case may be, along with the
following documents
- Bill of Exchange
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- Letter of Credit (if shipment is under L/C)
- Invoice
- Packing List
- Airway Bill/Bill of Lading
- Declaration under Foreign Exchange
- Certificate of Origin/GSP
- Inspection Certificate, wherever necessary
- Any other document as required in the L/C or by the buyer or statutorily.
xii. Realization of Export Proceeds
As per FTP 2015-2020, all export contracts and invoices shall be denominated either in freely
convertible currency of Indian rupees, but export proceeds should be realized in freely
convertible currency except for export to Iran. Export proceeds should be realized in 9
months.

India - Import Requirements and Documentation
It includes import documentation and other requirements for both the U.S. exporter and
foreign importer. Import licensing requirements:

In the last decade, India has steadily replaced licensing and discretionary controls over
imports with deregulation and simpler import procedures. The majority of import items fall
within the scope of India’s EXIM Policy regulation of Open General License (OGL). This
means that they are deemed to be freely importable without restrictions and without a license,
except to the extent that they are regulated by the provisions of the Policy or any other law.

Imports of items not covered by OGL are regulated, and fall into three categories: banned or
prohibited items, restricted items requiring an import license, and "canalized" items
importable only by government trading monopolies and subject to Cabinet approval
regarding timing and quantity.

The following are designated import certificate issuing authorities (ICIA):

The Department of Electronics for import of computer and computer related systems The
Department of Industrial Policy and Promotion for organized sector firms except for import
of computers and computer based systems

The Ministry of Defense for defense related items

The Director General of Foreign Trade for small-scale industries not covered in the
foregoing.

Capital goods can be imported with a license under the Export Promotion Capital Goods plan
(EPCG) at reduced rates of duty, subject to the fulfillment of a time-bound export obligation.
The EPGC plan now applies to all industry sectors. It is also applicable to all capital goods
without any threshold limits, on payment of a 5% customs duty.
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A duty exemption plan is also offered under which imports of raw materials, intermediates,
components, consumables, parts, accessories and packing materials required for direct use in
products to be exported may be permitted free of duty under various categories of licenses.
For the actual user, a non-transferable advance license is one such license. For those who do
not wish to go through the advance-licensing route, a post-export duty-free replenishment
certificate is available.

Advance License: An advance license is issued to allow duty free import of inputs, which
are physically incorporated in the export product (making normal allowance for wastage). In
addition, fuel, oil, energy, catalysts etc. that are consumed in the course of their use to obtain
the export product, may also be allowed under the plan.

Duty free import of mandatory spares up to 10% of the CIF value of the license, which are
required to be exported/ supplied with the resultant product, may also be allowed under
Advance License.

Advance license can be issued for:

Physical exports: An advance license may be issued for physical exports to a manufacturer
exporter or merchant exporter tied to supporting manufacturer(s) for import of inputs required
for the export product.

Intermediate supplies: An advance license may be issued for intermediate supply to a
manufacturer- exporter for the import of inputs required in the manufacture of goods to be
supplied to the ultimate exporter/deemed exporter holding another Advance License.

Deemed exports: An advance license can be issued for deemed exports to the main
contractor for import of inputs required in the manufacture of goods to be supplied to the
categories mentioned in paragraph 8.2 (b), (c), (d), (e), (f), (g), (i), and (j) of the Policy. An
advance license for deemed exports can also be availed by the sub-contractor of the main
contractor to such project provided the name of the sub-contractor(s) appears in the main
contract. Such license for deemed export can also be issued for supplies made to United
Nations Organizations or under the Aid Program of the United Nations or other multilateral
agencies and paid for in foreign exchange. Import Declaration: Importers are required to
furnish an import declaration in the prescribed bill of entry format, disclosing full details of
the value of imported goods.

Import Licenses : All import documents must be accompanied by any import licenses. This
will enable the customs to clear the documents and allow the import without delay.

Ex-factory invoice, freight and insurance certificates: These must be attached so that the
customs can verify the price and decide on the classification under which the import tariff can
be calculated.
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Letter of Credit (L/C): All importers must accompany a copy of the L/C to ensure that
payment for the import is made. Normally this document is counter-checked with the issuing
bank so that outflow of foreign exchange is checked.

Not all consignments are inspected prior to clearance, and inspection may be dispensed with
for reputable importers. In the current customs set-up, an appointment with the clearing
agents for clearance purposes will avoid delays. In general, documentation requirements,
including ex-factory bills of sale, are extensive and delays are frequent.

Clearance delays cost time and money, including additional detention and demurrage
charges, making it more expensive to operate and invest in India. For delayed clearances,
importers seek release of shipments against a performance bond; furnishing a bank guarantee
for this purpose is a more expensive proposition. Customs have recently extended operations
to 24 hours
a day to ensure timely clearance of export cargo.

Major problem faced by export sector in India:
1. Poor Quality Image- “Made in India” does not enjoy good reputation in the markets
abroad. Rather it is considered to be a sign of poor quality. The products manufactured in
Japan, Korea and now even China are frequently quoted as examples of dependable quality.
Carelessness, lack of commitment on part of exporters and non presence of a proper
exporter’s culture in India are to blame.
2. High Costs- While technological factors and low productivity contribute to high costs of
production, It is estimated that interest rate alone constitutes nearly 5% of the cost of
production in India. Moreover bank charges in India work out to nearly 3% as compared to
1% in countries like Japan and Korea. Similarly, port charges in India are 3-4 times higher
than those in Hong Kong, Singapore. The traditional export sectors of textiles and jute have
already suffered a lot due to lack of modernisation, whereas many other competing countries
have made rapid strides in this regard.
3. Unreliability-
Besides quality, Indian exporters are regarded as unreliable on certain other factors such as
going back on a contract and refusing to fulfil it on its original terms, inability to provide
prompt after sales services. While exporters from competing countries like South Korea,
Japan and Taiwan normally replace a defective consignment free of cost and without taking
much time.
4. Infrastructural Bottlenecks- In India, power shortages and breakdowns disrupt
production schedules, inadequate and unreliable transport increase costs and adversely affect
timely shipments and lack of communication facilities hinder growth of exports.
5. Inadequacy of Trade Information System- With the phenomenal expansion of the
internet it has become very easy in the world today to obtain information. However in India,
because of poor facilities of communication, when compared to developed countries, it is not
possible to depend on internet for obtaining latest trade information. Developed countries
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mention that they won’t prefer trading with exporters who are not in a position to complete
necessary formalities through the mode of Electronic Data Interchange.
6. Supply Problems-
The problem is that much of the exporting is the result of residual approach rather than
conscious effort of producing to export. It is a serious drawback of the Indian export sector in
its inability to provide continuous and smooth supply of adequate quantities in respect of
several products. The tendency to export what we produce instead of producing to export still
characterise the export behaviour. 7. Faceless Presence- Indian exports are sold in foreign
markets in the same condition as they are exported but under foreign brand names. Major
items like leather manufactures, seafood and spices, etc, Although, may go further repacking
or processing have a faceless presence in the foreign markets. It holds true that when a
product carries a foreign brand name it fetches a higher price. than the same product with an
Indian name. 8. Uncertainties- One of the defects of our trade policy regime has been the
uncertainty about future policies, incentive schemes, etc. The import export policy have been
given a five year span to bring about some stability, however, still a very large number of
amendments are affected each year. There have been reports of loss of Crores worth exports
due to inter departmental coordination. 9. Procedural Complexities- With regard to export
documentation and formalities, it have been observed that most existing procedural and
documentation formalities prescribed by different authorities have been developed to suit
their own individual requirements without much regard to its repercussions on total export
activity. 10. Institutional Rigidities- When the export of a country is being intensified, it is
necessary that the formalities related to export activity are also streamlined and simplified so
that they do not constitute impediments to growth of the country’s export trade.

EXIM Policy:
A new export and import policy were framed in 1992 which was effective till 1997. Since
then new changes have been made in the policy to achieving the following objectives:
1. To enhance the level of exports;
2. To improve the balance of payment;
3. To improve the balance of trade;
4. To enhance the reverse of foreign exchange;
5. To allow import of technology and equipment’s which may help in establishing new
industrial enterprises, produce new products and adopt a new process for higher production
levels.
6. To ensure the availability of goods for the domestic consumption and to allow exports so
that the producers get a fair price;
7. To allow import of certain goods as listed in the Open General Licence;
8. To allow for hassle free exports and imports;
9. Reducing the interface between the exporters and Director General of Foreign Trade by
reducing the number export documents;
10. Establishing Advance Licencing System for imports of goods needed for manufacturing
various goods for export;
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11. Removal of the provisions to proceed realization;
12. Establishing of Export oriented units and Export Processing Zones specifically for goods
meant to be produced for exports only;
13. To accelerate the country’s transition to a globally oriented vibrant economy to deriving
maximum benefits from expanding global market opportunities;
14. To enhance the technological strength and efficiency of Indian agriculture, industry, and
services thereby improving their competitive strength while generating new employment
opportunities. It encourages the attainment of internationally accepted standards of quality of
Indian exports; and
15. To provide consumers with good quality products at reasonable prices through regulated
imports of such products.

BALANCE OF PAYMENT

The balance of payments (BOP) is the method countries use to monitor all international
monetary transactions at a specific period. Usually, the BOP is calculated every quarter and
every calendar year. All trades conducted by both the private and public sectors are
accounted for in the BOP to determine how much money is going in and out of a country. If a
country has received money, this is known as a credit, and if a country has paid or given
money, the transaction is counted as a debit. Theoretically, the BOP should be zero, meaning
that assets (credits) and liabilities (debits) should balance, but in practice, this is rarely the
case. Thus, the BOP can tell the observer if a country has a deficit or a surplus and from
which part of the economy the discrepancies are stemming.
The balance of payments is the record of all international financial transactions made by a
country's residents. A country's balance of payments tells you whether it saves enough to pay
for its imports. It also reveals whether the country produces enough economic output to pay
for its growth. The BOP is reported for a quarter or a year.
A balance of payments deficit means the country imports more goods, services and capital
than it exports. It must borrow from other countries to pay for its imports. In the short-term,
that fuels the country's economic growth. It's like taking out a school loan to pay for
education. Your expected higher future salary is worth the investment.
In the long-term, the country becomes a net consumer, not a producer, of the world's
economic output. It will have to go into debt to pay for consumption instead of investing in
future growth. If the deficit continues long enough, the country may have to sell off its assets
to pay its creditors. These assets include natural resources, land and commodities,
A balance of payments surplus means the country exports more than it imports. Its
government and residents are savers. They provide enough capital to pay for all domestic
production. They might even lend outside the country.
A surplus boosts economic growth in the short term. That's because it's lending money to
countries that buy its products. That boosts its factories, allowing them to hire more people.
In the long run, the country becomes too dependent on export-driven growth. It must
encourage its residents to spend more. A larger domestic market will protect the country from
exchange rate fluctuations. It also allows its companies to develop goods and services by
using its own people as a test market.
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What are the Methods of Correcting Disequilibrium in the Balance of Payments?
Persistent disequilibrium in the balance of payments, particularly the deficit balance, is
undesirable because it
(a) weakens the country's economic position at the international level, and
(b) affects the progress of the economy adversely. It must be cured by taking appropriate
measures.
Methods to correct disequilibrium in the balance of payments
There are many methods to correct disequilibrium in the balance of payments. Important
among them are discussed below:
1. Deflation: Deflation is the classical medicine for correcting the deficit in the balance of
payments. Deflation refers to the policy of reducing the quantity of money in order to reduce
the prices and the money income of the people. The central bank, by raising the bank rate, by
selling the securities in the open market and by other methods can reduce the volume of
credit in the economy which will lead to a fall in prices and money income of the people. Fall
in prices will stimulate exports and reduction in income checks imports.
Thus, deflationary policy restores equilibrium to the balance (a) by encouraging exports
through reduction in their prices and (b) by discouraging imports through the reduction in
incomes at home. Moreover, a higher interest rate in the domestic market will attract foreign
funds which can be used for correcting disequilibrium. However, deflation is not considered a
suitable method to correct adverse balance of payments because of the following reasons: (a)
Deflation means reduction in income or wages which is strongly opposed by the trade unions,
(b) Deflation causes unemployment and suffering to the working class, (c) In a developing
economy, expansionary monetary policy rather than contractionary (deflationary) monetary
policy is required to meet the developmental needs.
2. Depreciation: Another method of correcting disequilibrium in the balance of payments is
depreciation. Deprecation means a fall in the rate of exchange of one currency (home
currency) in terms of another (foreign currency).
A currency will depreciate when its supply in the foreign exchange market is large in relation
to its demand. In other words, a currency is said to depreciate if its value falls in terms of
foreign currencies, i.e., if more domestic currency is required to buy a unit of foreign
currency. The effect of depreciation of a currency is to make imports dearer and exports
cheaper. Thus, depreciation helps a country to achieve a favourable balance of payments by
checking imports and stimulating exports.
Exchange depreciation is automatic: It works in a flexible exchange rate system and can
correct a mild adverse balance of payments if the country's demand for imports and the
foreign demand for its exports are fairly elastic.
But the method of exchange depreciation has the following defects:
(i) It is not suitable for a country which follows a fixed exchange rate system.
(ii) It makes international trade risky and thus reduces the volume of trade.
(iii) The terms of trade go against the country whose currency depreciates because the
foreign goods have become costlier than the local goods and the country has to
export more to pay for the same volume of imports.
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EXIM TRADE - INTERNATIONAL BUSINESS

EXIM TRADE - INTERNATIONAL BUSINESS

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