International Business – TYBMS Module Three

Foreign Trade Policy and its highlights:

i. Online approvals without Physical Interface: Automatic approval of various permissions

under Foreign Trade Policy based on process simplification and technology implementation.
Reduction in processing time and immediate approval of applications under automatic route
for exporters.
Permission Type Current processing Automatic route processing
time time
Advance Authorisation 3 to 7 days 1 day
issuance
EPCG issuance 3 to 7 days 1 day

ii. Status Holder Export Thresholds Rationalised: Export performance threshold for
Recognition of Exporters as Status Holders rationalized. Enabling more exporters to achieve
higher status and reduced transaction cost for exports.
Status Category Export Performance FOB (as converted) Value (in US $
million)
One Star Export House 3
Two Star Export House 15
Three Star Export House 50
Four Star Export House 200
Five Star Export House 800

iii. Merchanting Trade Reform: To boost merchanting activities from India – Merchanting
trade involving shipment of goods from one foreign country to another foreign country without
touching Indian ports, involving an Indian intermediary is allowed subject to compliance with
RBI guidelines, except for goods/items in the CITES and SCOMET list
iv. Rupee Payment to be accepted under FTP Schemes: Effective step towards
internationalisation of Rupee FTP benefits extended for rupee realisations through special
Vostro accounts setup as per RBI circular issued on 11 July 2022.
v. Reduction in user charges for MSMEs under AA and EPCG: Application fee being reduced
for Advance Authorization and EPCG Schemes Will benefit 55-60% of exporters who are
MSMEs.

vi. Paperless filing of Export Obligation Discharge Applications: All authorisation redemption
applications to be paperless – This is in addition to application process for issuance being
already paperless. With this, the entire lifecycle of the authorization shall become paperless.

vii. Common Service Provider facility: Common Service Providers in TEE are entitled for
Authorisation under EPCG Scheme which can help in increasing the competitiveness of the

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cluster and provide enabling environment. This arrangement gives facility to exporters to not
own all the infrastructure for conversion from inputs to final export products.

viii. Measures to boost manufacturing: Prime Minister Mega Integrated Textile Region and
Apparel Parks (PM MITRA) scheme has been added as an additional scheme eligible to claim
benefits under CSP(Common Service Provider) Scheme of Export Promotion capital Goods
Scheme(EPCG).

How FTP Facilitates India’s International Trade Growth:

1. Promotion of Exports

• Provides incentives and duty remission schemes to exporters.

• Reduces cost of production and makes Indian goods competitive globally.

2. Simplification of Trade Procedures

• Introduction of online systems, paperless trade, and digital approvals.

• Faster customs clearance reduces delays and transaction costs.

3. Support to MSMEs

• Special benefits and relaxations for Micro, Small, and Medium Enterprises.
• Helps small exporters enter global markets and expand exports.

4. Diversification of Exports

• Encourages export of new products and value-added goods.

• Promotes trade with new and emerging markets, reducing dependence on traditional
markets.

5. Promotion of Services Exports

• Recognizes services like IT, software, healthcare, education, and consultancy as

major export earners.
• Facilitates foreign exchange earnings from services.

6. Boost to ‘Make in India’

• Encourages domestic manufacturing for export purposes.

• Focuses on increasing value addition within India.

7. Development of Trade Infrastructure

• Supports growth of Special Economic Zones (SEZs), export hubs, ports, and
logistics facilities.
• Improves efficiency and reduces logistics costs.

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 8. Compliance with Global Trade Rules

• Designed in line with WTO norms.

• Ensures transparency and builds confidence among international trading partners.

DGFT
DGFT stands for Directorate General of Foreign Trade. The office of DGFT is an important
element of Ministry of Commerce. It has set up 32+ regional offices to assist it in its
functioning. DGFT assists the Ministry of Commerce in the formulation and implementation
of the Foreign Trade Policy, with the main objective of promoting India's exports.
DGFT (Directorate General of Foreign Trade) plays a crucial role in India's foreign trade by:
i. Implementing the Foreign Trade Policy (FTP): DGFT enacts the government's trade policies
through its regional offices across the country.
ii. Issuing IEC Numbers: It assigns unique identification codes to Indian exporters and importers
for engaging in foreign trade.
iii. Regulating Transit of Goods: DGFT oversees the movement of goods between India and
other countries based on bilateral agreements.
iv. Resolving Export-Related Issues: It addresses exporters' concerns and collaborates with other
agencies to solve trade and export problems.
v. Interacting with Trade and Industry: DGFT provides a platform for interaction with traders
through its website and holds regular consultations.
vi. Coordinating with Other Offices: It works closely with customs, excise, and other economic
agencies for smooth trade operations.
vii. Publishing Trade Information: DGFT publishes the Foreign Trade Policy, Handbook of
Procedures and ITC (HS) Classification of Export-Import Items.
viii. Acting as a Trade Facilitator: It promotes good governance and efficient trade
practices, consulting with export councils and trade bodies.
ix. Implementing e-Governance Initiatives: DGFT utilizes electronic data interchange (EDI) for
faster communication and data exchange with various authorities. Following are some of the
EDI (Electronic Data Interchange) initiatives:
✓ Message exchange for transmission of export reward scrips from DGFT to Customs.
✓ Message exchange for transmission of Bills of Entry (import details) from Customs to DGFT.
✓ Online issuance of Export Obligation Discharge Certificate (EODC).
✓ Message exchange with Ministry of Corporate Affairs for CIN & DIN.
✓ Message exchange with CBDT for PAN.
✓ Facility to pay application fee using debit card/credit card. (vii) Open API for submission of
IEC application.
✓ Mobile applications for FTP.
Overall, DGFT plays a vital role in promoting and regulating India's foreign trade, facilitating
smooth transactions and addressing trade-related concerns

Indian Institute of Foreign Trade

IIFT is an autonomous body registered under the Societies Registration Act. The Institute has
been given the status of Deemed University in May 2002 by UGC.
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The main functions/role of IIFT are as follow:
i. Training: IIFT conducts training courses for executives in export organisations as well as for
fresh candidates.
(a) Training Areas: The training programmes cover the following areas:
International Marketing, Preliminaries for Starting Export Business, Foreign Trade Policy
Export Pricing, Export Promotion, Export Incentives, Export Finance, Export Documents, etc.

(b) Training Programmes: IIFT conducts various training programmes such as:
• 2 Year Masters Programme in International Business
• 3 Year Masters Programme in International Business (Part Time)
• PhD Programme in International Business
• Masters in International Trade
• Short term programmes ranging from 2 days to 4 months.

ii. Collects Information: IIFT conducts market studies and surveys in overseas market. It tries
to find out demand for Indian products in the overseas markets. It may also study consumer
preferences and competition in overseas markets.

iii. Supplies Information: IIFT supplies information about overseas markets to the exporters.
The exporters can use this information in their export marketing decisions.

iv. Organises Seminars and Workshops: IIFT organises seminars and workshops in a number
of export marketing areas, such as export pricing, export promotion, etc. Exporters can take
advantage of such workshops.

v. Sends Delegations Abroad: IIFT sends delegations abroad, especially in advanced countries.
The delegation consists of the faculty and officials of IIFT. The delegation visits abroad and
may study overseas markets. The delegation may also interact with the faculty of such foreign
trade institutes in advanced countries.

vi. Invites Delegations to India: IIFT may invite delegations from abroad, especially from less
developing countries. The delegation may visit India and interact with the faculty and officials
of IIFT. The foreign delegation may get familiar with the various programmes and activities
undertaken by IIFT in India.

vii. Professional Advice: IIFT provides professional advice to exporters in a number of areas
such as export pricing, export procedures, promotion etc.

viii. Publications: IIFT publishes foreign trade related information through its journals:
Foreign Trade Review (Quarterly) and Foreign Trade Bulletin (Monthly)
The foreign trade information is useful to exporters and importers to take vital decisions
relating to their foreign trade business.

ix. Market Surveys: IIFT has specialised faculty and researchers for undertaking market studies
in Indian markets as well as in overseas markets. The overseas market surveys help to find out
the characteristics of foreign markets with reference to demand and supply situation,
competition, and consumer preferences. Apart from market surveys, IIFT conducts commodity
surveys for the benefit of exporters and export promotion agencies in India.

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x. Centre for WTO Studies: The Centre for WTO Studies was established at IIFT in November
2002. The major objective of the Centre has been to provide research and analytical support on
a continuous basis to the Department of Commerce on identified issues pertaining to the World
Trade Organisation. This centre also undertakes research activities, brings out publications
on WTO related subjects, carries out Outreach and Capacity Building programmes by
organising seminars, workshops, subject specific meetings etc., It also acts as a repository of
important WTO documents in its Trade Resource Centres.

xi. Centre for SME Studies: The growing importance of Small and Medium Enterprises in the
economy as a whole and external trade in particular has prompted IIFT to establish a separate
Centre for SME study. The centre has become operational from May, 2005. The centre acts as
a catalyst to the internationalization of SME activities. The Centre for SME Studies at IIFT
provides continuous support to the SME sector by carrying out activities which can be broadly
classified into conducting Training Programmes, provision of Business Intelligence services
through a Databank and acting as a catalyst for Interfacing with other concerned and associated
institutions.

xii. International Student Exchange Programmes: IIFT has Exchange Programmes with some
international institutions like International University in Geneva and many other Universities
from Italy, France, USA, Finland, and Netherlands. These collaborations are mainly for student
and faculty exchanger programme, joint collaborations on research and various other capacity
building exercises.

Export Promotion Councils

The export promotion councils (EPCs) are non-profit organisations. The EPCs can be
registered under the Companies Act or the Societies Registration Act.
The main purpose of EPCs is to develop and to promote the exports of a particular group of
products, projects and services.

The main role of EPC is to project good image of Indian products. The EPC performs its role
by performing the following functions:
i. Issue of Certificate of Origin: Certain importing countries insist on certificate of origin. The
certificate of origin states the origin of goods, i.e., the country in which goods are produced.
EPCs can issue certificate of origin to member-exporters.
The certificate of origin enables:
• The exporters to obtain custom clearance at the port of shipment.
• The importers to obtain tariff concessions in certain cases such as under commonwealth
preferences.
• The importers to obtain custom clearance at the port of destination.

ii. Collection of Information: EPCs conduct market surveys to collect the information from
international markets. The EPCs also obtain vital information about foreign markets from
secondary sources.
The information is collected in respect of:
• Nature of customers their likes, and preferences.
• Nature of competition in the overseas markets.
• Demand for Indian products.

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 • Rules and regulations of importing countries, etc.

iii. Supplies Information: The EPCS supply the collected information about overseas markets
to the member exporters. The information can be supplied either through correspondence, or
through publications in journals and bulletins. The exporters can make use of the information
for effective export marketing decisions such as product designing, pricing, promotion, etc.

iv. Organises Seminars: It organises seminars, workshops, discussions, meetings, conferences

on various aspects of foreign trade. Exporters are invited to take part in such seminars and
workshops. The exporters can make use of such participations to know the latest development
in foreign trade.

v. Trade Fairs & Exhibitions: It may assist the concerned authorities in organising trade fairs
and exhibitions in India and abroad. It may assist the exporters to take part in such trade fairs
and exhibitions. It may arrange buyer-seller meets to promote Indian exports. also

vi. Recommendations to Government: It provides recommendations to the government

authorities to solve export problems and suggest measures for export growth. It may advise the
government in framing proper export-import policies. It may recommend certain modifications
in the existing government policies and programmes.

vii. Invites Trade Delegations: It may invite trade delegations from abroad, both at private level
and at government level. Such trade delegations are very important to promote export trade of
India. Foreign delegations visit India and sign contracts with Indian exporters.

viii. Sends Delegations Abroad: It may undertake the responsibility of sending trade
delegations abroad comprising Indian businessmen. Indian delegation may visit abroad and
enter into contracts with overseas buyers. Thus, foreign trade of India can be expanded.

ix. Consultancy Services: It may offer professional advice to exporters in areas such as
technology upgradation, quality and design improvement, standards and specifications, product
development, innovation, etc. Such advice goes a long way to improve product and
organisational efficiency of the exporter.

x. Exploration of Overseas Markets: It may assist the exporter in exploration of overseas

markets and identify items having export potential. It may also assist the exporter to open
offices or branches abroad. It may guide the exporter in setting up of joint ventures abroad.

xi. Creates Export consciousness: EPC makes all the possible efforts to develop export
consciousness in our country. This is because there is a great need for exports for a country like
ours so as to earn foreign exchange.

xii. Other Functions: EPC may allocate or distribute quota/slips in respect of certain items.
EPC may undertake publicity through schemes like Joint Foreign Publicity in export markets.

Special Economic Zone

Features of SEZ:

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i. Domestic Sales/Purchases: Goods going into the SEZ area from DTA (Domestic Tariff Area)
shall be treated as deemed exports and goods coming from the SEZ area into DTA shall be
treated as if the goods are being imported.

ii. Export and Import of Goods: SEZ units may export goods and services including agro
products, partly processed jewellery, sub-assemblies and components. It may also export by-
products, rejects, waste-scrap arising out of the production process.
• SEZ unit may import without payment of duty all types goods, including capital goods,
whether second hand or new.
• The SEZ units can import goods free of cost or loan from clients.

iii. Net Foreign Exchange Earning (NFE): A SEZ unit shall be a positive net foreign exchange
earner. NE shall be calculated cumulatively for a period of five years from the commencement
of commercial production.

iv. Domestic Tariff Area (DTA) Sales and Supplies: Sales to SEZS from DTA are to be treated
as exports. Sales to DTA from SEZ are to be exempted from Special Additional Duty (SAD).
This would make the sales to DTA from SEZ 4% cheaper than imports. DTA sale by service/
trading units shall be subject to achievement of positive NFE.

v. Export through Status Holder: A SEZ unit may also export goods manufactured by it through
a merchant exporter / status holder or any other EOU / EPZ/ SEZ unit.

vi. Inter-limit Transfer: Transfer of manufactured goods or imported goods from one SEZ unit
to another EPZ/ EOU / SEZ unit is allowed, but not counted towards export performance.

vii. Administration and Setting up of SEZ: SEZ will be under the administrative control of
Development Commissioner. A SEZ may be set up in the public, private or joint sector. The
existing EPZS may also be converted into SEZ by the Ministry of Commerce and Industry.

viii. Export Proceeds: Units in SEZ can bring back their export proceeds in 360 days. as
against normal period of 180 days and can retain 100% of the proceeds in the EEFC Account.

SEZ benefits

i. Duty Free Imports: All imports into the zone such as capital goods, raw materials, packing
materials, components, office equipment, etc. have been placed under OGL system and such
imports are permitted duty free entry into the zone, subject to the terms of the project approval.
ii. Duty Free Purchases from DTA: Indigenous goods such as capital goods, raw materials and
other production requirement can be procured from domestic tariff area (DTA) into the zone
free of central excise duty.
iii. Sales in Home Market: The import policy permits sales upto 25% of their annual production
in the home market without requirement of import licence but subject to payment of leviable
customs duty. This is in addition to the facility otherwise, available to the units for sale in the
DTA against valid import licenses subject to payment of customs and other duties.

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iv. Foreign Direct Investment: Foreign Direct Investment in EHTP by foreign firms is allowed
upto 100%. 100% foreign equity investment in the companies is permissible under the
'Automatic Route' of RBI. FDI brings certain benefits:
• Capital inflows for expansion and modernisation.
• Skills development by foreign partner.
• Transfer of technology to Indian firms.

v. Tax Benefits: Income tax exemption (as per sec.10 A) 100% of export profits are exempted
from tax during first 5 years and later 50% of export profits are exempted.
vi. Customs and Excise Benefits: Exemption from custom Duty, Central Excise Duty, Value
Added Tax etc., on capital goods, raw material. consumables, supplies, etc.
Exemption from Customs/excise Duty on goods (all construction & office material) for setting
up units in Zone. Import and Export on self-certification basis. No routine examination by
Customs/Excise of export & import cargo.
vii. Repatriation of Profits: Repatriation of dividends and profits to foreign parties is freely
permitted, subject to payment of taxes, as applicable. This encourages the foreign parties to
invest more funds in units in SEZ.
viii. Extension in Credit Period: The SEZ units can provide a longer credit of upto 360 days.
This means SEZ units can realise export proceeds within a period of 360 days instead of the
180 days allowed to ordinary exporters. The longer credit period extended to importers can
result in more orders.
ix. Standard Input-Output Norms: Duty free goods imported by SEZ units can be consumed
within 5 years subject to standard input/output norms & related value addition norms.
x. Other Benefits:
• SEZ units are allowed to capitalize cost of imported equipments.
• SEZ units are allowed to undertake job work on behalf of domestic exporters and export
directly from SEZ on behalf of domestic exporters.
• Second hand capital goods can be imported freely. All goods, except prohibited goods
can be imported / exported.
• No Industrial license required for items reserved for SSI sector.
• Amortization of imported capital goods over 10 years (Under FTP 15-20).
• 100% Capital accounts convertibility is allowed (EEFCA/C).
• Speedy clearance of Import/export cargo at all ports (24 hrs. clearance is allowed)
• Minimized labour law restrictions.
• Total exemption of Service Tax on services hired.
• Free Import of technical know-how is allowed.
• Only positive foreign exchange performance required on cumulative basis of 5 years.

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EXIM Documentation:

Letter of credit
This method of payment has become the most popular form in recent times, as it is more
secured as compared to other methods of payment (other than advance payment).
A letter of credit can be defined as "an undertaking by importer's bank stating that payment
will be made to the exporter if the required documents are presented to the bank within the
validity of the L/C".

Types of Letters of Credit

a. Revocable LC: The issuing bank reserves the right to modify or cancel the LC at any time
without the prior permission of the beneficiary. However, after revoking the LC, the issuing.
bank has to give notice to the beneficiary. Revocable LCs are risky and as such the exporters
do not want to accept a revocable LC.

The issuing bank cannot modify or cancel the LC, if the negotiating bank (exporter's bank) has
already made advance payment to the exporter against drafts drawn on LC amount (prior to
receiving of cancellation or modification notice).

b. Irrevocable LC: The exporter prefers irrevocable LC. The issuing bank cannot modify or
cancel the LC without prior permission of the beneficiary or exporter. Exporters generally insist
on irrevocable LC because it does not the inherent weakness of revocable LC.

c. With Recourse LC: The exporter is held liable to the paying/ negotiating bank, if the draft/bill
drawn against LC is not honoured by the importer/issuing bank. The negotiating bank can make
the exporter to pay the amount along with interest and charges, if the negotiating bank has
already made the payment either by discounting or purchasing of bills drawn against LC
amount.

d. Without Recourse LC: The negotiating bank has no recourse to the exporter, but it has
recourse only to the issuing bank or to the confirming bank. The question of recourse arises
only when the negotiating bank made advance payment to the exporter and the bill of exchange
is dishonoured by the importer.

e. Confirmed LC: When the issuing bank is practically unknown in the exporter's country, the
exporter may ask the issuing bank. to make arrangements to confirm the LC by a local bank in
the exporter's country. The confirming bank undertakes to honour all the drafts/bills drawn and
presented by the exporter within the terms of LC. The confirming bank charges fees for
confirming LC.

f. Unconfirmed LC: In this case, the correspondent bank in the exporter's country does not its
confirmation and thereby, it does not accept liability to make payment under the LC. The
exporter may also not get the LC because he may be sure of receiving money from the
importer's bank.

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g. Back-to-Back LC: It is a domestic LC. It is drawn against the original LC. The exporter may
keep the original LC with the negotiating bank and request the bank to issue a local LC in
favour of the local supplier who has supplied goods to the exporter. The amount of back-to-
back LC will be lower than that of the original LC.

h. Transferable LC: A transferable LC contains a provision that the benefits of LC can be

transferred either fully or partly to one or more parties. The issuing bank must be informed
regarding the transfer of LC to a third party.

Commercial Invoice: It contains all the information which is required for the
preparation of all other documents. It is the exporter's bill for goods. There is no standard
form for such invoice, but it can be designed as per the requirements of the exporter.
However, if any information to be included as per the special requirement of the importer, it
must be complied with. Many countries like Canada, USA etc. require special type of invoice.
Significance to Importer & Exporter
a. Exporter: Preparation of other documents, Customs clearance, claiming of incentives,
Receipt of payment, Recording and filing etc.
b. Importer: Customs clearance, claiming preferential tariffs (GSTP), Payment of
customs duty, obtaining loan, Payment to Exporter, Recording and filing etc.

Bill of Lading: A bill of lading is a document issued by the shipping company upon shipment
of the goods. It is a contract between the shipper (exporter) and the shipping company for the
carriage of goods to the port of destination. It is a document title to goods and as such required
by the importer to clear the goods at the port of destination.
Significance to Importer, Exporter and Shipping Company:
a. Exporter: Proof of loading & shipment (condition), Payment of freight, claiming of
incentives, Shipment advice to importer, Recording and filing etc.
b. Importer: Custom clearance, Payment of freight, Title of goods, Recording and filing
etc.
c. Shipping Company: Collect freight from shipper & Safeguards interest against false
claims

Certificate of origin: Certain countries require their importers to obtain certificate of

origin from the exporter, certifying the origin of goods. Without certificate of origin, clearance
of imported goods is refused. This certificate may form a part of the commercial invoice itself.
This certificate is issued by the Chamber of Commerce or some other authorised agency. Some
countries, such as countries in the Middle East and Gulf insist on certificate of origin attested
by their consulate stationed in India.
Importance to the Importer & exporter: Customs Clearance, Claiming Preferential Tariffs, &
act as a Proof of Origin

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 Shipping Bill: This is the main document required by Custom authorities. It grants
permission for shipment of goods. It is only after the shipping bill is stamped by the customs;
the cargo is allowed to be carted to the docks.
The shipping bill is generally prepared in five copies: Customs Copy, Drawback Copy,
Export Promotion Copy, Port Trust Copy, and Exporter's Copy.
Significance to exporter: Custom clearance, Claiming of DBK, claiming of export promotion
incentives, carting order, Recording and filing, Loading of goods etc.

Bill of entry: A Bill of Entry (BE) is a legal document that is filed by customs clearance
agents or importers on or before the arrival of the imported goods. It is submitted to the
Customs department as a part of the customs clearance procedure. Once this is completed, the
importer will be able to claim the rights over goods. The bill of entry can be issued for either
home consumption or bond clearance. When it is issued for bond clearance, the bond number
and date of issuance need to be included.
Importance: It is one of the mandatory document required to obtain custom clearance.

Consular Invoice: Certain countries like Philippines, Australia, New Zealand, etc. require
that the goods imported in their country should be certified by the Consulate of their country
stationed in the exporter's country. The exporter has to pay a certain fee to obtain this
certificate/invoice. Such charges/fees vary from country to country. This invoice facilitates
prompt clearance of goods from the customs authorities in the importing country.
Normally, it is necessary to convince the customs authorities of the importing country that the
description and value of goods as shown in the exporter's invoice is one and the same as that
compared to imported goods. At times, customs authorities, on suspicion may desire to open
the packages and check the goods for the purpose of calculating duties payable to customs. If
this is done a considerable delay takes place in clearing the goods and the importer may be put
to hardships. To avoid all this problem both to the customs authorities and to the importer, a
consular invoice is obtained, which is issued by the Consulate of the importing country
stationed in India.
The importance of consular invoice is similar to that of certificate of origin. The importance of
consular invoice is stated as follows:
✓ Importance to the Exporter & importer: Reduces the impact of cross border Restrictions,
Customs Clearance, Proof of Origin
✓ Importance to the Customs: Clearance of goods & calculation of import duties without
checking or opening the packages.

Export General Manifest: Export General Manifest is a legal document mandatory to

be filed by the carrier of goods with customs department. This document is used by the
government authorities as a proof of export. The customs officials certify proof of export on
shipping documents to exporters on the basis of EGM. With such copies or certificates,
exporters claim export benefits based on such document, along with other documents like bill
of lading as proof of exports.
EGM contains all the items that were loaded/ present on the ship while it sailed from the port.
Shipping lines/agents furnish the EGM withing 7 days of the shipment. It is a final confirmation

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for the physical export of the goods. Only post issue of EGM would the customs consider the
sanction of the drawback claims made against the export shipment.

Export procedure
i. Get in touch with a Freight forwarder: Freight forwarders are like ticketing agents for cargo
Shipments. The mode of shipment of the cargo can be sea, air land or even Multimodal. The
Freight rate is provided by the relevant freight forwarder based on the mode of shipment,
destination port and the volume of the shipment.
ii. Pro-forma invoice: Exporter needs to send a pro-forma invoice to the buyer after the initial
discussion with the buyer. It provides an idea about the prices, quality, quantity and description
of the goods to be exported. It also lays out the method of payment, mode of transportation,
process of packing goods, packing material to be used etc.
iii. Commercial invoice: Commercial invoice is equivalent to any seller’s bill for the
merchandise sold. Commercial invoice should be prepared by the exporter after the
confirmation of the export order.
iv. AD code registration: Before filing any export shipping bill, the Exporter or the CHAs are
required to register with the customs their IE code, an authorized dealer code number of the
bank through which export proceeds are to be realized. AD code registration is at the port of
shipment by the exporter after issuance of IEC from DGFT.
v. Shipping instructions: Depending on the nature of the goods, it has to be shipped under
specific instructions. Some goods could be perishable, flammable, corrosive, biohazardous,
toxic, pathogenic or allergenic so, they have to be shipped under appropriate safety instructions
as per various international conventions like HAZMAT, IATA, FIATA, SOLAS etc. Shipping
instruction is furnished by the freight forwarder after they are apprised of the various aspects
of shipment.
vi. Packing list: Packing list contains item wise list of the package contents. It serves to inform
all parties like transport agencies government authorities and the buyer about the contents of
the package. The same is referred to, in case the customs authorities inspect the content of a
shipment.
vii. Shipping bill: The custom-house agent (CHA) will issue a sample shipping bill after
receiving the commercial invoice, the packing list and other documents. After approval the
CHA will file the shipping bill with the customs department of port concerned.
While the Exporter can file the shipping bill herself/himself using Ice-GATE portal of customs,
exporter may use the services of a CHA the authorized custom house agents while starting out
the business.
The assessing officer in the export department checks the details provided and the exportability
of goods under the foreign trade policy and other laws in force.
After the ‘let export order’ is given by the customs officer the shipping bill is generated by the
system in two copies, i.e., one customs copy, one exporters copy and there is a third copy i.e.,

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the EP copy which is generated later after submission of the export general manifest (EGM)
we shall discuss them in detail later.
viii. Stuffing or loading of goods in containers: The exporter or his agent should hand over the
exporter, a copy of the shipping bill, duly permitting ‘let export’ to the steamer agent, who may
then approach the preventive officer for allowing the shipment. The stuffing of the container at
the dock is done under preventive supervision of the customs.
ix. Bill of Lading: The word lading is derived from an old English word and simply means
loading. Bill of Lading is issued by the carrier vessel after the goods are loaded.
It specifies the details of the shipment and the title of ownership of the goods which would
depend on the INCOterms etc. Bill of lading is the most important documents for the exporter
as she/he has to give it to the buyer for her/his goods so that the buyer may claim the goods
once they reach his/her place.
x. Export General Manifest: Once the ship sails away shipping lines or its agents furnish the
export general manifest to the customs within seven days from the date of sailing of the vessel.
EGM, contains the list of all items that were loaded or were present on the ship while it sailed
from the port. The EGM is the final confirmation of the physical export of the goods. Only post
issue of the EGM, would the customs consider the sanction of the drawback claims made
against the export Shipment.
The above is the general procedure for export. An important point to note here is that more
augmented procedures exists for specified schemes. Details regarding the same can be obtained
by referring to the public notices and orders issued by the DGFT and customs
Commissionerate. Source: Important Steps in An Export Shipment From India by DGFT

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Import procedure

i. Trade Research: The importing company must first learn more about the nations and
businesses that export the specified goods. Such information can be gathered by the importer
through businesses, trade groups, and/or trade directories. The importing company contacts the
export companies via a trade enquiry after determining which nations and companies export
the product to find out about their export prices and terms of export.
A trade enquiry is a formal request made to an exporter by an importing company seeking
details on the price and other terms and circumstances the latter is willing to ship products
under. In response to this request, the exporter will provide the importer with a quote. Along
with details regarding the goods being offered, such as their quality and cost, the quotation also
contains the terms and conditions of the sale.
ii. Obtaining an Import License: While certain commodities can be imported without a licence,
others do. To find out whether the products he or she intends to import require import licencing,
the importer must examine the most recent Export-Import (EXIM) policy. If importing products
requires a licence, the importer must get a licensing. Every importer (and exporter) in India is
required to register with the Regional Import Export Licensing Authority (RIELA) or
Directorate General Foreign Trade (DGFT) and get an Import Export Code (IEC) number. The
bulk of import documentation call for this number.
India's import industry is governed by the Imports and Exports (Control) Act of 1947. A person
or business is not permitted to import products into India without a current import licence.
iii. Obtaining Foreign Exchange: Because they are based abroad, the supplier in an import
transaction asks payment in a foreign currency. To make a payment in another currency, Indian
currency must first be changed into a foreign currency. All foreign exchange transactions in
India are regulated by the Exchange Control Department of the Reserve Bank of India (RBI).
The existing requirements mandate that all importers acquire foreign currency approval. To
obtain such a sanction, the importer must submit an application to a bank that the RBI has
permitted to issue foreign currency. The application shall be in the form provided under the
Exchange Control Act and shall be accompanied by an import license.
The applications are approved by the exchange bank and sent on to the Reserve Bank of India's
Exchange Control Department. After carefully examining the application in light of the
Government of India's exchange policy in force at the time of application, the Reserve Bank of
India approves the release of foreign currency. The appropriate exchange bank provides the
importer with the required foreign currency. It should be noted that the exchange is only
released for a specific transaction, unlike import permits, which are provided for a set amount
of time. As the economy has become more open, most limitations have been removed, and the
rupee is now convertible on a current account.
iv. Placing Order or Indent: After receiving the import licence, the importer places an import
order or indents with the exporter for the supply of the specified products. The import order
contains information on the cost, size, grade, and quality of the ordered items, as well as
instructions on how to pack, ship, and arrive at the ports of departure and arrival, as well as the

14
delivery date, insurance, and payment options. The import order should be carefully worded to
prevent any ambiguity and later controversy between the importer and exporter.
It includes instructions from the importer regarding the kind and quantity of goods needed, how
to ship them, how to pack them, how much to pay, and other details. Usually, indentations are
made in two or three copies. There are three different sorts of indents: confirming, closed, and
open. The exporter is allowed to finish the formalities at his end since the indent does not
include all the necessary information about the items, price, and other details. A closed indent,
on the other hand, is one that explicitly mentions all of the product's details, including price,
brand, packing, shipping, insurance, and so forth. An order is placed with a confirming indent
when it is contingent on the importer's agent's confirmation.

v. Obtaining a Letter of Credit: The importer must obtain a letter of credit from its bank and
deliver it to the supplier if that is the preferred form of payment between the importer and
the foreign supplier. As was already explained, a letter of credit is a promise from the bank
of the importer that it will pay export bills to the bank of the exporter up to a specific sum. A
letter of credit (L/C) is an agreement that, up to a certain sum, the foreign dealer's bills of
exchange drawn on the importer will be honored upon presentation by the L/C's issuer,
typically the importer's bank.

vi. Financial Planning: The importer should make plans to pay the exporter before the
products arrive at the port. Planning ahead for financing imports is necessary to prevent
grossly overpaying demurrages (fines) on imported items that are standing uncleared at the
port from a lack of payments.
vii. Advice for Shipment Receipt: After loading the products onto the ship, the overseas
supplier provides the importer the shipment advice. Shipment advise contains details about
the shipment of products. The shipment advice contains details like the invoice number, bill
of lading/airways bill number and date, vessel name and date, port of export, item description
and quantity, and date of vessel sailing.

viii. Compilation & Processing of Documents: Following the shipment of the items, the
international supplier compiles the necessary documentation in accordance with the terms of
the contract and letter of credit and provides it to their banker for discussion with the importer
in the manner specified in the letter of credit. A set of documents often consists of a bill of
exchange, commercial invoice, airline bill or bill of lading, packing list, certificate of origin,
maritime insurance policy, etc. The act of accepting a bill of exchange in order to receive
delivery of import paperwork is referred to as retirement of such documents. The bank will
deliver the import documentation to the importer after retirement is complete.

ix. Items Arrival: In accordance with the contract, the international provider ships the items.
When goods arrive in the importing nation, the person in control of the carrier—whether it's
a ship or an airline—notifies the person in command at the dock or the airport. He then
presents the general import manifest document. An import general manifest document
contains a list of the specific information about the imported products. The unloading of
freight is based on this text.

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 x. Customs Clearance: All imported products must pass through customs clearance after they
leave the Indian borders. Customs clearance is a fairly time-consuming process that involves
a number of formalities. It is advised that importers engage C&F agents who are
knowledgeable about such processes and are essential in obtaining the products' customs
clearance. An endorsement for delivery, also known as a delivery order, must first be
obtained by the importer. When the ship docks at the port, the importer often receives the
endorsement on the back of the bill of lading. This endorsement is given by the pertinent
shipping firm. The shipping business will occasionally issue a delivery order rather than
approving the invoice. Under the terms of this order, the importer may accept delivery of the
goods. Of course, the importer must first pay the freight fees before taking ownership of the
products.

Indian Customs EDI System- ‘Indian Customs Electronic Gateway

(ICEGATE)
i. Introduction: The Indian Customs EDI System (ICES) is now operational at 245 major
customs locations handling nearly 98% of India's International trade in terms of import and
export consignments. ICES has two aspects:
• Internal Automation of the Custom House for a comprehensive, paperless, fully automated
customs clearance system that makes the functioning of Customs clearance transparent and
efficient.
• Online, real-time electronic interface with the trade, transport, Banks and regulatory agencies
concerned with customs clearance of import and export cargo through ICEGATE.
• ICES is designed to exchange/transact customs clearance related information electronically
using Electronic Data Interchange (EDI). A large number of documents that trade, transport
and regulatory agencies (collectively called Trading Partners) are required to submit/ receive
in the process of live customs clearance are now being processed online.

ii. The services covered under the project

The Indian Customs EDI System are:
• Electronic filing and clearance of export import documents
• e-Payment of custom duties and charges of ports, airports, CONCOR, etc.
• Filing and processing of licences for DGFT
• e-Payment of licence fee for DGFT
• Electronic exchange of documents between community partners such as Customs, ports,
airports, DGFT, CONCOR, Banks, etc.

iii. Role of Indian Customs EDI System-

‘Indian Customs Electronic Gateway’:

a. Streamlined Communication: ICEGATE allows electronic exchange of trade documents
between businesses, customs authorities, and other stakeholders. This cuts down on paper-
based delays and ensures faster approvals, leading to smoother international trade
transactions.

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b. Reduced Errors: Data transmitted electronically through standardized formats minimizes
manual data entry errors, improving accuracy and efficiency in documentation
processing. This reduces rejection rates and associated costs.
c. Increased Visibility: Real-time tracking of shipments and clearances through ICEGATE
provides greater transparency and visibility into the entire logistics chain. This empowers
businesses to make informed decisions and optimize their supply chains.
d. Cost Savings: Elimination of paper documents and streamlining processes significantly
reduces processing costs for businesses and customs authorities. This includes cost savings
on printing, storage, and manpower.
e. Faster Clearance: Electronic submission of documents enables faster customs
clearance, leading to quicker product delivery and reduced inventory holding costs. This
improves overall trade competitiveness.
f. Reduced Paperwork: ICEGATE facilitates a paperless environment, promoting
sustainability and reducing environmental impact. Additionally, digital document storage
enables easier retrieval and archiving.
g. Improved Compliance: Standardized electronic transactions simplify compliance with
customs regulations, reducing the risk of penalties and non-compliance issues.
h. Enhanced Trade Relations: ICEGATE promotes smoother interactions between businesses
and customs authorities, fostering trust and facilitating better trade relations

Pre- Shipment Finance

Features of pre-shipment financing

Pre-shipment finance is also referred to as "Packing Credit". It is provided by commercial
banks to the exporter prior to shipment of goods. The main purpose of packing credit is to meet
working capital needs of exporters.

The salient features of packing credit are as follows:

i. Eligibility: Pre-shipment finance can be granted only to those exporters who produce a
confirmed export order and/or a letter of credit received against the export contract.
Indirect exporters which export through export houses and others can also obtain packing credit
provided:
• Indirect exporter produces a letter from concerned export house or other concerned
party stating that a portion of the export order has been allotted in his favour.
• The export house or other concerned party should also state that it does not wish to
obtain packing credit for the same.

ii. Purpose: The pre-shipment finance is required by the exporter to meet working capital
requirements before shipment of goods such as:
• Payment for raw materials,
• Payment of wages, etc.

iii. Documentary Evidence/Security: The pre-shipment finance can be granted against the
following:

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(a) Confirmed export order.
(b) Letter of credit received against the contract.
(c) Relevant policy issued by ECGC.
(d) Personal bond from sureties known to bank.

iv. Forms/Methods of Preshipment Finance:

(a) Cash Packing credit loan.
(b) Against hypothecation.
(c) Against pledge, etc.

v. Amount of Packing Credit: The amount of packing credit depends on the amount of export
order and credit rating of the exporter by the bank. The bank may also consider the export
incentives receivable such as DBK.

vi. Period of Packing Credit: It is normally granted for a period of 180 days. Further extension
of 90 days can be provided. This means, a commercial bank can provide packing credit for a
period of maximum 270 days.

vii. Rate of Interest: Packing credit is provided at a lower rate of interest as compared to other
borrowers. With effect from 1st July, 2010, commercial banks must charge interest on packing
credit at the base rate or above the base rate and not below the base rate.

viii. Loan Agreement: Before disbursement of loan, the banks require the exporter to execute
a formal loan agreement. The loan agreement contains terms and conditions relating to the loan.

ix. Maintenance of Accounts: As per RBI directives, banks must maintain separate accounts in
respect of each pre-shipment advance. However, running accounts are permitted in case of units
in SEZ/EPZ and 100% EOUS.

x. Disbursement of Loan: Normally, packing credit advances are sanctioned in lumpsum.

However, the amounts are disbursed in a phased manner.

xi. Monitoring the use of advance: The bank advancing packing credit should monitor the use
of packing credit by the exporter, i.e., whether the amount is used for export purpose or not.

xii. Repayment: The repayment of loan must be made out of export proceeds only. No
repayment can be made out of local funds in which. case, the advance will not be treated as
pre-shipment finance and the banks can charge higher interest rate which is charged to other
borrowers.

Procedure in pre-shipment financing

i. Application: The exporter must make an application in prescribed form to the bank. The
application must be supported with relevant documents such as:

In case of Packing Credit

(a) An undertaking stating that the advance will be utilised for the specific purpose in respect
of export of goods.

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(b) An undertaking stating that the shipment will be effected within a certain time limit and
submit the relevant shipping documents to the bank in time.
(c) Agreement of hypothecation or letter of pledge.
(d) Demand pro-note signed on behalf of the company/ firm.
(e) Letter of continuity signed on behalf of the company/ firm.
(f) Confirmed export order and/or LC in original.
(g) Appropriate policy/guarantee of ECGC.
(h) Any other documents as required by the bank.

ii. Processing of Application: The application is processed taking into consideration the
following:
(a) Documentary evidence in the form of export order/LC (in the case of packing credit) and
shipping document (in case of post-shipment) or correspondence exchanged between the
applicant and the importer.
(b) Credit worthiness of the applicant.

iii. Sanctioning of Loan: If the application is found in order, the bank sanctions the amount.
Normally the loan is sanctioned depending upon FOB value of export order / LC or market
value of the goods whichever is less.

iv. Loan Agreement: Before disbursement of loan, the banks require the exporter to execute a
formal loan agreement. The loan agreement contains terms and conditions relating to the loan.

v. Loan Disbursement: Normally, packing credit / post shipment advances are not sanctioned
in lump-sum but are disbursed in a phased manner.

vi. Maintenance of Accounts: As per RBI directives, banks must maintain separate accounts in
respect of each pre-shipment advance. However, running accounts are permitted in case of units
in EPZ/SEZ and 100% EOUs.

vii. Monitoring of Accounts: The bank advancing packing credit should monitor the use of
packing credit by the exporter, i.e. whether the amount is used for export purpose or not.

viii. Repayment: As soon as the export proceeds and/ or incentives are received, the exporter
should repay the amount to bank advancing credit. Normally the advancing bank realises the
export proceeds and then makes necessary entries in the exporter's account.

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Post shipment finance

Post shipment finance is provided to meet working capital requirements after the actual
shipment of goods. It bridges the financial gap between the date of shipment and actual receipt
of payment from overseas buyer thereof.

The salient features of shipment finance are:

i. Eligibility: It is extended to the exporter who has export documents in his name, attested by
the customs.

ii. Purpose: Post shipment finance provides working capital to the exporter from the date of
shipment to the date of realization of export proceeds. For instance, post shipment credit can
be obtained pay dues to Custom House Agent, or such other expenses after shipment of goods.

iii. Documentary Evidence: It is extended against the evidence of shipping documents

indicating the actual shipment of goods or necessary evidence in case of deemed exports.

iv. Forms of Post-shipment Finance: Post shipment finance may be provided in one of the
following forms:
(a) Export bills negotiated under LC.
(b) Advance against DBK.
(c) Advance against bills under collection, etc.

v. Amount of Post-shipment Credit: The amount of post-shipment finance depends upon the
working capital requirements of the exporter after shipment of goods.

vi. Period of Post-Shipment Finance: The short-term period is usually 90 days. The loan is
provided by commercial banks. Additional 90 days may be provided.

vii. Rate of Interest: Post-shipment finance facility is granted at a lower rate of interest, as
compared to the rate of interest charged for domestic or local parties. With effect from 1st July
2010, commercial banks charge interest rate on post shipment credit at base rate or above base
rate of the bank.

viii. Loan Agreement: Before disbursement of loan, the bank requires the exporter to execute
a formal loan agreement.

ix. Maintenance of Accounts: As per RBI directives, banks must maintain separate account in
respect of each post-shipment advance. However, running accounts are permitted in case of
units in SEZ/EPZ and 100% EOUS.

x. Disbursement of loan Account: Normally, post-shipment credit advances are not sanctioned
in lump-sum but disbursed in a phased manner.

xi. Monitoring the use of Advance: The bank advancing post-shipment credit should monitor,
the use of post shipment credit by the exporter i.e. whether the amount is used for export
purpose or not. Penalty can be imposed for misuse.
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xii. Repayment: As soon as the export proceeds and/or, incentives are received, the exporter
should repay the amount to bank advancing credit. Normally, the advancing bank realizes the
export proceeds and then makes necessary entries in the exporter's account.

EXIM bank
The Export Import Bank of India came into existence in 1982. It has its headquarters at Mumbai
and its branches and offices in important cities in India and abroad.

a. Assistance to Indian Exporters:

(a) It provides financial assistance to Deferred Credit Exports.

(b) It offers credit facilities to "Deemed Exports".
(c) It finances Indian joint ventures in foreign countries.
(d) Finances units in SEZ and 100% EOUS.
(e) It provides pre-shipment finance to exporters for procuring raw materials and other inputs
which are necessary for the manufacture of machinery and equipment to be exported.
(f) It finances export / import of machinery and equipment on lease basis.
(g) It provides Computer Software Exporters foreign exchange loan subject to RBI clearance.
(h) It provides finance facility against deferred credit to exporters of consultancy, technology
and other services.
(i) It provides finance to Indian exporters to undertake various marketing activities in India and
abroad through Export Marketing Fund (EMF).
(j) It also operates Export Development Fund (EDF) to finance techno-economic
survey/research or any other study for the development of Indian Exports.

b. Assistance to Indian Commercial Banks:

1. It provides Refinance Facilities so as to enable commercial banks to offer credit to Indian

exporters who extend term credit to importers.
2. It offers Export Bills Rediscounting Facility to commercial banks in India who have earlier
discounted bills of exporters.

c. Assistance to Overseas Buyers: It offers 'Overseas Buyer's Credit' facility to foreign

importers for import of Indian capital goods and related services with repayment spread over a
period of years.

d. Assistance to Overseas Banks:

(a) Long term finance is also provided under "Lines of Credit" to finance financial institutions
abroad, who in turn, extend finance to importers of their country to buy Indian capital goods.
(b) It provides Relending Facility to overseas banks to make available term finance to their
clients for import of Indian goods.

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 e. Guarantees and Bonds: EXIM Bank provides non-fund-based assistance in the form of
guarantees such as bid bond guarantee, performance guarantee, etc. These guarantees are
provided together with commercial banks.

f. Forfaiting: The EXIM Bank has been authorised by RBI since February 1992, to facilitate
export financing through forfaiting. EXIM Bank acts as an intermediary between the Indian
exporter and the overseas forfaiting agency. (Forfaiting is a method of trade finance that allows
exporters to obtain cash by selling their medium and long-term foreign accounts receivable at
a discount to a forfaiter, a specialized finance firm or a department in a bank.)

g. Advisory and other Services:

• It advises Indian companies, in executing contracts abroad and on sources of overseas
financing.
• It advises Indian exporters on global exchange control
• The EXIM bank offers financial and advisory services to Indian construction projects
abroad.
• It advises small-scale manufacturers on export markets and product areas.
• It provides access to Euro financing sources and global credit sources to Indian exporters.
• It assists the exporters under forfaiting scheme

Export risk management

International Business Risks

• Cargo risks: Transportation of cargo has undergone radical improvements over a period. Most
of the goods are transported by sea. Transit risks are a common hazard for those engaged in
export/import business. The list of dreary and hazardous risks in transit is long viz. Storms,
collisions, theft, leakage, explosion, spoilage, fire, and high sea robbery. Every exporter
should have working knowledge of marine insurance so that he knows whether he is getting
the required risk protection at the minimum cost. It is always possible to transfer the financial
losses resulting from perils of sea and perils in transit to professional risk bearers known as
underwriters. Principles of marine insurance are also equally applicable to insurance of air
cargo also.

• Credit Risks: Risks are inherent in credit transactions, more so in international business.
International business is invariably riskier than the domestic trade. Credit risk is not the same
whether one sells the goods in domestic market or in foreign market. Success in international
business depends, largely, on the ability of the exporters to give credit to importers on the
most competitive and favourable terms.
Export business has become highly risky as selling on credit has become very common.
Importers are sought after so it is but natural they dictate terms as there are many exporters
competing for the cake of international trade. Insolvency rate is on the increase. Balance of
payment difficulties has severely affected the capacity of many countries to pay the import
price. However, offering credit has become unavoidable to the exporters to face competition.

• Two issues stand before the exporters:

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 1. The exporter must have sufficient funds to offer credit to the buyers abroad and
2. The exporter should be prepared to take credit risks.

• Foreign Exchange Fluctuations Risks: If the exporter has invoiced in the buyer’s currency, he
will be subjected to risk of foreign exchange fluctuations. If the foreign currency depreciates
in terms of rupees, exporter will receive lesser amount in terms of rupees or vice versa. In the
same circumstances, if the Indian currency depreciates, exporter stands to gain.
If the export bill is purchased or negotiated under letter of credit and the foreign currency
undergoes fluctuation, the bank will be bearing the risk. However, if the exporter has sent the
bill for collection, the exchange rate on the date of receipt of foreign currency in India will be
given to the exporter. If there is intervening difference in the exchange rate between the date
of giving the bill for collection and date of realisation, exporter stands to lose or gain,
depending on the trend in fluctuation.
There will be no foreign exchange risk in case the invoice is made in Indian rupees. In such
a case, the importer will be subjected to foreign exchange fluctuation risk.

• Regulatory Risks: a. Changes in import regulations: New regulations or licensing

requirements in the importing country can increase costs and disrupt your operations. B.
Customs delays: Complex customs procedures or inspections can lead to delays and
additional costs. c. Product non-compliance: Your product may not meet the importing
country's safety, quality, or labeling standards, resulting in confiscation or fines.

Cargo Insurance

In the world of international trade, risks lurk around every corner – from unpredictable weather
and accidents to theft and political instability. For exporters, safeguarding their valuable cargo
against these potential pitfalls is crucial. This is where cargo insurance steps in, playing a vital
role in export risk mitigation. Let's assess its multifaceted benefits:

Direct Financial Protection:

• Loss or Damage: The primary function of cargo insurance is to reimburse the insured for the
financial loss incurred if the cargo is lost, damaged, or destroyed during transit. This protects
exporters from incurring significant financial losses that could cripple their business.
• Theft or Pilferage: The policy can cover theft of the entire shipment or pilferage of individual
items, mitigating losses resulting from criminal activities.
• General Average: In case of emergencies at sea, like a container falling overboard, remaining
cargo owners may contribute to salvage costs. Cargo insurance covers this "general average"
contribution, protecting exporters from unexpected financial burdens.

Indirect Benefits:

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• Enhanced Credibility: Possessing cargo insurance demonstrates professionalism and risk
management awareness to potential buyers, boosting trust and confidence in your business.
• Secure Financing: Many banks and financial institutions require cargo insurance as a
prerequisite for trade finance, making it easier for exporters to access funding for their
ventures.
• Peace of Mind: Knowing their cargo is protected allows exporters to focus on core business
activities without constant worry about potential setbacks. This translates to better decision-
making and improved overall business performance.

Customization for Specific Needs:

• Different Coverage Options: Policies can be tailored to cover specific risks based on the type
of cargo, mode of transport, and route. Exporters can choose from "all-risk" coverage for
comprehensive protection or opt for specific perils coverage based on their needs.
• Flexible Limits & Deductibles: Coverage limits can be adjusted to match the value of the
cargo, and deductibles can be chosen to balance cost and coverage.
• Additional Extensions: Policies can be extended to cover additional risks like war, strike, or
political unrest, offering further peace of mind in volatile scenarios.

Export credit insurance: ECGC

In order to provide export credit and insurance support to Indian exporters, the GOI has set up
the Export Risks Insurance Corporation (ERIC) in July, 1957. It is now known as Export Credit
Guarantee Corporation (ECGC) of India Ltd.
ECGC is a company wholly owned by the GOI. It functions under the administrative control
of the Ministry of Commerce and is managed by a Board of Directors representing Government
Banking, Insurance, Trade and Industry.
Objectives of ECGC: A) To protect the exporters against credit risks, i.e. non-repayment by
buyers. B) To protect the banks against losses due to non-repayment of loans by exporters.
Issues Covered by ECGC: The Covers issued by ECGC can be divided broadly into four
groups:
• Standard Policies - issued to exporters to protect them against payment risks involved in
exports on short term credit.
• Specific Policies - designed to protect Indian firms against payment risk involved in (i) exports
on deferred terms of payment (ii) services rendered to foreign parties and (iii) construction
works and turnkey projects undertaken abroad.
• Financial guarantees-issued to banks in India to protect them from risks of loss involved in
their extending financial support to exporters at preshipment and post-shipment stages; and
• Special Schemes such as Transfer Guarantee meant to protect banks which add confirmation
to letters of credit opened by foreign banks, Insurance cover for Buyer's Credit, etc.

24
(A) Standard Policies: The standard policy is issued in the case of consumer goods, which are
sold on credit not exceeding 180 days. It is a whole turnover policy. All shipments are covered
under one policy for a period of 180 days.
ECGC has designed 4 types of standard policies to provide cover for shipments made on short
term credit:
(a) Shipments (Comprehensive Risks) Policy to cover both political and commercial risks from
the date of shipment.
(b) Shipments (Political Risks) Policy - to cover only political risks from the date of shipment.
(c) Contracts (Comprehensive Risks) Policy to cover both commercial and political risks from
the date of contract.
(d) Contracts (Political Risks) Policy - to cover only political risks from the date of contract.

Risks Covered under the Standard Policies:

(i) Commercial Risks:
• Insolvency of the buyer
• Failure of the buyer to make the payment due within a specified period, normally four
months from the due date. Buyer's failure to accept goods subject to certain conditions,

(ii) Political Risks:

• Imposition of restrictions on remittances by the government in the buyer's country or
any government action which may block or delay payment to exporter.
• War, revolution, or civil disturbances in the buyer's country.
• Cancellation of a valid import licence or new import licensing restrictions in the buyer's
country, after the date of shipment or contract, as applicable.
• Cancellation of export licence or imposition of new export licensing restrictions in India
after the date of contract (under contract policy).
• Payment of additional handling, transport or insurance charges occasioned by
interruption or diversion of voyage which cannot be recovered from the buyer.
• Any other cause of loss occurring outside India, not normally insured by commercial
insurers and beyond the control of the exporter and/or buyer.

Risks not covered under Standard Policies

The losses due to the following risks are not covered:
• Commercial disputes including quality disputes raised by the buyer, unless the exporter
obtains a decree from a competent court of law in the buyer's country in his favour.
• Causes inherent in the nature of the goods.
• Buyer's failure to obtain import or exchange authorisation from authorities in his
country.
• Insolvency or default of any agent of the exporter or of the collecting bank.
• Loss or damage to goods which can be covered by commercial insurers.
• Exchange fluctuation.
• Discrepancy in documents.

(B) Specific Policies: The Specific Policy is a whole turnover policy designed to provide a
continuing insurance for the regular flow of exporter's shipment of raw materials, consumer
goods and consumer durables for which credit period normally exceed 180 days.

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Contracts for export of capital goods or turnkey projects or construction works or rendering
services abroad are not of a repetitive nature. Such transactions are, therefore, insured by ECGC
on a case-to-case basis under specific policies.
Specific policies are issued in respect of Supply Contracts (on) deferred payment terms),
Services Abroad and Construction Works Abroad.
(i) Specific Policy for Supply Contracts: Specific Policy for Supply Contracts is issued in case
of export of capital goods sold on deferred credit. It can be of any of the four forms:
• Specific Shipments (Comprehensive Risks) Policy to cover both commercial and
political risks at the post-shipment stage.
• Specific Shipments (Political Risks) Policy to cover only political risks after shipment
date.
• Specific Contracts (Comprehensive Risks) Policy to cover political and commercial
risks after contract date.
• Specific Contracts (Political Risks) Policy to cover only political risks after contract
date.

This policy like standard policies covers 90% of the loss on account of commercial and political
risks.
(ii) Service Policy: Indian firms provide a wide range of services like technical or professional
services, hiring or leasing to foreign parties (private or government). Where Indian firms render
such services, they would be exposed to payment risks similar to those involved in export of
goods. Such risks are covered by ECGC under this policy.
If the service contract is with overseas government, then Specific Services (Political risks)
Policy can be obtained and if the services contract is with overseas private parties then Specific
Services (Comprehensive Risks) Policy can be obtained. especially those contracts which are
not supported by bank guarantees.
Normally cover is issued on a case-to-case basis. The policy covers 90% of the loss suffered.
(iii) Construction Works Policy: This policy covers civil construction jobs as well as turnkey
projects involving supplies and services. This policy covers construction contracts both with
private and foreign government.
This policy covers 85% of loss suffered on account of contracts with government agencies and
75% of loss suffered on account of construction contracts with private parties.

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