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UNIT-1

❖ MEANING
Export management is basically planning, organizing, coordinating and
controlling all activities relating to export of goods and services to other
counties. It involves various activities such as production of exportable
good, collection of orders from foreign buyers and their execution,
publicity in abroad, adoption of sales promotion techniques, price
fixation and looking after various procedures and formalities relating to
exporting of goods. It is rightly said that export management involves
functions and activities undertaken by the department/ division of a
large manufacturing enterprise. The scope of export management is
vast as everything concerned with exporting comes within the scope of
export management. It is also argued that export management means
what an export manager does.

❖ DEFINITIONS
Some definitions are as noted below:
1. Export management means managing export marketing activity
efficiently, smoothly and in an orderly manner.
2. Export management means finding opportunities for marketing
goods & services in foreign markets and exporting such
opportunists for the benefit of an exporting firm, subject
toexisting export rules and regulations.
3. Export management is one specific area of business management
and it is concerned exclusively with exporting goods abroad. It is
concerned with international marketing activities and operations.
4. Export Management means planning, organizing, coordinating
and control export efforts or activities to achieve desired export
objectives smoothly and with continuance.

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 5. According to B. S. Bathor, “Export Marketing includes the
management of marketing activities for products across the
national boundary or a country”.

❖ NEED FOR EXPORT MANAGEMENT

We can discuss the need for export management at two different
levels.
(A) At the National level.
(B) At the Business level.

➢ Need For Export Or Export Management At The National level

• Earning foreign Exchange-
Export management enables the country to earn foreign exchange. The
foreign exchange can be utilised for following purposes.
• Import of consumer good-
Imports of Raw materials, spares and components Import of capital
goods and technology Servicing of External Debts.
• International Relations-
Export helps to develop international ties with importing countries due
to the following Relations-
a) The international trade brings together the exporters and
importers of various countries.
b) Trade talks take place between nations at international forums
like WTO.
c) Also, trade agreements are singed between Governments of
participating counties.
• Balance of payments-
A country’s external economic strength depends upon its balance of
payment position. Naturally, every country would like to have a strong
and favorable balance of payments position since exports bring in
foreign exchange, it helps a country to solve and improve its Balance of
payments position.

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 • Reputation in the World-
Exports bring reputation and goodwill for a nation in the international
markets. For instance:
A) Japan commands reputation for electronic products.
b) India has goodwill for handicrafts including germs and jewellery.
• Employment-
Exports help to generate employment in the country Export facilitates.
A) Direct Employment in the export sector
b) Indirect Employment in the supporting sectors such as banking,
insurance, transport etc.
• Research and Development-
In international markets, quality of products is of at most importance.
Therefore, government provides assistance to exporters to undertake
R&D. R&D helps to:
A) Reduce costs
b) Develop new products
c) Improve quality of existing products
• Regional Development-
Exports facilitate regional development of instance, about 1/3 rd of
India’s exports are from small sector. The small units are located
throughout India. (for instance, in India, The maximum number of small
units, is located in the industrially backward state of Uttar Pradesh).
Therefore, export sector contributes, towards regional development of
a nation.
• Optimum use of Resources-
Exports facilitate, optimum use of resources in the country, such as
a) Physical resources such as materials, machines, etc.
b) Capital resources
c) Man power
• Standard of Living-
Exports increase demand, which leads to higher production and
distribution. Increase in production and distribution generates more

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employment. Increase in employment leads, to higher purchasing
power with the people. Therefore, people can enjoy new and better
products, which improves standard of living
• Economic Growth-
Due to export, the demand increases. Increase in demand leads to
higher production. Higher production increases the GDP of the country
which leads to economic growth.
• Spread Effect-
Due to increases in export trade in the country service sector also
expand, like banking, transport, etc. Similarly other ancillary industries
are established to support the export activities.

➢ Need For Export Or Export management At Business Level

1. Export Obligation
It means the firm which intends to import capital goods at concessional
rates has to export the goods, under EPCG scheme. Thus the firm can
fulfill its export obligation. In India, units operating in the SEZ are
expected to honour export obligation against special concession
offered to them. Therefore every business unit has to export first in
order to import goods.
2. Increase Production Capacity
For every business unit increase production is necessary, in order to
meet domestic demand and export order. Exports are possible when
surplus production is available after meeting domestic Capacit
3. Organizational Efficiency
Export management enables a firm to improve its organizational
efficiency. E.g. firms have to emphasize on training and development of
employees. This helps to improve knowledge, attitudes, skills and social
behaviors. Therefore, the over all efficiency of the organisation
improves due to training, research and other much activities which are
encouraged by export management.
4. Higher Profits

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Export management enables a business unit to export quality goods at
higher prices and there by raise the profit margin.
5. Reputation and Goodwill
Exports bring reputation to the export firm in international market as
well as in the domestic market. It is assumed that export firms. Produce
quality goods which help to develop goodwill.
6. Economies of Scale
Because of increase in export there will be large scale production
and distribution. This will result in-
I. Economies of large scale production like discount in bulk
purchase of material and reduce cost.
II. Economies of large scale distribution such as freight concession
on bulk shipment of goods.
7. Technological Up gradation
Continuous research and development activities lead technological
development and improvement in other organisational activities which
help in improvement in quality standards which is beneficial to the
form and customers both.
8. Imports are liberalized
Business organisations exporting on a large scale collect huge foreign
exchange which can be utilised for the import of new technology
machinery and component. This also raises their competitive capacity.
9. Spreading of Marketing Risk
A firm engaged in domestic as well as export marketing activities can
spread its marketing risk. The loss in domestic market can be
compensated by the profit, earned in export market and vice versa.
[Link] Incentives
Exporter gets various assistances and incentives for export promotion.
These are Duty Drawback, Octroi exemption, Excise duty exemption,
Income tax exemption, liberal finance etc. These incentives make
export marketing attractive and profitable.

❖ NATURE OF EXPORT MANAGEMENT

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The main nature/features of export management are as follows-
1. Large scale operations
Export management involves large scale marketing and production
operations of goods and services. Because of large scale business
operation the firm gets the benefit of economics of scale and increase
profit margin. Import, of other counties also prefer in placing large
orders. Exporters get advantage of reduce cost and quoting competitive
prices in the increase market.
2. Systematic Process
It is a systematic process became the export manager under takes
various marketing activities such as marketing research, product design,
branding, packaging, pricing, promotion etc. All these aspects require
collection of data, analysis of data, then in perpetration of data in order
to take systematic export marketing decisions.
3. Three faced Competition
Foreign trade market is highly competitive in nature. The competition is
three dimensional i.e.
I. Competition from Indian exporters
II. Competition from local producers of Importing
country.
III. Competition from exporter of other nations
4. Trade Barriers
Export trade is subject to trade barriers tariff and nontariff barriers. The
trade barriers are the restrictions on free movement of goods between
countries. Normally countries impose trade barriers in order to restrict
import. The export marketing manager must have a good knowledge of
trade barriers imposed by importing counties.
5. Domination of MNC
Multinational Corporation has huge investment and conduct business
operation all over the world. Major share of foreign trade is captured
by MNCs, and TNCs, (Transnational corporations). Therefore they
dominate in export management activities of the world. Due to large
scale business they get the benefit of economies of scale.

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 6. Domination of Development counties
Most of the MNCs belong to industrially developed countries. Such
countries like USA, Japan, Germany etc. produce and sell good quality
of goods at low cost on massive scale with the help of advanced
technology. In this way rich and developed countries always dominate
in international business activities.
7. Foreign Exchange Regulation
Export trade is subject to foreign exchange regulations imposed by
countries. These foreign exchange regulations relate to payment and
collection of export proceeds. In addition, export marketing is subject
to other rules and regulations relating to health and safety,
environment protection, etc. All such regulation affect free movement
of good among the countries.
8. Documentation formalities
Export marketing is subject to various documentation formalities.
Exporters require various documents to submit them to various
authorities including customs, port trust, etc. The documents include
Bill of lading, Commercial consular invoice, Shipping bill, Certificate of
origin etc.
9. Marketing Mix
Export marketing requires the right marketing mix for the target
market, i.e. exporting the right product at the night price, at the right
place and with the right promotion, the exporter can adopt different
marketing mixes fro different export markets, so as to maximize
exports and earn higher retunes.
10. International Marketing Research
Knowing more about customers, dealers, and competitors is a must not
only in the domestic markets but also in the export markets. Marketing
research is a must in export business due to various factors, such as
diversities on social, economic, and political environments of distant
markets.
11. Advance Technology

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Export marketing is highly competitive. An exporter should be able to
sell quality articles at competitive price. Use of advanced computer –
oriented technology is a must for making the goods globally
competitive. World markets are dominated by developed countries due
to intensive use of computer technology.
12. Globalise or perish
Foreign trade is the need of each country. Because some important
goods a country has to import like technology and goods which are not
available in domestic market to export to get foreign exchange,
otherwise it will perish economically.
13. Subject to Regulation
Foreign exchange regulation may be imposed by importing countries.
These may relate to payment and collections of export proceed.
Similarly export trade is subject to other rules and regulations relating
to health and safety, environment protection etc. All such regulations
affect free movement of goods among the countries.
14. Diverse customs and Traditions
The export markets differ in languages, customs and traditions. The
exporter may not be able to cope up with these diversities. Therefore,
he has to be selective, he should be deal in only such markets where he
can easily handle or overcome such differences or diversities.
15. High Amount of Risk
Export business is profitable than domestic business. But it is more risky
also. Such as cancellation of order, non collection of document, non
payment, transport risk, foreign regulation risk etc. these risk can be
reduced by taking various insurance cover form ECGC and insurance
agents. Risk can be spread also by exporting goods to many countries,
so that loss in one market is compensated by the project other market.
16. Sensitive and Flexible Character
An exporter has to identify the specific requirement or foreign buyers
and design the goods accordingly, but some times because of
technological development new design of good may be supplied by

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other exporters due to which demand for this goods may go down.
Therefore exporter has to offer continuous support and loyalty.

❖ FUNCTIONS OF EXPORT MANAGER

• To decide export objectives of the organization and prepare
comprehensive short term and long term plans and progammes
to achieve such objectives.
• To conduct marketing research so that export efforts will be
concentrated on certain commodities and on foreign markets
which are highly promising.
• To introduce product development and to produce quality goods
as per specific needs of foreign markets/buyers.
• To execute long-term export promotion programmes for the
products with promising overseas demand.
• To fix up the prices of exportable items with proper care.
• To find out new designs for packaging of export items.
• To look after the advertising and publicity abroad and to maintain
effective communication with prospective buyers.
• To look after prompt execution of export orders so as to avoid
inconvenience to foreign buyers.
• To analyze the EXIM policy of the government and the current
export regulations and procedures.
• To look after the opening of new branches/offices aboard.
• To face the challenges of international competition and changing
marketing environment.
• To evaluate export incentives/facilities offered by the government
and to secure benefits from them.
• To look after the accounting and financial aspects of export
transactions.
• To look after the training of staff working in the export division, to
motivate them and to develop human relations.

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In brief the functions of an export manager are to develop export
markets for which he should plan, organize, direct and control the
export marketing activities.

❖ BARRIERS TO EXPORT
The trade barriers can be broadly divided into two broad groups.
• Tariff Barriers.
• Non-Tariff barriers.

o TARIFF BARRIERS
The main important tariff barriers are as follows:
1. Specific duty
Specific duty is based on the physical characteristics of goods. When a
fixed sum of money, keeping in view the weight of measurement of a
commodity, is levied as tariff it is known as specific duty.
2. Ad-valorem duty
Ad-valorem duties are imposed at a fixed percentage on the value of a
commodity imported. Here, value of the commodity imported is taken
as a base for the calculation of duty. Invoice is used as a base for this
purpose. This duty is imposed on the goods whose value cannot be
easily determined e.g. work of art, rare manuscript, antiques, etc.
3. Compound duty
It is a combination of the specific duty and Ad-valorem duty on single
product. For example, there can be a combined duty when 10% of
value (ad-valorem) and Rs. 1/- on every meter of cloth charged as duty.
Thus, in this case, both duties are charged together.
4. Sliding scale duty/Seasonal duties
The import duties which vary with the prices of commodities are called
sliding scale duties. Historically, these duties are confined to
agricultural products, as their prices frequently vary, mostly due to
natural factors. These are also called as seasonal duties.
5. Countervailing duty

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It is imposed on certain imports where products are subsidized by
exporting governments. As a result of government subsidy, imports
become cheaper than domestic goods. To nullify the effect of subsidy
this duty is imposed in addition to normal duties.
6. Revenue tariff
A tariff which is designed to provide revenue to the home government
is called revenue tariff. Generally, a tariff is imposed with a view of
earning revenue by imposing duty on consumer goods, particularly, on
luxury goods which demanded from the rich is inelastic.
7. Anti-dumping duty
At times, exporters attempt to capture foreign markets by selling goods
at rock-bottom prices, such practice is called dumping. As a result of
dumping, domestic industries find it difficult to compete with imported
goods. To offset anti-dumping effects, duties are levied in addition to
normal duties.
8. Protective tariff
In order to protect domestic industries from stiff competition of
imported goods, protective tariff is levied on imports. Normally, a very
high duty is imposed, so as to either discourage imports or to make the
imports more expensive as that of domestic products.
9. Single column tariff
Under single column tariff system, the tariff rates are fixed for various
commodities and the same rates are made applicable to imports from
all countries. These rates are uniform for all counties as discrimination
is not made as regards the rates of duty.
10. Double column tariff
Under double column tariff system, two rates of duty on all or on some
commodities are fixed. The lower rate in made applicable to a friendly
country or to a country with bilateral trade agreement. The higher rate
is made applicable to all other countries with which trade agreements
are not made.

o NON-FRAFIFF FARRIERS

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Some of the important non-tariff barriers are as follows-
1. Quota System
Under this system, a country may fix in advance, the limit of import
quantity of a commodity that would be permitted for import from
various countries during a given period. The quota system can be
divided into the following categories.
(a)Tariff/Customs Quota: - A tariff quota combines the
features of the tariff as well as the quota. Here, the
imports of a commodity up to a specifically volume
are allowed duty free or at a special low rate duty.
Imports in excess of this limit are subject to a higher
rate of duty.
(b) Unilateral Quota: - The total import quantity is
fixed without prior consultations with the exporting
countries.
(c) Bilateral Quota:- In this case, quotas are fixed after
negotiations between the quota fixing importing
country and the exporting country.
(d) Mixing Quota :- Under the mixing quota, the
producers are obliged to utilized domestic raw
materials up to a certain proportion in the
manufacturing of a finished product.
2. Prior Import Deposits
Some countries insist that importers should deposit even up to 100% of
their imports value in advance with a specified authority, normally their
central bank. Only after such deposits, the importers are given a green
signal to import the goods.
3. Foreign Exchange Regulations
The importer has to ensure that adequate foreign exchange is available
for import of goods by obtaining a clearance from Exchange Control
Authorities prior to the concluding of contract with the supplier.
4. Consular Formalities

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Some countries impose strict rules regarding consular documents
necessary for importing goods. They include import certificates,
Certificate of origin and certified consular invoice. Penalties are
provided for non-compliance of such documentation formalities.
5. State Trading
State trading is useful for restricting imports from abroad as final
decision about import are always taken by the government. State
trading acts are one non-tariff barrier.
6. Export Obligation
Countries, like India, impose compulsory export obligation on certain
importers. This is done to restrict imports. Those companies, who do
not fulfill export obligation (to compensate for imports) have to pay a
fine or penalty.
7. Preferential Arrangements
Some nations form trading groups are preferential arrangements in
respect of trade amongst themselves. Imports from member countries
are given preferences, whereas, those from other countries are subject
to various tariffs and other regulations.
8. Other Non-tariff Barriers
There are a number of other non-tariff barriers such as health and
safety regulations, technical formalities, environmental regulations,
embargoes etc.

❖ PROBLEMS FACED BY EXPORTERS IN EXPORT

The problem demotivates the business firms to enter into foreign
markets. These problem / difficulties are as follows.
a) Recession in world market
The world market, faced recession in 2008 and in the first half of 2009.
The recession was triggered due to sub-prime crisis of USA in
September 2007. Due to recession, the demand for several Indian items
such as Gems and Jewellery, Textiles and Clothing and other items were
badly hit. During recession, exporters get low orders from overseas

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markets, and they have to quote lower prices. Therefore, exporter gets
law profits or suffers from losses.
b) Technological differences
The developed countries are equipped with sophisticated technologies
capable of transforming raw materials into finished goods on a large
scale. Less developed countries, on the other hand, lack technical
knowledge and latest equipments. And therefore they have to use their
old and outdated technologies. It leads to the lopsided development in
the international market.
c) Reduction in export Incentives –
Over the years, the Govt. of India has reduced export incentives such as
reduction in DBK rates, withdrawal of income tax benefits for majority
of exporters, etc. The reduction in export incentives demotivates
exporters to export in the overseas markets.
d) Several competitions in global marketing –
Export marketing is highly competitive. This competition relates to
price, quality, production cost and sales promotion techniques used.
Indian exporters face three-faced competition while exporting. This
includes competition from domestic exporters, local producers where
the goods are being exported and finally from producers of competing
countries at global level. Such competition is one special problem to the
exporters.
e) Problem of product standards –
Developed countries insist on high product standards from developing
countries like India. The products from developing countries like India
are subject to product tests in the importing countries. At times, the
importing countries do not allow imports of certain items like fruits,
textiles and other items on the grounds of excessive toxic content.
Therefore Indian exporters lose markets especially in developed
countries.
f) Fluctuations in Exchange Rate –
Every country has its own currency which is different from international
currencies. The dominant international currencies are US dollar or

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Sterling Pound. From the point of view of Indian exporters we are
interested to realize the payment in international currency. Foreign
exchange earned by the operators is converted into Indian rupees and
paid to the exporters in Indian currency; this exposes the exporters to
the dangers of fluctuation in foreign exchange rates.
g) Problems of Sea Pirates Attacks –
A major risk faced by international trade is attack by pirates in the Gulf
of Aden. More than half of India’s merchandise trade passes through
the piracy infested Gulf of Aden. New exporters and importers are
facing problem, because of increased pirate attacks as they find it
difficult to get insurance cover.
h) Problem of subsidies by Developed countries –
The developd countries like USA provide huge subsidies to their
exporters. For example, in case of agriculture exporters, USA, UK and
other provide huge subsidies to their exporters. Therefore, the
exporters of developing countries like India find it difficult to face
competition in the world markets.
i) Problem in preparing Documents –
Export involves a large number of documents. The exporter will have to
arrange export documents required in his country and also all the
documents as mentioned in the documentary letter of credit. In India,
there are as many as 25 documents (16 commercial and a regulatory
documents) to be filled in.
j) Government restrictions and foreign exchange
regulations –
The Government restrictions compel the exporters to follow certain
rules and regulations in the form of licenses, quotas, and customs
formalities. Due to such restrictions, new problems develop before the
exporters. Even trade restrictions in foreign countries create problems
before exporters. Indian exporters face this difficulty of government
restrictions and foreign exchange regulations even when trade policy is
now made substantially liberal.
k) High risk and Uncertainties –

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Export marketing is subject to high risks and uncertainties. The risks
may be both political and commercial. Political risks involve
government instability, war, civil disturbances, etc. The commercial
risks involve insolvency of the buyer, protracted default on the part of
the buyer dispute on quality and so on.
l) Competition from China
India is facing stiff competition from China in the world markets,
especially in the OECD markets. As a result, India’s share of export of
OECD markets has declined from 53% of total exports in 2000-01 to
about 38% in 2007-08. Some of the Indian exporters have lost their
overseas contracts due to cheap Chinese goods and supplies. This is the
major problem of exporters.

UNIT-2
❖ EXPORT INCENTIVES
Export incentives are regulatory, legal, monetary, or tax programs that
are designed to encourage businesses to export certain types of goods
or services. Exports are goods that are produced in one country and are
then transported to another country for sale or trade. Export incentives
make domestic exports competitive by providing a sort of kickback to
the exporter. The government collects less tax in order to deflate the
exported good’s price, so the increased competitiveness of the product
in the global market ensures that domestic goods have a wider reach.
Generally, this means that domestic consumers pay more than foreign
consumers.

➢ ADVANTAGES OF INCENTIVES
1. Lowering prices and controlling inflation
They are especially applicable in the area of production cost inputs such
as fuel prices, particularly when global crude oil prices are rising. Many
countries subsidize fuel costs in order to keep prices from ballooning.
2. Preventing the long-term decline of industries

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There are many industries that should be kept alive and functional,
such as fishing and farming because they are essential to support a
population. Many new and fast-growing industries may also benefit
from being subsidized.
3. A greater supply of goods
Governments want to increase the access of their population to Goods
& Services such as Water, Food, and Education. They, therefore,
provide an incentive that could be in the form of a tax credit or even
straight up cash. Markets that have positive externalities are usually the
ones that receive such benefits.

➢ DISADVANTAGES OF SUBSIDIES
1. Shortage of supply
Though one of the advantages of subsidies is the greater supply of
goods, a shortage of supply can also occur. This is because lowered
prices can lead to a sudden rise in demand that many producers may
find very hard to meet. Ultimately, it can lead to very high demand that
causes an increase in prices.
2. Difficulty in measuring success
Subsidies are usually effective and helpful. However, if the government
were to make a report of its success in using subsidies, it would be a
different story. This is because it is hard to quantify the success of
subsidies.
3. Higher taxes
How will the government raise funds to use for subsidizing industries?
Of course, by imposing higher taxes. So, it is the general population and
corporations who provide the means to enable the government to
subsidize industries.

❖ DUTY ENTITLEMENT PASSBOOK SCHEME

Duty Entitlement Passbook Scheme (DEPB) is an export incentive
scheme which initially consisted of two parts: (a) Post-export DEPB and
(b) Pre-export DEPB. However, pre-export was abolished in the year

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2000. In Post-export DEPB, the exporter is given a DEPB at a pre-
determined credit on the Freight on Board Value (FOB).
The objective behind the scheme is to give incentives in Import and
export policy and neutralize the rate of basic customs duty on the
import content of the goods exported.
Within the scheme, an exporter of the goods is entitled to claim credit
which would be a fixed percentage of the value of the goods that are
exported and is available at a rate of exported product which is decided
and notified by the Director-General of Foreign Trade (DGFT).
It should be noted that the credit amount that is made available to the
exporters can only be used to pay off the amount of customs duty that
they are liable to pay and cannot be used to adjust it with any other
liability nor can it be withdrawn. However, there is no restriction on
trading the amount, i.e., it can be transferred to another person and
then can thereafter be transferred from him to another person.
DEPB allows the import of any items except those that are prohibited
such as Gold pen, Gold Nibs, Gold watched, etc. Though such articles
fall under the generic description of writing instrument and component
of writing instrument, watches, etc these are still not eligible to avail
the benefit of DEPB Scheme

➢ RATE OF DEPB
The rate of DEPB is based on either on FOB value of the value cap
whichever is found to below. To fall under the ambit of the scheme the
exporter has to produce documents showing that the goods exported
are having an extraneous material of up to 5% by weight. In a situation
like this, an extraneous material of up to 5% will be ignored and the
rate of DEPB (actual rate) for the product to be exported will be taken
into account.
It Is made mandatory of the Custom houses to keep a separate record
of the goods that will be or are exported under the DEPB scheme.

➢ PROVISIONAL RATES

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To encourage the export of new products and encourage diversification
provisional rate is available. However, these rates are valid only for a
limited period and are to be produced during export and import for the
regular fixation of the rates

➢ HOW TO DETERMINE THE RATE

Before determining the DEPB rate, the Government of India will first
look at the Export-Import Data on the FOB value of exports and the
Cost Insurance Freight (CIF) value of the inputs that are used on the
exported products, as per SION. The Government will have to apply to
the Export Promotion Council for obtaining the required data and
information to decide the DEPB rate.

➢ DEPB RATES IMPLEMENTATION

Facilities for the implementation of the scheme include:
• The rates are rationalized to the account to make a change in the
custom duties
• Through the cap is fixed on certain items, no verification is
available for the Present Market Value of those items.
• The ports have been pre-added in the DEPB scheme
• There is no threshold limit to fix the new DEPB rates.

➢ PORT OF REGISTRATION
The export and import can be made only from selected ports. They are
given below.
• Sea Ports
Mumbai, Kolkata, Cochin, Dahej, Kakinada, Kandla, Mangalore,
Marmagoa, Mundra, Chennai, Nhavasheva, Paradeep, Sikka, Tuticorin,
Pipavav, Jamnagar, Vishakhapatnam, (Magdalla), Nagapattinam,
Dharamtar, Okha ,and Surat .
• Airports

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Ahmedabad, Bhubaneshwar Mumbai, Kolkata, Bangalore,Coimbatore
Air Cargo Complex, Cochin, Delhi, Hyderabad, Srinagar, Trivandrum,
Jaipur, Varanasi, Chennai and Nagpur.
• ICDs
Ahmedabad, Agra, Bangalore, Bhiwadi, Coimbatore, Daulatabad,
(Wanjarwadi and Maliwada), Delhi, Dighi (Pune), Faridabad, Hyderabad,
Guntur, Jaipur, Jallandhar, Kanpur, Kota, Ludhiana, Jodhpur, Madurai
and the land Customs station at Ranaghat Mallanpur, Meerut,
Moradabad, Nasik, Nagpur, Pitampur (Indore), Gauhati (Amingaon),
Pimpri (Pune), Rudrapur (Nainital), Surat, Salem Singanalur, Tirupur,
Udaipur, Varanasi, Vadodara, Waluj, Bhilwara, Dappar, Pondicherry
,Garhi-Harsaru, Bhatinda, Chheharata (Amritsar), Miraj, Rewari and
Karur.
• LCS
Ranaghat, Raxaul, Jogbani, Singhabad, Nautanva ( Sonauli), Petrapole
and Mahadipur. The exports made to the given below Special Economic
Zones (SEZ) can also avail DEPB.
• SEZ
Santacruz, Kandla, Kochi, Vishakhapatnam, Chennai, Falta, Surat, Noida.

❖ DUTY EXEMPTION ENTITLEMENT

Duty Exemption Scheme validates duty-free import of inputs required
for export production. It includes Advance Authorisation and Duty-Free
Import Authorisation ( DFIA Scheme ) which enables exporter to import
duty-free inputs required for goods to be exported. The exporter can
also purchase domestic inputs under this scheme by obtaining
Invalidation letter. Interlink Capital provides Duty Remission and Duty
Exemption Scheme services and helps you to avail the exemption
benefits. These schemes enable exporter to avail exemption at the
input stage thereby reducing blockage of funds in duties.
Under section 3,8, and 9A of the said Customs Tariff Act, subject to the
following conditions, namely:-

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(i) that the materials imported are covered by Duty Exemption
Entitlement Certificate (hereinafter referred to as the said
certificate), issued by the Licensing Authority in the form
specified in the Schedule annexed to this notification, in
respect of the value, quantity, description, quality and
technical characteristics;
(ii) that the importer at the time of clearance of the imported
materials executes a bond with such surety be specified by the
Assistant Commissioner of customs or Deputy Commissioner of
Customs binding himself to pay on demand an amount equal to
the duty leviable, but for the exemption, on the imported
materials in respect of which the conditions specified in this
notification have not been complied with, together with
interest at the rate of twenty four percent per annum from the
date of clearance of the said materials;
(iii) That the said licence and the said certificate are produced
before the proper officer of customs at the time of clearance
for debit;
(iv) That the export obligation is discharged within the period
specified in the said certificate or within such extended period
as may be granted by the Licensing Authority by expo rting
resultant products manufactured in India which are specified in
Part “E” of the said certificate (hereinafter referred to as
resultant products) and in respect of which facility under rule
12 (1) (b) or rule 13 (1) (b) of the Central Excise Rules, 1944 has
not been availed in respect of materials permitted under the
said licence;
(v) that the importer produces evidence of discharge of export
obligation to the satisfaction of the Assistant Commissioner of
Customs or Deputy Commissioner of customs within a period
of 30 days of the expiry of period allowed for fulfillment of
export obligation, or within such extended period as the said

22
 Assistant Commissioner of Customs or Deputy commissioner of
Customs may allow;
(vi) that the said licence and the materials shall not be transferred
or sold
(vii) that in relation to a Advance Licence issued to a merchant
Exporter,-
(a) the name and address of the supporting manufacturer is specified
in the said licence and the said certificate and the bond required to
be executed by the importer in terms of condition (ii) shall be
executed jointly by the Merchant Exporter and the supporting
manufacturer binding themselves jointly and severally to comply
with the conditions specified in this notification and
(b) exempt materials are utilised in the factory of such supporting
manufacturer for discharge of export obligation by the said
merchant exporter.

❖ EXPORT PROMOTION CAPITAL GOODS SCHEME

In order to facilitate import of capital goods for producing quality goods
and services and enhance India’s manufacturing competitiveness, the
Central Government has been implementing a Scheme called the
Export Promotion Capital Goods Scheme under the Foreign Trade Policy
for manufacturer exporters with or without supporting
manufacturer(s), merchant exporters tied to supporting
manufacturer(s) and service providers.
Under the Scheme, EPCG Authorizations are issued with actual user
condition and import validity of 24 months to import capital goods
(except those specified in negative list) for pre-production, production
and post-production at zero customs duty, and subject to fulfilment of
specific Export Obligation equivalent to 6 times of duties, taxes and
cess saved on capital goods, to be fulfilled in 6 years from date of issue
of Authorization. In addition, the Authorization holder is required to
fulfil Average Export Obligation achieved by him in the preceding three
licensing years for the same and similar products. However, if minimum

23
75% of specific Export Obligation and 100% of Average Export
Obligation is fulfilled within half the original export obligation period,
remaining export obligation can be condoned. Further, in case of
indigenous sourcing of capital goods and for exports of Green
Technology products, specific EO is only 75%. For Units located in North
East Region and Jammu & Kashmir, specific EO is only 25%. Presently,
capital goods imported for physical exports are also exempt from IGST
and Compensation Cess up to 31.03.2019.

➢ FEATURES OF EPCG
• Authorization holders will have export obligation of 6 times the
duty saved amount. The export obligation has to be completed in
a period of 6 years.
• The period for import under the Scheme would be 18 months.
• Export obligation discharge by export of alternate products as
well as accounting of exports of group companies will not be
allowed.
• The exporters who have availed benefits under Technology
Upgradation Fund Scheme (TUFS) administered by Ministry of
Textiles, can also avail the benefit of Zero duty EPCG Scheme.
• The Import of motor cars, SUVs, all purpose vehicles for hotels,
travel agents, or tour transport operators and companies
owning/operating golf resorts will not allowed under the new
Zero Duty EPCG Scheme.

➢ COVERAGE:
• Manufacturer exporters with or without supporting
manufacturer(s),
• Merchant exporters tied to supporting manufacturer(s) and,
• Service Providers including Common Service Providers (CSP).

➢ NEW NORMS:

24
 • Imports of capital goods are allowed duty free, subject to an
export obligation.
• The authorisation holder (or exporter) under the scheme has to
export finished goods worth six times of the actual duty saved in
value terms in six years.
• Requests for export obligation extension should be made within
six months of expiry instead of the earlier prescribed period of 90
days. However, applications made after six months and up to six
years are subject to a late fee of Rs 10,000 per authorisation.
• According to the changes, requests for block-wise export
obligation extension should be made within six months of expiry.
However, applications made after six months and up to six years
will entail a late fee of Rs 10,000 per authorisation.
• The facility to pay customs duty through scrips MEIS (Merchandise
Exports from India Scheme) /Remission of Duties or Taxes On
Export Product (RoDTEP) / RoSCTL (Rebate of State and Central
Taxes and Levies) for default under EPCG has been withdrawn.

➢ BENEFIT FROM EPCG SCHEME:

• EPCG is intended for promoting exports and the Indian
Government with the help of this scheme offers incentives and
financial support to the exporters.
• Heavy exporters could benefit from this provision. However, it is
not advisable to go ahead with this scheme for those who don’t
expect to manufacture in quantity or expect to sell the produce
entirely within the country, as it could become almost impossible
to fulfil the obligations set under this scheme.

❖ EXPORT ORIENTED UNITS

Export Oriented Units (EOUs) have been defined under the Foreign
Trade Policy (FTP) as those units undertaking to export their entire
production of goods and services [except permissible sales in Domestic

25
Tariff Area (DTA) for manufacture of goods, including repair, re-making,
reconditioning, re-engineering, rendering of services, development of
software, agriculture including agro-processing, aquaculture, animal
husbandry, biotechnology, floriculture, horticulture, pisciculture,
viticulture, poultry and sericulture. Trading units are not covered under
the EOU.

➢ OBJECTIVES OF THE EOU SCHEME

The EOU plot gives units a biological system that is favorable for them.
They are given different waivers and inclinations in consistence and tax
assessment matters, making it simpler for them to direct business.
Sends out lead to an inflow of unfamiliar trade, which assists the
country with advancing its financial position. By empowering trade
situated organizations, the plan likewise means to create extra work
through the product area. EOUs were additionally expected to further
develop the inventory network beginning with the obtainment of
unrefined components to the stock of completed items to the DTA.
Trade likewise implies a possible overhaul in the quality and
administration, so the EOU plot was additionally expected to rouse
mechanical progressions and expertise advancement in the country.
The Export Oriented Units (EOU) plot was acquainted with help sends
out, increment unfamiliar profit and made work in India. The EOU
conspire is integral to the plan for Free Trade Zone, Export Processing
Zone. Units that are embraced to send out their whole presentation of
products are permitted to set up as an EOU.

➢ BENEFITS OF EXPORT ORIENTED UNITS

• They can obtain unrefined substances and capital merchandise
through homegrown sources or import without paying any
obligation on the buy
• They can guarantee repayment on GST sums they pay

26
• On the off chance that they have paid obligation on the
acquisition of fuel from homegrown oil organizations, they can
guarantee a discount on something very similar
• EOUs are permitted to guarantee an info tax reduction on labor
and products
• EOUs appreciate need premise leeway offices
• EOUs are not expected to acquire the modern authorizing which is
expected for assembling things that are saved for the SSI area.
• The exemption from Central Excise Duty in the purchase of goods
for capital use, consumables spares and raw materials on the
market domestically.
• Licence isn’t compulsory to import.
• Exemption from customs duty to import capital products falls
under consumables, raw materials, spares, etc.
• Supplies that originate from DTA through EOUs are regarded as
exports.
• The reimbursement of Central Sales Tax (CST) is affixed to
purchases made within the country.
• Reimbursement of duty fee paid on furnace oil generated from
local oil companies to EOUs according to the rate of drawback
stated by the DGFT (Directorate General of Foreign Trade).
• Exchange Earners Foreign Account (EEFC)
• 100% Foreign Direct Investment permissible.
• EOUs involved in agriculture and horticulture engaged in contract
farming could be permitted to use duty-free items as listed in
Appendix 14 to the contact farmers’ areas of fields for the
production.
• Facility to repatriate and realise export earnings within 12
months.
• Re-export defective goods, imported by foreign exporters on a
loan basis, etc.

27
 • Additional extensions of the time frame are granted by RBI or
their designated dealers.
• The profits can be freely repatriated without the obligation to
balance dividends.
• Allowance of Job work on behalf of local exporters for direct
exporting.
• Conversion of the existing DTA (Domestic Tariff Area) unit to an
EOU is allowed.
• EOUs involved in agriculture and horticulture that are engaged in
contract farming could be permitted to use duty-free items as
listed in Appendix 14 I to the contact farmers’ areas of fields for
the production.

❖ EXPORT HOUSES
Export house is mostly home-based organization, located in the
manufacturer’s country, which is involved in the export of products that
the manufacturer has produced. These export houses carry out most of
the export-related activities overseas, via their own agents and
distributors who are in place in the country where the product is being
exported.
In most cases, Export houses are used by manufacturers when the
manufacturers do not want their own export team in place, or when
having an in-house team is much more costlier rather then hiring
someone from outside – such as an export house. Because of the very
nature of this business, export houses are specially focused on the
export market and know the ins and outs of this industry very well. This
is why, in many cases, export houses are preferred over in-house
export teams.

➢ FUNCTIONS OF EXPORT HOUSES

1) Representation

28
The first function is to represent the parent manufacturing company in
the market where the product is being exported. In overseas market,
the manufacturing company might not have any sales presence or
market presence. The export house takes care of all that via
representing itself as the main contact point for the manufacturer.
2) Competitive and market intelligence
An export house not only carries out sales work or representations for
the manufacturer, gathering market intelligence, competitive
intelligence and the work of other competitors in the market is also a
task carried out by the export house. This flow of information happens
naturally via agents or distributors to the export house. However, it is
important that the flow of information also reaches the manufacturer
so that he is able to make decisions and change strategies as per the
market.
3) Procedures and documentation
In the export business, there are many procedures and documentation
involved. Export is the interaction point of 2 different countries with 2
different laws and procedures. As a result, both laws and both
procedures have to be followed by exports. In fact, more then focus on
export, many exporters complain that their core focus is on
documentation so that the export is not rejected or any problems do
not arise in the target country.
4) Market penetration
In sectors like Pharmaceuticals and chemicals, export houses are
chosen on the basis of their market penetration in the target country.
Each export house has a setup of agents and distributors. The more the
market coverage of an export house, the more will be the market
penetration.
5) Manpower for Order management
Collecting orders, ensuring the papers are in place, arranging finance or
taking care of credit, shipping, docking and undocking, labour and law
issues – There are many things which take place in a single order when
export is ordered. It runs like a well oiled machine and for this you

29
require huge manpower. This manpower is provided by the export
house in each stage of the export.
6) Arbitration, Finance and credit
There are a few types of payments and handling which are used in
export. In handling, One is FOB origin means seller is liable only till
material is shipped. FOB destination means seller is liable till buyer
receives the goods. In such cases, there is huge financial implications,
arbitrations and credit terms involved. Such risks are borne by the
Export houses in many cases.

➢ ADVANTAGES OF USING EXPORT HOUSES

Export houses are most important in the following conditions
• Lack of resources – When the parent company has a lack of
resources which includes manpower, finance or know how to
establish in the new country, then it will most likely use Export
houses to do its work.
• Small-scale operations – If a large company wants to set up small-
scale operations in a new country, then instead of training and
recruiting a local team in the target country, it can simply
outsource the task to an experienced export house in the target
country.
• Expertise – Many time, even if the manufacturer has an in-house
team overseas, still export houses might be used because of their
expertise in this segment. This is very true for products which are
highly technical in nature or which are controlled substances.
• Marketing – Manufacturers who are product oriented and don’t
have the willingness or the desire to market themselves in a new
territory might outsource the work to export houses so that they
can in turn expand.

➢ DISADVANTAGES OF USING EXPORT HOUSES

30
 • The manufacturer is not in contact with target market – A major
problem with using export houses is that the manufacturer
himself is not in touch with the target markets. As a result, he
lacks the on-field knowledge which the export houses have.
• Future trends cannot be observed – A manufacturer can notice
trends taking place. And even though he might be getting
truckloads of information from the export house, the export
house might fail to notice the actual change in trend or it may not
have as keen eyes for products as the manufacturer. Thus, the
manufacturer may miss out on opportunities.
• Huge adaptation curve for the manufacturer – If the
manufacturer gets used to the export house, and then decides to
launch his own in-house team, there will be a huge adaptation
curve for the in-house team. This is because the in-house team
will have to start brand new with fresh distributors and agents.

❖ TRADING HOUSES
A trading house is a business that specializes in facilitating transactions
between a home country and foreign countries. A trading house is an
exporter, importer and also a trader that purchases and sells products
for other businesses. Trading houses provide a service for businesses
that want international trade experts to receive or deliver goods or
services.
A trading house may also refer to a firm that buys and sells both
commodity futures and physical commodities on behalf of customers
and for their own accounts. Prominent commodity trading houses
include Cargill, Vitol and Glencore.

➢ ROLES OF A TRADING HOUSE

Trading houses can also perform a variety of roles for businesses
throughout the trade process. These roles can include:
• a trading house can perform exportation roles, helping
manufacturers or suppliers to begin selling their goods

31
 internationally. This can involve purchasing local goods in
wholesale quantities and selling these to foreign retailers at a
profit.
• Importer: a trading house can also act as an importer, purchasing
foreign goods from manufacturers and selling them to local
retailers at a profit.
• Selling agent: a trading house can also act as a selling agent on
behalf of manufacturers or suppliers. They can give guidance to
manufacturers on export prices and offer advice regarding
international markets.
• Buying agent: as a buying agent, a trading house can acquire
goods or services through the international market on behalf of
distributors or retailers. The trading house can also engage in
price and contract negotiations on behalf of their clients.
• Intermediary: a trading house can also act as an intermediary
between local and foreign parties, facilitating the exchange of
services and goods. They may charge a fee or commission for this
service.

➢ ADVANTAGES OF A TRADING HOUSE

there are various advantages to trading houses. These include:
• Trade expertise
If you’re a manufacturer or distributor, you may employ a trading
house to provide you with guidance and expertise that can help you
enter the international trade market. Their trade expertise can help you
to accomplish the delivery and procurement of goods within the foreign
market, including the facility of customs duties and clearances. This
means you can focus on your manufacturing or distribution, rather than
the bureaucracy of foreign trade.
• Management of currency
Trading companies can also help you to manage payments in different
currencies across foreign trade markets. A trading house may

32
implement contracts that account for currency fluctuations that may
otherwise result in losses at a future date. This also means a reduction
of risk for your business.
• Scale economies
Trading houses can also help you to benefit from scale economies,
resulting in a lower price for goods that you purchase from a
manufacturer. This occurs when a trading house purchases goods at a
wholesale level in large quantities, benefiting from large-scale
discounts. The trading house can also help you to ship products at a
bulk quantity and reduce your transportation costs.
• Global enterprise opportunities
Trading houses can also help you to take advantage of global enterprise
opportunities. This is especially beneficial for smaller businesses who
may otherwise struggle to sell products at an international level. The
trading house may help you to increase your network and professional
contacts in the trading industry, resulting in more opportunities.
• International Foothold
Trading houses have an extensive network of contacts in
international markets that help them secure favorable deals and find
new customers. They may also have staff working in foreign offices
to work with customs officials and manage legal issues to ensure the
smooth operation of the business.

➢ DISADVANTAGES OF A TRADING HOUSE

There are also a variety of disadvantages that a trading house can bring.
Disadvantages can include:
• Difficulty launching in-house trading: when you work with a
trading house, you can utilise their portfolio of contacts, trading
methods and teams of personnel. Trading houses offer expertise
and a workforce that you may struggle to match when you decide
to launch your own in-house foreign trading operations.

33
 • Reduced interaction with the target market: employing trading
houses may also result in reduced interaction with your target
market, eliminating communication between manufacturers and
buyers.
• Difficulty reaching long-term goals: you may struggle to reach
long-term goals when using trading houses, as you have a
decreased knowledge of market trends. This can make it more
difficult to develop expansion strategies to achieve objectives.
• Decreased profit margins: employing a trading house may also
result in decreased profit margins due to the payment of
commission fees to the trading company. Even though trading
companies can help you to save money by benefiting from
economies of scale, this also means you may earn less as a
manufacturer.

❖ STAR TRADING HOUSES

The government of India has recognized a new class of trading house
called stor trading house to facilitate global marketing activities in the
export import policy. 1990-93 exporters having exports during the
preceding three licensing years of Rs.500 Crs fob shall qualify the
exporter for the recognition as a star trading status.
The Government of Indian has recognized ‘Star trading House’ to
facilitate global marketing activities In the Foreign Trade Policy (2004-
2009). Exporters having exports during the preceding licensing year of
Rs. 500 crores FOB shall qualify the exporter for the recognition as a
Three Star Export House status. Further the exports should be spread
over a minimum of two Export Product Groups and the earnings from
one of these groups should not exceed 75% of the net foreign exchange
earnings (NFE) prescribed for recognition.
They are eligible for special additional licence for import of raw
materials and components on the basis of the admissible exports made
in the preceding licensing year. These licence shall be non-transferable
and the Star Export Houses will be eligible to dispose off the imported

34
goods to the actual users only and thus they can maintain their links
with the domestic industries.

➢ FACILITIES AND BENEFITS

Star trading Houses are entitled to the following benefits:
1. Import Facilities : Star Export Houses are granted the following
facilities under the import policy.
(i) Special Import Licences : For such value or bearing such
proportion to the FOB value of exports in the preceding
licensing year, for the import of specified items.
(ii) Advance Licences and Advance Intermediate Licenses (as
also Special Imprested Licences for supply of goods to
EOUs, EPZ/EHTP/STP units) under ‘Production
Programme’ of Duty Exemption Scheme.
(iii) Special Imports Licences (other than against export of
telecommunication equipment).

2. Items of Import : The Special Import Licences will be issued for

the items listed in Foreign Trade Policy. A Star Export House
depending status is allowed to import one car, two cars, three
cars and five cars respectively against its own Special Import
Licence on the strength of a specific endorsement made by the
licensing authority. The cars so imported shall not be sold or
otherwise disposed off for a period of five years from the date of
importation. Imports of a second hand car shall not be permittee.
The payment for cars shall be from EEFC (Exchange Earners
Foreign Currency Accounts) of the EH etc.
3. Marketing Development Assistance (MDA) : Large exporters are
given marketing development assistance which ranges between
25% to 60% of the actual expenditure incurred. MDA is provided
in respect of (a) conducting market surveys, (b) advertising and
publicity abroad, (c) opening showrooms in India and abroad etc.
(d) Participation in Trade fair and exhibitions abroad.

35
4. Foreign Currency Accounts : The facility of maintaining Foreign
Currency (FC) Accounts has been introduced as a mechanism for
settlement of payment for import, repayment of foreign currency
loans and expenditure to be incurred for certain purpose
approved by the RBI, out of export proceeds credited to such
accounts. Such accounts can be maintained with any Authorised
Dealer in Foreign Exchange in India but only at its designated
branches. It can also be opened with a bank abroad.
5. Training of Personnel : Preference may be given to personnel of
Star Export House by selection of participants for training
programmes organised in India and abroad by specialised
institutions and organisations, where such participation is
sponsored by the Government of India. This is to ensure that
personnel of such Export Houses are in continuous touch with and
possess knowledge of latest and sophisticated marketing
techniques.
6. Trade Delegations : A number of trade delegations are sent
abroad by the Government of India, FIEO and EPCs for exploiting
foreign markets and exchange of information to develop trade.
Representatives of Star Export Houses may be given preference
for being included in these delegations.
7. Membership of Apex Bodies/Trade Delegations : Star Export
House will be entitled to :
(i) Membership of Apex Consultative bodies like Board of
Tradeconcerned with trade policy and promotion.
(ii) Preferential treatment for representation on important
business delegations.
(iii) Permission for overseas trading.

➢ OBJECTIVES OF STAR TRADING HOUSES

• To make available supplies of essential commodities to consumers
at reasonable prices on a regular basis.

36
 • To ensure a fair price of the produce to the farmers so that there
may be adequate incentive to increase production
• Examples of star trading houses are Aditya Birla and Hindustan
Univer

UNIT-3

❖ MEANING
Export finance refers to the policies, practices and procedures
employed in financing export business. Export financing is the study of
the financial network for export trade and includes the study of export
credit institutions, foreign exchange implications, and the methods of
securing payments.
Export financing broadly cover all aspects of arranging finance for
export and securing payments from the overseas buyers. Financial
facilities are available to the exporters from the banks even before the
shipment of goods and after the shipment of goods. Besides these
facilities from the network of financial institutions, export credit
guarantees and export credit insurance facilities have also been
provided to the exporter.

➢ IMPORTANCE OF EXPORT FINANCE

Finance is important to exporters:
1. To purchase raw materials, and other inputs to
manufactureexport products.
2. To assemble the goods in the case of merchant exporters.
3. To store the goods in suitable warehouses till the goods
aredemanded for shipment.
4. To pack, mark and label the goods.
5. To pay pre-shipment inspection costs.
6. To pay freight and insurance charges under C.I.F. quotation.

37
 7. To pay for port, customs and shipping agent’s charges.
8. To pay export duty or tax, if any.
9. To pay ECGC premium charges.
10. To promote sales of domestic goods in the
internationalmarkets by way of advertising, publicity etc.
11. To pay for export documentation charges.
12. To import or purchase in the domestic market heavy
capitalgoods, machinery etc.
13. To pay for consultancy firms for their services.
14. To pay for any other activity in-connection with export
of goods.

❖ PRE-SHIPMENT FINANCE
MEANING
Pre-shipment finance is also known as packing credit. It is a working
capital finance provided by commercial banks to the exporter prior to
shipment of goods.
Reserve Bank of India has defined packing credit as “any loan to an
exporter for financing like purchase, processing, manufacturing or
packing of goods”. Finance is needed in order to convert raw materials
into finished goods and packing of the same would be termed on pre-
shipment finance. But for a merchant exporter who obtains finished
goods directly and packing of the same would also term as packing
credit.
Pre-shipment is finance required by an exporter prior to the shipment
of goods. This is basically needed for the purchase of raw materials,
processing packing, transportation, warehousing, etc. It is also termed
as self-liquidating finance as it gets liquidated and repaid from the
proceeds of export bills, when purchased negotiated and discounted.
Packing credit is available to all types of exporters, i.e. merchant,
manufacturing exporter, export houses, trading houses, star trading
houses, and super star trading houses.

38
 ➢ FEATURES OF PRE-SHIPMENT FINANCE
The salient features of packing credits are as follows:
1. Eligibility: Packing credit is granted to the exporters to facilitate
them to process export order/or a letter of credit received against
the export contract.
An Indirect exporter can also obtain packing credit provided:
(a)He produces a letter from concerned export houses or other
concerned party stating that a portion of the export order
has been allotted in his favour.
(b) The export houses or other concerned party should
also statethat they do not wish to obtain packing credit for
the same.
2. Purpose: The packing credit is required by the exporter to meet
working capital requirements before shipment of good, such as
payment of raw materials etc.
3. Documents required: Packing credit is granted against the
following documents:
(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.
4. Forms / Methods of Packing Credit:
• Cash packing credit loan : Where advances are granted initially on
unsecured basis.
• Against hypothecation: Where exporters have to necessarily
process or handle goods before exporting.
• Against pledge: where advances are made against the goods
stored in custody of bank.
• Against Red Clause L/C : Where the L/C from the importer
instructs to the negotiating bank to provide packing credit.
5. Amount of packing credit: The amount of packing credit depends
on the amount of export order and credit rating of the exporter

39
 by the bank. The bank may also consider the export incentives
receivable such as IPRS, DBK etc.
6. Period of packing credit: It is normally granted for a period of 180
days. Further extension of 90 days can be provided with the prior
permission of RBI.
7. Rate of interest: The rate of interest per annum is as follows :
(a)Upto 180 days…. 13% p.a.
(b) For additional 90 days … 15% p.a.
8. Loan agreement: Before disbursement of loan, the bank requires
the exporter to execute a formal loan agreement.
9. Maintenance of accounts: As per RBI directives bank must
maintain separate accounts in respect of each pre-shipment
advance. Running accounts are permitted in case of certain items
produced in FTZs,/EPZs and 100% EOUs.
10. Disbursement of loan: Normally, packing credit advances
are not sanctioned in lump sum, but it is disbursed in a phased
manner.
11. Monitoring the use of advance: The bank advancing packing
credit should monitor the use of packing credit by exporter i.e.
whether the amount is used for export purpose or not. Penalty
can be imposed for misuse.
12. 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 packing
credit and no benefits of concessional rate will be applicable.

❖ POST SHIPMENT FINANCE

➢ MEANING
Post shipment finance is provided to meet working capital needs 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.

40
 ➢ FEATURES OF POST-SHIPMENT FINANCE
The salient features of post-shipment are as follows:
1. Eligibility: It is extended to the actual exporter who has shipped
the goods or to an exporter in whose name export document are
transferred. It can also be allotted to overseas buyer or
institutions under the scheme of ‘Buyer’s credit and Lines of
credit’ operated by EXIM Bank.
2. Purpose: Post shipment finance provides working capital to the
export from the date of shipment to the date of realisation of
export proceeds.
3. Documents required: It is extended against the evidence of
shipping documents indicating the actual shipment of goods or
necessary evidence in case of deemed exports.
4. Forms of Post-shipment Finance: Post shipment may be provided
in one of the following forms:
(a)Export bills negotiated under L/C.
(b) Purchase of Export bills drawn under confirmed
contracts.
(c) Advance against bills under collection.
(d) Advance against export incentives receivables.
(e) Advance against goods sent on consignments basis.
(f) Advance against undrawn balance of bills.
(g) Advance against deemed exports.
(h) Advance against Retention money.
5. Amount of Post-shipment Credit: The amount of postshipment
finance depends upon whether it is short term, long term or
medium term. It also depends upon the value of capital goods and
equipment or turnkey projects. Any loan upto Rs. 2 crores for
financing export of capital goods is decided by commercial bank
which can refinance itself from EXIM Bank. In case of export
contract above Rs. 2 crores but not more than Rs. 5 crores , the
EXIM has the authority to decide whether export finance could be
provided. Contracts above Rs. 5 crores need the clearance by the

41
 Working Groups on Export Finance, consisting of representatives
from EXIM Bank, RBI, ECGC and the bankers of the exporter. In
case of large contracts representatives from Ministries of
Commerce and Finance also act as members of Working Groups.
6. Period of Post-Shipment Finance:
(a)Short Term: The period is usually 180 days. The loan is
provided by commercial banks.
(b) Medium Term: The period is usually 5 years and the
commercial banks together with EXIM Bank give this type of
medium term loan.
(c) Long Term: The period is above 5 years to 12 years. It is
provided by EXIM Bank in case of sale of capital goods,
complete plants and turnkey projects.
7. Rates of Interest: Post shipment finance facility is granted at
concessional rate of interest of 15% for a period of 90 days. For
medium and long term loan the rate of interest is applicable as
per the directives of RBI issued from time to time.
8. Loan Agreement: Before disbursement of loan, the banks require
the exporter to execute a formal loan agreement.
9. 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
certain items produced in FTZs/EPZs and 100% EOUs.
10. Disbursement of Loan Amount: Normally, packing credit
advances are not sanctioned in lump-sum but they are disbursed
in a phased manner.

❖ EXIM BANK
➢ MEANING
The EXIM bank of India is a public sector financial institution
established on 1st January, 1982. It started operating from 1st march,
1982. It was established by an Act of Parliament, for the purpose of
financing, facilitating and promoting foreign trade. It is also the

42
principal financial institution for coordinating the working of
institutions engaged in financing India’s foreign trade.
This bank was mainly created for the purpose of financing medium and
long term loans to exporters there by promoting the country’s foreign
trade.

➢ OBJECTIVES OF EXIM BANK

The main objectives and purposes of EXIM bank are-
1. Financing of export and imports of goods and services not only of
India but also of third world countries.
2. Financing of joint ventures in foreign countries.
3. Financing of Indian manufactured goods, consultancy and
technological services of deferred payment terms.
4. Financing R&D and techno-economic study.
5. Co-financing global and regional development agencies.

➢ FUNCTIONS OF EXIM BANK

The assistances offered by EXIM bank to the exporters can be grouped
under the following three categories.
➢ Fund Based Assistance
a. Financial assistance to Indian companies
b. Financial assistance to foreign govt. and business firms
c. Financial assistance to Indian commercial banks

➢ Non-Fund Based Assistance

a. Guarantees and bonds
b. Advisory and other services

➢ Fund Based Assistance

It provides direct loans to exporters, refinance, overseas buyers credit,
foreign lines of credit, overseas investment finance and preshipment
credit.

43
It also re-discounts export bills, and extends re-lending facility to banks
abroad. It also renders technology and consultancy services.
It also provides term finance for export-oriented units. It assists SSI who
is exporting by its bill rediscounting programme. It also has an ‘agency
credit line’ with IFC. It refinances exports of computer software. Fund
based assistance is divided into three broad groups:

1. Financial Assistance to Indian Companies: EXIM bank provides

loans to Indian Companies in the following manner:
I. Direct Financial assistance to exporters: Funds
are provided on deferred payment terms to
Indian exporters to enables them to extend
deferred credit to the overseas buyer.
Commercial banks participate in this
programme directly or under the Risk
Syndication facility.
II. Consultancy & Technology Services: Indian
companies can obtain finance from EXIM Bank
to extend deferred credit to overseas buyers
of Indian consultancy, technology and other
services.
III. Pre-shipment Credit: Packing credit is
available for construction/turnkey project
exporters involving cycle time exceeding six
months.
IV. Facilities for Export Oriented Units: EXIM
Bank provides term loans/deferred payment
guarantee for projects in export oriented units
and units in free trade zones.
V. Facilities for Deemed Exports: Deemed export
transactions are eligible for funded and non
funded facilities from EXIM Bank.

44
 VI. Overseas Investment Financing: EXIM Bank
provides finance to Indian Company
establishing a joint venture abroad and
requires funds towards equity participation in
the joint venture.

2. Financial Assistance to Foreign Governments and Business Firms

: EXIM bank also provides loans to foreign Governments,
Companies and Financial Institutions in the following ways:
A) Overseas Buyer’s Credit: This is offered directly to foreign
buyers to import eligible Indian goods and related services
with repayment terms spread over a period of years.
B) Lines of Credit to Foreign Governments: EXIM Bank also
provide credit to foreign governments and foreign financial
institutions. Such lines provide term finance import eligible
Indian goods and related services.
C) Relending facility to banks overseas: Relending facility to
enable overseas banks to provide term finance to importers
for import of eligible Indian goods. Banks overseas would
intermediate between foreign buyers and EXIM Bank and
the latter would intermediate with the suppliers.

3. Financial Assistance to Indian Commercial Banks: EXIM Bank

provides loans to Indian Commercial Banks as explain below:
I. Export Bills Rediscounting : Exchange
banks in India can rediscount their short
term export bills for a period of 90 days
with EXIM Bank.
II. Refinance of export credit: EXIM Bank
provides to authorised dealers in foreign
exchange hundred per cent refinance of
deferred payment loans. For export
contracts up to Rs. 2 crores, automatic

45
 refinance facility is available. For
proposals beyond Rs. 2 crores, EXIM
Bank’s approval is required.

➢ Non-Funded Assistances
Non-funded assistances provide cover assistance, retent on money,
guarantees etc.
(a)Issue of Guarantees: EXIM bank participates with
commercial banks in India in the issue of guarantees such as
advance payment guarantee, performance guarantee, and
guarantee for retention money and guarantee for
borrowings abroad required for execution of export
contracts.
The bank charges at present interest ranging between 7.5% p.a. and
12.5% p.a. in connection with its export financing programmes.
(b) Advisory and Other Services: It advises Indian
companies, in executing contract abroad, and on sources of
overseas financing. It advises Indian exporters on global
exchange control practices. The EXIM bank offers financial
and advisory services to Indian construction projects abroad.
It advises small-scale manufacturers on export markets and
product areas. EXIM bank provides access to Euro Financing
sources and global credit sources to Indian exporters. It
assists the exporters under forfeiting scheme.

❖ EXPORT RISK IDENTIFICATION

We are discussing 2types of risk identification
[Link] risk
[Link] risk

❖ CREDIT RISK
Sometimes because of large distance, it becomes difficult for an
exporter to verify the creditworthiness and reputation of an importer

46
or buyer. Any false buyer can increase the risk of non-payment, late
payment or even straightforward fraud. So, it is necessary for an
exporter to determine the creditworthiness of the foreign buyer.
Investors who finance a portfolio of trade receivables or an individual
trade receivable face credit risk. Credit risk is the risk that one or more
parties involved in a trade receivable are unable to meet or do not
meet their financial obligations.

There are quite a few organisations involved in most trade receivable

transactions and in most trade receivable portfolios. The most
important are:
• The buyer –owes the money
• The supplier –supplies the goods or services that the buyer should
be paying for
• The servicer – originates the receivables, keeps the books and
records, manages the cash, chases the buyer if he does not pay

• Buyer credit risk

This is the obvious risk and quite simple. This is the risk that the buyer
does pay the amount due in respect of the trade receivable being
financed. There are two dimensions: ability and willingness.
Ability to pay can be considered using conventional credit metrics,
ratios and analysis. Key considerations include: profitability, tangible
net worth, and cash conversion. Since trade receivables are unsecured
claims, it is generally important only to finance businesses that are
profitable and have positive operating cash flow.
Willingness to pay involves an assessment of the buyer’s engagement
with his supply chain and his past track record in dealing with suppliers
over payments, the understanding of the obligations that are involved
in a trade receivable financing – and ideally also his relationship with
other financiers that may be involved in his operations.
• Supplier Concentration Risk

47
When a supplier has a problem, experience tells us that buyers can
often become difficult about paying. If there are many suppliers in a
portfolio, then this is a low risk. But sometimes there is only one
supplier, or one supplier has generated a large share of the receivables
– for example, in a typical securitisation of trade receivables for a single
large corporate. This becomes a single source of additional credit risk.
• Performance risk
If nothing is done to mitigate the performance risk, then buyers can
have the right to “set off”. What this means is that they pay less than
expected or even none of the trade receivable. There would be a claim
against the supplier for the shortfall – but here the credit risk has
become a mixture of buyer and supplier combined.
• Servicer’s risk
1. Fraud Risk
It is usually the servicer who also originates the receivable, and who
vouches for its authenticity. But if there is a fraud even if it was
undetectable – the investor will look to the servicer to make things
right. This means that there can be servicer credit risk in the mix of
risks.
2. Commingling risk
If the buyer pays into a bank account of the servicer and the cash is
mixed with other balances, then investor money can end up being used
by the servicer for other purposes, or taken by other creditors. This is
another form of servicer risk.
3. Servicer replacement
If the servicer goes out of business, then there can be no one to look
after the investor’s interests.

❖ CARGO RISK
Cargo risk management is the identification, analysis and control of risk
associated with cargo within transportation service, Logistics or supply
chain network. The impact of a cargo loss in today’s competitive
business environment extends far beyond the amount that may be

48
recoverable through an insurance claim. Effective and proactive cargo
risk management therefore contributes significantly to a business’s
efficiency, reputation and results.
Knowledge and understanding of the multiple exposures experienced
by cargo throughout the transit chain is converted into effective
practical measures to reduce exposure to risk and to positively mitigate
the occurrence of negative impact on International Transport and
Logisticsto
The risk management process is as much about analysis, co-ordination
and culture as it is about practical surveys and fact finding. An effective
risk management programme is both pro-active and interactive and
depends upon successful development of teamwork, shared goals and
accountability and a modern approach to the sharing of experience and
knowledge.
cargo risk exposures typically relate to-
• an ocean voyage and the associated perils;
• poor handling;
• inadequate packing;
• Inadequate stowage;
• heavy weather;
• pilferage and
• non-delivery.

➢ OPERATIONAL STIPULATIONS FOR INTERNATIONAL CARGO RISK

MANAGEMENT.
The bases of every cargo risk management adventure are to safeguard
the integrity and value of cargo from the beginning of the transaction
process for procurement to packing, handling, transportation through
to delivery.
These practical stages of cargo risk management include:
• Transaction processing
• Packing

49
 • Handling
• Transportation
• Transport Security
• Storage
• Customs process
• Inland Transportation
• Delivery and
• Service credibility.

➢ Risk management strategy for Cargo Documentation

• Analyse the information chain to validate access control and security
procedures
• Establish secure and efficient authority and approval levels for key
documentation
• Review document processes, office of issue and method of issuance
• Review existing document authentication methods
• Identify secure and acceptable cargo descriptions for use on all
documentation

➢ Risk management strategy for Cargo security on transit

• Evaluate location, environment and hazards
• Establish availability of local support services such as fire and police
protection at storage points.
• Review, analyse and validate external physical and procedural
controls
• Review, analyse and validate internal physical and procedural controls
• Ensure adequate access controls

➢ Risk management strategy for Cargo on Transit

• Develop minimum security standards for cargo trucks.
• Develop minimum security procedures and pre-alert systems for high
value goods

50
• Develop written plans to cover contingencies such as breakdown and
hijacking.
• Agree minimum security standards and SOP’s with subcontractors.
• Monitor compliance.

➢ Risk management strategy for Unitized Cargo Handling

• Ensure pallet quality (materials & construction) meets operational
requirements
• Establish effective selection procedure for correct pallet type
• Review pallet sourcing strategy – cost, quality & availability
• Ensure selection of correct pallet size for maximisation of cargo space
with reference to mode(s) of transportation
• Establish effective methods of cargo consolidation to pallet

❖ REDUCTION OR PREVENTION OF RISKS

To mitigate their export risks, companies require their customers to pay
in advance. They set credit limits and adjust these to reflect their
customers’ payment performance. One of the companies surveyed
adopts the following procedure, “When we supply to a customer for
the first time, we set a credit limit. After that, we keep a very close
watch on the payment receipts and raise the limits step by step for
reliable customers.” Internationally experienced companies run a very
systematic accounts receivable management sys- tem and waste no
time in issuing payment reminders when payments are late. They arm
them- selves against currency fluctuations by dealing in futures and
purchasing foreign currencies. Here is a view representative of the
interviews, "We reduce our foreign currency risk to about 50% by
buying Euros and dollars. The only thing we are not allowed to pay in
foreign currencies in Switzer- land is salaries." The companies diversify
their export business into markets in various stages of development
and with different economic cycles. They bolster their competitive
position by cutting costs and/or improving quality. They distribute their

51
products through carefully selected resellers, who purchase and sell on
their own account. They shift production to locations with lower wage
costs and define the conditions under which their products should be
used, and they also define what warrantees are given, the scope of
their liability and jurisdiction. All this is defined so precisely in their
General Terms and Conditions of Business that numerous risks are
considerably mitigated, "For most export business, we control the
product specifications and liability conditions so that the amount of loss
cannot exceed the project volume."

❖ EXPORT CREDIT AND GUARANTEE CORPORATION OF INDIA

Export Credit and Guarantee Corporation of India Ltd. (ECGC) was
established by the Government of India in December 1983. ECGC is a
fully owned Government Company. It operates under the overall
supervision of the Ministry of Commerce. It is managed by a Board of
Directors. These directors are representatives of the Government, RBI,
banking, insurance and export community. ECGC insures the exporters
and finds finance for them. ECGC does not give direct export assistance
to the exporters. It only helps them to get export finance from the
lending institution. They do this by agreeing to share the risk with the
lending institution, through their policies and guarantees. The ECGC
issues different types of insurance policies in order to protect the
interest of exporters and the lending institution. It also collects and
distributes information regarding credit worthiness of overseas buyers.
Banks and financial institution need guarantee for lending financial
support to the exporters. A number of financial guarantees have been
introduced by ECGC on the strength of which credit can be extended to
exporters and banks and financial institution are protected.

➢ OBJECTIVES OF ECGC
The main objectives of ECGC are:

52
 • To facilitate the growth of India’s export trade by providingcredit
insurance cover to India exporters and giving them guarantee for
enlarging exports of the country.
• To provide the supplementary facilities which are necessaryfor
diversifying exports.
• To conduct any other function which the Government asksthem
to do from time to time. This includes giving credit and
guarantees in foreign currencies for importing raw materials
which are required for manufacturing of processing export goods.

➢ GUARANTEES OF ECGC
Important guarantees offered by ECGC are:
1. Packing credit guarantee: An exporter requires pre-shipment
finance or packing credit, for procuring raw material manufacture
goods, and packs them. This all requires finance. Commercial
banks provide this finance ECGC issues guarantee to protect these
banks against:
(a)Non-delivery of shipping documents by the exporter to the
bank. The guarantee given by ECGC for this purpose cover
66.67% losses.
(b) Non-payment of debt of shipment is not made. The
guarantee issued by ECGC indemnifies bank to the extent of
75% of the losses due to non-payment of debts.
(c) In case of credit granted to small scale merchant
exporterwhose turnover does not exceed Rs. 2 lakhs and if
such exporter fails to repay. ECGC indemnifies the back up
to 90% of the losses.

2. Post-shipment export credit guarantees: The commercial banks

extend post-shipment finance or post shipment credit to the
exporter. This type of finance is granted through purchase
negotiations and discounting of export bills. The financial banks

53
 are protected under this guarantee by the ECGC. The banks are
protected against:
(a)Default or insolvency of exporter
(b) Non – Performance of export contract
(c) Dispute between exporter and importer
The banks are normally protected under this guarantee by the ECGC
upto 75% of the losses.

3. Export finance guarantee: It takes time normally to claim

incentive money from the government. This claim is to be made
by exporter only after shipment of goods. But exporters funds are
blocked in this course. He needs finance for keeping his activities
continue. Commercial banks help him in this regard. Against these
incentives the exporter can get from the banks maximum 50% of
finance of the FOB value of goods or actual amount receivable on
account of incentive whichever is less.
The financial institutions banks are protected by the ECGC against
(a) Default or insolvency of the exporter.
(b) Any enforceable loss
75% of the losses incurred by the bank are compensated by the ECGC.

4. Export production finance guarantee: The goods of exporter sold

in the foreign market are much lower in value. It is only when the
exporter receives the amount of incentives from government and
export proceed from importers, he makes up the full value of
goods commensurate with the cost of production. But realization
of incentives takes time invariably.
As a result exporter’s finances are blocked. This guarantee of ECGC
enables manufacturer/exporter to get finance from commercial banks
upto 50% over and above FOB value of the goods at the pre-shipment
and post-shipment stage. The guarantee is issued to financing bank to
indemnify to the extent of 66.67% of any loss owing insolvency or
protracted default on the part of manufacturer/exporter.

54
5. Export performance guarantee: Sometimes exporter has to
furnish bank guarantee to the foreign buyer. This guarantee is
required when exports are made on deferred terms basic. The
bank guarantee is required by the exporter for the following
purposes.
(a)Bid Bond: Foreign buyer wants this to quote a tender. This
guarantee is a sort of certificate of genuiness of the offer
submitted by the buyer.
(b) Advance payment: After securing bid, the buyer may
use to pay exporter certain percentage of the value of
export contract as an advance money. This is provided
against the bank guarantee. (c) Ensuring performance of
contract: This guarantee is required by the buyer when the
contract is given to exporter. This guarantee ensures that
export will fulfil his commitment.
(c) Payment of retention money: In order to ensure
performances from exporter the buyer may retain certain
percentage of contract money as a retention money. This
money is released to exporter if the guarantee of bank is
given for this purpose.
d) Loans of foreign currency: Sometimes exporter may have to
raise funds in foreign currency to finance his operations of
export project. Financial institutions abroad willing to grant
funds to exporter in foreign currency may need such
guarantee. The banks can issue this guarantee to enable
exporter to furnish to the foreign financing institutions and
get the funds in foreign currency.

6. Transfer Guarantee: Exporter prefers a letter of credit to be

confirmed by a reputed bank in India. Exporter’s own bank may
confirm the L/C required from foreign buyers. The exporter
receives the money of export transaction from the confirming

55
 bank. The confirming bank, however, may fall in trouble if the
payment is not received from foreign buyers or from his foreign
bank. ECGC has devised transfer guarantee scheme. Under this
guarantee scheme, confirming bank has to see that transfer of
money is guaranteed from the foreign country which is due to be
payable to the confirming bank of L/C.

➢ RISK COVERED BY ECGC

ECGC covers commercial risk as well as political risk.
1. Commercial Risks :
(a)Insolvency of the buyer.
(b) Failure of the buyer to make the
payment due within 2 months from
the due date.
(c) Buyer’s failure to accept the goods,
due to no fault of theexporter,
provided that legal action against the
buyer is considered to be
inadvisable.

2. Political Risks :
(a)Imposition of restrictions by the
Government of the buyer’s country
or any Government action which
may block or delay the transfer of
payment made by the buyer.
(b) War, civil war, revolution or civil
disturbances in the buyer’s country.
(c) New import restrictions or
cancellation of a valid import licence.
(d) Interruption or diversion of
voyage outside India resulting in
payment of additional freight or

56
 insurance charges which cannot be
recovered from the buyer.
➢ RISK NOT COVERED
The Policy does not cover losses due to following risks:
(a)Commercial disputes including quality disputes raised by
thebuyer, unlike the exporter obtains a decree from a
competent court of law in the buyer;s country in his favour.
(b) Causes inherent in the nature of the goods.
(c) Buyer’s failure to obtain necessary import or exchange
authorisation from authorities in his country.
(d) Insolvency or default of any agent of the exporter or of
thecollecting bank.
(e) Loss or damage to goods which can be covered by
generalinsurance.
(f) Exchange rate fluctuation.
(g) Failure of the exporter to fulfill the terms of the export
contract or negligence on his part.

➢ POLICIES ISSUED BY ECGC

ECGC issues policies which cover the various risks involved in export
trade. They are as follows:
A)Standard policies: Standard policies are issued to cover various
political risks and commercial risks. There are four policies which are
issued under standard policy.
(i) Shipments (Comprehensive Risks) policy to
cover both commercial and political risks from
the date of shipment.
(ii) Shipments (Political Risks). Policy to cover only
political risks from the date of shipment.
(iii) Contract (Comprehensive Risks) policy to
cover both commercial and political risks from
the date of contract.

57
 (iv) Contract (Political Risks) policy to cover only
political risks from the date of contract.

B)Specific policies: Contract for exports of capital goods, turnkey

projects or construction works and those projects which are not of a
repetitive nature are required to be insured by EGCG on a case – to –
case basis under specific policies. There are various types of policies
under this which are:
1. For supply contracts:
(i) Specific shipments (comprehensive Risks ) policy to cover
both commercial and political risks at the post shipment
stage.
(ii) Specific shipment ( Political Risks) policy to cover political
risks at the post – shipment stage in cases where the
buyer is overseas government or payments are
guaranteed by Govt. or by banks.
(iii) Specific contracts (Comprehensive Risks) policy.
(iv) Specific contract (Political risks) policy.
2. For buyer’s credit or Line of credit: The buyer’s credit as the
name suggests in the credit granted to the buyers by the financial
institution to finance a particular export contract. ECGC has a
policy under which financial institution such credit get insured.
Under lines of credit, a loan is extended to Govt. of financial
institutions is the importing country for financing import of
specified items from the leading country.

C)Services policy: A wide range of services such as , technical,

professional, etc. are rendered to overseas buyers. When an exporter
renders services to overseas buyers, there is a risk of payment which
can be insured under service policies of ECGC. There are two type of
policies which are available namely :

58
 (a)Specific services contract (Comprehensive Risks)
policy which covers both political and commercial
risks.
(b) Specific services contract (Political Risks) policy,
which covers only political risks.

D)Construction works policy: This policy is basically to cover turn-key

projects involving suppliers and services. Two types of policies which
are evolved to cover the risks are namely Govt. and private buyers.
Contract with Govt. buyers are covered with political risks and private
buyers are covered with comprehensive risks. The policies, issued to
cover contract with government, the percentage of loss payable by
ECGC is 85% and that of private buyers 75%.

E)Special Policies: Specific policies are meant for special ECGC scheme
for small exporters. In order to give boost to export from small
exporters special policies have been drafted for them with various
features. This scheme is restricted to those exporters whose
anticipated total export turnover for the period of 12 months ahead is
not more them Rs. 25 Lakhs. This scheme covers 95% of commercial
risks and 100% political risks.

❖ CARGO INSURANCE
Cargo insurance protects you from financial loss due to damaged or lost
cargo. It pays you the amount you’re insured for if a covered event
happens to your freight. And these covered events are usually natural
disasters, vehicle accidents, cargo abandonment, customs rejection,
acts of war, and piracy.
It Is also different from the carrier liability and insurance policies that
are usually available from dedicated cargo and freight insurance
companies, freight forwarders, agents, and large brokers.

➢ BENEFITS OF CARGO INSURANCE

59
The primary benefit of cargo insurance is that you minimize your
financial loss even if your shipment is damaged or lost. The small
investment (a.k.a. the premium) you pay provides peace of mind as
your goods leave your warehouse.
Some of the common benefits include:
• All risk coverage – Cargo insurance protects against the significant
loss or damage caused by external factors such as theft, vermin or
damage by improper handling.
• General coverage – This is the standard insurance policy for
maritime shipments covering partial losses to the policyholder.
• Warehouse-to-warehouse coverage – As the term signifies, it
protects against loss or damages caused while your cargo is being
transported to and from warehouses.
• Peace-of-mind – Securing your investment gives you a sense of
peace, which means you can sit back and relax knowing your
cargo is safe.

➢ ADVANTAGES OF CARGO INSURANCE

• Your cash flow is protected from unforeseen stoppages
• Profits are still generated if coverage includes it
• Efficient procedure of claims because of professional service
• Simplified reporting of losses

➢ TYPES OF CARGO INSURANCE

Cargo insurance is mainly categorized into land and marine cargo
insurance (which also covers air cargo).
• Land cargo insurance
This type insures cargo that is moved by land transportation, which
includes trucks and small utility vehicles. It covers theft, collusion
damages, and other risks involved in land freight shipping. It is also
typically used for domestic cargo since its scope is only within a
country’s boundaries.

60
 • Marine cargo insurance
This type insures ocean and air freight and it’s mainly used for
international shipping. It covers damage due to loading/unloading,
weather conditions, piracies and other risks faced by ships and
aeroplanes.

➢ What does cargo insurance not cover

Cargo insurance doesn’t cover risks and problems that the shipper has a
lot of control.
policies exclude:
• Damage due to inadequate packaging. If any damage to your
goods is traced back to improper packaging of your freight, the
policy won’t cover you.
• Damage due to flawed products. If the carrier can show you that
the damage was because of faulty items inside your cargo, the
policy won’t pay you back.
• Specific kinds of freight. Some insurance providers don’t insure
hazardous materials, certain electronic products, and other
highly-valuable or fragile products.
• Some modes of transportation. Some policies may only cover your
freight when it is onboard a ship, a plane, or a truck.

UNIT-4
❖ GOVERNMENT INSTITUTIONS ASSISTING IN PROMOTING
EXPORTS
Export business requires special knowledge and business acumen.
Exporters need guidance and assistance at different stages of the
export effort. For this purpose, the Government of India have set up
several institutions whose main functions are to help the exporter in his
work.

61
Government of India have established a number of specialised
institutions in the country for providing the necessary services and
assistance to individual corporate unit for a successful export effort. In
view of the widely diversifying nature of the export markets in different
parts of the world and an equally diverse and varied nature of products
and services traded in international market, Government of India have
established specialized institutions at production/industry level for
assisting exporters from different sectors.

❖ MINISTRY OF COMMERCE
Ministry of commerce and industry is a nodal ministry under the
government of India. The ministry of commerce and industry overlooks
and regulates the working of trade and industry and is responsible for
growth and development of industry and trade within and outside the
country. This ministry is responsible for the promotion of industry and
internal and external trade. The first minister of the Ministry of
commerce and industry in independent India was Shyama Prasad
Mukherjee. Presently this Ministry is headed by Piyush Goyal.
They assist export promotion in a number of ways. It’s membership is
open to all members of trade and industry, they provide suggestions
and recommendations to the government on various issues concerning
trade and industry including export marketing. The government while
framing import and export policies does accept their suggestions. They
help the exporters in issuing the certificates of origin and taking up
specific cases of exporters to the government. The chambers of
commerce also provide information and it provides a forum to their
members to discuss the problems arising out of policy matters. They
also organize workshops seminars and short training courses in order to
guide their member on export aspect. They do sent trade delegations
abroad and invite trade delegations from abroad. The Ministry of
Commerce and Industry administers two departments, the Department
of Commerce and the Department for Promotion of Industry & Internal

62
Trade (formerly Department of Industrial Policy & Promotion). The
head of the Ministry is a Minister of Cabinet rank.

➢ ROLE /FUNCTIONS OF CHAMBER OF COMMERCE

The Chamber of Commerce performs in role by performing the
following functions:
1. Issue of certificate of origin
Certain countries demand certificate of origin from the exporters. In
India, EPCs can issue certificate of origin to the exporters’ certificate the
origin of goods.
2. Collection of information
It collects variable information on overseas imports, import regulations
about competitors, customer preferences, market demand and other
developments in foreign trade.
3. Supplying information
It provides information on latest development in the field of export
trade. It may relate to various aspects of foreign trade. Such
information is vital to the exporters to take export marketing decisions.
4. Organising seminars
It organizes seminars, workshops, discussion, meetings and conferences
on various aspects of foreign trade exporters are invited take part in
such seminars and workshops. The exporters can make use of such
participations to know the latest development in foreign trade.
5. Trade fairs & exhibitions
It may also assist the concerned authorities in organizing trade fairs and
exhibitions in India and abroad. It may also assist the exporters to take
part in such trade fairs and exhibitions. It may also arrange buyer and
seller meets, so as to promote Indian exports.
6. 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

63
recommend certain modifications in the existing government policies
and programmes.
7. Inviting Trade delegations
It may invite trade delegations from abroad, both of private level and at
government level. Such trade delegation are very important to promote
export trade of India. Foreign delegations visit India and sign contracts
with Indian exporters.
8. Sending delegation 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.
9. Consultancy services
It may offer professional advice to exporters in areas such as
technology up gradation, quality and design improvement, standards
and specifications, product development, innovation etc. Such advice
goes along way improve product and organizational efficiency of the
exporter.
[Link] 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.
[Link] export consciousness
This organization marks all the possible efforts to develop export
consciousness in our country. This is because there a great need for
country like our so as to earn foreign exchange.
[Link] functions
It may allocate or distribute quota/slips in respect of certain items. It
may fix minimum floor price or may advise the government in such
fixation of floor prices.

❖ DIRECTORATE GENERAL OF FOREIGN TRADE (DGFT)

64
The DGFT Is the chief body that administers laws related to foreign
trade and foreign investment in India. It Implements the foreign trade
policy or the EXIM (export-import) policy of the government. Its main
mandate is to promote exports from India. It is an attached body of the
Ministry of Commerce & Industry, GOI. It is headed by the Director-
General of Foreign Trade. He/she is at the apex position of the Indian
Trade Services (ITS). The DGFT was formed in 1991 when the LGP
(liberalization, globalization, privatization) policies of the government
took off. Read more on the Economic Reforms of 1991.
Before 1991, the DGFT was known as the Chief Controller of Imports &
Exports (CCI&E). The organization formulates guidelines for Indian
exporters and importers. Since the liberalization, the DGFT is no longer
the ‘controller’, rather it is a facilitator in matters of foreign trade.
There was a policy shift from control/prohibition to
facilitate/promotion of foreign trade. The office works In tandem with
other similar organizations such as the Customs Commissionerate, the
DRI authorities, the Central Excise authorities, and the Enforcement
Directorate. The DGFT Is the licensing authority for export/import
businesses in India. The DGFT’s offices offer facilitation to exporters in
connection with developments in international trade such as WTO
Agreements, Rules of Origin and anti-dumping issues, etc. to aid them
in their export and import decisions in an international dynamic
environment. The Directorate Is headquartered in New Delhi with 38
regional offices all over the country. The current DGFT is Amit yadav
(IAS).

➢ FUNCTIONS OF DGFT
The functions of the DGFT are given below:
1. Implementing the foreign trade or EXIM policy of the government.
2. Providing a complete database of all exporters and importers in
India.
3. Granting of the Exporter Importer Code (EIC) Number to exporters
and importers in India.

65
 • The EIC Number Is a ten-digit number that is needed for people to
export and/or import.
4. It has the authority to prohibit, restrict, and regulate importers
and exporters.
5. Regulating and permitting the transit of goods from India to
adjacent countries according to the bilateral trade agreements.
6. Promoting trade between India and her neighbouring countries.
7. Granting permission of free export wherever necessary.
8. It plays a vital role in controlling DEPB rates.
• DEPB: Duty Entitlement Pass Book
• DEPB Scheme is an export incentive scheme of the GOI given to
exporters.
9. Handling quality complaints of the foreign buyers of Indian export
products.
10. Formulating or adding new codes in the ITC-HS Codes.
• ITC-HS codes are also known as Indian Trade Clarification based
on the Harmonized System of Coding.
• These are codes given to export/import products.

❖ EXPORT PROMOTION COUNCIL (EPC)

The EPCs are nonprofit organizations registered under the Companies
Act or the Societies Registration Act, as the case may be. The basic
objective of EPCs is to promote and develop the export of the country.
Each EPC is responsible for the promotion of a particular group of
products, projects and services.

At present, there are 27 EPCs operating in India. The various EPCS are
as follows:
1. Apparels EPC
2. Basic Chemicals, pharmaceuticals & cosmetics EPCS
3. Chemicals and Allied products EPC
4. Cotton Textiles EPC

66
 5. Carpet EPC
6. Cashew EPC
7. Engineering EPC
8. Germs & jewellery EPC
9. Hand loom EPC
10. Indian silk EPC
11. Council for leather export
12. Plastics and linoleum EPC
13. Synthetic and rayon textiles EPC
14. Sports goods EPC
15. Shellac EPC
16. Wool and wollens EPC
17. Electronics and computer software EPC
18. Handicrafts EPC
19. The power loom development and EPC (PDEXCIL)
20. Export promotion council for EOUs and SEZ units
21. Project export promotion council of India
22. Pharmaceutical export promotion council
23. Jute manufacturers development council
24. Wool industry EPC.
25. Agricultural and Processed Food Product Export
Development Authority (APEDA)
26. Federation of Indian Export Organisations (FIEO) and
27. The Marine Products Export Development Authority

➢ ROLE / FUNCTIONS OF EPCS

The main role of EPC is to project good image of Indian products. The
EPC performs its role by performing the following functions.
1. Issue of Certificate of Origin:
Certain counties demand certificate of origin from the exporters. In
India EPCs can issue certificate of origin to the exporters certifying the
origin of goods.

67
 2. Collection of Information :
It collects valuable information on overseas imports, import
regulations, about competitions, customer preferences, market
demand and other developments in foreign trade
3. Supplying Information:
It provides information on latest developments in the field of export
trade. It may relate to various aspects of foreign trade. Such
information is vital to the exporters to take export marketing
decisions.
4. Organizing Seminars:
It organizes seminars, workshops discussions, meeting, and conferences
on various aspects of foreign trade. Exporters are invited to take part in
such seminars and to know the latest developments in foreign trade.
5. Trade Fairs & Exhibitions :
It may also assist the concerned authorities in organizing trade fairs and
exhibitions in India and abroad. It may also arrange buyer seller meets,
so as to promote Indian exports.
6. 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 people export import policies. It may
recommend certain modification in the existing government policies
and programmes.
7. Inviting Trade Delegations:
It may invite trade delegations from abroad, both at private level and at
governmental level. Such trade delegations are very important to
promote export trade of India. Foreign delegation visit India and sign
contracts with Indian exporters.
8. Sending Delegations Abroad:
It may undertake the responsibility of sending trade delegations abroad
comprising Indian businessmen, Indian delegations, may visit abroad
and enter into contracts with overseas buyers. Thus, foreign trade of
India can be expanded.

68
 9. Consultancy Services:
It may offer professional advice to exporters in areas such as
technology up gradation, quality and design improvement, innovation
etc. Such advice goes a long way to improve product and organizational
efficiency of the exporter.
10. 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.
11. Developing Export Consciousness:
This organization makes all the possible efforts to develop export
consciousness in our country. This is because there is great need for a
country like ours so as to earn foreign exchange.
12. Other Functions:
It may allocate or distribute quotas in respect of certain items. It may
fix minimum floor price or may advise the government in such fixation
of floor prices. EPC may undertake publicity through schemes like joint
foreign publicity in export markets.

❖ INDIAN INSTITUTE OF FOREIGN TRADE (IIFT)

As an apex institution at the national level, Indian Institute of Fcreign
Trade (IIFT), established by the Government or India, functions as the
main institution for export marketing inlelligence.

➢ OBJECTIVES OF THE INSTITUTE

The aims and objectives of the Institute shall be:
(i) To provide higher education primarily at post-graduate
and research degree levels in all areas of international
business management, trade and economics, both in
India and abroad;

69
(ii) To offer short and medium term management
development programmes, directed to all levels of
management, on international business, inter-national
trade, economics and policy issues both in India and
abroad;
(iii) To undertake, support and promote studies and research
in international trade, business and economics;
(iv) To carry out consultancy assignments in all areas of
international trade, business and economics for the
government, public & private sector, civil societies,
international organizations and any other client both in
India and abroad;
(v) To design and provide specialized training facilities for
Government of India and state government officials, as
well as those from other countries;
(vi) To design and provide specialized training facilities for
public & private firms both in India and abroad;
(vii) To promote education, training and research in
international trade and business in universities and other
academic institutions, both in India and abroad;
(viii) To organize seminars, workshops, conferences and similar
activities for promoting debate on issues of current
interest at regional, national and international level, as
well as for wider dissemination of information and
research findings;
(ix) To print and publish books, reports, occasional papers,
journals and newsletters in multimedia, as consistent
with the objectives of the Institute;
(x) To establish and maintain documentation centres and
information services to facilitate education, training,
research and consultancy activities and to offer
specialized information and database services to external
clients;

70
 (xi) To set up Divisions/Departments and Centres within the
Institute to conduct education, Training, research and
consultancy on important policies and functional areas of
International trade and business;
(xii) to set up Centres and Campuses in India and abroad
either on its own or in collaboration, to promote the
objectives of the Institute;
(xiii) to provide academic support to other educational
institutions engaged in international business education
as consistent with the objectives of the Institute;
(xiv) to offer short, medium and long term programmes in
international business languages;
(xv) to provide on-line education in all areas of international
business management, trade and economics;
(xvi) to undertake extra-mural studies, extension programmes
and outreach activities to contribute to the development
of the Institute;
(xvii) to promote, support and undertake collaborative
activities with national and international organizations
including UNDP, ITC/UNCTAD, WTO, ESCAP, World bank,
etc. in the areas of interest to the Institute;
(xviii) to do all such other acts and things either alone or in
conjunction with other organizations or persons as the
Institute may consider necessary.

➢ POWERS AND FUNCTIONS OF THE INSTITUTE:

To carry out the above objectives, the Institute shall have the following
powers:
(ii) To design and deliver courses of study and research and
to provide instructions in such branches of study as the
Institute deems appropriate for the advancement of
learning and dissemination of knowledge in such
branches;

71
(iii) To confer Degrees and to grant Diplomas and/or
Certificates to persons who have satisfactorily completed
the approved courses of study and/or research as may be
prescribed and shall have passed the prescribed
examinations or fulfilled any other condition as laid down
from time to time;
(iv) To set up Centres and Campuses in India and abroad
either on its own or in association with partner
institutions with a view to achieving the Institute’s
objectives;
(v) To institute and award Chair Professorship, visitorships,
fellowships, honorary degrees, prizes and medals;
(vi) To accept grants of money, donations, securities and
property of any kind on such terms as may seem
desirable;
(vii) To acquire by gift, purchase, exchange, lease, hire or
otherwise, howsoever, any property movable or
immovable, which may be necessary or convenient for
the purpose of the Institute and to build, construct,
improve, alter, demolish and acquire such buildings,
works and constructions as may be necessary for carrying
out the objectives of the Institute;
(viii) To sell, lease, exchange, hire or otherwise transfer all or
any portion of the property, movable and immovable, of
the Institute, provided that prior approval in writing of
the central Government is obtained for the transfer of
immovable property;
(ix) To invest and deal with any moneys and securities of the
Institute not immediately required for any of its activities
in such a manner as may be provided by the Rules and
Regulations of the Institute as may be laid down from
time to time;

72
(x) To draw, make, accept, endorse and discount cheques,
notes or other negotiable instruments for the purposes of
the Institute;
(xi) To invest any surplus funds not needed for immediate
research work in accordance with the provisions
contained in Sections 11(2) , 11(3) and 11(5) of the
Income Tax Act 1961 as amended from time to time;
(xii) To create any Reserve Fund, Corpus Fund, Sinking Fund,
Insurance Fund, Provident fund or any other Special Fund,
whether for depreciation or for repairs, improving,
extending or maintaining any of the properties or rights
of the Institute and/or for recoupment of wasting assets
and/or benefits of the employees and for any other
purposes for which the Institute deems it expedient or
proper to create or maintain any such Fund or Funds;
(xiii) To borrow and raise moneys with or without security or
on the security of a mortgage, charge or hypothecation or
pledge of all immovable properties belonging to the
institute or in any other manner, whatsoever, provided
that prior approval in writing of the Central Government
is obtained in that behalf;
(xiv) To create academic, administrative, technical, ministerial
or any other post(s) under the Institute and to make
appointments thereto in accordance with the Rules and
regulations of the Institute;
(xv) To make Rules and Regulations and Bye-laws for the
conduct of the affairs of the institute and to add, amend,
vary or rescind them from time to time;
(xvi) To do all such other acts and things either alone or in
conjunction with other organizations or persons as the
Institute may consider necessary, incidental or conducive
to the attainment of the above said objectives.

73
 ➢ FUNCTIONS OF IIFT
IIFT performs following functions :
1. Store-house of market information : It functions as a store-house
of export-marketing information, product-wise as well as market-
wise. It has conducted market surveys in every part of the world,
identifying export opportunities for the entire export sector as a
2. Provides international business management training : In
addition, the ILFT has been the pioneer and premier institution
offering international business management education
programme, including basic programmes as well as in service
education. Being a government institution, it also offers training
programmes, for Government of India service personnel from
Indian Foreign Service, Indian Administrative Service, Central
trade Service, and Indian Economic and Statistical Service.
3. Advises government on trade policies : Ail important function of
the Institute has been to advise Government of India on all
aspects of foreign trade policies, strategies and operations. Being
a premier institution, it is frequeiltly approached for necessary
advice and guidance by other export-service organisations
including export promotion councils as well as individual export
corporate units.

❖ INDIA TRADE PROMOTION ORGANIZATION (ITPO)

The ITPO came into existence on 1st Jan, 1992, with the merger of Trade
Fair Authority of India (TFAI) and Trade Development Authority (TDA).
ITPO has set up five regional offices in Germany, Japan, UAE and USA.
ITPO acts as a publicity wing of Govt. of India for organizing and for
participating in trade fairs and exhibitions in India and abroad.
ITPO has set up a Trade Information Centre at
its headquarters in New Delhi, which is considered as the best
source of information on import and export trade.

➢ OBJECTIVES OF ITPO

74
1. To develop and promote export, import and upgradation of
technology through fair to be held in India and abroad.
2. To undertake publicity through the print and electronic media and
to assist Indian companies in product development.
3. To organize export development programmes buyer seller meets,
contact promotion programmes and integrated marketing
programmes for specific products in specific markets.
4. To provide information and market intelligence to the business
community in India.
5. To organize visits of buyers and trade delegations to industry and
trade establishments in India with a view to promoting business
contacts.

➢ FUNCTIONS AND SERVICES OF ITPO

1. Organizing trade fairs and exhibitions in India and abroad: ITPO
organizes trade fair and exhibitions in India and abroad and to
book stalls /space for India exporters to participate in over seas
trade fair and exhibitions. ITPO acts as a publicity wing of
Government of India for organizing trade fair and exhibition in
Indian

2. Giving publicity to trade fair and exhibition: ITPO gives publicity

to trade fair and exhibitions organized in India so as to encourage
foreign buyers to visit stalls of Indian goods and place orders for
the same. ITPO also participates in trade fair and exhibitions
arranged in India and abroad.

3. Booking of space in Overseas Trade Fairs: ITPO books necessary

space/stalls for Indian exporters. This enables Indian exporters to
participate in overseas trade fair and exhibitions.
4. Inviting Trade Delegations from Abroad and sending Indian
Trade Delegation Abroad: ITPO invites trade delegation from
abroad in order to participate in trade fair and exhibitions and

75
 book orders for Indian goods. In addition, to send Indian trade
delegation abroad for market survey and for signing contracts for
the supply of Indian goods.
5. Providing consultancy service to Indian exporters: ITPO provides
consultancy service to Indian exporters for participation and
displays their products in trade fairs and exhibition held in India
and abroad.
6. Organizing seminars and workshops: ITPO organizes seminars,
workshops for giving information, guidance to exporters about
fair and exhibitions arranged in India and abroad. ITPO has set up
trade information centre at its head quarters in New Delhi. It is
considered as the best source of information on import and
export trade.
7. Miscellaneous Functions:
a. Promotion of exports through specialized programmes.
b. Supply of trade information to Indian exporter and foreign
importers.
c. Undertaking research activities relating to export promotion
of Indian goods services abroad.
d. Membership of international organization such as WTO, etc.

❖ FEDERATION OF INDIAN EXPORT ORGANIZATION (FIEO)

It Is a nonprofit institution set up jointly by the GOI, Trade and Industry.
It was set up in 1965 as a common and cocoordinating platform for
various export organization including commodity boards EPCs and the
service institutions and organizations. It functions like EPCs.

➢ FUNCTIONS OF FIEO
The principal functions of FIEO are:
a. To co-ordinate the export promotion activities of its
members.
b. To collect and forward all important commercial and market
information to its members.

76
 c. To provide common services for the benefit of exporters and
their organization.
d. To conduct meetings, conferences, seminars and workshops
on export trade.
e. To arrange for buyer and seller meets
f. To project by way of advertising and publicity Indian goods
and services abroad.
g. To sponsor study trams abroad.
h. To keep overseas liaison with international and UN agencies
like GATT, UNCTAD, ESCAP, IMF, ILO etc.
i. To establish rapport with overseas chambers of commerce
Trade Associations and Govt. Agencies.
j. To send Indian trade delegations abroad and to invite
foreign trade delegations.
k. It is a registering authority for export houses/TH/STH/SSTH.
It issues RCME to such houses.

➢ ASSISTANCE TO EXPORTERS
a. It issues recommendatory letters to members for getting
visa for export promotion tours.
b. It issues certificate of origin to recognized member export
houses/ Trading houses / STH/SSTH.
c. It takes up cases of members with public grievance
committees in the officers of it. DGFT, collector of customs
or any other organization, like railways,
telecommunications, P & T various ministries etc.
d. It circulates / disseminates trade information.

❖ STATE TRADING CORPORATION (STC)

STC was established in May, 1956 as an autonomous corporation for
diversifying foreign trade and supplementing efforts of the private
trade and industry in developing India’s foreign trade. STC is the first

77
public sector organization which participates in foreign trade. It is a
premier international trading house set up by the central government
in 1956 and is operating for 45 years.
The Rupee payment Agreement was instrumental in improving trade
with east Europian countries. In the Initial years of India’s planning era,
this agreement had helped the country to have access to capital goods
and equipment as well as key inputs like fertilizers, non-ferrous metals
and petroleum for which otherwise payment would have been made in
hard earned foreign exchange, India was also able to develop some of
its exports sectors, especially wool and woolen products, readymade
garments and leather foot wear by exploring the market of East Europe.
These exports and imports were undertaken by the state trading
organizations like STC.
Over the years STC has become the premier international trading
organization. The role of STC as path-finder for the Indian industry has
been quite praise worthy. As international marketing agency, its
services, relating to negotiating, contracting, financing, product
development, quality control, market intelligence, shipment and
settlement of trade disputes has been quite significant.
After the introduction of the policy of economic liberalization in 1991,
STC has reoriented its strategies by putting emphasis on:
1. To provide new areas of exports for diversification.
2. To achieve economies of scale through high volume exports.
3. To buy and sell directly to cut down overhead costs and achieve
competitiveness
4. To practice professionalism and specialization in its operation by
employing best talents.
5. To upgrade information technology to obtain latest commercial
intelligence.
6. To undertake financial planning and result oriented
trade investment.

➢ OBJECTIVES OF STC

78
1. To organize and affect export from and imports into India of all
such goods and commodities, as the corporation may from time
to time, determine.
2. To organize and affect the purchase, sale and transport of such
general trade in such goods and commodities in India and abroad.
3. To do all such other acts and things, which may be help but in
achieving the above objectives.
4. Exploration of new markets for existing and new products,
expansion of long term export operations and of difficult to sell
items the specific objectives in relations to export promotion

➢ FUNCTIONS (SERVICES) OF STC

1. To arrange for exports where bulk handling and long term
contracting are advantageous.
2. To promote the production of nontraditional items and opening
up new fields for the export of traditional items.
3. To provide development finance for the production of export
oriented goods and boost export of small scale sector.
4. To facilitate bulk purchasing for bulk selling abroad.
5. To undertake internal trades as and when the situation warrants it
and to ensure adequate and regular supplies at reasonable prices
of essential commodities to meet local demand.
6. To facilitate the implementation of trade agreements and bilateral
deals.
7. To organize production to meet export demands and to help
production unit to overcome difficulties of raw materials and
other essential requirements.
8. To act as vehicles for the implementation of Governments trade
policies and trade plans.
9. To undertake price support operations to protect the interest of
growers.
10. To look after buffer stocking to ease the problem of
shortage of some essential items.

79
 ➢ FUTURE ROLE OF STC
It is a fact that public sector trading organizations like the STC and
MMTC have traditionally depended heavily on canalized trade.
However, the list of canalized items has been drastically reduced in
recent years. This suggests that in future, STC will have to take up new
areas for its business activities. The STC will have to be reoriented to
achieve the objective of emerging as International Trading House
capable of operating in a competitive global environment of servicing
an effective instrument of public policy and of providing adequate
support services to the small/cottage sector. In short, STC needs to be
given more purposeful role through suitable restructuring.
The following are the major State Trading Organizations in India.
I. The STC of India.
II. The Handicrafts and Handloom Export Corporation of
India (HHEC), a wholly owned subsidiary of STC
III. The Minerals and Metals Trading Corporation of India Ltd.
(MMTC)
IV. The projects and Equipment corporation (PEC) of India
Ltd. A wholly owned subsidiary of STC.
V. The Cashew Corporation of India Ltd. (CCI) a wholly
owned subsidiary of STC.
VI. Central Cottage Industries Corporation (CCIC) a subsidiary
of STC.
VII. The Tea Trading Corporation of India (TTCI) a subsidiary of
STC.
VIII. The Mica Trading Corporation of India (MITCO), a wholly
owned subsidiary of MMTC.
IX. Spices Trading Corporation
X. The State Chemicals and Pharmaceuticals Corporation of
India Ltd. (SCPC) a subsidiary of STC.

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 UNIT-5
❖ EXPORT PROCEDURES
Export procedure refers to the execution of an order received from an
overseas buyer and includes everything that the exporter is required to
do right from the receipt of a confirmed order up to the realization, o/s
final payment. It is not difficult to receive an export order but
extremely difficult to successfully and satisfactorily execute the same.
This is because exporting goods overseas involves same definite
procedure and is covered by legal restrictions.
Export trade is governed by legal controls and therefore, every function
of it is carried out under definite procedures. The various procedures
that are followed in the export of goods facilitate execution of export in
a systematic manner.
Export market is not merely an extension of domestic market. Apart
from the basic principles of sound business in domestic as well as
foreign market, selling abroad requires specialized knowledge regarding
certain matters such as detailed market surveys, shipping, marine
insurance, customs and foreign exchange formalities, etc.
These procedures of export are stated below:
Step 1: Receipt Order- The Indian exporter will receive the order either
directly from the importer or through the indent houses.
Step 2: Obtaining License and Quota- After receiving the order from
the importer, the Indian exporter is required to obtain an export license
from the Government of India, for this the exporter needs to apply to
the Export Trade Control Authority and get a valid license for this.
Step 3: Letter of Credit- The exporter then asks the importer for the
letter of credit, if the importer does not send the letter of credit along
with the order.
Step 4: Fixing the Exchange Rate- The rate at which the home currency
can be exchanged with the foreign currency is then fixed. The foreign

81
exchange rate fluctuates from time to time so they need to fix the rate
of exchange.
Step 5: Foreign Exchange Formalities- As per the Foreign Exchange
Regulation Act of India (FERA), every exporter of the goods is required
to furnish a declaration in the form prescribed in a manner in the Act.
Step 6: Preparation for Executing the Order- The exporter should make
the required arrangements to execute the order.
Step 7: Formalities by a Forwarding Agent- Then the formalities are to
be performed by the agent which includes obtaining a permit from the
customs department, preparing the shipping bill, paying the dues after
disclosing the required details of the product being exported.
Step 8: Bill of Lading- The Indian exporter of the goods presents the
receipt copy to the shipping company and issues the Bill of Lading.
Step 9: Shipment Advice to the Importer- The Indian exporter sends
shipment advice to the importer of the goods to inform him about the
shipment of the goods.
Step 10: Presentation of Documents to the Bank- The Indian exporter
needs to confirm that he possesses all the necessary shipping
documents.
Step 11: The Realization of Export Proceeds- The exporter of the goods
needs to comply with banking formalities after submission of the bill of
exchange.

❖ TERMS OF PAYMENT USED IN EXPORT

1. Consignment
Consignment is a variation of open account in which payment is sent to
the exporter after the goods have been sold by the foreign distributor
to the end customer. It is the riskiest of the most common methods of
payment.
2. Open Account (O/A)
An open account transaction in international trade is a sale where the
goods are shipped and delivered before payment is due, which is
typically in 30, 60 or 90 days. Open accounts are risky for exporters;

82
however, from your client’s perspective, this is the preferred method of
payment in terms of costs and risks.
3. Collections
Also called a documentary collection, this method of payment involves
using banking channels for more than handling the movement of funds
for your payment.
With a documentary collection, you’re relying on the bank to control
your product until payment is made. Your bank (the remitting bank)
sends documents to the importer’s bank (the collecting bank) along
with instructions for payment. The funds are received from the
importer and remitted to you in exchange for the documents. The most
significant risk is your buyer saying they changed their mind and no
longer want the product that was shipped.
4. Letter of Credit (L/C)
International letters of credit are a commitment by a bank on behalf of
the foreign buyer that payment will be made to the beneficiary
(exporter) provided the terms and conditions stated in the L/C have
been met, as evidenced by the presentation of specified documents. It
is one of the most secure methods of payment for an exporter.
5. Cash in Advance
With cash in advance, the exporter can eliminate credit risk or the risk
of non-payment since payment is received prior to the transfer of
ownership of the goods. Wire transfers and credit cards are the most
commonly used cash-in-advance options available to exporters. With
this option, you get paid up front, and you can use your client’s money
to finance production of the product you are selling.
6. Bank Draft and Transmittal Letter
To help in the transfer of exported goods, bank drafts are an essential
party of the proper documentation to help keep shipping items
organized along their route and efficiently moving for the exporter. You
can download a free template of the bank draft and transmittal letter
here.
7. Uniform Customs and Practice for Documentary Credits

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The Uniform Customs and Practice for Documentary Credits (UCP 600)
is a set of rules and regulations banks follow for letters of credit and
other types of payment. The UCP is governed by the International
Chamber of Commerce (ICC). ICC’s rules on documentary credits, which
are used for letter of credit transactions worldwide, were first
established in the 1930s.
8. Telegraphic Transfer
Also known as a wire transfer, the telegraphic transfer is a common
way to get paid when exporting internationally.
9. EXIM Bank
The Export-Import Bank of the United States (EXIM Bank) is the official
export credit agency of the United States. Its mission is to ensure that
U.S. companies of all sizes have access to the financing they need to
turn export opportunities into sales. The EXIM Bank’s aim is to help
American businesses export fearlessly and make sure they get paid.
10. Arbitration
Arbitration is essentially private litigation. Instead of one party suing
the other in a court system in a particular country, arbitration is
consensual; that is, the parties must both agree to submit a dispute to
arbitration. An agreement to arbitrate can be done up front in the
contract by inserting an arbitration clause or even entered into after a
dispute begins.

❖ DOCUMENTS USED IN EXPORT TRADE

Export documents are an integral part of an export business as it
promotes the smooth functioning of goods and services and payments
in the global market. Along with every shipment accompanies the
export documents across the national borders. These documents must
be updated and filled with accurate information, so it doesn’t face any
legal complications in near future. Whether you are new to the export
business or already has an existing export business, at every stage you
need to regulate, apply, submit and produce documents. There is a list

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of documents that you need to go through while you make your way to
become export-ready.

1. PROFORMA INVOICE
Before shaking hands on a deal, businesses often negotiate about the
terms of the deal such as the selling price, discounts, and delivery
dates. Once this negotiation is over, it is good practice for the business
to send a preliminary draft of the invoice to the buyer showing the
agreed-upon deliverables. This document also acts as a tentative
agreement and is called the proforma invoice.
Pro forma in Latin stands for ‘for the sake of form,’ implying that it is
only a provisional document and will eventually be followed up with an
official document.
A proforma Invoice is a preliminary invoice that is sent to a buyer
before a sale is confirmed. This invoice highlights the deliverables from
the seller’s end such as the goods or services to be delivered, their
prices, shipping information, and delivery date. After reviewing the
proforma invoice, the buyer gives the green light to the seller. The
seller proceeds to send a sales invoice and starts working on their part
of the deal—manufacturing the products or providing the service.

➢ FIELDS OF PROFORMA INVOICE

The following fields are typically included in a proforma invoice:
• The document title ‘Proforma Invoice’
• The unique invoice number
• Buyer’s details such as the company name, billing address, and
shipping address
• Seller’s details such as the company name and address
• Payment terms (whether or not the customer makes payment at
the proforma stage, it’s worth giving them instructions on how
they’ll pay)
• Invoice creation date

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• Invoice expiration date
• Description of the goods or services
• The prices of the goods and services
• Quantity of the goods and services
• Discounts
• Taxes(Although a proforma isn’t a tax invoice, you should still
show what the VAT amount is expected to be)
• Total

➢ DIFFERENCE BETWEEN PROFORMA INVOICE AND INVOICE

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 ➢ USES OF PROFORMA INVOICE
A proforma invoice is used:

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 • To let the buyer know what to expect from the supplier and to
invite negotiation
• To show the supplier’s willingness to offer the goods and services
at the discussed price, on the promised date
• To acknowledge the buyer’s acknowledgment and intent to pay
• To streamline the quote-to-cash process
• To act as a quote for internal purchase approval protocols for the
buyer
• To save processing time and costs
• On the other hand, a proforma invoice is not a legal agreement
since it’s only a draft. A proforma invoice is also not a document
requesting a payment.

❖ COMMERCIAL INVOICE
The commercial invoice is one of the most important documents in
international trade and ocean freight shipping. It is a legal document
issued by the seller (exporter) to the buyer (importer) in an
international transaction and serves as a contract and a proof of sale
between the buyer and seller.
Unlike the Bill of Lading, the commercial invoice does not indicate the
ownership of goods nor does it carry a title to the goods being sold. It
is, however, required for customs clearance purposes to calculate and
assess the duties and taxes due.
The commercial invoice details the price(s), value, and quantity of the
goods being sold. It should also include the trade or sale conditions
agreed upon by both buyer and seller of the transaction being carried
out.
It may also be required for payment purposes (such as in the event of
payment via Letter of Credit and may need to be produced by the buyer
to its bank to instruct the release of funds to the seller for payment.

➢ IMPORTANCE OF COMMERCIAL INVOICE

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The Importance of a commercial invoice can be seen in the following
manner-
1. Helps in maintaining records
Commercial invoices are a mandatory document in the import and
export procedures and constitute an important part of the paper trail
for transactions relating to exports and imports.
2. Proof of sale
Since a commercial invoice contains all the transaction details, including
the details of the buyer, seller, and description and value of goods, it
constitutes an essential part of the evidence that the sale transaction
has taken place.
3. Guarantees payment
A commercial invoice is a legal document evidencing a sale transaction
and therefore plays a vital role in ensuring payment for the same.
4. Assistance in verification
The description of goods in terms of quality, quantity and price enables
the importer to cross-check and verify the contents of the shipment to
see if they correspond to the contents mentioned in the commercial
invoice.
5. Can serve as a notice for payment due
The commercial invoice contains all the details of a regular invoice and
can be used as a reminder for payments due. It is an efficient tool to
maintain customer relationships.
6. Ensures no one gets fleeced
Since the commercial invoice is relatively detailed and can be used as
proof, there is no way the buyer can escape payment of the same.

➢ FIELDS OF COMMERCIAL INVOICE

A commercial invoice contains the following information-
• Information regarding the buyer and seller
1. Name, address, tax information, and contact details of the buyer
2. Name, address, tax information, and contact details of the seller
• Information regarding the transaction

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 1. Date of the invoice
2. Invoice number
3. Order number
4. Description of the goods
5. Quantity and value of the goods
6. Mode of payment and related instructions
7. IEC Code and GSTIN
8. Country of origin
• Shipping related information
1. Freight charges
2. Export route
3. Date of shipment
4. Gross weight
5. Number of packages
6. Insurance charges

❖ CONSULAR INVOICE
A consular invoice is a document signed by the consul of the importing
country and consul of the exporting country that certifies the shipment
of goods. A consular invoice serves as proof that the shipment of goods
was sighted, stamped or authorized by the consul of the country where
the shipment is being transported to. A consular invoice contains the
details of a shipment such as a consignor, consignee, and value of the
shipment. A consular invoice is an authorized document that facilitates
the collection of taxes and control over imports by countries. It also
prevents the misrepresentation of a shipment that can occur due to
under-invoicing or over-invoicing. A consular invoice must be submitted
to the embassy of the country to which the goods are being shipped.
After submission, the invoice is then authorized by the consul or a
representative. This process is called consularization.
The consularization process must be completed before goods are sent
to the receiving country. A consular invoice provides a foreign country

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with all the details of a shipment such as the description of the goods
shipped, the consignee and consignor of the shipment, and others.
The Invoice also enhances the payment of adequate export duty on the
shipment and also prevents dumping. Dumping is an unethical practice
in the shipment of goods that countries have strict regulations against.

➢ IMPORTANCE OF CONSULAR INVOICE

Significance of Consular Invoice For Exporter:
(a)Consular invoice facilitates quick clearance of goods
from customs in exporter’s as exporter’s well as
importer’s country.
(b) Certification of goods by the Consulate of the
importing country indicates that ‘ the importer has
fulfilled all procedural and licensing formalities for
importation.
(c) Once a consular invoice is certified by Um Consulate,
the exporter is assured of the payment from the
importing Country.
Significance of Consular Invoice for Importer:
(a)Consular invoice facilitates quick clearance of goods from
the customs at the port of destination and therefore, the
importer gets quick delivery of goods.
(b) Importer is assured that the goods imported are not
banned for imports in his country.
Significance of Consular Invoice for Customs Office:
(a)Consular invoice makes the task of the customs authorities
easy.
(b) It facilitates quick calculation of duties as the value of
goods as determined by the Consulate is considered for the
purpose.

➢ FIELDS OF CONSULAR INVOICE

A consular invoice may contain the following details –

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 • Names of the importer and exporter with their relevant details
• Ports of Origin and destination
• Description of the goods
• Additional charges (packing, insurance, etc.)
• Total value of the shipment
• Name of the certifier
• Identification marks and numbers
• Date
• Name of Carrier
• Amount of charges

❖ SHIPPING AND AIR CARGO DOCUMENTS

Following are the documents require for the air cargo-
• Air Waybill: An Air Waybill AWB is a non-negotiable transport
document covering transport of cargo from airport to airport. The
Air Waybill must name a consignee (who can be the buyer), and it
should not be required to be issued “to order” and/or “to be
endorsed” as it is not a title of property of the merchandise. Since
it is not negotiable, and it does not evidence title to the goods, in
order to maintain some control of goods not paid for by cash in
advance, sellers often consign air shipments to their sales agents
or freight forwarders’ agents in the buyer’s country. This
document is prepared by the IATA Transport Agent or the airline
itself and is addressed to the exporter, the airline and the
importer.
• International Commercial Invoice: The International Commercial
Invoice is an administrative document which contains all the
information about the international sale. The item, quantity, price
for the products/services sold, delivery and payment conditions,
as well as the taxes and other expenses that might be included in
the sale, are detailed in an International Commercial Invoice.

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The Importer, with the original of the International Commercial Invoice,
declares to the tax authority of his country the amount that it must pay,
to who it is going to pay and the agreed means of payment. For the
exporter, this document means a documentary evidence of the sales
that it has made in foreign markets.
• Air freight shipments: It is handled by Air Waybills (AWB) which is
a contract between the shipper and airline that states the terms
and conditions of air transportation and can never be made in
negotiable form.
• Bill of Lading (B/L): It is a receipt for cargo in transit, and a
contract between the exporter and an ocean carrier for
transportation and delivery of goods to a specified party at a
specified foreign destination. The Ocean Bill of Lading is Issued
after the vessel has sailed and the cargo has been entered in the
ship’s manifest.
• Certificate of Origin: This document is required in certain nations.
It is a signed statement as to the origin of the export item.
Certificate of origin are usually signed through a semiofficial
organization, such as a local chamber of commerce. A certificate
may still be required even if the commercial invoice contains the
information.
• NAFTA Certificate of Origin: It is required for products traded
among the NAFTA countries (Canada, the United States, and
Mexico). The NAFTA Certificate of Origin is used by Canada,
Mexico, and the United States, including Puerto Rico, to
determine if goods imported into their countries receive reduced
or eliminated duty as specified by the North American Free Trade
Agreement (NAFTA). For those forms that are completed online,
this application is designed for goods whose origin is the U.S. or
Puerto Rico only.
• Inspection Certification: It is required by some purchasers and
countries in order to attest to the specifications of the goods

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 shipped. This is usually performed by a third party and often
obtained from independent testing organizations.
• Dock Receipt and Warehouse Receipt: This document is used to
transfer accountability when the export item is moved by the
domestic carrier to the port of embarkation or warehouse and left
with the ship line or forwarding agent for export. All Dock
Receipts and Warehouse Receipts are issue by OceanAiR Logistics
eTraffic System and automatically sent to the client, shipper
and/or consignee.
• Destination Control Statement: It appears on the commercial
invoice, and ocean or air waybill of lading to notify the carrier and
all foreign parties that the item can be exported only to certain
destinations.
• A Shipper’s Export Declaration (SED): It is used to control exports
and act as a source document for official U.S. export statistics.
SEDs must be prepared for shipments through the U.S. Postal
Service when the shipment is valued over $500. SEDs are required
for shipments not using the U.S. Postal Service when the value of
the commodities, classified under any single Schedule B number,
is over $2,500. SEDs must be prepared, regardless of value, for all
shipments requiring an export license or destined for countries
restricted by the Export Administration Regulations. SEDs are
prepared by the exporter or the exporter’s agent and filed
electronically with the U.S. Census Bureau, prior to shipment
departure.
• Shipper’s Letter of Instructions: It is the shipping instructions to
the forwarder or carrier from the shipper or exporter.
• An Export License: It is a government document that authorizes
the export of specific goods in specific quantities to a particular
destination. This document may be required for most or all
exports to some countries or for other countries only under
special circumstances.

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 • A Packing List: It itemizes the material in each individual package
and indicates the type of package, such as a box, crate, drum, or
carton. It also shows the individual net, legal, tare, and gross
weights and measurements for each package (in both U.S. and
metric systems). Package markings should be shown along with
the shipper’s and buyer’s references. The list is used by the
shipper or forwarding agent to determine the total shipment
weight and volume and whether the correct cargo is being
shipped. In addition, U.S. and foreign customs officials may use
the list to check the cargo.
• A Cargo Insurance Certificate: It is used to assure the consignee
that insurance will cover the loss of or damage to the cargo during
transit. The Cargo Insurance Certificate is a document indicating
the type and amount of insurance coverage in force on a
particular shipment. It includes the name of the insurance
company and conditions of coverage. The original copy of the
Cargo Insurance Certificate is required in the filing of a claim.
Copies of documents necessary to support an insurance claim
include the insurance policy or certificate, bill of lading, invoice,
packing list, and a survey report (usually prepared by a claims
agent).

❖ BANKING DOCUMENTS
(a)Letter of Credit
A letter of credit is a document containing the guarantee of a bank to
honour drafts drawn on it by an exporter, under certain conditions and
up to certain amounts, provided the beneficiary fulfils the stipulated
conditions. For details of the letter of credit and the of the letter of
credit in financing foreign trade.
(b) Bill of Exchange
The Negotiable Instruments Act, 1881, defines the bill of exchange as
“an instrument in writing containing an unconditional order, signed by
the maker, directing a certain person to pay a certain sum of money

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only to, or to the order of, a certain person or to the bearer of the
instrument.”
There are five important parties to a bill of exchange:
• The Drawer: The drawer is the person who has issued the bill. The
drawer is the creditor to whom the money is owned.
• The Drawee: The drawer is the person to whom the bill is
addressed or against who the bill is drawn. In other words, the
drawee is the debtor who owes money to the drawer, the
creditor.
• The Payee: The payee is the person to whom the bill is payable.
The bill can be drawn payable to the drawee or his bank.
• The Endorser: The endorser of a bill is the person who has placed
his name and signature pit the back of the bill signifying that he
has obtained title to the bill and payment is due on his own
account or on account of the original payee.
• The Endorsee: The endorsee is the person to whom the bill is
endorsed. The endorsee can obtain payment from the drawee.

(c) Trust Receipt

If the importer is unable to take possession of the documents by
making the payment-on the DIP bill following the arrival of the goods,
the merchandise may be made available to the importer by his bank
under an arrangement whereby the importer signs a trust receipt.
Under this arrangement, the importer is allowed to sell the imported
good by acting as an agent of the bank; but the retains ownership of
the merchandise until the importer has made full settlement; all sums
received from the sale of goods must be credited to the bank until such
settlement is made.
(d) Letter of Hypothecation
A letter of hypothecation is a document signed by the customer
conveying to a barker the full ownership of goods at the port of
destination in respect of which he has made advance either by loan or

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by acceptance or negotiation of bills of exchange. This is a sort of
blanket document which any banker, who accepts bills, advances
money or negotiates bills and shipping documents, demands from a
customer to give him recourse on the bills and control of the
documents. The letter of hypothecation pledges the documents of title
with the banker as e security for an advance and gives the bank power
to sell the goods. If necessary, to insure them and to warehouse them
at the customer’s expense.
(e) Bank Certificate of Payment
It is a certificate issued by the negotiating bank of the exporter,
certifying bill covering particular consignments, has been negotiated
and that the proceeds received accordance with exchange control
regulations in the approved manner.

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