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A Report on

Presented for

Seminar On

CONTEMPORARY MANAGEMENT ISSUE

Submitted to Rajasthan Technical University ,Kota


in partial fulfillment for the Award of the Degree of
Master of Business Administration

SUBMITTED BY – SUBMITTED TO –
SAURABH JAIN Dr. AMIT SHARMA
GOVT. ENGINEERING COLLEGE, AJMER GOVT ENGINEERING COLLEGE, AJMER
ND
MBA-: PART – 1 ( 2 SEM )

EXECUTIVE SUMMARY - :

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Credit and finance is the life blood of any business whether domestic or
international. It is more important in the case of export transactions due to
the prevalance of novel non-price competitive techniques encountered by
exporters in various nations to enlarge their share of world markets.

The selling techniques are no longer confined to mere quality, price or delivery
schedules of the products but are extended to payment terms offered by
exporters. Liberal payment terms usually score over the competitors not only
of capital equipment but also of consumer goods.

The payment terms however depend upon the availability of finance to


exporters in relation to its quantum, cost and the period at pre-shipment
and post-shipment stage.

India has a mission to capture 2% of the global share of trade by 2010, up from
the Present level of less than 1%. Export is one of the lucrative business
activities in India. In the light of growing need & importance of exports for our
country it is of utmost importance that everyone should have an insight in the
field of exports.

In the course of last decade, the export scenario in India has undergone a
tremendous change. The liberalization initiated by the government, the keen
competition in the market place & the rapid increase in the export of services
have all combined to change the picture completely. The government also
provides various promotional schemes to the exporters for earning valuable
foreign exchange for the country and for meeting their requirements for importing
modern technology and essential inputs. Besides, the income from export
business is also exempted to the specified extent under the Income Tax Act,
1961, Refund of Central Excise and Custom Duty on export is also made under

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the Duty Drawback Scheme of the Government. There is no Sales Tax on
products meant for exports.

This project is an attempt to throw light on the various sources of export finance
available to exporters, the schemes implemented by ECGC and EXIM for export
promotion and analysis of risk in export trade related services.

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TABLE OF CONTENTS

S.No TITLE PAGE No.

1. Introduction to Exports 5
2. Concept of Export Financing 8
3. Import – Export Procedure 10
4. Types of Export Finance 15
5. Letter of Credit 17
6. Some Importanant Concepts in 23
Export Financing
7. Risks Involved In Export Business 26
8. Major Financial Institutions 30
9. Export Promotion Schemes 41
And Incentives
10. Policy Initiatives And Incentives by 45
the State Government

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1) INTRODUCTION TO EXPORTS:-
Export in simple words means selling goods abroad. International market being a
very wide market, huge quantity of goods can be sold in the form of exports.

Export refers to outflow of goods and services and inflow of foreign exchange.
Export finance is a short term working capital finance allowed to an exporter.
Finance and credit are available to help not only export production but also
to sell overseas customers on credit . The Foreign Trade (Development and
Regulation) Act, 1992 defines export as taking out of India any goods by land,
sea or air. "Export" with its grammatical variations and cognate expressions,
means taking out of India to a place outside India, as per Section 2 (18) or the
Customs Act, 1962. The CA further defines "export goods" as "any goods which
are to be taken out of India to a place outside India".

The Customs Act also contains definition of exporter, who in relation to any
goods at any time between their entry for export and the time when they are
exported includes any owner or any person holding himself out to be the
exporter.

NEED & IMPORTANCE OF EXPORT:-

A. From the Viewpoint of a Nation:

1. Foreign Exchange :- Export helps country to earn valuable foreign


exchange, which is mainly required to pay for import of capital goods,
raw materials, spares and components.
2. Balance of Payments: A country’s external economic strength depends
upon its balance of payment position. Since export brings in foreign
exchange, it helps a country to solve and improve its Balance of
Payments position.

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3. Employment opportunities: Export trade calls for more production,
which ultimately opens door for more employment opportunities, not
only in the export sector but also in allied sectors like banking,
insurance etc.
4. Financing of Development plans: Export earning can be a source of
financing development plans through the import of capital goods and
technology. The foreign exchange earned thru exports can be utilized
for planned economic development of a country.
5. Optimum utilization of Resources: There can be optimum use of
resources. The excess production can be directed to other countries,
there by enabling the exporting country to earn favorable foreign
exchange.
6. Research & Development: Goods to be exported to other countries
may not be sold in the same form as it is available in the local markets.
Products have to be redesigned according the requirement of the
importing country. This leads to constant R & D, which ultimately leads
to improve technology and production system. The fruits of R & D
would benefit the customers not only in the overseas market but also in
the domestic markets.
7. Spread Effect: Because of export industry, other sectors also expand
such as banking, transport, insurance etc. and at the same time a
number of ancillary industries come into existence to support the
export sector.
8. High Standard of Living: Export trade calls for more production, which
in turn increases employment opportunities. More employment means
more purchasing power as a result of which people enjoy new and
better quality goods, which in turn improves standard of living of the
people.

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B. From the viewpoint of a business organization:

1. Reputation: An organization, which undertakes exports can exports,


can bring fame to its company not only in export market but also in
domestic market. These companies enjoy worldwide reputation.

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2) CONCEPT OF EXPORT FINANCING :-

Export finance is a short term working capital finance allowed to an exporter.


Finance and credit are available to help not only export production but also
to sell overseas customers on credit . The short-term finance is required to
meet “working capital” needs. The short-term finance is required to meet
“working capital” needs. The working capital is used to meet regular and
recurring needs of a business firm. The regular and recurring needs of a
business firm refer to purchase of raw material, payment of wages and salaries,
expenses like payment of rent, advertising etc.
The exporter may also require “term finance”. The term finance or term loans,
which is required for medium and long term financial needs such as purchase of
fixed assets and long term working capital.

2.1) OBJECTIVES OF EXPORT FINANCE

• To cover commercial & Non-commercial or political risks attendant on


granting credit to a foreign buyer.
• To cover natural risks like an earthquake, floods etc.

2.2) APPRAISAL
Appraisal means an approval of an export credit proposal of an exporter. While
appraising an export credit proposal as a commercial banker, obligation to the
following institutions or regulations needs to be adhered to:-
 Obligations to the RBI under the Exchange Control Regulations
 Obligations to the Trade Control Authority under the EXIM policy
 Obligations to ECGC

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Guidenlines for Banks dealing in Export Finance : -
When a commercial bank deals in export finance it is bound by the ensuing
guidelines: -
a) Exchange control regulations.
b) Trade control regulations.
c) Reserve Bank’s directives issued through IECD.
d) Export Credit Guarantee Corporation guidelines.
e) Guidelines of Foreign Exchange Dealers Association of India.

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3 ) Import – Export Procedure

1 Seller and Buyer conclude a sales contract, with method of payment usually
by letter of credit (documentary credit).
2 Buyer applies to his issuing bank, usually in Buyer's country, for letter of
credit in favor of Seller (beneficiary).
3 Issuing bank requests another bank, usually a correspondent bank in Seller's
country, to advise, and usually to confirm, the credit.

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4 Advising bank, usually in Seller's country, forwards letter of credit to
Seller informing about the terms and conditions of credit.
5 If credit terms and conditions conform to sales contract, Seller
prepares goods and documentation, and arranges delivery of
goods to carrier
6 Seller presents documents evidencing the shipment and draft (bill
of exchange) to paying, accepting or negotiating bank named in the
credit (the advising bank usually), or any bank willing to negotiate.
under the terms of credit
7 Bank examines the documents and draft for compliance with credit
terms. If complied with, bank will pay, accept or negotiate.
8 Bank, if other than the issuing bank, sends the documents and
draft to the issuing bank.
9 Bank examines the documents and draft for compliance with credit
terms. If complied with, Seller's draft is honored.
10 Documents release to Buyer after payment, or on other terms
agreed between the bank and Buyer.
11 Buyer surrenders bill of lading to carrier (in case of ocean freight)
in exchange for the goods or the delivery order.

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4) TYPES OF EXPORT FINANCE

4.1) PRE-SHIPMENT FINANCE

Meaning :

Pre-shipment is also referred as “packing credit”. It is working capital finance


provided by commercial banks to the exporter prior to shipment of goods. The
finance required to meet various expenses before shipment of goods is called
pre-shipment finance or packing credit.

Definition :

Financial assistance extended to the exporter from the date of receipt of the
export order till the date of shipment is known as pre-shipment credit. Such
finance is extended to an exporter for the purpose of procuring raw materials,
processing, packing, transporting, warehousing of goods meant for exports.

Importance of Finance at Pre- shipment stage :

♦ To purchase raw material, and other inputs to manufacture goods.


♦ To assemble the goods in the case of merchant exporters.
♦ To store the goods in suitable warehouses till the goods are shipped.
♦ To pay for packing, marking and labelling of goods.
♦ To pay for pre-shipment inspection charges.
♦ To import or purchase from the domestic market heavy machinery and other
capital goods to produce export goods.

♦ To pay for consultancy services.

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♦ To pay for export documentation expenses.

POST-SHIPMENT FINANCE

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

Definition :
Credit facility extended to an exporter from the date of shipment of goods till the
realization of the export proceeds is called Post-shipment Credit.

Importance of Finance at post-shipment stage


To pay to agents/distributors and others for their services.
♦ To pay for publicity and advertising in the over seas markets.
♦ To pay for port authorities, customs and shipping agents charges.
♦ To pay towards export duty or tax, if any.
♦ To pay towards ECGC premium.
♦ To pay for freight and other shipping expenses.
♦ To pay towards marine insurance premium, under CIF contracts.
♦ To meet expenses in respect of after sale service.
♦ To pay towards such expenses regarding participation in exhibitions and
trade fairs in India and abroad.
♦ To pay for representatives abroad in connection with their stay board.

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5) LETTER OF CREDIT

Introduction :

This is one of the most popular and more secured of method of payment in
recent times as compared to other methods of payment. A L/C refers to the
documents representing the goods and not the goods themselves. Banks are not
in the business of examining the goods on behalf of the customers. Typical
documents, which are required includes commercial invoice, transport document
such as Bill of lading or Airway bill, an insurance documents etc. L/C deals in
documents and not goods.

Definition :
A Letter of Credit can be defined as “an undertaking by importer’s bank stating
that payment will be made to the exporter if the required documents are
presented to the bank within the validity of the L/C”.

Parties involved in Letter of Credit:

Applicant: The buyer or importer of goods


Issuing bank: Importer’s bank, who issues the L/C
Beneficiary: The party to whom the L/C is addressed. The
Seller or supplier of goods.
Advising bank: Issuing bank’s branch or correspondent bank in
The exporter’s country to whom the L/C is send for
Onward transmission to the beneficiary.
Confirming bank: The bank in beneficiary’s country, which
Guarantees the credit on the request of the issuing
Bank.

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Negotiating bank: The bank to whom the beneficiary presents his
Documents for payment under L/C

A Letter of Credit contains these elements:

• A payment undertaking given by the bank (issuing bank) on behalf of the


buyer (applicant)
• To pay a seller (beneficiary) a given amount of money on presentation of
specified documents representing the supply of goods within specific time
limits
• These documents conforming to terms and conditions set out in the letter
of credit
• Documents to be presented at a specified place.

The Issuing Bank's role is twofold:

• To guarantee to the seller that if complete documents are presented, the


bank will pay the seller the amount due. This offers security to the seller –
the bank says in effect "We will pay you if you present documents (XYZ)"
• To examine the documents and only pay if these comply with the terms
and conditions set out in the letter of credit. This protects the buyer's
interests - the bank says "We will only pay your supplier on your behalf if
they present documents (XYZ) that you have asked for"

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Advantages of Letters of Credit

To the exporter:
• No blocking of funds.
• Clearance of import regulations.
• Free from liability.
• Pre- shipment finance.
• Non-refusal by importer.
• Reduction in bad-debts.
To the importer:
• Better terms of trade.
• Assurance of shipment of goods.
• Overdraft facility.
• No blocking of funds.
• Delivery on time.
• Better relations.

Disadvantages of Letters of Credit :


• Lacks flexibility.
• Complex method
• Expensive for importer
• Problem of revocable L/C

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Sample Document: Letter of Credit (Documentary Credit)

THE MOON BANK


INTERNATIONAL OPERATIONS
5 MOONLIGHT BLVD.,
EXPORT-CITY AND POSTAL CODE
EXPORT-COUNTRY

OUR ADVICE NO. ISSUING BANK REF. NO. & DATE


MB-5432 SBRE-777 January 26, 2005

To,
UVW Exports
88 Prosperity Street East, Suite 707
Export-City and Postal Code
Dear Sirs:
We have been requested by The Sun Bank, Sunlight City, Import-Country to advise
that they have opened with us their irrevocable documentary credit number SB-
87654
For account of DEF Imports, 7 Sunshine Street, Sunlight City, Import-Country in
your favor for the amount of not exceeding Twenty Five Thousand U.S. Dollars
(US$25,000.00) available by your draft(s) drawn on us at sight for full invoice value

Accompanied by the following documents:

1. Signed commercial invoice in five (5) copies indicating the buyer's


Purchase Order No. DEF-101 dated January 10, 2005

2. Packing list in five (5) copies.

3. . Full set 3/3 clean on board ocean bill of lading, plus two (2) non-negotiable

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copies, issued to order of The Sun Bank, Sunlight City, Import-Country, notify
the above accountee, marked "freight Prepaid", dated latest March 19, 2005,
and showing documentary credit number.

4. Insurance policy in duplicate for 110% CIF value covering Institute Cargo
Clauses (A), Institute War and Strike Clauses, evidencing that claims are
payable in Import-Country.

Covering: 100 Sets 'ABC' Brand Pneumatic Tools, 1/2" drive,


complete with hose and quick couplings, CIF Sunny Port

Shipment from: Moonbeam Port, Export-Country to Sunny Port, Import-Country


Partial shipment Prohibited
Tran-shipment Permitted

Special conditions:

1. All documents indicating the Import License No. IP/123456 dated January 18, 2005.

2. All charges outside the Import-Country are on beneficiary's account

Documents must be presented for payment within 15 days after the date of shipment.
Draft(s) drawn under this credit must be marked

Drawn under documentary credit No. SB-87654 of The Sun Bank,


Sunlight City, Import-Country, dated January 26, 2005

We confirm this credit and hereby undertake that all drafts drawn under and in conformity
with the terms of this credit will be duly honored upon delivery of documents as specified, if
presented at this office on or before March 26, 2005

Very truly yours,

__________________________
Authorized Signature

Unless otherwise expressly stated, this Credit is subject to the Uniform Customs and Practice

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for Documentary Credits, 1993 Revision, International Chamber of Commerce Publication No.
500.

6) SOME IMPORTANT CONCEPTS IN EXPORT


FINANCING

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6.1 - FORFEITING

Forfeiting is a mechanism of financing exports.

• By discounting export receivables

• Evidenced by bills of exchange or promissory notes

• Without recourse to the seller (viz. exporter)

• Carrying medium to long term maturities

• On a fixed rate basis (discount)

• Upto 100 percent of the contract value.

The word `forfeit' is derived from the French word `a forfeit' which means the
surrender of rights.
Simply put, Forfeiting is the non-recourse discounting of export receivables. In a
forfeiting transaction, the exporter surrenders, without recourse to him, his rights
to claim for payment on goods delivered to an importer, in return for immediate
cash payment from a forfeiter. As a result, an exporter in India can convert a
credit sale into a cash sale, with no recourse to the exporter or his banker.
All exports of capital goods and other goods made on medium to long term credit
are eligible to be financed through forfeiting.Receivables under a deferred
payment contract for export of goods, evidenced by bills of exchange or
promissory notes, can be forfaited.

Benefits accrue to an exporter from forfeiting - :


● Converts a deferred payment export into a cash transaction, improving liquidity
and cash flow
● Frees the exporter from cross-border political or commercial risks associated
with export receivables
● Finance up to 100 percent of the export value is possible as compared to 80-85
percent financing available from conventional export credit program

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● As forfeiting offers without recourse finance to an exporter, it does not impact
the exporter's borrowing limits. Thus, forfeiting represents an additional source of
funding, contributing to improved liquidity and cash flow
● Provides fixed rate finance; hedges against interest and exchange risks arising
from deferred export credit
● Exporter is freed from credit administration and collection problems
● Forfaiting is transaction specific. Consequently, a long term banking
relationship with the forfeiter is not necessary to arrange a forfeiting transaction
● Exporter saves on insurance costs as forfeiting obviates the need for export
credit insurance

6.2 - FACTORING

Factoring may be defined as “A contract by which the factor is to provide at least


two of the services, (finance, the maintenance of accounts, the collection of
receivables and protection against credit risks) and the supplier is to assigned to
the factor on a continuing basis by way of sale or security, receivables arising
from the sale of goods or supply of services”.

Factoring offers smaller companies the instant cash advantage that was once
available only to large companies with high sales volumes. With Factoring,
there's no need for credit or collection departments, and no need to spend your
profits on maintaining accounts receivables.

In simple words...Factoring turns your receivable into cash today, instead of


waiting to be paid at a future date.

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7) RISKS INVOLVED IN THE EXPORT BUSINESS
Whether it be the exporter himself, or the bank financing the exporter in the pre-
shipment and post-shipment stages, or the bank negotiating the documents of

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the exporter, or the bank purchasing the Letter of Credit on behalf of the
exporter, or the bank adding its own confirmation to the overseas Irrevocable
Letter of Credit, or the factoring agent, or the forfaiting agent, or the bank adding
its guarantee in a bid bond – each of these agencies or organisations are faced
with risk.

To understand each type of risk and to appreciate the effects of such risk, we
must delve into each of these kinds of risk associated with export trade

Payment for Goods

the risk of non-payment for goods will be dealt with in maximum detail while
compared to the other kinds of risk related to export trade. This is because the
risk of non-payment has several aspects to it.

COMMERCIAL RISKS

▪ Insolvency of the buyer : - He is declared bankrupt if -


He has made a valid assignment, composition or other arrangement for the
benefit of his creditors generally.
If the buyer be an incorporated body -
An order has been made for compulsory winding up, or
An effective resolution has been passed for voluntary winding up provided that

such resolution is not merely for the purpose of reconstruction or amalgamation.


▪ Wilful default of the buyer: - : This is reflected in the failure of the buyer to make
payment due within a specified period, normally four months from the due date,

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to the exporter. Here, by payment, we refer to the gross invoice value of the
goods delivered to and accepted by the buyer.
▪ Buyer’s failure to accept the goods:- This means failure or refusal on the part of
the buyer to accept goods which have already been exported by the exporter.
Reasons generally cited for such events include quality disputes.
▪ Insolvency of the bank opening the Irrevocable Letter of Credit:
▪ Default of the bank opening the irrevocable Letter of Credit:

POLITICAL RISKS
▪ Transfer of Payment risk: This refers to the imposition of any restriction 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.
▪ War:
▪ New import restrictions:

OTHER RISKS
▪ Causes inherent in the nature of the goods:
▪ Buyer’s failure:
▪ Agent’s failure: Risk also comes in the form of insolvency or protracted default
of any agent of the exporter.
▪ Collecting Bank’s failure: Again, as in the above point, there is the risk of
insolvency or default of the collecting bank.
▪ Shipments on consignment basis: Here the risk is two-fold: there is the political
risk of the agent’s country; there is also the commercial risk of non-payment by
“ultimate buyers” if the agent sells the goods to them on credit terms.
▪ Shipments made by air: Where shipments are made by air, the buyers are
often able to obtain delivery of the goods from the airlines before making
payment of the bills or accepting them for payment, as the case may be. There
is the risk of the buyer failing to make the payment subsequently as per the
contract. This is generally referred to as shipping on OPEN DELIVERY terms.

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Exchange Risk

Exchange rate volatility is a fact of life. There is a continuous fluctuation in


exchange rates, thereby bringing uncertainty in receipt for exports and payments
against exports.

Extended Credit Period Risk

Extended credit period refers to bills carrying medium or long term maturities.
This involves receivables under a deferred payment contract for export of goods,
evidenced by bills of exchange or promissory notes. All exports of capital goods
and other goods made on medium to long term credit are classified as having an
extended credit period.

Risk arising out of an extended credit period or deferred payment for goods
exported is reduced to some extent through the mechanism of Forfaiting.

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8) MAJOR FINANCIAL AND OTHER INSTITUTIONS

For providing credit and finance and insuring export credit risk, there are 2
primary institutions i.e. EXIM Bank and ECGC.
8.1 - EXIM BANK

Exim Bank Act-Completed 28 years of operations.


Set up by an Act of Parliament in September 1981.
Commenced operations in March 1982.
Wholly owned by the Government of India.
Export-Import Bank of India was set up for the purpose of financing, facilitating
and promoting foreign trade in India. Exim is the principal financial institution in
the country for co-ordinating working of institutions engaged in financing

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exports .

Offices :-
Head office – Mumbai.
A network of 13 offices in India and Overseas.
Domestic Offices - Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata,
Mumbai, New Delhi, Pune.
Overseas Offices - Budapest, Johannesburg, Milan, Singapore, Washington DC.

Purpose : -
The EXIM bank was established for the purpose of financing medium and long
term loan to the exporters thereby promoting foreign trade of India.

Main Objectives : -

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● To provide financial assistance (medium and long term) to exporters and
importers.
● To function as the principal financial institution for coordinating the working of
institutions engaged in providing export finance.

● To promote Foreign Trade of India.

●To deal with all matters that may be considered to be incidental or conducive to
the attainment of above objectives.

Functions : -

The assistance provided by EXIM Bank to the exporters can be grouped under
two heads:

Fund Based Assistance.

Non-Fund based Assistance.

The various assistance provided by EXIM Bank can be charted as


follows:

ASSISTANCE OFFERED BY EXIM BANK

FUND BASED NON-FUND BASED


ASSISTANCE ASSISTANCE

INDIAN PARTIES. FINANCIAL


INDIAN BANKS. GUARANTEES.
OVERSEAS BUYERS. ADVISORY AND OTHER
OVERSEAS BANKS. SERVICES.
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A. Fund Based Assistance : -

• Assistance to Indian Exporters:


(a) It provides financial assistance to “Deferred credit exports”.
(b) It offers credit facilities to “Deemed Exports”.
(c) It finances “Indian Joint Ventures in Foreign countries”.
(d) Finances units in“EPZ/ SEZ and 100% EOU’s”.
(e) It provides Pre-shipment finance to exporters for procuring raw
materials and other inputs.
(f) It finances export/import of machinery and equipment on lease
basis.
(g) It provides Computer Software exporters foreign exchange loan
subject to RBI clearance.
(h) It provides finance facility against deferred credit to exporters of
consultancy, technology and other services.
(i) It provides finance to Indian exporters to undertake various export
marketing activities in India and abroad through Export Marketing
Fund (EMF).
(j) It also operates Export Development Fund (EDF) to finance techno-
economic survey/research or any other study for the development
of Indian Exports.

• Assistance to Indian Commercial Banks:


(a) It provides Refinance Facilities so as to Indian exporters who
extend term credit to importers.
(b) It offers Export Bills Rediscounting Facility to commercial banks in
India who have earlier discounted bills of exporters.

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• Assistance to Overseas Buyers:
(a) It offers “Overseas Buyer’s Credit” facility to foreign importers for
import of Indian capital goods and related services with repayment
spread over a period of years.

• Assistance to Overseas Banks:


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

3. Non - fund Based Assistance : -

• Guarantees and Bonds:


EXIM Bank provides non-fund base assistance in the form of guarantees in the
nature of Bid Bonds, Performance Guarantee etc. These guarantees are
provided together with Commercial Banks.

• Advisory and Other Services:

It advises Indian companies, in Executing Contracts Abroad, and on sources of


overseas financing.It advises Indian exporters on global exchange control
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.It provides Euro Financing sources and Global Credit
sources to Indian exporters.It assists the exporters under Forfeiting scheme.

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Exim Bank plays the role of an intermediary for facilitating the forfaiting
transaction between the Indian exporter and the overseas forfeiting agency.

Assistance is extended to Indian Promoter Companies by way of programmes


that address to different requirements of the promoter company in setting up of
the joint venture.
• Overseas Investment Finance Programme for setting up joint ventures
and wholly owned subsidiaries abroad.
• Asian Countries Investment Partners (ACIP) Programme for creation of a
joint venture in India with East Asian countries, through four facilities that
address different stages of a project cycle.

A RANGE OF EXPORT SERVICES PROVIDED BY EXIM BANK

EXIM INDIA provides a range of analytical information and export related


services necessary for globalization of Indian companies. EXIM INDIA through its
wide network of alliances with financial institutions, trade promotion agencies,
information providers across the globe assists externally oriented Indian
companies in their quest for excellence and globalization. Services include
search for overseas partners, identification of technology suppliers, negotiating
alliances, and development of joint ventures in India and abroad.

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It promotes Indian consultancy by having tie up with
 International Finance Corporation, Washington D.C.
 Africa Project Development Facility
 Africa Enterprise Fund
 Technical Assistance & Trust Funds
 Mekong Project Development Facility

 Eastern & Southern African Trade & Development Bank (PTA Bank)

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 African Management Services Company (AMSCO), Netherlands

EXAMPLES

 Gems & Jewellery Study - Zambia


 Financial Training Mission - Kenya
 Cement Project - Cameroon
 Software - Madagascar
 Wool Knitting - Vietnam
 Textile - Nigeria
 Refrigeration - Ghana
 Financial Training - Poland

It promotes Knowledge building .There is EXIMIUS CENTRE FOR


LEARNING, BANGALORE which was set up, in October 1994, to organize
seminars and workshops in areas such as international trade & investment,
export marketing, quality, packaging, business opportunities in multilateral
agencies funded projects, sector and country specific programmes. It have
guest faculty from network partners such as IFC, World Bank, EBRD, UNIDO.

Research Studies on products, sectors, countries, macro economic issues


relevant to international trade and investment are carried out

INFORMATION Function

 Exporters/Importers
 Industry/Market Reports

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 Trade Regulations & Laws
 Country Reports
 International Quality Standards
 Partner Identification
 Product Display

Examples of Information Services


• Hungarian Pharmaceutical Sector
• Importers of Sanitary ware, Castings in North America
• Importers of Agro-chemicals in Eastern Europe
• Study for ear buds market in Hungary
• Study of the Indian Wine market for a Hungarian Company
• Partner identification for an Italian Sanitary ware manufacturer
• Study of the Indian Crane Industry for a Finnish company
• Regulatory Framework for setting up a Pharma Project in China
• Market report for Computer Monitors in India for a Singaporean firm
• Study on Bicycle market in Eastern Europe for Indian Cycle
exporter
• Market Potential for Denim in South East Asia

6.2 - EXPORT CREDIT GUARANTEE CORPORATION OF INDIA


LTD.

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In order to provide export credit and insurance support to Indian exporters,
the GOI set up the Export Risks Insurance Corporation (ERIC) in July, 1957. It was
transformed into export credit guarantee corporation limited (ECGC) in 1964. Since
1983, it is now know as ECGC of India Ltd.
ECGC is a company wholly owned by the GOI. It functions under the
administrative control of the Ministry of Commerce and is managed by a Board of
Directors representing government, Banking, Insurance, Trade and Industry. The
ECGC with its headquarters in Bombay and several regional offices is the only
institution providing insurance cover to Indian exporters against the risk of non-
realization of export payments due to occurrence of the commercial and political
risks involved in exports on credit terms and by offering guarantees to commercial
banks against losses that the bank may suffer in granting advances to exports, in
connection with their export transactions.

OBJECTIVES OF ECGC:
 To protect the exporters against credit risks, i.e. non-repayment by buyers
 To protect the banks against losses due to non-repayment of loans by
exporters

COVERS ISSUED BY ECGC:

The covers issued by ECGC can be divided broadly into four groups:

1. STANDARD POLICIES – issued to exporters to protect then against


payment risks involved in exports on short-term credit.

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2. SPECIFIC POLICIES – designed to protect Indian firms against payment risk
involved in (i) exports on deferred terms of payment (ii) service rendered to foreign
parties, and (iii) construction works and turnkey projects undertaken abroad.
3. FINANCIAL GUARANTEES – issued to banks in India to protect them from
risk of loss involved in their extending financial support to exporters at pre-shipment
and post-shipment stages; and

4. SPECIAL SCHEMES such as Transfer Guarantee meant to protect banks


which add confirmation to letters of credit opened by foreign banks, Insurance cover
for Buyer’s credit, etc.

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9) EXPORT PROMOTION SCHEMES AND INCENTIVES

Schemes for Concessional Imports


Inorder to reduce or remove the anti-export bias inherent in the system of indirect
taxation and to encourage exports, several schemes have been established
which allow importers to benefit from tariff exemptions, especially on inputs. The
schemes have been summarized as under:

Scheme About the Scheme Objective


Provide a level playing field to the
The rebate of duty chargeable on
country’s exporters so as to exclude
any imported or excisable
Duty the export production from the
material used in the manufacture
Drawback incidence of import duty and other
of goods exported from India;
indirect taxes
based on industry drawback rates
Import of capital goods at
Reduce the incidence of high
Export concessional rate of duty subject
capital cost on export prices to
Promotion to an appropriate export
make exports competitive by way of
Capital obligation accepted by the
reduced import duty on capital
Goods exporter
goods
Promote duty free imports when
An advance licence is used to
large quantities of standard raw
allow duty free import of physical
Duty materials are required for export
inputs used in producing exports
Exemption production
products after making normal
allowance for wastage
Duty The grant of customs duty credit Neutralizes the incidence of
Remission is on post export basis as a customs duty by assuming the

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inputs as imported and additional
specified percentage of fob value
duty is not levied
of exports made in freely
convertible currency

Schemes to Promote Export Production and Related


Infrastructure

The development of export related infrastructure and enclaves, which create an


environment conducive for export production, is crucial to sustain the export
growth. Schemes for concessional import for firms primarily engaged in export
production are summarized as under:

Scheme About the Scheme Objective


Export- Offers wide option in locations for
Attract large number of exporters to
oriented units under DTA(Domestic Tariff
set up their units in these zones
Units Area)
Develop infrastructure for export
Export
Special enclaves separated from production at internationally
Processing
DTA by fiscal barriers competitive prices and environment
Zones
and economic development

Act as growth engines that boost


Special A duty-free enclave to be treated
manufacturing, augment exports
Economic as a foreign territory for trade
and generate employment
Zones operations and duties and tariffs

Services which are expected to Promote agricultural exports from


be managed and coordinated by the country and remunerative
Agri-Export
state government/corporate returns to the farming community in
Zones
sector and include various a sustained manner
provisions
A software development unit is
set up for software development ,
Software Facilitate export oriented production
data entry and conversion, data
Technology of computer software
processing, data analysis and
Parks
control data management or call
center services for exports

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A unit can be set up for
Electronic Facilitate export oriented production
manufacture and development of
Hardware of computer hardware
electronic hardware or electronic
Technology
hardware and software in an
Parks
integrated manner

Export Houses/Trading Houses/Star Trading Houses/Superstar


Trading Houses

The objective of the scheme Export Houses, Trading Houses, Star Trading
Houses, Superstar Trading Houses is to give recognition to the established
exporters and large export houses to build up the marketing infrastructures and
expertise required for export promotions.

The registered exporters having a record of export performance over a number of


years are granted the status of export/trading houses or star trading houses
subject to the fulfillment of minimum annual average export performance in terms
of FOB value or net exchange earning on physical export or services prescribed
in the Exim policy.

Average FOB/FOR value during the


Category
preceding 3 licensing years (in Rs)

Export House 15 crores


Trading House 100 crores

Star Trading Houses 500 crores

Super Star Trading House 2000 crores

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The exporters who have been granted the status of export house/trading house
are entitled to a number of benefits under the EXIM policy including the following:
• License/Certificate/Permission and customs clearances for both imports
and exports on self declaration basis

• Fixation of input-output norms on a priority basis


• Priority finance for medium and long-term capital requirement as per
conditions notified by RBI
• Exemption from compulsory negotiation of documents through banks. The
remittance, however, would continue to be received through banking
channels
• 100% retention of foreign exchange
• Enhancement in normal repatriation from 180-360 days
The registered exporters are provided certain extra benefits.

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10) POLICY INITIATIVES AND INCENTIVES BY THE
STATE GOVERNMENTS
The state governments generally do not distinguish between production for
domestic market and production for export market. Therefore, there had
been few specific measures taken by the state governments especially
targeted at exporting units. However, the state governments have taken a
number of policy measures to encourage industrial activity in the state.
These measures mainly relate to
(a) Capital investment subsidy or subsidy for the preparation of
feasibility report, project report, etc.;
(b) Waiver or deferment of sales tax or providing loans for sales tax
purposes;
(c) Exemption from entry tax, octroi duty, etc.;
(d) Waiver of electricity duty;
(e) Power subsidy;
(f) Exemption from taxes for certain captive power generation
units;
(g) Exemption from stamp duties; and
(h) Provision of land at concessional rate, etc.
It may be noted that most of the exemptions tend to encourage
capital or power-intensive units, though some concessions are linked to
turnover. Most of the concessions in the state industrial policies have been

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designed keeping in view the manufacturing industries. An analysis of
industrial policies of various states indicates that most state governments
do compete among themselves in extending such concessions.

On examination of export promotion initiatives by the state


governments, it is difficult to find commonality among various states.
However, some of the measures taken by the state governments are as
follows.
(a) provide information on export opportunities
(b) allot land for starting an export-oriented unit (EOU)
(c) plan for the development of export promotion industrial parks
(d) exemption from entry-tax on supplies to EOU/EPZ/SEZ units
(e) exemption from sales tax or turnover tax for supplies to
EOU/EPZ/SEZ units and inter-unit transfers between them.

ASSISTANCE TO STATES FOR INFRASTRUCTURE


DEVELOPMENT OF EXPORTS (ASIDE)

The State Governments shall be encouraged to participate in promoting exports


from their respective States. For this purpose, Department of Commerce has
formulated a scheme called ASIDE.

Suitable provision has been made in the Annual Plan of the Department of
Commerce for allocation of funds to the states on the twin criteria of gross
exports and the rate of growth of exports.

The States shall utilise this amount for developing infrastructure such as roads

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connecting production centres with the ports, setting up of Inland Container
Depots and Container Freight Stations, creation of new State level export
promotion industrial parks/zones, augmenting common facilities in the existing
zones, equity participation in infrastructure projects, development of minor ports

and jetties, assistance in setting up of common effluent treatment facilities,


stabilizing power supply and any other activity as may be notified by
Department of Commerce from time to time.

MARKET DEVELOPMENT ASSISTANCE (MDA)

In order to encourage exporters to explore the overseas markets and to promote


their exports, Market Development Assistance (MDA) Scheme of the Department
of Commerce is available for the following activities.
Assist Export Promotion Councils, Commodity Boards, and Exports
Development Authorities to undertake promotional activities for their
products and commodities
• Assist consortium approach for overseas marketing
• Assist trade bodies/approved organization for carrying out non-recurring
innovative activities for export promotion
• Assist export promotion councils to contest countervailing duty/anti-
dumping cases initiated abroad
• Assist focus export promotion programmes in specific regions abroad like
FOCUS LAC programme
• Assist individual exporters for export promotion activities abroad

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• Residual essential activities connected with marketing promotion efforts
abroad.

MARKET ACCESS INITIATIVE (MAI)


In order to supplement the Market Development Scheme and facilitate

promotional efforts on a sustained basis, Market Access Initiative (MAI) Scheme


was launched in 2001-02. The scheme is formulated on focus product-focus
country approach to evolve specific strategy for specific market and specific
product through market studies or surveys. Under the scheme, assistance is
provided to export promotion organizations/trade promotion organizations or
exporters for the enhancement of export through venturing into new markets or
through increasing the share in the existing markets.
Financial assistance is provided for the following activities under the scheme:
• To identify the priorities of research relevant to the Department of
Commerce and to sponsor research studies consistent with the priorities
• To carry out studies for evolving a WTO-compatible strategy
• To support EPCs/trade promotion organizations in undertaking market
studies/surveys for evolving proper strategies
• To support marketing projects abroad based on focus product-focus
country approach. Under marketing projects, the following activities
are funded
 Opening of showrooms
 Opening of warehouses
 Display in international department stores
 Publicity campaign and brand promotion
 Participation In trade fairs abroad

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 Research and product development
 Reverse visits of the prominent buyers from the project focus
countries
• To undertake export potential survey of the states
• To take registration charges for product registration abroad for
pharmaceuticals, bio-technology, and agro-chemicals
• To test charges for engineering products abroad

• To support cottage and handicraft industries


• To support recognized associations in industrial clusters for marketing
abroad
Under the scheme, the financial assistance is given to central and state
governments and its departments, export promotion councils, commodity
boards, registered trade promotion organizations and apex trade bodies,
recognized industrial clusters, and individual exporters.
However, the assistance to individual exporters is available only for
evaluating the charges of engineering products abroad and registration
charges of pharmaceuticals, biotechnology, and agro-chemicals. The
proposals for assistance are examined by an Empowered Committee under
the Championship of Commerce Secretary for a particular product and a
particular market.
The Market Access Initiative scheme provides an excellent opportunity,
especially for public and private-sector export promotion organizations, to
fiancé their marketing activities for the thrust products in the pre-identified
markets. The scheme could not make the anticipated headway mainly due to
limited initiatives by the state and central government organizations, which
had been the target principal beneficiaries, and also because of non-

48
awareness among the target beneficiaries due to poor marketing of the
scheme.

Learning’s/Suggestions through this project:

♦ Export Finance is a very important branch to study & understand the overall
gamut of the international finance market.
♦ Availability of favorable Export finance schemes directly impacts the local
trade, encourages exporters, enlarges markets abroad, improves quality of
domestic goods and overall helps the nation boost its exchange earnings.
♦ The Government of any nation plays a very vital role in boosting export
turnover. The credit policy of the Indian Government is also changed
depending upon the needs of the exporters, global trade environment etc.
The credit policy of Oct 2001 is a pointer in this direction.
♦ ECGC and EXIM Bank take a lot of efforts for Export promotion. The
strategies of these 2 agencies in India should be flexible & their finance
schemes should be constantly synchronized with the changing scene of world
trade. This alone can help Indian exporters to stand competition in world
markets effectively and more gain-fully.
♦ Finally, a very essential question needs to be answered by the International
Trade gurus with reference to “Relevance of EXIM Policy in the current
times”. Exim policies had emerged when the state decided to limit imports

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and encourage exports in order to maintain currency reserves. However, such
ideas backfired: consumers were hurt and producers turned lazy.

Bibliography- :
Assistance provided by Exim ( 1998 ) . Retrieved on August 12 , from
www.eximbank.com
Indian Trade Marching ( 2002 ) . Retrieved on July 15, from
www.exportimporttrade.com
Indian prospectives of Business ( 2006 ) . Retrieved on July 10 from
www.tradeindia.com
Ram Paras ( 2005 ). Export –What Where & How . Delhi : Trade India Books
Mahajan M.. I. A Guide to Export . Mumbai : Export Intro Books
ECGC Services Manual
RBI Mid term review for year 2001-02
Import – Export Procedure ( 2004 ) Retrieved on August 10, 2009 from www.
Exportprocedures.com
A.D. Pillai ( 2003 ) .Risks involved in Export Financing. New Delhi – The
Financial Express
Borleaug D. Global Exports ( 2006 ) Washington D.C. -Economic Times
Pillai . M . Analysis of Risk ( 2008 ), New Delhi – The Business Standard
Objectives and Scope ( 2002 ) . Retrieved on August 10 , from
www.ecgcindia.com

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