FINANCING OF AN EXPORT UNIT WITH REFERENCE TO K.M.

GANATRA & CO.

Submitted by
ANAND L. THAKKAR
5th SEMESTER SEAT NO. 2928

Under the guidance of

Mrs. Parvati Venkatesh

SHRI S.K. SOMAIYA COLLEGE OF ARTS, SCIENCE & COMMERCE

VIDYAVIHAR, MUMBAI - 400077

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 ACKNOWLEDGEMENT

I would like to take this opportunity to express my sincere gratitude to

Prof. Parvati Venkatesh for giving me an effective guidance in this project.

I would also like to thank Mr. Sameer Ganatra C.E.O. of K.M.Ganatra and Co for
sparing time for me to help me gain proper information about the exports

I would like to thank both of them for their kind co-operation, support & guidance to
me, without which my project would have been very difficult.

I wish to express my thanks with regards and affection.

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 INDEX
• Export Credit

• Pre shipment Credit

• Export Credit in SEZ

• Negotiation/Purchase/Discount of Export Bills.

• Export Credit in Foreign Currency

• Pre shipment credit in Foreign Currency

• Deemed Exports

• Export Guarantees

• Export Procedure

• K.M. Ganatra Company Profile

• Export Promotion

• Export Incentives

• Risks covered by ECGC

• Terms of Payment

• Export Documentation

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4
 Introduction
The composition of foreign trade of any country implies the composition of exports and
imports. An examination of the composition of foreign trade enables us to analyse the
progress report of that country and the rate and speed of structural changes operating in
it. The speed with which such a country changes its pattern of trade (leading to a
percentage decline in imports of manufactured products and percentage increase in
exports of such products) is taken by economists as an indication of the pace of
development in the country.

Before the advent of planning in India, main exports were primary goods like jute, tea,
cotton, hides and skins, manganese ore, mica etc.

Composition of Exports
Composition of India’s exports is presented in the table below. A clear trend has been a
decline in importance of manufactured products. For instance, share of agriculture and
allied products in exports declined considerably from 44.2 percent in 1960-61 to 14.0
percent in 2001-02.
1. The most important export item in 1960-61 was jute manufactured products and
it contributed 21% of total export earnings.
2. The second most important export item in 1960-61 was tea and it contributed
19.3% of total export earnings.
3. The most spectacular increase has been recorded by handicrafts. From 96$
million in 1970-71 the exports of handicrafts rose to 8230$ million in 2001-02.
4. The exports of engineering goods rose from 46$ million in 1960-61 to 261$
million in 1970-71.
5. Export of readymade garments has emerged as an important foreign exchange
earner in recent years.

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This table shows India’s exports in last 5 decades.

C o mmo d ities 1960-61 1970-71 1980-81 1990-91 2000-01

$ M illio n % $ M illio n % $ M illio n % $ M illio n % $ M illio n %
1 A g riculture a nd 5 9 6 4 4 .2 6 4 4 3 1 .7 2 6 0 1 3 0 .6 3 5 2 1 1 9 .4 6 2 5 6 1 4
a llie d pro duc ts
a Tea and M ate 2 6 0 1 9 .3 1 9 6 9 .6 5 3 8 6 .3 596 3 .4 433 1
b C ashe w K ernels 4 0 3 7 6 3 .7 1 7 7 2 .1 249 1 .4 412 0 .9
c R ice nil nil 7 0 .3 2 8 .3 3 .3 257 1 .4 644 1 .4
d F ish 1 0 0 .8 40 2 2 7 4 3 .2 535 2 .9 1394 3 .1

2 O re s a nd 109 8 .1 2 1 7 1 0 .7 5 2 3 6 .2 8 3 4 4 .6 906 2
M ine ra ls
a Iro n o re 36 2 .6 155 7 .6 3 8 4 4 .5 5 8 5 3 .2 358 0 .8

3M a nufa cture d 6 1 0 4 5 .3 1 0 2 1 5 0 .3 4 7 3 8 5 5 .8 1 3 2 2 9 7 2 .9 3 5 1 8 1 79
G o o ds
a C o tto n yarn 1 3 6 1 0 .1 1 8 8 9 .2 5 1 6 6 .1 1 1 7 0 6 .4 3 5 0 9 7 .9
b R ead yma d e 2 0 .1 3 9 1 .9 6 9 6 8 .2 2 2 3 6 1 2 .8 5 5 7 7 1 2 .5
c Jute M anufac ture 2 8 3 21 2 5 2 1 2 .4 4 1 7 4 .9 1 6 6 0 .9 2 0 4 0 .4

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 1970-71 1980-81 1990-91 1996-97 1997-98 1998-99 1999-00

39 111 239 1202 1410 1633 1702

India’s exports can be broadly classified into two categories i.e. traditional products
and non-traditional products. Spices are included in the category of traditional products.
This table shows estimated export of spices from India during April-July 2005
Item Quantity Value
(Tonnes) (US $ MIL)
Pepper 4710 9.61
Cardamom (small) 150 1.17
Cardamom (large) 410 0.87
Chilli 42,000 33.11
Ginger 1,550 2.50
Turmeric 19,000 13.96
Coriander 8,750 5.46
Cumin 2,750 5.00
Celery 1,000 0.79
Fennel 1,850 1.86
Fenugreek 6,200 2.52
Other seeds (1) 3,700 2.00
Garlic 7,300 2.02
Nutmeg & Mace 500 2.24
Vanila 8.95 0.55
Other spices (2) 6,950 5.63
Curry powder 2,550 4.85
Mint Products(3) 2,500 27.92
Spice oleoresin and other 1,975 37.36
oils
Total 113,854 159.44

This table below shows the exports of Spices for the last two decades.(Rupees. crores)

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The performance of merchandise exports and its broad components into exports of
agricultural and allied products, during the period 1980-2000 as per the data is shown
in the following table. (Growth of Exports)

Growth rates (Annual Average)

1980-81 to 1991-92 1992-93 to 1999-00
3.3 8.1

Percentage Share
1980-81 to 1991-92 1992-93 to 1999-00
24.2 18.3

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 Export Credit
Exports for a developing country like India play a very important role as foreign
exchange earner for the country. Government of India offers many incentives to
exporters and entire Government's policy is geared towards export promotion.
Commercial banks are called upon to play an important role in export promotion by
granting various credit facilities at very liberal terms. Present exchange regulations i.e.
FEM (Export of Goods and Services) Regulations, 2000 framed under FEM A, 1999
require association of a bank at every stage by an exporter and export proceeds have to
be settled through the medium of a bank authorized to deal in foreign exchange.
Selection of a bank or brunch of a bank, therefore, assumes importance for the exporter
for smooth conduct of his business. The following points are to be kept in mind while
selecting the bank/branch for transacting export business:
• Exports can be handled by a bank who is authorized to deal in foreign exchange. State
Bank of India, its associates, all nationalized banks and important scheduled banks
have been granted foreign exchange licence by Reserve Bank of India. There may,
however, still be a few small banks which do not have FEX license and may not be able
to handle export documents directly.
• All the branches of a bank authorized to deal in foreign exchange may not be directly
handling export documents. The branches of banks are divided m three categories as
under for this purpose :
(i) Category 'A' branches which maintain position and nostro accounts (foreign
currency accounts with foreign banks) and can directly handle all types of foreign
exchange business.
(ii) Category 'B' branches which do not maintain position or nostro accounts but are
authorized to handle foreign exchange business directly. The realization of export
documents are received by such branches through foreign currency accounts of
category 'A' branches, (iii) Category 'C' branches which cannot undertake foreign
exchange business on their own and have to route it either through category 'A'
branches or through category 'B' branches.

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As per the general policy of banks there are very few branches in category 'A' and these
are located in major metropolitan cities. Category 'B' branches are located in major
cities and towns. If a bank has a large number of branches in a city, one or two of its
branches in that city may only be in category 'B'. Preference should be given to
category 'A' branch followed by category 'B' branch. Dealing with category 'C' branch
may create difficulties and realization of export bill may be delayed as a long
processing route will be involved in such cases.
• A lengthy exchange control procedure is involved in all export transactions.
International trade also requires intimate knowledge of rules/regulations as applicable to
export/import business besides fast and efficient means of communication. All the major
banks have now opened 'overseas branches' which specialise in providing banking
services for international trade. If no overseas branch is operating in an area, the
branch which is having a full-fledged foreign exchange department equipped with
necessary infrastructure should be selected.
• Export trade may involve invoicing in foreign currency which will be converted to
Indian rupees by the banks after applying the relevant exchange rate. Banks are free to
quote exchange rates for various currencies based upon the prevailing market
conditions and a lot of competition exists in the matter. It will, therefore, be advisable
to study the exchange rate quotations of a few banks and ' the transaction be put through
at the best available rate for maximum advantage,
Another important factor which needs attention is that many banks are dealing only in
a few selected foreign currencies. The export bills drawn in a currency in which a bank
is not dealing will be realised by converting the foreign currency amount of the bill in
other foreign currency in which the bank is dealing. In such transaction the
exporter will be put to unnecessary exchange risk for such conversion. It is, therefore,
advisable that export bill is routed through that bank only which is directly dealing in
the currency of invoice.
As stated earlier, association of a bank at every stage of export transaction is essential
and it is; the obligation of the bank handling export transaction to ensure that all
export policy and exchange control requirements are met.

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 PRESHIPMENT CREDIT
All credit facilities sanctioned to exporters for procuring/manufacturing/
processing/packing/warehousing/shipping the goods meant for exports arc termed as 'Pre-
shipment Credit'. This facility is also referred to as 'packing credit'. Packing credit may be
taken as equivalent to 'cash credit' in domestic business except that cash credit facility
is sanctioned as a continuous/running facility whereas packing credit advance is
disbursed for a specific purpose to enable the exporter to meet a specific export obligation.
Every pre-shipment advance is, therefore, considered as a separate loan account different from a
domestic advance or inter se.
The credit limits for pre-shipment advance are considered simultaneously along with other
facilities and it is generally made a sub-limit within the overall cash credit limit sanctioned to the
borrower. However, for those borrowers who are exclusively engaged in export, separate packing
credit limits are sanctioned by the banks. The procedure and techniques adopted by the bank are the
same as in case of other advances. However, the assessment of working capital requirement may be
based upon the export orders in hand with the exporter besides his capacity to meet that
commitment. A very flexible approach in this regard is taken by the banks and adequate finance
is available for every viable export proposal. A few important points that need to be kept in mind
while putting up an application to the bank for sanctioning of credit limits for exports are given
below:
• Export from India is allowed either against an export L/C or against an export order. The bank
may also sanction packing credit which may be disbursed either against an L/C or against an order.
Correct position in this regard must be explained to the bank to avoid any difficulty later. It may be
noted that if the limit by the bank is sanctioned against L/C, disbursement against an order may not be
allowed by the bank.
• Even in case of exports under L/C, the exporter may receive the L/C at a ve«y late stage and
may be required to procure/manufacture the goods much before the L/C is received. In this situation
also some difficulty may be faced in getting the packing credit released from the bank. It
would, therefore, be necessary to discuss all these matters with the bank at the time of sanctioning
of limits.
• All pre-shipment advances are to be liquidated from the proceeds of export bills. Application
for sanctioning of suitable post-shipment facilities shall, therefore, be simultaneously made.
Exporter may also be entitled for duty drawback etc. and credit limits against claims of such
incentives shall also be obtained at that time.

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• Exporters may also require back to back L/C or L/C facilities for purchase of raw material etc.
which are generally sanctioned by banks as a sub-limit of overall packing credit limit. The
position in this regard be also ascertained and suitable limits obtained for this purpose.
The purpose of the above discussion is to emphasize the need to apply for total credit
requirements at one time with all the relevant details made available to the bank in the
beginning itself so that suitable limits are sanctioned avoiding any request for adhoc facilities
at a later date. The general terms and conditions of granting packing credit advances by
banks are given below:

Importer Exporter Code Number

No commercial export from India is permitted on behalf of a person/firm/ company who has
not been allotted an 'Importer Exporter Code Number'.
A few firms may be completing exports through registered Export/Trading Houses and are
eligible to avail packing credit limits from the banks. Such firms may not be required to
obtain the code number.
Submission of Export Order/L/C
The exporter has to produce a confirmed export order or L/C as per the terms of sanction at the
time of disbursement of packing credit. In the absence of an export order/L/C, the bank may
accept some other communication from the overseas buyer provided it contains minimum
details giving the name of the buyer, the value of the order, quantity and particulars of the goods
to be exported date of shipment and terms of payment. Even in such cases final sales contract/
L/C will be required to be submitted to the bank at a later stage.
Sometimes an export order is received by an export house/trading house or a merchant
exporter who may pass on this order to a sub-supplier who is not directly exporting. Such
sub-supplier may also avail packing credit facility from the bank. The packing credit in
such cases can be granted after getting a letter from the export house/trading house giving
details of the order and also confirming that he (export house/trading house) has not
availed any packing credit against that order.
The repayment of such advance should be from the proceeds of bills drawn under
inland L/C (back to back L/C) opened by the export house/merchant exporter in favour of
the sub-supplier. Where such an L/C is not opened, the sub-supplier may draw a bill on the
export house. If 'Bill of Lading' is not enclosed with the documents by the sub-supplier,
then a certificate from the export house/ merchant exporter would be necessary to the effect
that the goods have actually been exported.

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 Disbursement of Packing Credit
Normally, Banks treat each packing credit as separate account to monitor period of sanction
and end-use of fund.
Banks may release the packing credit in one lump sum or in different stages as per the
requirement for executing the orders/LC.
Sometimes Banks also maintain different accounts at various stages of manufacturing,
processing etc. and ensure that the outstanding balance in accounts are adjusted by
transfer from one account to the other and finally by proceeds of relative export documents
on purchase, discount etc.
Banks should keep a close watch on the end-use of the funds and ensure that credit at lower
rates of interest is used for genuine requirements of exports. Banks should also monitor the
progress made by the exporters in timely fulfilment of export orders.

Extension of Pre-shipment Credit -'Running Account' facility

The requirement of prior lodgement of letters of credit or firm orders has been waived
by Reserve Bank of India and banks have been permitted to grant pre-shipment advances for
exports of any commodity without insisting on prior lodgement of letters of credit/firm
export orders depending on the bunk's judgement regarding the need to extend such a
facility. Granting of such facility may be subject to the following general conditions:
(i) The facility will be allowed to only those exporters, whose track record has been good as
also EOU, units in Free Trade Zone, EPZs and SEZs. New exporters may not for obvious
reasons be allowed this facility, (ii) The exporters to whom this facility is allowed will be
required to produce letters of credit/firm export orders within a reasonable period of time.
(iii) The banks shall mark off individual export bills, as and when they arc received for
negotiation/purchase/collection, against the earlier outstanding pre-shipment credit on
'First in First Out' (FIFO) basis. (iv) The banks can also mark-off the packing credit
with proceeds of export documents against which no packing credit has been drawn by the
exporter, (v) The facility will not be allowed for inventory build up and only need
based limits will be allowed.
(vi) The benefit of concessional rate of interest will be permitted upto the period of sanction
or 360 days from the date of advance, whichever is earlier.

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(vii) If any exporter is found abusing the facility or does not comply with the above terms
and conditions, the facility of running account v/ill be withdrawn.
(viii) Running account facility are not granted to sub-suppliers. (ix) In cases where
exporters have not complied with the terms and conditions, the advance will attract
commercial lending rate ab initio.
Repayment
The repayment of packing credit advance can be only from the proceeds of the bills drawn
under the export order/L/C against which the pre-shipment advance was granted to the
exporter by the bank. No repayment of pre-shipment advance can be effected from local
funds in which case the advance will not be treated as 'pre-shipment advance' and no benefit
of concessional rate will be available to such an advance from the date of original advance.
'Subject to mutual agreement between the exporter and the banker the packing
credit/preshipment credit can also be repaid/prepaid out of balances in Exchange Earners
Foreign Currency A/c as also from rupee resources of the exporter to the extent exports have
actually taken place.

Furthermore every packing credit advance will be treated as a separate loan and no
running account facility will be permitted except to the extent stated in earlier paragraph.
The repayment of packing credit account will also be required to be done on separate loan
account basis.
Repayment of Packing Credit in excess of Export Value
• In case there is a shortfall because of wastage involved in the processing of agro-
products like raw cashew nuts, etc. banks may allow exporters to pay off by
export bills drawn in respect of byproduct like cashew shell oil. etc.
• In respect of export of agro-based products like tobacco, pepper, cardamom,
cashew nuts etc. the exporter has to purchase a larger quantity of raw
agricultural produce for grading it into exportable and non-exportable varieties.
Banks are required to charge commercial rate of interest applicable to the
domestic advance, on the packing credit covering such non-exportable portion,
from the date of advance of packing credit.

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 • For exports of HPS groundnuts and de-oiled and defatted cakes, packing credit
can be granted upto the cost of raw material required even though the value of
advance exceeds the value of export order. The advance in excess of export
order must be adjusted either in cash or by selling residual groundnuts or by-
product oil as soon as possible but within 30 days from the date of advance.

Relaxations granted in the area of Export Packing Credit

Reserve Bank has announced a few relaxations in operational aspects of export packing
credit as under:
(i) Banks may allow repayment of a packing credit with export documents relating to
any other order covering the same or any other commodity exported by the exporter,
(ii) The banks shall allow substitution of contract only when the substitution is
commercially necessary and unavoidable. . (iii) In case packing credit is availed of
from a consortium of banks, the substitution of the contract shall be allowed only with
the approval of the members of consortium, (iv) The relaxations are available both
under packing credit availed in rupees or in foreign currency, (v) The relaxation is
however, not extended to transactions of sister/ associate/group concerns.
(vi) The existing packing credit may also be marked off with export proceeds of
documents against which no packing credit has been drawn by the exporter.

Period of Advance
The period of packing credit advance is decided by the banks keeping in view the
various relevant factors of individual case like time required for procuring,
manufacturing or processing and shipping the relative goods.

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 Security for Packing Credit Advances
The goods meant for expert form the primary security for the bank granting packing
credit advance. The form of charge may, however, change at different stages depending
upon the nature of exports. The packing credit may initially be clean at the time of
disbursement: may be covered by hypothecation charge over the raw material, semi-
finished and finished goods later: hypothecation charge be converted to pledge of
finished goods meant for exports or may even be covered by document of title to goods
(LR/RR) if the goods are sent for shipment to a port city. This aspect of security must
be discussed in detail with the bank in the initial stages itself so that operations in the
account are convenient.

Concept of Margin
The concept of margin in case of packing credit is actually linked with the value of
order/L/C and/or with value of security and different banks have their own standards in
this regard. The most accepted concept of margin in these accounts is as under:
• Margin on export order/UC. This margin is applied on the value of
export order/letter of credit at the time of initial disbursement when
the packing credit may not be backed by security of goods. Usually
a high margin is stipulated in such cases.
A few banks sanction a sub-limit for such drawings by the exporters within the
overall packing credit limit sanctioned in their favour to restrict their
exposure towards unsecured advances.
• Margin on security. This is usual margin as applicable to other advances backed
by security of goods such as cash credit accounts etc.

ECGC Guarantee
Most of the banks cover their packing credit advances under 'Packing Credit Guarantee'
of Export Credit Guarantee Corporation of India Ltd. (ECGC). ECGC issues packing
credit guarantees on each exporter individually and also has the system of issuing a
guarantee in favour of the bank on whole turnover basis.

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Premium on the guarantee is generally recovered from the exporter. The rates of
premium on individual guarantees are higher in comparison to rates on 'Whole
Turnover Packing Credit Guarantee' issued to banks. It is necessary to obtain this
information from the bank as cost of additional premium for individual guarantee may
sometimes be quite heavy depending upon the turnover in the account. Guarantees
issued by ECGC are in addition to various policies issued by ECGC in favour of
exporters to cover the risk of non-payment or other political risk involved in export
trade. Full details of these policies may be obtained from any office of ECGC.

Exim Bank's Foreign Currency Pre-Shipment Credit (FCPC) Scheme Objective

Under this programme, short-term foreign currency finance is available to eligible
exporters for financing inputs for export production such as raw materials, components
and consumables. The finance is repayable in foreign currency from proceeds of the
relative exports.
FCPC programme represents another funding source to the exporter for expanding
export volumes, particularly of manufactured and value added goods. It eliminates two-
way exchange conversion costs and exchange risk, thus enhancing export
competitiveness. FCPC can be a cost effective funding source as compared to rupee
export credit as well as overseas supplier's credit depending on market conditions for
loans under FCPC. As far as commercial banks are concerned, loans availed of from
Exim Bank are exempt from Cash Reserve Ratio, Statutory Liquidity Ratio and
Incremental Credit-Deposit Ratio requirements.

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 Export Credit for Supplies to Units in Special Economic Zone (SEZ)
As per EXIM Policy announced on 31.3.2003. goods and services being supplied to
SEZ from Domestic Tariff Area (DTA) shall be treated as exports and accordingly
supply to SEZ from DTA would be eligible for export credit facilities.
Export Credit against Advance Payments in the form of Cheques, Drafts etc.
(a) Banks may grant export credit at concessive interest rate to exporters of good track
record against cheques, drafts etc. which have been received by the exports as direct
remittances from abroad, in payment for exports. Such export credit may be granted till
the realisation of proceeds of the cheque, draft etc. Banks, however, must satisfy
themselves that the receipt of cheque, draft etc. is against an export order, as per the
trade practice and is an approved method of realisation of export proceeds as per extant
rules.
(b) If an exporter has been granted accommodation at normal interest rate, bank may
give effect to concessive export credit rate retrospectively once the aforesaid conditions
have been complied with and refund the difference to the exporter.

Rupee Preshipment Credit to Specific Sectors/Segments .

Export Packing credit may be granted by the Banks to manufacturer suppliers who do
not have export orders/letter of credit in their own name and goods are exported
through STC/MMTC or other export houses, agencies etc.
Banks are eligible for refinance for such advances if the following additional
requirements are complied with:
(a) A letter from expert house with details of export order and the portion to be
executed by the supplier.
(b) Certificate of the export house that no packing credit will be obtained by them with
respect to the above portion.
(c) Banks should apportion period of packing credit between the Export House and
supplier.
(d) Export House should open an inland L/C in favour of the supplier or the supplier
should draw bill on the export house.

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(e) Bank should also obtain an undertaking from the supplier that the advance
payment, if any, received from the export house against the export order would be
credited to the packing credit account.

Pre-shipment Credit to Construction Contractors

Salient features of this scheme are as under:
(i) Packing credit advances are granted to construction contractors to meet the initial
working capital requirement for execution of
contracts abroad.
(ii) An undertaking is obtained from the contractor that the finance is required by them
for incurring preliminary expenses e.g.. for transporting the necessary technical staff
and purchase of consumable articles etc.
(iii) Packing credit advances are made in separate accounts.
(iv) The advances should be adjusted within 180 days by negotiation of bills relating to
the contract or by remittances received from abroad in respect of contract executed
abroad. Banks may charge normal rate of interest on such unadjusted advances.

Pre-shipment Credit for Export of Consultancy Services

Consultancy firms engaged in export of consultancy services may avail suitable pre-
shipment credit facilities from the Banks. The other requirements in this regard are :
(i) Credits are granted to meet the expenses of the technical and other
staff employed for the project and purchase of any materials
required for the purpose and for export of computer software. (ii) Advance payments
received against the contract are taken into
account while deciding the pre-shipment facilities. (iii) Banks also issue suitable
guarantees to exporters of high value
consultancy services with large advance payments. (iv) All other usual conditions of
packing credit scheme are applicable.

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 Pre-shipment credit to Floriculture, Grapes and other Agro-based Products
Normally, in the case of floriculture pre-shipment credits are allowed by banks for
purchase of cut-flowers, etc. and all post harvest expenses for making shipment.
In the case of floriculture, grapes and other agro-based products, banks now extend
concessional credit for working capital purposes in respect of export related activities
of all agro-based products including purchase of fertilizers, pesticides and other inputs
for growing of flowers, grapes etc. subject to the following conditions :

(i) The activities are necessarily export-related to the satisfaction of the bank;
(ii) Activities are not covered by direct/indirect finance schemes of NABARD or any
other agency.
(iii) All other normal terms and conditions relating to packing credit such as period,
quantum, liquidation etc. shall apply.
(iv) Export credit should not be granted for investments or any other item which cannot
be regarded as working capital.

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Export Credit to Processors/Exporters-Agri-Export Zones
'Agri Export Oriented Units (processing)' set up in 'Agri Export Zones' are provided
packing credit under the existing guidelines for procuring and supplying inputs to the
farmers. The other directions of RB1 in this regard are : (i) Banks may sanction the
lines of credit/export credit to processors/ exporters on the basis of inputs supplied by
them to farmers as raw material, (ii) Exporters must make required arrangements with
the farmers and
overseas buyers to the satisfaction of banks.
(iii) Banks have to monitor the end-use of funds and have to ensure that the final
products are exported by the processor/exporters as per terms/conditions of the
sanction.
It has been clarified that the above credit facilities are available to exporters of
Agricultural Products/Agri-Export Oriented Units (Processing) located outside the
Agri-Export Zones also under the extent export-credit guidelines.

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Negotiation/Purchase/Discount of Export Bills
It has already been emphasized that limits for the above facility must be got sanctioned
along with the packing credit limit to have smooth operations with the bank. Important
points which require attention of the exporters in this regard are discussed hereunder:
Q The export bills may be drawn either under an export letter of credit received in
favour of the exporter or against a confirmed export order. Bills drawn under L/C are
considered comparatively safer by banks as the guarantee of the foreign bank is
available and a few banks do not place any restrictions for such negotiations as long as
the documents do not contain any discrepancy. A few banks, however, sanction
separate limits for such negotiation also. The position in this regard will require
clarification at the time of making application for sanctioning of credit limits.
Sanctioning of proper limits for purchase/ discount of export bills drawn against export
order is a must in all the banks. Limit sanctioned for L/C bills will not normally be
allowed to be availed for non-L/C bills and proper assessment of limits in this regard
shall be made to avoid any difficulty at a later stage. Q The export bills may be drawn
either on D/P basis or on D/A basis. The documents under D/A bills are delivered
against acceptance and banks are not left with any security. The bills may similarly be
drawn either payable on demand or payable after a usance period. The realisation in
respect of demand bills will be quicker than for usance bills. The approach of the bank
while sanctioning facilities against usance D/A bills will be different as it would
amount to clean exposure V for the bank for a long time. Furthermore higher limits
will be required if the bills are drawn on usance basis. Banks will also not accept
usance bills for limits sanctioned against D/P demand bills. All these points must,
therefore, be kept in mind and application for the required limits must be made to the
bank after careful planning. Important terms and conditions on which these facilities
are generally granted are given here under:

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Operational Aspects of Negotiation/Purchase/Discount of Export Bills
Important operational aspects of (he above facility are given below :

• Enough care need to be given while preparing documents of export bill particularly if
the same is drawn under an L/C. The rights and obligations of the beneficiary under a
letter of credit are discussed in a separate chapter. It is necessary that all the documents
are drawn strictly in conformity with the terms of credit. If the export is not backed by
an L/C. the documents shall be drawn in conformity with the underlying sale contract
and it should be ensured that all exchange control regulations are fully complied with.

• After completion of shipment and preparation of necessary documents, the export bill
must be presented to the bank for negotiation/purchase/discount as the case may be.
The bill is to be presented to the bank within a maximum period of 21 days from the
date of shipment.

• The bank will convert the foreign currency amount of the bill at the lime of
negotiation/purchase at the relevant exchange rate and simultaneously recover interest
up to the notional due date as already explained. The proceeds of the bill will be first
utilized for adjustment of packing credit, if any. and the balance amount will be
payable to the exporter.

• The exporter must arrange fast processing of the bill at bank and ensure that the
documents are despatched to the foreign bank as soon as possible. The bank selected by
the exporter must have a very large network of foreign correspondents for expeditious
processing and realisation of export bills.

• The bill will be realised by the bank through its foreign currency account maintained
at a foreign centre and the exporter must pay interest to the bank only upto the day the
foreign currency amount is credited in that account. The realisation advice by the
branch which handled the export bill may be received late but it shall indicate the 'value
date' on which the foreign currency was realised by the bank.
If the 'value date' is earlier than the notional due date bank should allow refund of
interest already charged in excess. If the 'value date' is after the notional date, the bank
will recover interest for additional period as per rules already stated.

23
• If the bill is not realised within 30 days counted from (he notional due date, the bank
will convert the rupee amount back into foreign currency and shall transfer the advance
to a separate head i.e. 'Overdue Export-Bills Realisation A/c.' The exchange risk will
now be open against exporter and the conversion as above will also be normally against
the exporter. It is, therefore, necessary that the exporter must ensure prompt realisation
of export bills negotiated with banks. This system is termed as 'Crystallisation' of
export bills.
Delay in realisation of export bills may not only result into charging of higher interest
but may also result in exchange loss at the time of crystallisation. Delay may normally
occur in case of DP shipments where documents reach earlier than the actual cargo,
particularly for shipments from inland containers depot. As per the normal trade
practice, the buyer makes the payment only after the goods have reached the
destination and the actual journey period may be more than the normal transit period as
fixed by FEDAI. In such circumstances the bills become overdue calling for penal
interest and crystallisation. In such circumstances exporter may draw usance bills under
DP terms so that the bills are paid by the buyer within the notional due date as per the
terms and tenor of the bill. In such an eventuality, the bank will charge interest rates as
applicable to usance bills and incidence of overdues and consequent penal interest/
crystallisation may be minimised and DP terms will also be retained.

24
 • Normal Transit Period : Foreign Exchange Dealers Association of India with
the approval of Reserve Bank of India has fixed transit period for export bills
drawn in foreign currencies as well as Indian rupees known as Normal Transit
1'eriod (NTP). This transit period comprises the average period normally
involved from the date of negotiation/purchase/discount till the receipt of bill
proceeds in the Nostro account of the bank.
• Notional Due Date : To determine the due date of an export bill we have to
consider the following components : (i) Normal transit period as fixed by
FEDAI. (ii) Usance period of the bill.
The notional due date of an export bill may thus be calculated after adding both the
above components.
The concessional rate of interest is chargeable upto the notional due date subject to a
maximum of 90 days. Let us consider the following two examples to illustrate this
point.
(i) US $ bill payable on demand on USA.
For this bill
Normal Transit Period 25 days
Usance Period Nil
Total 25 days

The notional due date will fall after 25 days and interest at the prescribed rate of the
bank concerned will also be charged up to a maximum period of 25 days.
(ii) 90 days US $ bill on Japan For this bill
Normal Transit Period 25 days
Usance period 90 days
Total 115 days
The notional due date in this case will fall after 115 days and interest at the prescribed
rate of the bank concerned shall be charged for first 90 days and higher rate as
prescribed shall be charged from 91st to 115 days.
Fixed Due Date : In case of export usance bills where due dates are reckoned from date
of shipment or date of bill of exchange etc. no Normal Transit Period shall be
applicable since the actual due date is known.

25
The post shipment advance granted by the banks should be realised only from the
proceeds of export bills/claims under duty drawback as the case may be. If local funds
are utilised for adjustment, the advance will not be considered as an export credit from
the date of advance itself and will be subject to normal interest rate applicable to
commercial credit plus penal interest.

As per the present procedure, no separate claim of duty drawback is to be filed by the
exporter. A copy of the shipping bill presented by the exporter at the time of making
shipment of goods serves the purpose of claim of duly drawback as well. This claim is
provisionally accepted by the customs al the time of shipment and the shipping bill is
duly verified. The claim is settled by customs office later.
As a further incentive to exporters Customs Houses al Mumbai. Kolkata. Chennai.
Chandigarh. Hyderabad have evolved a simplified procedure under which claims of
duty drawback arc settled immediately after shipment and no funds of exporter are
blocked. However, where settlement is not possible under the simplified procedure
exporters may obtain advances against claims of duly drawback as provisionally
certified by customs.
Banks grant post-shipment advances to exporters against their duty drawback
entitlements on the following basis:
(i) against provisionally certified amounts of entitlements by Customs Authorities
pending final sanction or
(ii) against export promotion copy of the shipping bill containing the EGM number
issued by the Customs Department.
These advances are eligible for concessional rate of interest up to a maximum period of
90 days.

26
 EXPORT CREDIT IN FOREIGN CURRENCY

Discounting/Rediscounting of Bills Abroad

With the introduction of scheme of discounting/re-discounting of export bills abroad a
new window has been opened for allowing post-shipment credit to exporters at
internationally competitive interest rates. The method of extending post-shipment credit
under all other existing schemes will continue
this scheme. The salient features of this scheme are as under :(i) The scheme mainly
covers export bills with usance period upto 180 days from the date of shipment
(inclusive of normal transit period and grace period if any). Demand bills can also be
included if overseas institutions providing discounting/rediscounting facilities have no
objections to it. Rediscounting of bills having payment terms beyond 180 days will
require prior approval from RBI.
(ii) The facility under the scheme is available in all convertible currencies.
(iii)Banks may arrange rediscounting facilities with foreign banks/other institutions and
have been permitted to arrange necessary lines of credit (EBR).
(iv) The discounting/rediscounting facility is permitted "with recourse"
or "without recourse" as per the arrangement.
(v)Banks are also permitted to hold export bills in their own portfolio without
rediscounting or may utilize the foreign exchange resources available with them in
EEFC accounts/RFC accounts/FCNRB accounts for discounting usance bills or may
discount them in local market/under 'Bankers Acceptance Facility (BAF).
(vi) In the case of demand bills hanks may even grunt foreign exchange loans to the
exporters from out of the foreign currency balances available with them.
(vii) The lending rate to the exporter should not exceed 0.75% over LIBOR/EURO
LIBOR/EUROIBOR.
(viii) The proceeds of the bill in foreign currency may be utilised to adjust PCFC or
rupee value of the discounted bill may be utilised to liquidate the outstanding
packing credit.

27
(ix) There will be no change in the method of crystallisation in case of overdue
bills. Interest at 2% above the rate of discounting shall be charged from the due
date till the date of crystallization.
(x) Interest rate as per RBl's interest rate directive for post-shipment
credit in rupees will be applicable from the date of crystallization.
(xi) There will be no change in the existing system of coverage provided
by ECGC.
(xii) The exporters, on their own, can arrange for themselves a line of credit with
an overseas bank or any other agency (including a factoring agency) for
discounting their export bills direct subject to the following terms and conditions:

(a) Direct discounting of export bills will only be permitted through the designated
branch of an authorised dealer.
(b) Discoursing of export bills will be routed through designated bank/authorised
dealer from whom the packing credit facility has been availed of. In case, these are
routed through any other bank, that bank will have to first arrange to adjust the amount
of packing credit outstanding with the concerned bank.
(c) The rate of remuneration to the bank handling export bills is to
be decided between bank and the exporter.
(xiii) Banks may also extend export Bills Rediscounting facility for exports 10 ACU
countries.

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 PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC)
With a view to provide pre-shipment credit to Indian exporters at internationally
competitive rates of interest Reserve Bank of India has permitted Banks in India to
provide Pre-shipment Credit in Foreign Currency (PCFC). -The PCFC scheme will be
in addition to normal packing credit schemes in Indian rupees presently available to
Indian exporters. [The exporter will now have the following options for availing export
finance :
(a) to avail of pre-shipment credit in rupees and then the post-shipment credit either in
rupees or discounting/rediscounting of export bills under EBR Scheme.
(b) to avail of pre-shipment credit in foreign currency and discount/ rediscounting of
the export bills in foreign currency under EBR scheme.
c) 10 avail of pre-shipment credit in foreign currency and then repay/ pit-pay it out of
balances in EEFC A/c or rupees resources.
d) to avail of pre-shipment credit in rupees and then convert drawals into PCFC at the
discretion of the banks.]

29
 Deemed Exports
PCFC can also be extended for 'deemed exports' for supplies to projects financed by
multilateral/bilateral agencies/funds. This should be liquidated by grant of foreign
currency loan at post-supply stage, for a maximum period of 30 days or up to the date
of payment by the project authorities, whichever is earlier.

Sharing of Export Credit under PCFC Scheme

PCFC can now be availed by the manufacturer on the basis of disclaimer from the
export order holder in the same way as permitted under rupee credit scheme. PCFC
granted to the manufacturer will be adjusted by transferring foreign currency from the
export order holder.

PCFC for Supplies from one EOU/EPZ/SEZ Unit to another EOU/EPZ/SEZ Unit
Supplies made to EOUs/EPZ/SEZ Units are treated as Deemed Exports and Reserve
Bank of India has permitted granting PCFC both to the supplier EOU/ EPZ/SEZ unit
and the receiver EOU/EPZ/SEZ unit. PCFC for supplier EOU/ EPZ/SEZ unit will be
for supply of raw material/components for goods which will be further processed and
finally exported by receiver EOU/EPZ/SEZ unit. The PCFC extended to a supplier
EOU/EPZ/SEZ unit will have to be liquidated by receipt of foreign exchange form the
receiver EOU/EPZ/SEZ unit, for which purpose, the receiver EOU/EPZ/SEZ Unit can
avail of PCFC. The stipulation regarding liquidation of PCFC by payment in foreign
exchange will be met in such cases not by negotiation of export documents but by
transfer of foreign exchange from the banker of the receiver EOU/EPZ/SEZ unit to the
banker of supplier EOU/EPZ/SEZ unit.

PCFC granted to receiver EOU/EPZ/SEZ unit will be liquidated by discounting of

export bills as per general procedure in this regard. Furthermore such transaction will
be treated as exports for the supplier unit and import for the receiving unit.
Simplification of Procedure for Delivery of Export Credit

30
The Reserve Bank of India has issued from time to time, various instructions and
guidelines relating to customer service, simplification of procedures for delivery of
export credit. These instructions have been updated vide Master Circular No. IECD
6/04.02.02/2002-03 dated 30.7.2002. Salient features of the same are given below.

A. Simplification of Procedures
(i) Banks should simplify the Application Form and reduce data requirements from
exporters for assessment of their credit needs, so that exporters do not have to seek
outside professional help to fill in the Application Form or to furnish data required by
the bank, (ii) Banks should adopt any of the methods, viz. Projected Balance Sheet
method, Turnover method or Cash Budget method, for assessment of working capital
requirements of their exporter-customers, whichever is most suitable and appropriate to
their business operations, (iii) In the case of Consortium Finance, once the consortium
has approved the assessment, member banks should simultaneously initiate their
respective sanction processes.

B. 'On Line' Credit to Exporters

(i) Banks provide 'Line of Credit' normally for one year which is re vie wed annually.
In case of delay in renewal, the sanctioned limits should be allowed to continue
uninterrupted and urgent requirements of exporters should be met on ad hoc basis.
(ii) In case of established exporters having satisfactory track record, bunks should
consider sanctioning a 'Line of Credit' for a longer period, say 3 years, with iri-built
flexibility to step-up/step-down the quantum of limits within the overall outer limits
assessed. The step-up limits will become operative on attainment of pre-determined
performance parameters by the exporters. Banks should obtain security documents
covering the outer limit sanctioned to the exporters for such longer period.
(iii) In case of export of seasonal commodities, agro-based products etc., banks should
sanction Peak/Non-peak credit facilities to exporters.
(iv) Banks should permit interchangeability of pre-shipment and post-shipment credit
limits.
(v) Term Loan requirements for expansion of capacity, modernization of machinery
and up gradation of technology should also be met by banks at their normal rate of
interest.

31
(vi) Assessment of export credit limits should be 'need based' and not directly linked to
the availability of collateral security. As long as the requirement of credit limit is
justified on the basis of the exporter's performance and track record, the credit should
not be denied merely on the grounds of non-availability of collateral security.

C. Waiver of Submission of Orders or L/Cs for Availing Pre-shipment Credit

(i) Banks should not insist on submission of export order or L/C for every disbursement
of pro-shipment credit, from exporters with consistently good track record. Instead, a
system of periodical submission of a Statement of L/Cs or export orders in hand, should
be introduced.
(ii) In respect of exporters with good track record, banks may follow the system of
obtaining periodical statement of outstanding orders/LCs on hand and waive the
requirement of submission of order/LC. This should be brought to the notice of ECGC
and should be incorporated in the sanction proposals and sanction letters. If such
waivers are permitted after sanction of export credit limits, the same may be
incorporated in the terms of sanction by way of amendments and communicated to
ECGC.

D. Handling of Export Documents

Banks are required to obtain, among others, original sale contract/ confirmed
order/proforma invoice countersigned by overseas buyer/indent from authorized agent
of overseas buyer for handling the export documents as per Exchange Control
regulations. Submission of such documents need not be insisted upon at the time of
handling the export documents, since the goods have already been valued and cleared
by the Customs authorities, except in the case of transactions with Letter of Credit
(L/C) where the terms of L/C require submission of the sale contract/other alternative
documents.

E. Fast Track Clearance of Export Credit

(i) At specialized branches and branches having sizeable export business, a facilitation
mechanism for assisting exporter-customers should be put in place for quick initial
scrutiny of credit application and for discussions for seeking additional information or
clarifications,

32
(ii) Banks should streamline their internal systems and procedures to comply with the
stipulated time limits for disposal of export credit proposals and also endeavour to
dispose of export credit proposals ahead of the prescribed time schedule. A flow chart
indicating chronological movement of Credit Application from the date of receipt till
the date of sanction, should also accompany credit proposals,

(iii) Banks should delegate higher sanctioning powers to their branches

for export credit.
(iv) Banks should consider reducing at least some of the intervening layers in the
sanctioning process. It would be desirable to ensure that the total number of layers
involved in decision-making in regard to export finance does not exceed three.
(v) Banks should introduce a system of 'Joint Appraisal' by officials at
branches and administrative offices, to facilitiate quicker processing of
Export Credit proposals.
(vi)Where feasible, banks should set up a Credit Committee'at specialized
branches and at administrative offices, for sanctioning working capital
facilities to exporters. The 'Credit Committee' should have sufficiently higher
sanctioning powers.

F. Publicity and Training

Generally, export credit at internationally competitive rates is made available in foreign
currency at select branches of banks. In order to make the Scheme more popular, wide
publicity should be given by banks and more number of branches should be designated
for making available export credit in foreign currency. Officers at operating level
should be provided with adequate training.

G. Time Limit for Sanction

The sanction of fresh/enhanced export credit limits should be made within 45 days
from the date of receipt of credit limit application with the required details and
supported by the requisite statements. In case of renewal of limits and sanction of ad
hoc credit facilities, the time taken by banks should not exceed 30 days and 15 days
respectively.

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H. Ad hoc Limits
(i) Banks should respond to a situation promptly when exporters require ad hoc limits
to take care of large export orders which were not foreseen earlier. Banks should also
adopt a flexible approach in respect of exporters, who for genuine reasons could not
bring in corresponding additional contribution in respect of higher credit limits sought
for specific orders. No additional interest is to be charged in respect of such ad hoc
limits.
(ii) Banks are advised to adopt a flexible approach in negotiating the bills drawn
against L/Cs in case of exporters who have fully utilized the export credit limits. In
such cases banks should delegate discretionary/higher sanctioning powers to branch
managers to meet the credit requirement of exporters. Branches should also be
authorised to disburse a certain percentage of the enhanced/ad hoc limits, pending
sanction by the higher authorities/board/committee who had originally accorded
sanctions.

FORWARD EXCHANGE CONTRACTS

(i) Banks are permitted to allow an exporter to book forward contract on
the basis of confirmed export order prior to availing of PCFC and
cancel the contract (for portion of drawal used for imported inputs) at
prevailing market rates on availing of PCFC.
(ii) Banks also allow customers to seek cover in any permitted currency
of their choice which is actively traded in the market, subject to
ensuring that the customer is exposed to exchange risk in a permitted
currency in the underlying transaction.
(iii) Forward contracts can be allowed only on compliance of exchange control
requirement.

34
 EXPORT GUARANTEES
Bid Bonds and Performance Bonds or Guarantees for Exports
(i) Exchange Control Stipulations
In terms of Notification No. FEMA/8/2000-RB, dated 3rd May 2000, authorized
dealers have the permission to give performance bond or guarantee in favour of
overseas buyers on account of bonafide exports from India.
Prior approval of RBI should be obtained by the authorized dealers for issue of
performance bonds/guarantees in respect of caution listed exporters.
Before issuing any such guarantees, they should satisfy themselves with the bona fides
of the applicant and his capacity to perform the contract and also that the value of the
bid/guarantee as a percentage of the value of the contract/lender is reasonable and
according to the normal practice in international trade and that the terms of the contract
are in accordance with the Exchange Control Regulations.

Authorized dealers, may also, subject to what has been stated above, issue counter-
guarantees in favour of their branches/correspondents abroad in cover of guarantees
required to be issued by the latter on behalf of Indian exporters in cases where
guarantees of only resident banks are acceptable to overseas buyers in accordance with
local laws/regulations.
If and when the bond/guarantee is invoked authorized dealers may make payments due
there under to non-resident beneficiaries but a report should be sent to RBI where the
amount of the remittance exceeds US $ 5,000 or its equivalent.

(ii) Other Stipulations

With a view to boost exports, banks should adopt a flexible approach in the matter of
obtaining cover and earmarking of assets/credit limits, drawing power, while issuing
bid bonds and performance guarantees for export purposes. Banks may, however,
safeguard their interests by obtaining an Export Performance Guarantee of ECGC,
wherever considered necessary.

35
Export Credit & Guarantee Corporation (ECGC) would provide 90 per cent cover for
bid bonds, provided the banks give an undertaking not to insist on cash margins.
The banks may not, therefore, ask for any cash margin in respect of bid bonds and
guarantees which are counter-guaranteed by ECGC.
In other cases, where such counter-guarantees of ECGC are not available, for whatever
reasons, the banks may stipulate a reasonable cash margin only where it is considered
absolutely necessary, as they satisfy themselves generally about the capacity and
financial position of the exporter while issuing such bid bonds/guarantees.
Banks may consider sanctioning separate limits for issue of bid bonds. Within the
limits so sanctioned, bid bonds against individual contracts may be issued, subject to
usual considerations.
As per FEDAI Rules, the banks may refund 50 per cent of the commission received by
them on the bid bonds which are cancelled due to non-acceptance of tender.

36
 K.M. Ganatra Company Profile

Executives:

Mr. Sameer Ganatra (CEO)

Mr. Lalit Ganatra (Senior Partner)

Ms. Rashmi Ganatra (Partner)

Ms. Lata Ganatra (Partner)

Ms. Aditee Ganatra (Chief Executive)

Mr. Amit Ganatra (Chief Executive)

Mr. B. K. Ganatra (Chief Executive)

Activities:

Exporter & Importer of Agro Products like Spices & Seeds (Whole & Ground), Sesame
Seeds (Hulled, White, Black, Yellow and Crushing), Edible Nuts (Peanuts, Cashew and
Walnuts), Processed Pulses (Beans, Lentils and Peas), Cereals and Grains, Medicinal &
Botanical Herbs, Roots, Bark and Crude Drugs.

Export countries: Worldwide

Import regions: Asia, America

Annual Turnover: 200,000,000 INR (2002)

Export turnover: 190,000,000 INR (2002)

Banks: State Bank of Bikaner & Jaipur

No.of Employees: 22

37
No.of Employees in the Company: 22

Year Established 1952

Member of: Spices Board - Cochin, IOPEA - Mumbai, APEDA - New Delhi, ISFEA

K M Ganatra & Co is an Experienced Export House specializing in Spices, Seeds,

Nuts, Pulses, Beans & Cereals and Dehydrates since 1952. We serve a large range
of industry within our product mix, which allows us to maintain leadership position
and keeps us technically ahead enabling us retain the trust of our business partners.

The true testimony of our business is sustained growth in every major market. We have
truly attained the tagline of “Reliable Contract Shippers” by our customers. Today we
serve customers in as diverse markets across the continents.

The “Sourcing” network along with “Processing Expertise” ensures the customers
that every shipment meets the “Regulatory” and their “Internal Quality
Requirements” competitively. Our consolidated volumes through the whole supply
chain give us the “Bargaining” capability giving us the “Competitive Price
Advantage”. We have the resources to fulfill the needs of most discerning customers.
Our “Value Niche” is transparent and informed communications – enabling you to
make the right decisions and our contracts Guarantees 100% Performance. Our
business approach is “Simple and Modest, Ethical and Honest.”

38
 Products offered by us are “Well Cleaned, Sifted, Color Sorted, Hand-picked and
Ground” meeting your specific needs. Technical information can be provided on
request.

Spices Seed- Seeds & Nuts Pulses & Cereals Dehydrates

Spices
Chilies Celery Sesame Hulled Lentils Onion Kibbled
Turmeric Coriander Sesame Chick Peas Onion Chopped
Natural
Nutmeg Cumin Sesame Split Peas / Beans Onion Minced
Crushing
Curry Powder Dill Peanuts Nyjer / Niger Onion Granules
Ginger Fennel Cashew Nuts Safflower Onion Ground
Cardamom Fenugreek Walnuts Millets & Sorghum Garlic Ground

We sincerely believe we can make difference in your procurement

39
 Export Procedure.

2. Export Order – An order is a commercial transaction which is not only

important to the exporter and importer, but it is also of concern to their
respective countries, since it affects the balance of payments position of both
the countries. The exporter is required to produce copies of export order to
various government departments/financial institutions e.g. obtaining export
licenses when the product is covered under the restricted items for exports.

3. Order Acceptance – Under this the exporter commits the shipment of goods
covered at the agreed price during a specified time. The order acceptance
normally covers the name and address of the indentor, name and address of the
consignee, port of shipment, country of final destination, the description of
goods, quantity, price each and total amount of the order, terms of delivery ,
details of freight and insurance mode of transport etc.

4. Invoice – An invoice is a document which contains the detailed description of

goods consigned, consignor’s name, consignee’s name, name of the steamer,
number and date of bill of lading, date of sailing, order acceptance or contract
number and date, country of origin, marks and number of packages, quantity
shipped selling price to the buyer for each unit.

5. Goods to contract at docs - Goods which are ordered as per the contract
between the buyer and seller are then taken to the docs for completing the legal
formalities.

6. Custom Examination – Once the goods have entered the docs they have to
pass through customs examination where it is verified whether the goods which
are to be sailed match with the goods described in the invoice.

7. Loading on vessel – When goods pass through the customs examination

properly, then the goods are loaded on the vessel in which they are going to be
sailed.

40
8. Mate’s Receipt – After the goods are loaded on the ship, the captain of the ship
issues mate’s receipt i.e. clarifying that goods are in proper condition.

9. Bill of Lading – It is a document which is issued by the shipping company

acknowledging the receipt of goods mentioned in bill for shipment on board the
vessel and undertaking to deliver the goods to the consignee.

10. Document Negotiation – After the goods are shipped from exporters place, the
exporter sends all the necessary documents to his bank, so that he gets the
payment for the goods exported.

41
 EXPORT PROMOTION

EXPORT DEVELOPMENT SCHEMES

Guidelines for availing grant-in-aid under the scheme – “Printing of Promotional

Brochures”

Introduction
This scheme proposes to assist exporters to print promotional brochures/folders on
spices/spice products for distribution in the overseas markets. Assistance is limited to
manufacturer-exporters whose products have been awarded with Spices Board Logo
and/or Spice House Certificate or organic certificate holders.

Scale of Assistance
Assistance is granted to the tune of 50% of the cost of printing of promotional
brochures subject to a maximum of Rs. 2 Lakhs for the plan period.

Guidelines for availing assistance under the scheme – “Reimbursement of

Freight/Courier Charges for sending samples of spices abroad”

Introduction
Sending business samples abroad is inevitable for developing export business. Hence as
a part of export promotion, spices exporters having adequate processing facilities to
supply quality spices/products are assisted for sending samples to overseas buyers.
Under the scheme reimbursement of courier charges for sending business samples of
spices/spice products for business promotion abroad, is provided. Assistance is limited
to manufacturer - exporters whose products have been awarded with Spices Board
Logo and/or the Spice House Certificate holders and also to certified growers of
organic spices, who hold certificate of registration as exporter of spices.

Scale of Assistance
Assistance is granted in the form of reimbursement of the cost of airfreight /courier
charges for sending samples of spices to the buyers abroad, to the extent of 50% of the
total cost subject to a maximum of Rs. 50,000/- per year per exporter.

42
 Guidelines for availing Stall Rent Assistance for Participation in International
Food / Trade Fairs

The objective of the scheme is intended to provide financial assistance to the exporters
of spices for meeting the cost of the stall rent during their participation in International
Food/Trade Fairs.

Eligibility:
All the registered exporters with the Board are eligible to avail the scheme. The
exporters who intend to avail of the assistance should get prior approval of the Board
by applying in the prescribed form along with details about the fair, proposed to
participate. The exporters can participate in the fair during the 10th plan period, subject
to the ceiling of financial assistance stipulated per year.

Guidelines for grant-in-aid for “Packaging Development”

Introduction
Scientific packaging with aesthetic appeal is essential for building product image and
better preservation of the product. Good packaging adds value to the product and
attracts the consumers. This scheme aims to support exporters to develop innovative
package for consumer packed spices/spice products and adoption of Bar-code on
consumer packs of spices/spice products.

Scale of assistance
For developing innovative package for spice products and cost of adoption on bar-code
on consumer packs of spices/spice products, a grant-in-aid to the tune of 50% of the
cost of developing new package and 50% of the cost of bar-code registration and cost
of bar-code adoption for the consumer packs of spices/spice products subject to a
ceiling of Rs.1 lakh per exporter during the plan period is provided under the scheme.
The cost component would include consultancy charges, design and artwork charges,
cost of photography and Bar-code registration fee, bar-coding cost etc.

43
 Guidelines for grant-in-aid for “Undertaking Export Promotion Tours in
Identified Markets Abroad”

The objective of the scheme is to encourage the Indian exporters to develop personal
rapport with the overseas buyers and to build business relationship with the importers
besides convincing them about the product capabilities achieved in the areas of spice
processing/value addition in terms of quality in India.

Eligibility
The exporters of spices who have obtained Indian Spices Logo and/or Spice House
Certificate issued by the Board and those exporters whose brand name has/have been
registered with the Board are eligible to avail assistance under this scheme. The
exporters can undertake the tour for one or more purposes mentioned in a year during
the Xth plan period subject to the ceiling of financial assistance stipulated.

Nature of Assistance:
Assistance in the form of reimbursement of travel expenses and stall rent etc. in Indian
currency for undertaking the export promotion tour abroad. The financial assistance
will be limited to 50% of the economy class airfare or Rs.1.50 lakh whichever is less in
the case of Spices Logo/Spice House Certificate holders and Rs.40,000/-in the case of
exporters whose brand/s is/are registered with the Board.

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 Adoption of High-Tech Processes

The programme is intended to:

Improve the share of higher-end value addition and to ensure increased
export values even with stagnant or marginally increasing exports in bulk
form

Protect the level of export volume achieved so far, from severe international
competition, by offering better quality bulk products
Provide necessary linkages to production development programmes
Support creation of infrastructure in processing units to monitor quality
parameters and to have the processes certified by appropriate agencies
Provide necessary linkages to other critical programmes viz. Indian Spice
Brand Promotion, and
Provide special support to spice processing in the highly promising but
underdeveloped, North Eastern and Hill States.

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 Quality Upgradation

Under this sub-component, projects for setting up/up gradation of in-house quality
laboratories and accreditation of quality certifications under ISO, HACCP, SQF 2000
etc. would be eligible for assistance.

Assistance will be to the tune of 33% of the cost subject to a maximum of Rs.75.00
lakhs per unit for the various components of the scheme during the plan period. In the
case of units in North East/Hill Areas/Organization of organic farmers, the rate of
subsidy is 50% subject to a maximum of Rs.150.00 lakhs.

Participation in International Meetings/Seminars, Trade Fairs

In order to understand the emerging trends in the international trade environments

relating to the spice industry. Spices Board regularly participates in annual
conventions/meetings of organizations such as American Spice Trade Association
(ASTA), European Spice Association (ESA), International Pepper Community (IPC)
and International Organization of Spice Trade Association (IOSTA).

Spices Board directly participates in 8-10 international food fairs every year to show
case Indian spices and spice products. Exporters who are willing to participate in such
fairs through Board’s stall also encouraged to do so on payment of a fee of U.S.$.200.

Spices Board also organizes cooking demonstrations in major buying countries in

collaboration with leading restaurants, super bazaars and food chains and participate in
food festivals to promote Indian cuisine. Special campaigns are also proposed to
promote use of spices for its medicinal/ nutritional values.

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 Export Oriented Processing of Spices in North East/Special Areas

North East and Hill States have the potential to become major spice exporting centres if
adequate processing facilities are set up in these areas. The programme involves
assistance for setting up spice processing units including processing of organic spices,
up gradation of existing units if any, setting up/ up gradation of quality control labs in
these units, logo certification of the units, setting up of packaging facilities &
packaging development for the branded spice products and market promotion measures
for branded organic products.

33% of the project cost (plant and machinery) with a ceiling of Rs.25.00 lakhs during
plan period will be available to spice growers’ co-operatives, farmers’ association,
NGOs representing spice growers and individual entrepreneurs in North Eastern and
special areas. The assistance will be increased to 50% with a ceiling of Rs.35.00 lakhs
in the case of farmers’ group including organic spice growers with minimum of 50
members.

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 EXPORT INCENTIVES

1.)Advance Licence

An Advance Licence is issued under Duty Exemption Scheme to allow import of inputs
which are physically incorporated in the export product (making normal allowance for
wastage). In addition, fuel, oil, energy, catalysts etc. which are consumed in the course
of their use to obtain the export product, may also be allowed under the scheme.
Advance

Licence can be issued for:-

a. Physical exports
b. Intermediate supplies
c. Deemed exports.

Duty Remission Scheme consists of

a. Duty Free Replenishment Certificate and

b. Duty Entitlement Passbook Scheme.

The scheme allows drawback of import charges on inputs used in the export
product (making normal allowance for the wastage).

In general units primarily engaged in production of domestic market can also get
required inputs free of duty for executing an export order under the duty exemption
scheme for which they are required to execute a bond with customs authorities and
are required to fulfill the export obligation.

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2.) Duty Entitlement Passbook Scheme

For exporters not desirous of going through the licensing route, an optional facility is
given under DEPB. The objective of Duty Entitlement Passbook Scheme is to
neutralize the incidence of Customs duty on the import content of the export product.
The neutralisation shall be provided by way of grant of duty credit against the export
product.

Under the Duty Entitlement Passbook Scheme (DEPB), an exporter may apply for
credit, as a specified percentage of FOB value of exports, made in freely convertible
currency. The credit shall be available against such export products and at such rates as
may be specified by the Director General of Foreign Trade by way of public notice
issued in this behalf, for import of raw materials, intermediates, components, parts,
packaging material etc.

The holder of Duty Entitlement Passbook Scheme (DEPB) shall have the option to pay
additional customs duty, if any, in cash as well.

Under the scheme Exporters are granted duty credits on the basis of pre notified
entitlement rates which will allow them to import input duty free

Goods in the negative list of exim policy cannot be exported under this scheme.

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3.) MARKET ACCESS INITIATIVE (MAI) SCHEME
Scheme
Market Access Initiative (MAI) Scheme is an Export Promotion Scheme envisaged to
act as a catalyst to promote India's exports on a sustained basis, during the 10th five
year Plan. The scheme is formulated on focus product- focus country approach to
evolve specific strategy for specific market and specific product through market
studies/survey. Assistance would be provide to Export Promotion Organizations/ Trade
Promotion Organizations / Exporters etc. for enhancement of export through accessing
new markets or through increasing the share in the existing markets. Under the Scheme
the level of assistance for each eligible activities has been fixed.

Details of approved purposes for the scheme and level of assistance

Market Study
Assistance would be provided for undertaking a market study of a particular market(s)
for a particular product to have in depth analysis and to evolve a proper marketing
strategy for greater market access as per the needs of that particular market.
Professional consultants will be employed to undertake marketing studies and Indian
Diplomatic Missions in the target countries would be associated with such studies.
Such studies could be approved as a first step of a marketing project and the findings/
recommendations would be the basis for further activities to be taken for greater market
access. The Eligible Agencies will ensure the involvement of consultant appointed for
surveys/studies during the execution of the project also for smooth implementation.

Level of assistance: For market studies grant assistance of

75% of the total cost would be provided under the Scheme and the rest i.e. 25% would
be borne by the Eligible Agencies. However, for studies assigned by the
D/Commerce for the cause of export promotion, 100% assistance would be provided.
The assistance for studies would be subject to a ceiling of Rs.75.00 lakh/each study.

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4.) MARKET DEVELOPMENT ASSISTANCE (MDA)

Assistance to individual exporters for export promotion activities abroad.

(i) All exporters for bonafide overseas marketing promotion activities to explore
new markets for export of their specific product(s) and commodities from India
in the initial phase are eligible for assistance under MDA scheme in undertaking
following activities abroad:

1) Sale cum study tour subject to eligibility under para 4 below

2) Participation in trade fair/exhibition
3) Publicity through printed material

(ii) Maximum number of permissible sale cum study tours and/or participation in
fairs/exhibitions are two in a financial year. One additional activity, either sale
cum study tour or participation in trade fair/exhibition in the Latin American
Countries would also be permissible in a financial year.

(iii) Recognized export/trading houses by the DGFT would be provided assistance

through Federation of Indian Export Organizations (FIEO) and other exporters
would be provided assistance through concerned EPCs, Commodity Boards,
APEDA & MPEDA.

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 ECGC (Export Credit Guarantee Corporation)

Export Credit Guarantee Corporation of India Limited was established in the year 1957
by the Government of India to strengthen the export promotion drive by covering the
risk of exporting on credit.
Being essentially an export promotion organisation, it functions under the
administrative control of the Ministry of Commerce, Government of India. It is
managed by a Board of Directors comprising representatives of the Government,
Reserve Bank of India, banking, insurance and exporting community. ECGC is the fifth
largest credit insurer of the world in terms of coverage of national exports. The present
paid-up capital of the company is Rs.500 crores and authorised capital Rs. 1000 crores.
The paid-up capital is expected to be enhanced to Rs.800 crores.

• It provides a range of credit risk insurance covers to exporters against loss in

export of goods and services
• It offers guarantees to banks and financial institutions to enable exporters obtain
better facilities from them
• It provides Overseas Investment Insurance to Indian companies investing in
joint ventures abroad in the form of equity or loan.

ECGC helps Exporters in following ways.

• offers insurance protection to exporters against payment risks
• provides guidance in export-related activities
• makes available information on different countries with its own credit ratings
• makes it easy to obtain export finance from banks/financial institutions
• assists exporters in recovering bad debts
• information on credit-worthiness of overseas buyers

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 Different types of policies offered by ECGC
1.) Standard Policy
Under the Standard Policy, ECGC covers, from the date of shipment, the following
risks:
a. Commercial risks
• Insolvency of the buyer
• Failure of the buyer to make the payment due within a specified period,
normally four months from the due date.
• Buyer's failure to accept the goods, subject to certain conditions

b. Political risks
• Imposition of 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, civil war, revolution or civil disturbances in the buyer's country.
• New import restrictions or cancellation of a valid import license in the buyer's
country.
• Interruption or diversion of voyage outside India resulting in payment of
additional freight or insurance charges which can not be recovered from the
buyer.
• Any other cause of loss occurring outside India not normally insured by general
insurers, and beyond the control of both the exporter and the buyer.

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2.) Small Exporter’s Policy
The Small Exporter's Policy is basically the Standard Policy, incorporating certain
improvements in terms of cover, in order to encourage small exporters to obtain and
operate the policy. It is issued to exporters whose anticipated export turnover for the
period of one year does not exceed Rs.50 lac.

3.) Specific Shipment Policy

Specific Shipment Policies - Short Term (SSP-ST) provide cover to Indian exporters
against commercial and political risks involved in export of goods on short-term credit
not exceeding 180 days. Exporters can take cover under these policies for either a
shipment or a few shipments to a buyer under a contract. These policies can be availed
of by (i) exporters who do not hold SCR Policy and (ii) by exporters having SCR
Policy, in respect of shipments permitted to be excluded from the purview of the SCR
Policy.

Various Types.
(a) Specific Shipments (commercial and political risks) Policy - short-term
(b) Specific Shipments (political risks) Policy - short-term
(c) Specific Shipments (insolvency & default of L/C opening bank and political risks)
Policy-short-term.

4.) Buyer wise Policies

Buyer wise Policies - Short Term (BP-ST) provide cover to Indian exporters against
commercial and political risks involved in export of goods on short-term credit to a
particular buyer. All shipments to the buyer in respect of whom the policy is issued will
have to be covered (with a provision to permit exclusion of shipments under LC).
These policies can be availed of by (i) exporters who do not hold SCR Policy and (ii)
by exporters having SCR Policy, in case all the shipments to the buyer in question have
been permitted to be excluded from the purview of the SCR Policy.

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Common methods of payment include:
1.) Clean payment
This is the most common method and is used when both parties know each other well.
The process is fast and reliable, depending on the credit worthiness of the importer. The
bank carries out the transactions through a swift electronic data system and the transfer
costs are not very high.

2.) Documents against payment (D/P)

Also known as cash against documents (CAD). The buyer takes possession of the
goods only after payment. Although this method is not very popular, it is very safe and
the costs about one pro mille. One can also make use of documents against acceptance
of a bill of exchange, but this bill of exchange is not commonly used in the EU and it
does not guarantee that the bill will be paid. It is therefore less secure than the D/P.

3.) Letter of credit (LC)

The irrevocable LC is very often used at the beginning of a business relationship when
the importer and exporter do not yet know each other very well. The LC is irrevocable
and will always be paid.
The costs, namely five pro mille, are higher than the D/P method. This method is
widely used in the European Union when dealing with exporters from outside
Europe.

4.) Bank guarantee

The buyer’s bank will present a bank guarantee for the amount of the invoice.
Cheques Bank guaranteed cheques are generally no problem, though cashing them may
take some time, and in some cases up to six weeks. Not all personal cheques are
accepted.

5.) Payment on consignment basis

Payment on consignment basis is often used in the trade of perishable products.
The products are sold at a predetermined price after a mutually appointed arbitrary
person (General Super Intendance Company (GSC)) has controlled the quantity, quality
and other aspects of the sold products at the moment of acceptance/sale.

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If the products do not meet the conditions as described in the contract, the contract is
not valid and, depending on the conditions of the contract, prices are generally
adjusted. An open contract is used to make the payment after 14 days from
acceptance/sale.

In the spices and herbs trade, LC and CAD are the most frequently used methods of
payment. However, methods of payment vary from company to company. Once trading
relationships are established, clean payments are often used.
For every (new) supplier the importer considers very carefully which method of
payment that should be agreed upon. The same applies to delivery terms.

Common delivery terms include:

1.) FOB (Free on Board): the buyer arranges for transportation and insurance.
FOB must specify the port of departure.

2.) CFR (Cost & Freight): the exporter pays the freight, the buyer arranges for the
insurance.

3.) CIF (Cost, Insurance & Freight): the exporter pays the freight and the insurance.

Once the offer has been accepted by the buyer and reconfirmed by the exporter, a sales
contract will be prepared. When handling the contract, you should consider the terms
and the fulfilment.

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Terms of payment
There are various methods of receiving payment for your exports. The most commonly
used terms in the food ingredients are documents against payments (D/P) and payments
in advance.
1.) Documents against payments
Also known as cash against documents (CAD). The buyer takes possession of the
goods only after payment. Although this method is not very popular, it is very safe and
the costs amount to one pro mille. One can also make use of documents against
acceptance of a bill of exchange. However, the bill of exchange is not commonly used
in the European Union and it does not guarantee that the bill will be paid; it is less
secure than the D/P.

2.) Payment in advance

This method is the most desirable from the seller's standpoint, because all risk is
eliminated. While cash in advance may seem most advantageous to you, insisting on
these terms may cost you sales. Just like domestic buyers, foreign buyers prefer greater
security and better cash utilisation. Some buyers may also find this requirement
insulting, especially if they are considered credit worthy in the eyes of the rest of the
world. Advance (partial) payments and progressive payments may be more acceptable
to a buyer, but even these terms can result in a loss of sales in a highly competitive
market.

Most export shipments are partly pre-paid before the ingredients are shipped. Because
collections from customers are more difficult overseas, it is recommended to get a
minimum of 50 percent in advance. Once on-going business and trust is established,
exporters should grant their foreign customers standard payment terms. Because of the
possible complications and costs, letters of credit are often avoided in the plant trade.

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Terms of sale
Export terms of sale determine what costs are covered in the price of the cargo. They
also indicate at what point ownership transfers to the buyer and at what point
responsibility for the cargo is transferred. International commercial terms (Incoterms)
provide "the international rules for the interpretation of trade terms

The most commonly used trade term is:

FOB (Free on Board)
Under this term, the seller quotes a price for goods that includes the cost of loading at
the port of departure. The buyer arranges for transportation and insurance.

Other trade terms are:

1.) DDP (Delivered Duty Paid)
DDP deliveries are arrival contracts: the exporter is fully responsible for the goods until
they arrive at the warehouse of the trade partner anywhere in the EU.

2.) CFR (Cost and Freight)

For shipments to designated overseas port of import, the seller quotes a price for the
goods that includes the cost of transportation to the named point of debarkation. The
buyer is responsible for the cost of insurance. This is referred to as C&F in the old
Incoterms. The seller pays for the cost of unloading cargo at the port of destination, to
the extent that they are included in the freight charges. If the charges are separate, they
fall to the account of the buyer.

3.) CIF (Cost, Insurance, Freight)

Under this term, for shipments to designated overseas port of import, the seller quotes a
price for the goods, including insurance costs and all transportation and miscellaneous
charges, to the point of debarkation from the vessel or aircraft. The seller pays for the
cost of unloading cargo at the port of destination, to the extent that they are included in
the freight charges. If the charges are separate, they fall to the account of the buyer.

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Food-processing companies often demand Delivered Duty paid (DDP) delivery, while
importers usually require Free on Board (FOB) or Cost, Insurance, Freight (CIF)
deliveries. There is a large difference in DDP on the one hand and FOB and CIF
deliveries on the other. As already mentioned, DDP deliveries are arrival contracts,
while FOB and CIF are departure contracts. In the cases of FOB and CIF deliveries, the
responsibility for the goods transfers from exporter to importer at the moment the
goods pass the ship rail at the port of departure.

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 Export Documentation

1.) Bill of Exchange – Bill of Exchange is an instrument in writing

containing an unconditional order, signed by the maker directing a certain person to
pay certain a certain sum of money only to the order or the bearer of person. In the
documents attached, K.M. Ganatra and Co is the drawer, Jandira Comercio De
Produtos is the drawee and Saraswat Co-operative bank is the bearer.

2.) Letter of Credit – Letter of Credit is a document issued by the

importer’s bank in favour of the exporter giving him the authority to
draw bills up to a particular amount covering a specified shipment of
goods and assuring him of payment against the delivery of shipping
documents.

3.) Commercial Invoice - It is a prima facie evidence of the contract of sale

and purchase. It should be strictly in accordance with the contract of sale
and should be on the paper of seller and must be signed by the exporter.
In the documents attached the container number, kind of packaging,
description of goods, quantity, rate and amount are specified properly.

4.) Bill of Lading – It is a formal receipt by the ship owner acknowledging

that the goods of the stated specifications, quantity and condition in a
certain ship received in the custody of the ship owner for the purpose of
shipment. In the document attached Hamburg Sud has issued Bill of
Lading stating where the goods are to be shipped to the consignee.

5.) Shipped on Board Certificate – This certificate specifies that a

particular container has been loaded on a particular vessel. In the
document attached container is loaded on P&O Ned Lloyd Cobra and
sailed Nhava Sheva.

6.) Contract Documents – It is a document which shows the specifications

made between buyer and seller. It also signifies commodity and
quantity, packing, price, mode of payment, shipments etc.

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7.) Credit Limit Approval – This is a document which is issued by ECGC
stating credit limit on the buyer in favour of exporter subject to the terms
and conditions. In the document attached 50 lakhs is the maximum limit
approved by ECGC.

8.) Fumigation Certificate- This certificate specifies that a particular

product has been disinfected with a particular chemical. In the
documents attached the chemical used is Aluminium Phosphide and it
has been fumigated at Mundra.

9.) Mate’s Receipt – It is issued by the chief of vessel after the cargo is
loaded and it contains the name of shipping line, vessel, port of loading,
port of discharge etc. In the documents attached it clearly shows the
container no., Description of goods, weight, size, seal etc.

10.) Certificate of Origin – It is issued by Inspection agency stating that

the goods are of Indian origin. In the documents attached “The Memon
Chamber of Commerce has issued certificate of origin stating that goods
are of Indian Origin.

11.) SDF Form – This is a form issued under FEMA1999. It is issued by

exporter stating that he is the seller or consignor of the goods. This
document also states that the exporter is a resident in India and he has a
place of business in India.

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12.) Certificate of Inspection – This is a document issued by inspection
agency stating that the consignment has been inspected as per
requirements under Exports Act 1963. In the documents attached Cargo
Inspectors and Superintendence Co. Pvt. Ltd. is the inspection agency
stating that the container has been cleaned in their presence. It also states
the quality of the goods in the consignment.

13.) Negotiation of Documents – After the export order has been

dispatched to the buyers place, the exporter will send necessary
documents, like Bill of Lading, Mate’s Receipt, Certificate of origin etc,
to the bank for clearing purpose. In documents attached the exporter has
mentioned the necessary documents which he has sent to the bank for
completing the formalities and receiving the payment from the bank.

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63
Bibliography
• How to borrow from Banking and Financial Institutions – Nabhi Publications.
• A guide on Export Policy and Procedure – M.I. Mahajan.

Webliography
• www.ecgcindia.com
• www.indianspices.com
• www.fieo.com
• http://commerce.nic.in/mai_guide.pdf
• www.eximkey.com

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