Export - Materials

COURSE : II MBA
SEMESTER : IV
SUBJECT CODE : MBA 421
SUBJECT NAME : EXPORT FINANCE & DOCUMENTATION
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II MBA
SEMESTER –IV
For those who joined in 2019 onwards
PROGRAMME COURSE HRS/

COURSE TITLE CATEGORY CREDITS
CODE CODE WEEK
Export Finance
Major
MBA 19MBA408B & 5 5
Elective
Documentation
COURSE DESCRIPTION
The purpose of the course is to implant proficiency in Export operations and
procedures among the learners. The course intends to build up the logical ability
of the managers in handling foreign trade transactions.
COURSE OBJECTIVES
This Course is aimed at inculcating expertise in export operations and
procedures and provides systematic approach in handing foreign trade
transactions.
UNITS
UNIT I : FOREIGN TRADE PROCEDURES [12 HRS]

Domestic trade vs. Foreign trade Procedures involved in export – Import
formalities – Visible and invisible imports and exports – Balance of trade –
Balance of payments – contract terms – Inco terms – Methods of payment used
in foreign trade - Mechanism of letter of credit – Payment credit – Types of L.C –
Stand-by credit (Bank Guarantee) – Practical problems faced.
UNIT II : FINANCING FOREIGN TRADE [12 HRS]
Introduction – Packing credit (Pre-shipment credit) – Post-shipment credit -
Packing and Post-shipment credit denominated in foreign currency – Bills
purchase / discount – Advance against bills sent for collection on consignment
goods – Duty drawback – Undrawn balance – Retention money – Buyers credit –
Sellers credit – Role of IBRD – IDA – IFC – EXIM Bank – Asian Development Bank
(ADB) – ECGC – MIGA (Export credit Guarantee corporation – Multilateral
Investment Guarantee Agency
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UNIT III : SHIPPING DOCUMENTS [12 HRS]
Commercial documents – Regulatory Documents Invoice – Proforma –
Commercial Invoice – Customs invoice – Consular invoice – Legalized invoice –
Packing list – Certificate of origin – Insurance Policy – Bill of lading – Bill of
exchange – Certificate of Inspection – Q.C. G.R./ PP/VP/COD/ Softex forms –
AR4 – Shipping Bill for duty free – dutiable - ex-bond for duty drawback and port
trust copy - Freight payment certificate – Insurance premium payment certificate
– Bill of Entry Logistics – Container service.
UNIT IV : FOREIGN EXCHANGE THEORIES [12 HRS]
Past and present theories – Exchange rate arithmetic – spot & forward rates –
Exchange control Regulations FEMA and PML – Foreign exchange Dealers
Association of India (FEDAI) and RBI – IMF and SDR – Convertibility – Factors
that influence exchange rate.
UNIT V: PROMOTION OF FOREIGN TRADE [12 HRS]
Trade control – EXIM policy highlights – EPC – EIA (Export Promotion Council,
Export Inspection Agency) General provisions regarding exports, imports –
Promotional measures – Duty exemption/ remission scheme – Export promotion
capital goods scheme – EOU, EPZ, EHTP, STP, AEZ, SEZ – Deemed Exports.
SELF STUDY:
EXIM Policy highlights
TEXT BOOK:
1. Jeevanandam, C., Foriegn Exchange: Practice, Concepts & Control., New
Delhi: Sultan Chand & Sons, 2016.
REFERENCE BOOKS :
1. Jain’s, R K., Foreige Trade Policy & Handbook of Procedures [2015 – 20]
Vol.1. –24th ed., New Delhi: Centax Publications, 2017 – 18.
2. Mahajan, M.I.Foreign Trade: Policy, Procedures and Documentation,
Exports, Imports, Foreign Exchange Management, Mumbai: Snow White,
2005.
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3. Bhalla, V.K.,International Business: Environment and Management., New
Delhi: Anmol Publications Pvt Ltd, 2004.
4. Cherunilam, Francis, International Trade and Export Management,
Mumbai: Himalaya Publishing House, 2010.
DIGITAL OPEN EDUCATIONAL RESOURCES:
1. https://grow.exim.gov/hs-fs/hub/421983/file-2055772500-
pdf/Guides/trade-guide.pdf
2. http://www.eximguru.com/exim/guides/export-
finance/ch_4_trade_documents.aspx
UNIT I: FOREIGN TRADE PROCEDURES
Topic-1 : Foreign trade compared to domestic trade Procedures involved in export

Topic-2 : Import formalities
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Topic-3 : visible and invisible imports and exports
Topic-4 :Balance of trade
Topic -5 : Balance of payments
Topic -6 : contract terms – Inco terms. FAS, FCA, FOB, C&F, CPT, CIP, DAF, DES, DEQ, DDU
AND DDP
Topic-7 : Methods of payment used in foreign trade – Advance remittance open account –
consignment sale – Bills for collection.
Topic-8 : Mechanism of letter of credit – Payment credit Revocable – Irrevocable credit –
Confirmed L.C with and without recourse L.C – Restricted and open L.C – Acceptance credit –
Deferred payment credit – Fixed, Revolving Credits – Transferable L.C – Back to Back - Red,
Green clause L.C – Stand by credit (Bank Guarantee) – practical problems faced.
TOPIC-1 : FOREIGN TRADE COMPARED TO DOMESTIC TRADE

PROCEDURES INVOLVED IN EXPORT
Trade is the defined as the exchange of goods and services between person and entity to
another. The trade involves buying and selling of goods and services. Trade is the central activity
in the economy. Trade not only refers to the exchange of goods and services within the country
but also between two or more countries.
Trade is basically divided into two types,
1.ForeignTrade.
2. Home Trade
1. Foreign Trade:-
International trade means trade between the two or more countries. International trade
involves different currencies of different countries and is regulated by laws, rules and regulations
of the concerned countries. Thus, International trade is more complex.
According to Wasserman and Haltman, “International trade consists of transaction between
residents of different countries”.
According to Anatol Marad, “International trade is a trade between nations”.
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2. Home Trade
Home trade is also called as “Domestic Trade”. Home trade is the trade that happens within
the boundaries of the country. It means the exchange of goods and services are only made within
the geographical boundaries of the country. The seller and buyer of the goods are from the same
country.
COMPARISON TABLE
The below given comparison chart shows some of the differences between Home
trade and Foreign Trade
International trade is in principle not different from domestic trade as the motivation and
the behaviour of parties involved in a trade do not change fundamentally regardless of whether
trade is across a border or not. The main difference is that international trade is typically more
costly than domestic trade.
HOME TRADE FOREIGN TRADE
Home trade refers to the trade Foreign Trade refers to the trade
within the borders of the country. between two or more countries.
Exchange of Currencies
There is no exchange of Foreign Trade involves the

currencies takes place in the exchange of currencies between the
Home trade because there is a nations which are involved in the
same currency in the country. trade.
Restrictions on transfer of goods
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Home trade usually doesn't have Foreign Trade is subjected to many

any restrictions on movement restrictions on transfer to certain
inside the country. goods to certain countries.
Transportation costs
Foreign Trade involves very high

Home Trade generally has fewer
transportation costs and risky
transportation costs and risks to
situations to transfer goods from
transfer the goods.
one country to another.
Transport Systems
Home Trade depends upon the Foreign Trade depends upon the
network and internal transport seaways and the airways between
systems like roads, railways, etc. the countries involved in the trade.
Benefit to Country
Home trade leads to economic Foreign Trade leads to the

development and self-sufficiency economic interdependence between
of the country. the countries.
Approvals
The home trade involves fewer Foreign Trade involves more

documentations and approvals documentations and approvals from
from the government to transfer government and it is a long process
the goods. to get approvals from government.
Volume of Trade
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Foreign Trade has many restrictions

The volume of the trade depends
imposed on free entry of goods and
upon the population of the
many duties and taxes have to be
country, demand for the product,
paid to trade goods between
etc
countries.
Time Gap
Home trade usually have less

Foreign Trade involves wide time
time gap between the goods
gap between the goods dispatched
dispatched and goods received
from the home country and goods
and payment received for the
received by the other country.
consignment.
Credit Problems
In the case of Home Trade, there Foreign trade involves special steps
are fewer credit problems to find out the credit worthiness of
between the sellers and buyers in the importer by the exporter of the
the country. goods.
Trading of Goods
Home trade only involves the Foreign Trade facilitates countries

trade of the goods and services to export the goods which they have
which are available in the surplus and import goods which are
country. short in supply.
Flow of Currency
Foreign Trade helps in exchange of

Home Trade helps in the flow of
currencies between two countries
currency from one place to
and helps increase of foreign
another place in the country.
exchange reserves.
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Advantage to People
Home Trade helps in increase the Foreign Trade helps in bringing the
employment and specialization international division of labour and
within the country. specialization.
Insurance
The goods of Home Trade don't The goods which are sent to other
carry a compulsion to have the countries by the foreign need to be
insurance for goods in transport. insured compulsorily.
TOPIC-2 : IMPORT FORMALITIES
Import trade refers to the purchase of goods from a foreign country. The procedure for
import trade differs from country to country depending upon the import policy, statutory
requirements and customs policies of different countries. In almost all countries of the world
import trade is controlled by the government. The objectives of these controls are proper use of
foreign exchange restrictions, protection of indigenous industries etc. The imports of goods have
to follow a procedure. This procedure involves a number of steps.
The steps taken in import procedure are discussed as follows:
(i) Trade Enquiry:
The first stage in an import transaction, like any other transaction of purchase and sale
relates to making trade enquiries. An enquiry is a written request from the intending buyer or his
agent for information regarding the price and the terms on which the exporter will be able to supply
goods.
The importer should mention in the enquiry all the details such as the goods required, their
description, catalogue number or grade, size, weight and the quantity required. Similarly, the time
and method of delivery, method of packing, terms and conditions in regard to payment should also
be indicated.
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In reply to this enquiry, the importer will receive a quotation from the exporter. The
quotation contains the details as to the goods available, their quality etc., the price at which the
goods will be supplied and the terms and conditions of the sale.
(ii) Procurement of Import Licence and Quota:
The import trade in India is controlled under the Imports and Exports (Control) Act, 1947.
A person or a firm cannot import goods into India without a valid import licence. An import licence
may be either general licence or specific licence. Under a general licence goods can be imported
from any country, whereas a specific or individual licence authorises to import only from specific
countries.
The Government of India declares its import policy in the Import Trade Control Policy
Book called the Red Book. Every importer must first find out whether he can import the goods he
wants or not, and how much of a certain class of goods he can import during the period covered
by the relevant Red Book.
For the purpose of issuing licence, the importers are divided into three categories:
(a) Established importer,
(b) Actual users, and
(c) Registered exporters, i.e., those import under any of the export promotion schemes.
In order to obtain an import licence, the intending importer has to make an application in
the prescribed form to the licensing authority. If the person imported goods of the class in which
he is interested now during the basic period prescribed for such class, he is treated as an established
importer.
An established importer can make an application to secure a Quota Certificate. The

certificate specifies the quantity and value of goods which the importer can import. For this, he
furnishes details of the goods imported in any one year in basic period prescribed for the goods
together with documentary evidence for the same, including a certificate from a chartered
accountant in the prescribed form certifying the c.i.f. value of the goods imported in the selected
year.
The c.i.f. value includes the invoice price of the goods and the freight and insurance paid for the
goods in transit. The quota certificate entitles the established importer to import upto the value
indicated therein (called Quota) which is calculated on the basis of past imports. If the importer is
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an actual user, that is, he wants to import goods for his own use in industrial manufacturing process
he has to obtain licence through the prescribed sponsoring authority.
The sponsoring authority certifies his requirements and recommends the grant of licence.
In case of small industries having a capital of less than Rs. 5 lakhs, they have to apply for licences
through the Director of Industries of the state where the industry is located or some other authority
expressly prescribed by the Government.
Registered exporter importing against exports made under a scheme of export promotion
and others have to obtain licence from the Chief Controller of Exports and Imports. The
Government issues from time to time a list of commodities and products which can be imported
by obtaining a general permission only. This is called as O.G.L. or Open General Licence list.
(iii) Obtaining Foreign Exchange:
After obtaining the licence (or quota, in case of an established importer), the importer has
to make arrangement for obtaining necessary foreign exchange since the importer has to make
payment for the imports in the currency of the exporting country.
The foreign exchange reserves in many countries are controlled by the Government and
are released through its central bank. In India, the Exchange Control Department of the Reserve
Bank of India deals with the foreign exchange. For this the importer has to submit an application
in the prescribed form along-with the import licence to any exchange bank as per the provisions
of Exchange Control Act.
The exchange bank endorses and forwards the applications to the Exchange Control
Department of the Reserve Bank of India. The Reserve Bank of India sanctions the release of
foreign exchange after scrutinizing the application on the basis of exchange policy of the
Government of India in force at the time of application.
The importer gets the necessary foreign exchange from the exchange bank concerned. It is
to be noted that whereas import licence is issued for a particular period, exchange is released only
for a specific transaction. With liberalisation of economy, most of the restrictions have been
removed as rupee has become convertible on current account.
(iv) Placing the Indent or Order:
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After the initial formalities are over and the importer has obtained the licence quota and
the necessary amount of foreign exchange, the next step in the import of goods is that of placing
the order. This order is known as Indent. An indent is an order placed by an importer with an
exporter for the supply of certain goods.
It contains the instructions from the importer as to the quantity and quality of goods
required, method of forwarding them, nature of packing, mode of settling payment and the price
etc. An indent is usually prepared in duplicate or triplicate. The indent may be of several types like
open indent, closed indent and Confirmatory indent.
In open indent, all the necessary particulars of goods, price, etc. are not mentioned in the
indent, the exporter has the discretion to complete the formalities, at his own end. On the other
hand, if full particulars of goods, the price, the brand, packing, shipping, insurance etc. are
mentioned clearly, it is called a closed indent. A confirmatory indent is one where an order is
placed subject to the confirmation by the importer’s agent.
(v) Despatching a Letter of Credit:
Generally, foreign traders are not acquainted to each other and so the exporter before
shipping the goods wants to be sure about the creditworthiness of the importer. The exporter wants
to be sure that there is no risk of non-payment. Usually, for this purpose he asks the importers to
send a letter of credit to him.
A letter of credit, popularly known as ‘L/C or ‘L.C is an undertaking by its issuer (usually
importer’s bank) that the bills of exchange drawn by the foreign dealer, on the importer will be
honoured on presentation upto a specified amount.
(vi) Obtaining Necessary Documents:
After despatching a letter of credit, the importer has not to do much. On receipt of the letter
of credit, the exporter arranges for the shipment of goods and sends Advice Note to the importer
immediately after the shipment of goods. An Advice Note is a document sent to a purchaser of
goods to inform him that goods have been despatched. It may also indicate the probable date on
which the ship is expected to reach the port of destination.
The exporter then draws a bill of exchange on the importer for the invoice value of goods.
The shipping documents such as the bill of lading, invoice, insurance policy, certificate of origin,
consumer invoice etc., are also attached to the bill of exchange. Such bill of exchange with all
these attached documents is called Documentary Bill. Documentary bill of exchange is forwarded
to the importer through a foreign exchange bank which has a branch or an agent in the importer’s
country for collecting the payment of the bill.
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There are two types of documentary bills:
(a) D/P, D.P. (or Documents against payment) bills.
(b) D/A, D.A. (or Document against acceptance) bills.
If the bill of exchange is a D/P bill, then the documents of title of goods are delivered to
the drawee (i.e., importer) only on the payment of the bill in full. D/P bill may be sight bill or
usance bill. In case of sight bill, the payment has to be made immediately on the presentation of
the bill. But usually a grace period of 24 hours is granted.
Usance bill is to be paid within a particular period after sight. If the bill is a D/A bill, then
the documents of title of goods are released to the drawee on his acceptance of the bill and it is
retained by the banker till the date of maturity. Usually 30 to 90 days are provided for the payment
of the bill.
(vii) Customs Formalities and Clearing of Goods:
After receiving the documents of title of the goods, the importer’s only concern is to take
delivery of the goods, when the ship arrives at the port and to bring them to his own place of
business. The importer has to comply with many formalities for taking delivery of goods. Unless
the following mentioned formalities are complied with, the goods lie in the custody of the Custom
House.
(a) To obtain endorsement for delivery or delivery order:
When the ship carrying the goods arrives at the port, the importer, first of all, has to obtain
the endorsement on the back of the bill of lading by the shipping company. Sometimes the shipping
company, instead of endorsing the bill in his favour, issues a delivery order to him. This
endorsement of delivery order will entitle the importer to take the delivery of the goods.
The shipping company makes this endorsement or issues the delivery order only after the
payment of freight. If the exporter has not paid the freight, i.e., when the bill, of lading is marked
freight forward, the importer has to pay the freight in order to get green signal for the delivery of
goods.
(b) To pay Dock dues and obtain Port Trust Dues Receipts:
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The importer has to submit two copies of a form known as ‘Application to import’ duly
filled in to the ‘Lading and Shipping Dues Office’. This office levies a charge on all imported
goods for services rendered by the dock authorities in connection with lading of goods. After
paying the necessary charges, the importer receive back one copy of the application to import as a
receipt ‘Port Trust Dues Receipt’.
(c) Bill of Entry:
The importer will then fill in form called Bill of Entry. This is a form supplied by the
custom office and is to be filled in triplicate. The bill of entry contains the particulars regarding
the name and address of the importer, the name of the ship, packages number, marks, quantity,
value, description of goods, the name of the country wherefrom goods have been imported and
custom duty payable.
The bill of entry forms are of three types and are printed in three colours-Black, Blue and
Violet. A black form is used for non-dutiable or free goods, the blue form is used for goods to be
sold within the country and the violet form is used for re-exportable goods, i.e., goods meant for
re-export. The importer has to submit three forms of bill of entry along-with Port Trust Dues
Receipt to the customs office.
(d) Bill of Sight:
If the importer is not is a position to supply the detailed particulars of goods because of
insufficiency of information supplied to him by the exporter, he has to prepare a statement called
a bill of sight. The bill of sight contains only the information possessed by the importer along-with
a remark that he is not in a position to give complete information about the goods. The bill of sight
enables him to open the package and examine the goods in the presence of custom officer so as to
complete the bill of entry.
(e) To pay Customs or Import Duty:
There are three types of imported goods:
(i) Non dutiable or free goods,
(ii) Goods which are to be sold within the country or which are for home consumption, and
(iii) Re-exportable goods i.e. goods meant for re-export. If the goods are duty free, no import duty
is to be paid at the custom office.
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Custom authorities will permit the delivery of such goods after usual examination of the goods.
But if the goods are liable for duty, the importer has to pay custom or import duty which may be
based on weight or measurement of goods, called Specific Duty or on the value of imported goods
Ad-valorem Ditty.
There are three types of import duties. On some goods quite low duties are levied and they
are called revenue duties. On some others, quite high duties are charged to give protection to home
industries against foreign competition. While goods imported from certain nations are given
preferential treatment for the levy of import duties and in their case full protective duties are not
charged.
(f) Bonded and Duty paid Warehouses:
The port trust and custom authorities maintain two types of warehouses-Bonded and Duty
paid. These warehouses are situated near the dock and are very useful to importers who do not
have godown of their own to store the imported goods or who, for business reasons, do not wish
to carry them to their own godowns.
The goods on which the duty has already been paid by the importer can be kept in the duty
paid warehouses for which a receipt called ‘warehouse receipt’ is issued to him. This receipt is a
document of title and is transferable. The bonded warehouses are meant for goods on which duty
has been paid by the importer. If the importer cannot pay the duty, he may keep the goods in
Bonded warehouses for which he is issued a receipt, called ‘Dock Warrant’. Dock Warrant, also
like warehouses receipt, is a document of title and is transferable.
The bonded warehouses are used by the importer when:
(i) He has no godown of his own.
(ii) He cannot pay the duty immediately.
(iii) He wants to re-export the goods and thereby does not want to pay the duty.
(iv) He wants to pay the duty in installments.
A nominal rent is charged for the use of these warehouses. One special advantage of these
warehouses is that the importer can sell the goods and transfer the title of goods merely by
endorsing warehouse receipt or dock-warrant. This will save the importer from the trouble and
expenses of carrying the goods from the warehouses to his godown.
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(g) Appointment of clearing Agents:
By now we understand that the importer has to fulfill many legal formalities before he can
take delivery of goods. The importer may take the delivery of the goods himself at the port. But it
involves much of time, expenses and difficulty. Thus, to save himself from the botheration of
complying with all the complicated formalities, the importer may appoint clearing agents for
taking the delivery of the goods for him. Clearing agents are the specialised persons engaged in
the work of performing various formalities required for taking the delivery of goods on behalf of
others. They charge some remuneration on performing these valuable services.
(viii) Making the Payment:
The mode and time of making payment is determined according to the terms and conditions
as agreed to earlier between the importer and the exporter. In case of a D/P bill the documents of
title are released to the importer only on the payment of the bill in full. If the bill is a D/A bill, the
documents of title of the goods are released to the importer on his acceptance of the bill. The bill
is retained by the banker till the date of maturity. Usually, 30 to 90 days are allowed to the importer
for making the payment of such bills.
(ix) Closing the Transactions:
The last step in the import trade procedure is closing the transaction. If the goods are to the
satisfaction of the importer, the transaction is closed. But if he is not satisfied with the quality of
goods or if there is any shortage, he will write to the exporter and settle the matter. In case the
goods have been damaged in transit, he will claim compensation from the insurance company. The
insurance company will pay him the compensation under an advice to the exporter.
TOPIC-3 : VISIBLE AND INVISIBLE IMPORTS AND EXPORTS
DIVISIONS OF FOREIGN TRADE

Foreign trade can be divided into import, export and entreport.
IMPORT
Import trade is the act of buying goods and services from other countries. It is divided into
visible and invisible trade.
a) Visible Import: Visible imports consist of goods that can be seen and touched i.e. tangible
goods which come from other countries e.g. automobile, computer, rice etc.
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b) Invisible Import: Invisible imports consist of services that cannot be seen or touched rendered
by other countries e.g. banking, teaching, aviation etc.
EXPORT
Export trade can be defined as the act of selling goods and services to other countries. It
involves the selling of a country’s product abroad. It can be divided into visible and invisible
exports.
a) Visible Export: This consists of goods which are sold in overseas market i.e. to other countries
e.g. Nigeria visible exports are cotton, crude oil, cocoa etc.
b) Invisible Export: Invisible exports consist of services rendered to other countries. Such
services include transport , banking, insurance etc.
ENTREPORT
Entreport is a form of foreign trade in which goods are shipped to one port and subsequently
re-exported and shipped to another port. In other words, entreport is the exporting of goods
imported from other countries.
TOPIC-4 BALANCE OF TRADE
Balance of Trade is the difference between the monetary value of exports and imports of
output in an economy over a certain period. A positive balance is known as a trade surplus if it
consists of exporting more than is imported; it is also known as favourable trade balance. A
negative balance is referred to as a trade deficit.
Factors that can affect the balance of trade include:
• The cost of production (Land, Labour, Capital, Taxes, Incentives, etc.) in the exporting and
importing countries
• The cost and availability of raw materials, intermediate goods and other inputs;
• Exchange rate movements;
• Multilateral, bilateral and unilateral taxes or restrictions on trade;
• Non-tariff barriers such as environmental, health or safety standards;
• The availability of adequate foreign exchange with which to pay for imports; and
• Prices of goods manufactured at home (influenced by the responsiveness of supply)
• The stage in business cycle such as recession, boom, stagnation etc.
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Historical Trends in Trade Balance
In 1949-50, India’s exports were worth Rs. 485 Crore and the imports were worth Rs. 617
Crore. Thus, the country started with negative trade balance of Rs. 132 Crore. Both exports and
imports increased and the trade deficit also increased. India has a continuous trade deficit except
only two years viz. 1972-73 & 1976-77 in which there were more exports than imports and a
positive trade balance.
Post liberalization, the devaluation of Rupee and convertibility of Indian Rupee in current
account tried to create a favourable environment but in the subsequent years, the trade deficit
increased.
India’s Merchandise Trade: Key Facts
During the current financial year (April-January), India’s total export was $217.7 billion while
total import during the same period was $324.5 billion. In 2015-16, both imports and exports have
been on declining trend mainly due to global slowdown. The trade deficit stands at $106.8 billion.
Some important current facts are as follows:
• The merchandise trade (trade in commodities) had a 13.9% share in India’s GDP in 1991-
92. It stood at 27% in 2004-05, and further went up to 41% in 2013-14. In 2014-15,
merchandise trade is 37.1% of GDP.
• In 2013, India’s exports share in world merchandise exports was 1.7 per cent. The objective
of taking it to a respectable figure of at least 4% of world trade in next five years still seems
to be a distant dream. We note here that China’s share in world trade is around 11%.
• Gujarat and Maharashtra are two export dominating states of India.
• China and UAE are India’s largest trade partners.
Composition of India’s merchandise export Basket
The merchandise exports of India are broadly classified into four categories viz.
manufactured goods, Ores & minerals, Farm Products, Crude Oil and Petroleum products. We note
here that manufactured goods are backbone of India’s Merchandise exports. In Merchandise
exports too, the share of Gems and Jewellery is maximum.
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India’s Merchandise Imports Basket
Around one fourth of India’s imports are POL (Petrol, Oil and Lubricants) products. Food
is a small fraction in the imports and out of the total 3.5%, 2% is occupied by vegetable oils which
are India’s largest agricultural import item.
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TYPES OF BALANCE OF TRADE:
Figure 2.2. Below illustrates various types of Balance of Trade:
Let us try to understand the various concepts one by one.
1. Favourable Balance of Trade:
The situation, wherein country’s exports exceed imports is a situation of favourable or

surplus balance of trade.
2. Unfavourable/Deficit Balance of Trade:
Excess of total value of goods, imported over the total value of goods exported is termed
as unfavourable or adverse or deficit balance of trade.
It may also be expressed as under:
3. Equilibrium in Balance of Trade:
Equality between the total value of goods exported and total value of goods imported is
termed as equilibrium in balance of trade.
It may also be expressed as under:
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TOPIC-5 BALANCE OF PAYMENT
The balance of payments (henceforth BOP) is a consolidated account of the

receipts and payments from and to other countries arising out of all economic
transactions during the course of a year.
In the words of C. P. Kindleberger : “The balance of payments of a country

is a systematic record of all economic transactions between the residents of the
reporting and the residents of the foreign countries during a given period of
time.” Here by ‘residents’ we mean individuals, firms and government.
Components of BOP Accounts:
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A. The Current Account:
The current account of BOP includes all transaction arising from trade in currently
produced goods and services, from income accruing to capital by one country and invested in
another and from unilateral transfers both private and official. The current account is usually
divided in three sub-divisions.
The first of these is called visible account or merchandise account or trade in goods
account. This account records imports and exports of physical goods. The balance of visible
exports and visible imports is called balance of visible trade or balance of merchandise trade [i.e.,
items 1(a), and 2(a) of Table 6.1]
The second part of the account is called the invisibles account since it records all exports
and imports of services. The balance of these transactions is called the balance of invisible trade.
As these transactions are not recorded in the customs office unlike merchandise trade we call them
invisible items.
It includes freights and fares of ships and planes, insurance and banking charges, foreign
tours and education abroad, expenditures on foreign embassies, transactions out of interest and
dividends on foreigners’ investment and so on. Items 2(a) and 2(b) comprise services balance or
balance of invisible trade.
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The difference between merchandise trade and invisible trade (i.e., items 1 and 2) is known
as the balance of trade.
There is another flow in the current account that consists of two items [3(a) and 3(b)].
Investment income consists of interest, profit and dividends on bonus and credits. Interest earned
by a US resident from the TELCO share is one kind of investment income that represents a debit
item here.
There may be a similar money inflow (i.e., credit item). Unrequited transfers include
grants, gifts, pension, etc. These items are such that no reverse flow occurs. Or these are the items
against which no quid pro quo is demanded. Residents of a country received these cost-free. Thus,
unilateral transfers are one-way transactions. In other words, these items do not involve give and
take unlike other items in the BOP account.
Thus the first three items of the BOP account are included in the current account. The
current account is said to be favourable (or unfavourable) if receipts exceed (fall short of)
payments.
B. The Capital Account:
The capital account shows transactions relating to the international movement of ownership
of financial assets. It refers to cross-border movements in foreign assets like shares, property or
direct acquisitions of companies’ bank loans, government securities, etc. In other words, capital
account records export and import of capital from and to foreign countries.
The capital account is divided into two main subdivisions: short term and the long term
movements of capital. A short term capital is one which matures in one year or less, such as bank
accounts.
Long term capital is one whose maturity period is longer than a year, such as long term
bonds or physical capital. Long term capital account is, again, of two categories: direct investment
and portfolio investment. Direct investment refers to expenditure on fixed capital formation, while
portfolio investment refers to the acquisition of financial assets like bonds, shares, etc. India’s
investment (e.g., if an Indian acquires a new Coca- Cola plant in the USA) abroad represents an
outflow of money. Similarly, if a foreigner acquires a new factory in India it will represent an
inflow of funds.
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Thus, through acquisition or sale and purchase of assets, capital movements take place.
Investors then acquire controlling interests over the asset. Remember that exports and imports of
equipment do not appear in the capital account. On the other hand, portfolio investment refers to
changes in the holding of shares and bonds. Such investment is portfolio capital and the ownership
of paper assets like shares does not ensure legal control over the firms.
In this connection, the concepts of capital exports and capital imports require little elabo-
ration. Suppose, a US company purchases a firm operating in India. This sort of foreign investment
is called capital import rather than capital export. India acquires foreign currency after selling the
firm to a US company. As a result, India acquires purchasing power abroad. That is why this
transaction is included in the credit side of India’s BOP accounts. In the same way, if India invests
in a foreign country,, it is a payment and will be recorded on the debit side. This is called capital
export. Thus, India earns foreign currency by exporting goods and services and by importing
capital. Similarly, India releases foreign currency by importing visible and invisibles and exporting
capital.]
C. Statistical Discrepancy Errors and Omissions:
The sum of A and B (Table 6.1) is called the basic balance. Since BOP always balances in
theory, all debits must be offset by all credits, and vice versa. In practice, it rarely happens parti-
cularly because statistics are incomplete as well as imperfect. That is why errors and omissions are
considered so that the BOP accounts are kept in balance (Item C).
D. The Official Reserve Account:
The total of A, B, C, and D comprise the overall balance. The category of official reserve
account covers the net amount of transactions by governments. This account covers purchases and
sales of reserve assets (such as gold, convertible foreign exchange and special drawing rights) by
the central monetary authority.
Now, we can summarise the BOP data:

Current account balance + Capital account balance + Reserve balance = Balance of Payments
(X – M) + (CI – CO) + FOREX = BOP
X is exports,
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M is imports,
CI is capital inflows,
CO is capital outflows,
FOREX is foreign exchange reserve balance.
Difference Between Balance of Trade and Balance of Payments
BASIS FOR
BALANCE OF TRADE BALANCE OF PAYMENT
COMPARISON
Meaning Balance of Trade is a statement Balance of Payment is a statement

that captures the country's that keeps track of all economic
export and import of goods with transactions done by the country
the remaining world. with the remaining world.
Records Transactions related to goods Transactions related to both goods

only. and services are recorded.
Capital Transfers Are not included in the Balance Are included in Balance of
of Trade. Payment.
Which is better? It gives a partial view of the It gives a clear view of the
country's economic status. economic position of the country.
Result It can be Favorable, Both the receipts and payment

Unfavorable or balanced. sides tallies.
Component It is a component of Current Current Account and Capital

Account of Balance of Account.
Payment.
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TOPIC-6 INCO TERMS
Incoterms is the short form for International Commercial terms. These terms relates to the
sales contract and are used worldwide. INCOTERMS were first introduced in 1936 by
International chamber of Commerce (ICC). These Incoterms were revised several times, latest
being Incoterms 2010.
There are total 11 INCOTERMS defined by the ICC . The 11 INCOTERMS are based
upon the consideration of least responsibility of the seller to least responsibility of the buyer. For
example INCOTERM EXW (ex-work) considers least responsibilty for the seller. Same way
INCOTERM DDP (Delievered duty paid) considers least responsibility for the buyer. We can say
that all other nine INCOTERMS lies between these two extremes.
One last thing before we take the incoterms head on. Lets differentiate and group together
each Incoterm. First on the basis of mode of transport that they are used and second based upon
the point of delivery.
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Incoterms Based upon the Mode of transport.
The first group includes seven incoterms which can be used in any mode of transport. These
can be used even when there is no sea transport used. Incoterms EXW, FCA, CPT, CIP, DAT,
DAP and DDP belongs to this group. The second group includes four incoterms which are used in
sea or inland waterways only. This is because in these incoterms the point of delivery and the
destination place are both sea ports. Incoterms FAS, FOB, CFR and CIF belongs to this second
group.
Incoterms groups based upon point of delivery
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Incoterms can also be grouped together in 4 categories based upon the point of delivery.
In group “E” (Ex-works), the delivery point is seller’s premises. In group “F” (FOB, FAS & FCA),
the delivery point is before or upto the main carrier, with main carried unpaid by seller. In group
“C” (CFR, CIF, CPT & CIP), the delivery point is upto and beyond the main carrier with carrier
paid by seller. And finally in group “D” (DAP, DAT & DDP), the delivery point is the final
destination. Now that we are clear on some of the important points, lets jump into each of the
incoterm.
1. EXW (Ex-Works):
Mode of transport: Multimodal
With Ex-works the seller has the least responsibility. Seller has the responsibility to deliver the
goods to the buyer at seller’s premises, depot or any other agreed places. From there on, all
responsibility and risks are with the buyer. It means,
• The delivery point is seller’s premises

• buyer pays for the export from seller’s premises and import into the destination.
• buyer arranges for all modes of transport .
• Buyer pays for the insurance
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Ex-works is often used while making quoting initial prices for sale contracts. In practice, this
incoterm can have practical difficulties specially in cross border assignments. These difficulties
may include buyer’s inability to arrange for export formalities.
2. Delivered duty paid (DDP):
Delivered duty paid is just the opposite of Ex-works. Seller has the most
responsibility. Seller has the responsibility to deliver the goods at buyer’s premises, depot or any
other place as agreed. It means that from seller’s premises to buyer’s premises or any other agreed
place
• The delivery point is buyer’s premises or other place agreed.

• Seller handles the cargo and pays for export as well as import dues and
• Seller arranges the transport of the cargo. Which also means that in case of sea transport,
seller will be the shipper of the goods.
• Seller pays for the insurance.
As in Ex-works, DDP can also have practical difficulties in cross border assignments. In DDP,
seller is responsible to clear the import formalities but the seller may not have the local knowledge
& expertise to clear import formalities.
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3. Free Carrier (FCA):
Free carrier means the delivery point is carrier or other person nominated by the buyer at
the seller’s premises or other agreed place. If the agreed place is seller’s premises, delivery takes
place when the goods load on the truck. If the agreed place is not seller’s premises then the delivery
takes place when truck arrives at this place and is ready for unloading. In Free carrier (FCA),
• The delivery point is seller’s premises or any other place agreed.

• buyer pays for the export from seller’s premises and import into the destination.
• buyer arranges for all modes of transport
In FCA incoterm, the agreed place has implications on the loading of the carrier. If the agreed
place is seller’s premises then seller handles the loading. If the agreed place is other than seller’s
premises, then seller has delivered the goods once the carrier arrives at the agreed place.
“FCA seller’s premises” might look similar to Ex-works but there is one main difference. In FCA,
seller has the obligation to load the goods on the carrier.
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4. Free Onboard (FOB):
Mode of transport: Sea
Free onboard means the seller delivers the shipment to the carrier nominated by the buyer.
There is only a slight difference between FCA and FOB. One difference is the mode of transport.
While FCA is applicable for multimodal transport, FOB is used only for sea transport. In FOB, the
seller passes the risk to the buyer when shipment crosses ship’s rail. In FCA, the seller has the
obligation to load the shipment on to the carrier arranged by buyer which is prior to the main
carrier.
5. Cost and Freight (CFR)

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By cost and freight, it means while seller bears cost and freight of shipment to the
destination but the risk is with the buyer. And that is also the main difference between CFR and
FOB incoterms. In FOB, seller delivers the shipment and passes the risk to buyer when shipment
crosses ship’s rail. But, in CFR, he also pays for the costs and freight until the shipment reaches to
the destination. This was exactly the point discussed earlier. Arranging for the transport does not
mean that the risk is with the party arranging the transport. In this case, seller arranges the main
transport (Seller is the shipper), but he has already delivered the shipment or passed the risk to the
buyer upon shipment crossing th ship’s rail.
6. Cost , Insurance and Freight (CIF)

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There is only one but obvious difference between CFR and CIF and that is addition of
Insurance. Seller passes the risk to the buyer when the shipment is loaded on the carrier. But the
seller also arranges for the main carrier (Seller is the shipper). Apart from that seller also pays for
the insurance for covering the buyer’s risk during carriage of the shipment. As seller would be
paying to cover the buyer’s risk, he would offcourse wish to have least insurance just to cover his
obligations. Buyer must take this into account and take extra insurance if he wish to.
7. Free Alongside Ship (FAS)

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As simple as it sounds. The seller delivers the shipment to buyer when the goods are
alongside ship. Risk passes from seller to buyer when the good are brought alongside the ship.
Buyer arranges for the main carrier (Buyer is the shipper). Buyer pays for the all the insurance
after this point.
8. Carriage paid to (CPT)

Seller pays for the main carriage to bring the shipment at agreed place. However the seller
passes the risk to the buyer upon delivery to the main carrier. This is the point that we highlighted
earlier. “Arranging for the main transport does not mean the risk is with the arranging party”. Here
even when the seller arranges for the main carrier, risk has already passed to the buyer. Buyer also
arranges for the insurance from the point of delivery.
9. Carriage and insurance paid (CIP)

34
In CIP, Seller delivers the goods and passes the risk to the buyer upon delivery to the main
carrier. Seller arranges and pays for the main carrier (Seller is the shipper) to bring the shipment
at agreed place. Seller also arranges for insurance on behalf of buyer to cover buyer’s risk. The
main difference between CPT and CIP is that the insurance is also paid by the seller. Again this
point was highlighted earlier. “arranging for the insurance does not mean that risk is with the party
arranging the insurance”. Here Seller pays for the insurance but the risk is not with him. Seller
arranges for the insurance to cover buyer’s risk. CIP requires seller to arrange for insurance equals
to 110% of the cargo value under minimum insurance claim. Buyer must insure himself against
any additional risk he thinks need insuring against.
10. Delivered at place (DAP)

35
DAP means seller delievers when shipment arrives at final destination, ready for unloading
from the arriving mode of transport. Seller bears all the costs and risks in bringing the goods to
this place.
1) Seller handles export fees, carriage, insurance and destination port charges.
2) Buyer handles import fees and unloading of goods.
11. Delivered at terminal (DAT)
Seller delivers the shipment and passes the risk to the buyer when shipment is put at the
disposal of buyer at the terminal of final destination. Seller handles export fees, carriage,
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insurance, destination port charges and unloading of the goods. The main difference between DAT
and DAP is that in DAT, seller handles the final unloading of the goods.
Common Mistakes in using Incoterms
1) Failure to include the precise place alongwith the destination.
The use of Incoterms need to specify the precise place. For example FCA Durban does not specify
the precise location as Durban is a broad area. Incoterm must mention the exact location in
Durban. For example, FCA Durban berth no 42.
2) Use of DDP incoterm without considering if the seller has the knowledge and expertise or if
local regulations allows him to clear import formalities in buyer’s country.
3) Use of EXW incoterm without considering if the buyer has the knowledge and expertise or if
local regulations allows him to clear export formalities in seller’s country.
4) Using “sea or inland waterways” incoterms for containerized goods. These four incoterms
which are used for sea and inland waterways are not meant for containerized goods. These are
actually meant for bulk cargoes and non- containerized goods. Use of these incoterms for
containerized goods can put exporters at undue risk as the goods may have to wait several days
before despatch.
If you are still in doubt as to which Incoterm you should use where, here is a useful tool you should
check. The tool was created by The Belgian foreign trade agency in collaboration with Always
consult.
TOPIC-7 : METHODS OF PAYMENT USED IN FOREIGN TRADE – ADVANCE

REMITTANCE OPEN ACCOUNT – CONSIGNMENT SALE – BILLS FOR
COLLECTION.
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METHODS OF PAYMENT IN INTERNATIONAL TRADE
In a global marketplace, it’s more important than ever for exporters to offer their customers
attractive sales terms supported by the appropriate payment methods. Here’s a look at the five
primary methods of payment, from least risk to the exporter to most risk.
1. Consignment
Consignment is a variation of open account in which payment is sent to the exporter after
the goods have been sold by the foreign distributor to the end customer. It is the riskiest of the
most common methods of payment.
2. Open Account (O/A)
An open account transaction in international trade is a sale where the goods are shipped
and delivered before payment is due, which is typically in 30, 60 or 90 days. Open accounts are
risky for exporters; however, from your client's perspective, this is the preferred method of
payment in terms of costs and risks.
3. Collections
Also called a documentary collection, this method of payment involves using banking
channels for more than handling the movement of funds for your payment.
With a documentary collection, you’re relying on the bank to control your product until
payment is made. Your bank (the remitting bank) sends documents to the importer’s bank (the
collecting bank) along with instructions for payment. The funds are received from the importer
and remitted to you in exchange for the documents. The most significant risk is your buyer saying
they changed their mind and no longer want the product that was shipped..
4. Letter of Credit (L/C)
International letters of credit are a commitment by a bank on behalf of the foreign buyer
that payment will be made to the beneficiary (exporter) provided the terms and conditions stated
38
in the L/C have been met, as evidenced by the presentation of specified documents. It is one of the
most secure methods of payment for an exporter.
TOPIC-8 LETTER OF CREDIT
A letter of credit provides an irrevocable guarantee to the exporter that, provided the
goods and/or services are delivered to the importer according to contractual terms and with the
compliant documents, it will be paid by the bank that issued that letter of credit (the bank of the
importer). It also provides assurances to the importer that the goods and/or services ordered will
be received, in line with the compliant documentation and under any contractual terms set out in
the purchase agreement. The obligation of the issuing bank to pay the beneficiary of the letter of
credit, most generally the exporter, therefore depends on the exporter delivering the merchandise
as detailed in the letter of credit, but also in accordance with all the other requirements specified
in the documented credit.
The documentation required in a letter of credit depends on the level of complexity of

the transaction and the degree of security that the two parties wish to have on the transaction:
security of payment, security and transparency regarding the description of the goods, security
regarding the clearance of Customs, transportation process and delivery on time, and other kinds
of risks related to the transaction. Document compliance must be verified - this is one important
feature of the acceptance/endorsement process for letters of credit, in particular for the exporter's
bank. The legal clauses of basic letters of credit are subject to regular standardization by the
banking commission of the international chamber of commerce (ICC),
which also provides for arbitration services.
The existence of a strong and well identified collateral, and detailed documentation, make
documented letters of credit one of the safest forms of lending. Such documentation and
collateral are internationally recognized by commercial laws worldwide and are subject to
arbitration in the case of default or other problems affecting the transaction. Implementation
guidance A standard documentary credit application form has been developed by the
International Chamber of Commerce (ICC). The ICC has also published the Uniform Customs
and Practices for Document Credit. The rights and obligations of buyers, sellers and participating
banks in international letters of credit transactions are presented in careful detail in publications
made available by the ICC.
The process
The diagram below illustrates typical flows of documents and information in the execution of a
letter of credit.
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Step 1 The buyer agrees to purchase goods from the seller. This agreement may be a purchase
order, an accepted pro-forma invoice, a formal contract, or an informal exchange of messages.
Agreement is made as to goods being purchased, how and when they are to be shipped and
insured, and how and when payment is to be effected. In this case, the agreement is to use a
letter of credit as the mechanism of payment.
Step 2 The buyer applies to his bank for a letter of credit, by signing the bank's letter of credit
application/agreement form.
Step 3 After approving the application, the issuing bank issues the actual letter of credit
instrument and sends it to the seller (beneficiary).
Step 4 Having received the issuing bank's assurance of payment, the seller ships the goods to
the buyer.
Step 5 The seller prepares the documents called for in the letter of credit and presents them to
the issuing bank.
Step 6 The issuing bank examines the documents. If it determines that the documents comply
with the letter of credit, the issuing bank pays the seller.
Steps 7 & 8 The issuing bank obtains payment from the applicant (buyer) in accordance with
the terms of the applicant?s letter of credit agreement and forwards the documents to the
applicant.
Step 9 The applicant uses the documents to pick up the merchandise from the carrier, completing
the letter of credit cycle.
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Types of Letter of Credit:-
COMMERCIAL LETTER OF CREDIT

A standard letter of credit; also called as documentary credit.
EXPORT/IMPORT LETTER OF CREDIT

The same letter of credit can be called export or import, depending on who uses it. The
exporter will term it as an exporter letter of credit, whereas an importer terms it as an importer
letter of credit.
TRANSFERRABLE LETTER 0F CREDIT

A letter of credit that allows the beneficiary to transmit the payment in whole, or in part, to
another supplier in the chain. This usually occurs when the beneficiary is only an agent for the
current provider. Such a letter of credit allows the beneficiary to submit its own documents, but to
transfer the money further.
UN-TRANSFERRABLE LETTER OF CREDIT

A letter of credit that does not transfer money to third parties. The recipient is the only
recipient of money, and can no longer use the letter of credit to pay someone.
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REVOCABLE LETTER OF CREDIT
A letter of credit that the issuing bank, or the purchaser, may change the terms at any time
without notifying the seller/beneficiary. These types of messages are often not used, because there
is no protection for the beneficiary.
IRREVOCABLE LETTER OF CREDIT

A letter of credit that, without the approval of the beneficiary, a bank cannot make any
changes.
STANDBY LETTER OF CREDIT

A letter of credit designed to ensure payment in case of unreasonable circumstances. If the
beneficiary proves that the promised payment has not been made, the waiting letter of credit will
expire. It does not facilitate transactions, but guarantees payment.
CONFIRMED LETTER OF CREDIT

A letter of credit guaranteeing payment to the Beneficiary by the Consulting Bank. Only
an irrevocable letter of credit is verified by an advisory bank. The beneficiary has promised to pay
one from the issuing bank, and one from the advisory bank, respectively.
REVOLVING LETTER OF CREDIT

A letter of credit used for multiple payments, instead of issuing letters at each stage of the
transaction.
BACK TO BACK LETTER OF CREDIT

A letter of credit commonly used in transactions involving brokers. There are two letters
of credit – the first to the broker at the buyer bank, and the second to the seller at the broker bank.
RED CLAUSE LETTER OF CREDIT

A letter of credit partially paid to the beneficiary before the goods are shipped or services
are performed. The advance is paid in return for the written confirmation of the seller, and the
receipt.
GREEN CLAUSE LETTER OF CREDIT

A letter of credit paid to the seller in advance, without incurring written agreements and
receipts of the goods.
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SIGHT LETTER OF CREDIT
A letter of credit requesting payment for submission of required documents. The bank
reviews the documents, and pays the beneficiary if the documents meet the conditions of the letter
of credit.
DEFERRED PAYMENT LETTER OF CREDIT

A letter of credit guaranteeing payment after a certain period of time. The bank can review
the documents early, but payments are made to the beneficiary after the agreed time has passed. It
is also known as usance letter 0f credit.
DIRECT PAY LETTER OF CREDIT

A letter of credit requiring the issuing bank to pay the beneficiary directly and then be
reimbursed by the buyer. The recipient cannot interact with the buyer.
*************************************************************
UNIT II: FINANCING FOREIGN TRADE
Topic-1 Financing foreign trade
1.1 Packing credit (Preshipment credit) – Postshipment credit,
1.2 Postshipment credit denominated in 9 foreign currency
Topic-2 Role of IBRD, IDA, IFC
Topic-3 Exim – Bank
Topic-4 Asian Development Bank
Topic-5 ECGC
Topic-6 MIGA
TOPIC-1.1 EXPORT FINANCE BY BANKS
43
Export Finance
In order to be competitive in markets, exporters are often expected to offer attractive credit
terms to their overseas buyers. Extending such credits to foreign buyers put considerable strain on
the liquidity of the exporting firms. Therefore, it is extremely important to make adequate trade
finances available to the exporters from external sources at competitive terms during the post-
shipment stage.
Unless competitive trade finance is available to the exporters, they often resort to quote
lower prices to compensate their inability to offer competitive credit terms. As a part of export
promotion strategy, national governments around the world offer export credit, often at
concessional rates to facilitate exports.
1. PRE-SHIPMENT FINANCE
Pre Shipment Finance is issued by a financial institution when the seller want the payment of
the goods before shipment. The main objectives behind preshipment finance or pre export
finance is to enable exporter to:
• Procure raw materials.

• Carry out manufacturing process.
44
• Provide a secure warehouse for goods and raw materials.
• Process and pack the goods.
• Ship the goods to the buyers.
• Meet other financial cost of the business.
Types of Pre Shipment Finance
• Packing Credit
• Advance against Cheques/Draft etc. representing Advance Payments.
Preshipment finance is extended in the following forms :
• Packing Credit in Indian Rupee

• Packing Credit in Foreign Currency (PCFC)
Requirment for Getting Packing Credit

This facility is provided to an exporter who satisfies the following criteria
• A ten digit importerexporter code number allotted by DGFT.

• Exporter should not be in the caution list of RBI.
• If the goods to be exported are not under OGL (Open General Licence), the exporter
should have the required license /quota permit to export the goods.
Packing credit facility can be provided to an exporter on production of the following

evidences to the bank:
1. Formal application for release the packing credit with undertaking to the effect that the
exporter would be ship the goods within stipulated due date and submit the relevant
shipping documents to the banks within prescribed time limit.
2. Firm order or irrevocable L/C or original cable / fax / telex message exchange between
the exporter and the buyer.
3. Licence issued by DGFT if the goods to be exported fall under the restricted or canalized
category. If the item falls under quota system, proper quota allotment proof needs to be
submitted.
The confirmed order received from the overseas buyer should reveal the information about the
full name and address of the overseas buyer, description quantity and value of goods (FOB or
CIF), destination port and the last date of payment.
45
Eligibility
Pre shipment credit is only issued to that exporter who has the export order in his own
name. However, as an exception, financial institution can also grant credit to a third party
manufacturer or supplier of goods who does not have export orders in their own name. In this case
some of the responsibilities of meeting the export requirements have been out sourced to them by
the main exporter. In other cases where the export order is divided between two more than two
exporters, pre shipment credit can be shared between them
Quantum of Finance
The Quantum of Finance is granted to an exporter against the LC or an expected order. The only
guideline principle is the concept of NeedBased Finance. Banks determine the percentage of
margin, depending on factors such as:
• The nature of Order.

• The nature of the commodity.
• The capability of exporter to bring in the requisite contribution.
Different Stages of Pre Shipment Finance
1. Appraisal and Sanction of Limits
Before making any an allowance for Credit facilities banks need to check the different
aspects like product profile, political and economic details about country. Apart from these things,
the bank also looks in to the status report of the prospective buyer, with whom the exporter
proposes to do the business. To check all these information, banks can seek the help of institution
like ECGC or International consulting agencies like Dun and Brad street etc.
The Bank extended the packing credit facilities after ensuring the following
• The exporter is a regular customer, a bona fide exporter and has a goods standing in the
market.
• Whether the exporter has the necessary license and quota permit (as mentioned earlier) or
not.
• Whether the country with which the exporter wants to deal is under the list of Restricted
Cover Countries(RCC) or not.
46
2. Disbursement of Packing Credit Advance
Once the proper sanctioning of the documents is done, bank ensures whether exporter
has executed the list of documents mentioned earlier or not. Disbursement is normally allowed
when all the documents are properly executed. Sometimes an exporter is not able to produce the
export order at time of availing packing credit. So, in these cases, the bank provide a special
packing credit facility and is known as Running Account Packing.
Before disbursing the bank specifically check for the following particulars in the submitted
documents"
• Name of buyer
• Commodity to be exported
• Quantity
• Value (either CIF or FOB)
• Last date of shipment / negotiation.
• Any other terms to be complied with
The quantum of finance is fixed depending on the FOB value of contract /LC or the domestic
values of goods, whichever is found to be lower. Normally insurance and freight charged are
considered at a later stage, when the goods are ready to be shipped.
In this case disbursals are made only in stages and if possible not in cash. The payments are
made directly to the supplier by drafts/bankers/cheques.
The bank decides the duration of packing credit depending upon the time required by the
exporter for processing of goods.
The maximum duration of packing credit period is 180 days, however bank may provide a
further 90 days extension on its own discretion, without referring to RBI.
3. Follow up of Packing Credit Advance

Exporter needs to submit stock statement giving all the necessary information about the
stocks. It is then used by the banks as a guarantee for securing the packing credit in advance. Bank
also decides the rate of submission of this stocks.Apart from this, authorized dealers (banks) also
physically inspect the stock at regular intervals.
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4. Liquidation of Packing Credit Advance
Packing Credit Advanceneeds be liquidated out of as the export proceeds of the relevant
shipment, thereby converting preshipment credit into postshipment credit. This liquidation can
also be done by the payment receivable from the Government of India and includes the duty
drawback, payment from the Market Development Fund (MDF) of the Central Government or
from any other relevant source.In case if the export does not take place then the entire advance can
also be recovered at a certain interest rate. RBI has allowed some flexibility in to this regulation
under which substitution of commodity or buyer can be allowed by a bank without any reference
to RBI. Hence in effect the packing credit advance may be repaid by proceeds from export of the
same or another commodity to the same or another buyer.However, bank need to ensure that the
substitution is commercially necessary and unavoidable.
5.Overdue Packing
Bank considers a packing credit as an overdue, if the borrower fails to liquidate the packing
credit on the due date. And, if the condition persists then the bank takes the necessary step to
recover its dues as per normal recovery procedure.
Special Cases
Packing Credit to Sub Supplier
1. Packing Credit can only be shared on the basis of disclaimer between the Export Order Holder
(EOH) and the manufacturer of the goods. This disclaimer is normally issued by the EOH in
order to indicate that he is not availing any credit facility against the portion of the order
transferred in the name of the manufacturer.
This disclaimer is also signed by the bankers of EOH after which they have an option to
open an inland L/C specifying the goods to be supplied to the EOH as a part of the export
transaction. On basis of such an L/C, the subsupplier bank may grant a packing credit to the
subsupplier to manufacture the components required for exports.On supply of goods, the L/C
opening bank will pay to the sub supplier's bank against the inland documents received on the
basis of the inland L/C opened by them.
The final responsibility of EOH is to export the goods as per guidelines. Any delay in
export order can bring EOH to penal provisions that can be issued anytime.
The main objective of this method is to cover only the first stage of production cycles,
and is not to be extended to cover supplies of raw material etc. Running account facility is not
granted to subsuppliers.
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In case the EOH is a trading house, the facility is available commencing from the manufacturer
to whom the order has been passed by the trading house.
Banks however, ensure that there is no double financing and the total period of packing credit
does not exceed the actual cycle of production of the commodity.
2. Running Account facility
It is a special facility under which a bank has right to grant preshipment advance for
export to the exporter of any origin. Sometimes banks also extent these facilities depending upon
the good track record of the exporter. In return the exporter needs to produce the letter of credit /
firms export order within a given period of time.
3. Preshipment Credit in Foreign Currency (PCFC)

Authorised dealers are permitted to extend Preshipment Credit in Foreign Currency
(PCFC) with an objective of making the credit available to the exporters at internationally
competitive price.This is considered as an added advantage under which credit is provided in
foreign currency in order to facilitate the purchase of raw material after fulfilling the basic export
orders.
The rate of interest on PCFC is linked to London Interbank Offered Rate (LIBOR).
According to guidelines, the final cost of exporter must not exceed 0.75% over 6 month LIBOR,
excluding the tax.
The exporter has freedom to avail PCFC in convertible currencies like USD, Pound,
Sterling, Euro, Yen etc. However, the risk associated with the cross currency truncation is that of
the exporter.
The sources of funds for the banks for extending PCFC facility include the Foreign
Currency balances available with the Bank in Exchange, Earner Foreign Currency Account
(EEFC), Resident Foreign Currency Accounts RFC(D) and Foreign Currency(NonResident)
Accounts.
Banks are also permitted to utilize the foreign currency balances available under Escrow
account and Exporters Foreign Currency accounts. It ensures that the requirement of funds by the
account holders for permissible transactions is met. But the limit prescribed for maintaining
maximum balance in the account is not exceeded. In addition, Banks may arrange for borrowings
from abroad. Banks may negotiate terms of credit with overseas bank for the purpose of grant of
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PCFC to exporters, without the prior approval of RBI, provided the rate of interest on borrowing
does not exceed 0.75% over 6 month LIBOR.
4. Packing Credit Facilities to Deemed Exports

Deemed exports made to multilateral funds aided projects and programmes, under orders
secured through global tenders for which payments will be made in free foreign exchange, are
eligible for concessional rate of interest facility both at pre and post supply stages.
5. Packing Credit facilities for Consulting Services

In case of consultancy services, exports do not involve physical movement of goods out of
Indian Customs Territory. In such cases, Preshipment finance can be provided by the bank to
allow the exporter to mobilize resources like technical personnel and training them.
6. Advance against Cheque/Drafts received as advance payment

Where exporters receive direct payments from abroad by means of cheques/drafts etc. the bank
may grant export credit at concessional rate to the exporters of goods track record, till the time of
realization of the proceeds of the cheques or draft etc. The Banks however, must satisfy
themselves that the proceeds are against an export order.
2. POST SHIPMENT FINANCE
Post Shipment Finance is a kind of loan provided by a financial institution to an exporter

or seller against a shipment that has already been made. This type of export finance is granted from
the date of extending the credit after shipment of the goods to the realization date of the exporter
proceeds. Exporters don’t wait for the importer to deposit the funds.
Basic Features
The features of postshipment finance are:
1. Purpose of Finance : Postshipment finance is meant to finance export sales receivable after
the date of shipment of goods to the date of realization of exports proceeds. In cases of deemed
exports, it is extended to finance receivable against supplies made to designated agencies.
2.Basis of Finance : Postshipment finances is provided against evidence of shipment of goods or

supplies made to the importer or seller or any other designated agency.
3.Types of Finance : Postshipment finance can be secured or unsecured. Since the finance is
extended against evidence of export shipment and bank obtains the documents of title of goods,
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the finance is normally self liquidating. In that case it involves advance against undrawn balance,
and is usually unsecured in nature.Further, the finance is mostly a funded advance. In few cases,
such as financing of project exports, the issue of guarantee (retention money guarantees) is
involved and the financing is not funded in nature.
4. Quantum of Finance As a quantum of finance, postshipment finance can be extended up to

100% of the invoice value of goods. In special cases, where the domestic value of the goods
increases the value of the exporter order, finance for a price difference can also be extended and
the price difference is covered by the government. This type of finance is not extended in case of
preshipment stage.Banks can also finance undrawn balance. In such cases banks are free to
stipulate margin requirements as per their usual lending norm.
5. Period of Finance : Postshipment finance can be off short terms or long term, depending on
the payment terms offered by the exporter to the overseas importer. In case of cash exports, the
maximum period allowed for realization of exports proceeds is six months from the date of
shipment. Concessive rate of interest is available for a highest period of 180 days, opening from
the date of surrender of documents. Usually, the documents need to be submitted within 21days
from the date of shipment.
Financing For Various Types of Export Buyer's Credit

Postshipment finance can be provided for three types of export :
• Physical exports: Finance is provided to the actual exporter or to the exporter in whose
name the trade documents are transferred.
• Deemed export: Finance is provided to the supplier of the goods which are supplied to
the designated agencies.
• Capital goods and project exports: Finance is sometimes extended in the name of
overseas buyer. The disbursal of money is directly made to the domestic exporter.
Supplier's Credit : Buyer's Credit is a special type of loan that a bank offers to the buyers for
large scale purchasing under a contract. Once the bank approved loans to the buyer, the seller
shoulders all or part of the interests incurred.
Types of Post Shipment Finance

The post shipment finance can be classified as :
1. Export Bills purchased/discounted.

2. Export Bills negotiated
3. Advance against export bills sent on collection basis.
4. Advance against export on consignment basis
5. Advance against undrawn balance on exports
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6. Advance against claims of Duty Drawback.
1. Export Bills Purchased/ Discounted.(DP & DA Bills)
Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or
purchased by the banks. It is used in indisputable international trade transactions and the proper
limit has to be sanctioned to the exporter for purchase of export bill facility.
2. Export Bills Negotiated (Bill under L/C)

The risk of payment is less under the LC, as the issuing bank makes sure the payment. The
risk is further reduced, if a bank guarantees the payments by confirming the LC. Because of the
inborn security available in this method, banks often become ready to extend the finance against
bills under LC.
However, this arises two major risk factors for the banks:
1. The risk of nonperformance by the exporter, when he is unable to meet his terms and
conditions. In this case, the issuing banks do not honor the letter of credit.
2. The bank also faces the documentary risk where the issuing bank refuses to honour its
commitment. So, it is important for the for the negotiating bank, and the lending bank to
properly check all the necessary documents before submission.
3. Advance Against Export Bills Sent on Collection Basis
Bills can only be sent on collection basis, if the bills drawn under LC have some
discrepancies. Sometimes exporter requests the bill to be sent on the collection basis, anticipating
the strengthening of foreign currency. Banks may allow advance against these collection bills to
an exporter with a concessional rates of interest depending upon the transit period in case of DP
Bills and transit period plus usance period in case of usance bill.The transit period is from the date
of acceptance of the export documents at the banks branch for collection and not from the date of
advance.
4. Advance Against Export on Consignments Basis

Bank may choose to finance when the goods are exported on consignment basis at the risk
of the exporter for sale and eventual payment of sale proceeds to him by the consignee.However,
in this case bank instructs the overseas bank to deliver the document only against trust receipt
/undertaking to deliver the sale proceeds by specified date, which should be within the prescribed
date even if according to the practice in certain trades a bill for part of the estimated value is drawn
in advance against the exports.In case of export through approved Indian owned warehouses
abroad the times limit for realization is 15 months.
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5. Advance against Undrawn Balance
It is a very common practice in export to leave small part undrawn for payment after
adjustment due to difference in rates, weight, quality etc. Banks do finance against the undrawn
balance, if undrawn balance is in conformity with the normal level of balance left undrawn in the
particular line of export, subject to a maximum of 10 percent of the export value. An undertaking
is also obtained from the exporter that he will, within 6 months from due date of payment or the
date of shipment of the goods, whichever is earlier surrender balance proceeds of the shipment.
6. Advance Against Claims of Duty Drawback

Duty Drawback is a type of discount given to the exporter in his own country. This
discount is given only, if the inhouse cost of production is higher in relation to international
price. This type of financial support helps the exporter to fight successfully in the international
markets.In such a situation, banks grants advances to exporters at lower rate of interest for a
maximum period of 90 days. These are granted only if other types of export finance are also
extended to the exporter by the same bank.
After the shipment, the exporters lodge their claims, supported by the relevant documents
to the relevant government authorities. These claims are processed and eligible amount is
disbursed after making sure that the bank is authorized to receive the claim amount directly from
the concerned government authorities.
Crystallization of Overdue Export Bills

Exporter foreign exchange is converted into Rupee liability, if the export bill purchase /
negotiated /discounted is not realize on due date. This conversion occurs on the 30th day after
expiry of the NTP in case of unpaid DP bills and on 30th day after national due date in case of
DA bills, at prevailing TT selling rate ruling on the day of crystallization, or the original bill
buying rate, whichever is higher.
TOPIC-1.2 : POST CREDIT IN FOREIGN CURRENCY

Export credit in foreign currency:
In order to make credit available to the exporters at internationally competitive rates, banks
(authorized dealers) also extend credit in foreign currency’ (Exhibit 15.3) at LIBOR (London
Interbank Offered Rates), EURO LIBOR (London Interbank Offered Rates dominated in Euro),
or EURIBOR (Euro Interbank Offered Rates).
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LIBOR is a daily reference rate based on the interest rates at which banks offer to lend
unsecured funds to other banks in the London wholesale (or ‘interbank’) money market. The rate
paid by one bank to another for a deposit is known as London Interbank Bid Rate (LIBID).
Pre-shipment credit in foreign currency:
To enable the exporters to have operational flexibility, banks extend pre-shipment credit in
foreign currency (PCFC) in any one of the convertible currencies, such as US dollars, pound
sterling, Japanese yen, euro, etc., in respect to an export order invoiced in another convertible
currency.
For instance, an exporter can avail of PCFC in US dollars against an export order invoiced
in euro. However, the risk and cost of cross-currency transaction are that of the exporter.
Under this scheme, the exporters have the following options to avail export finance:
i. To avail of pre-shipment credit in rupees and then the post-shipment credit either in rupees or
discounting/re-discounting of export bills under Export Bills Abroad (EBR) scheme
ii. To avail of pre-shipment credit in foreign currency and discount/rediscounting of the export
bills in foreign currency under EBR scheme
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iii. To avail of pre-shipment credit in rupees and then convert at the discretion of the bank
Banks are also permitted to extend PCFC for exports to Asian Currency Union (ACU)
countries. The applicable benefit to the exporters accrues only after the realization of the export
bills or when the resultant export bills are rediscounted on ‘without recourse’ basis. The lending
rate to the exporter should not exceed 1.0 percent over LIBOR, EURO LIBOR, or EURIBOR,
excluding withholding tax.
Post-shipment credit in foreign currency:
The exporters also have options to avail post-shipment export credit either in foreign
currency or domestic currency. However, the post-shipment credit has also to be in foreign
currency if the pre-shipment credit has already been availed in foreign currency so as to liquidate
the pre-shipment credit.
Normally, the scheme covers bills with usance period up to 180 days from the date of
shipment. However, RBI approval needs to be obtained for longer periods. Similar to the PCFC
scheme, post-shipment credit can also be obtained in any convertible currency. However, most
Indian banks provide credit in US dollars.
Under the rediscounting of Export Bills Abroad Scheme (EBR), banks are allowed to
rediscount export bills abroad at rates linked to international interest rates at post-shipment stage.
Banks may also arrange a Banker’s Acceptance Factor (BAF) for rediscounting the export
bills without any margin and duly covered by collateralized documents. Banks may also have their
own BAF limits fixed with an overseas bank, a rediscounting agency or factoring agency on
‘without recourse’ basis.
Exporters also have the option to arrange for themselves a line of credit on their own with an
overseas bank or any other agency, including a factoring agency for rediscounting their export bills
directly.
Export Finance to Overseas Importers:
Generally, commercial banks extend exports credit, often at concessional rates, to finance
export transactions to the exporters as a part of their export promotion measures. In addition, credit
is also available to overseas buyers so as to facilitate import of goods from India, mainly under
two forms:
Buyer’s credit:
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It is a credit extended by a bank in exporter’s country to an overseas buyer, enabling the
buyer to pay for machinery and equipment that s/he may be importing for a specific project.
Line of credit:
It is a credit extended by a bank in exporting country (for example, India) to an overseas

bank, institution, or government for the purpose of facilitating the import of a variety of listed
goods from the exporting country (India) into the overseas country. A number of importers in the
foreign country may be importing the goods under one line of credit.
Commercial banks carry out the task of export financing under the guidelines of the central
bank (for example Reserve Bank of India). The export financing regulations are modified from
time to time. Most countries have an apex bank coordinating the country’s efforts of financing
international trade.
For instance, the Export-Import Bank of India is the principal financial institution
coordinating the working of institutions engaged in export import finance in India, whereas the US
too has the Export-Import Bank of the US for carrying out similar activities.
TOPIC-2 : INTERNATIONAL BANK FOR RECONSTRUCTION AND

DEVELOPMENT (I.B.R.D.) | WORLD BANK
Introduction to I.B.R.D:
The International Bank for Reconstitution and Development (popularly known as World
Bank) was set up as a result of the decision taken in Bretton Woods Conference New
Hampshire.The conference was held in July 1944 and attended by 44 nations.There it was decided
to set up two organisations i.e., (a) the I.M.F. and (b) the I.B.R.D., to solve the monetary and
financial problems of the less developed countries likely to be faced in Post-World War II period.
When I.B.R.D. was Set Up?
The I.B.R.D. or World Bank was set up on December 27, 1945. When its Articles of
Agreement was signed by 29 members Government in Washington. On 30th June, 1996, 185
countries were its members. If a country resigns its membership, it is required to pay back all loans
with interest on due dates. If the Bank incurs a financial loss in the year in which a member resigns,
it is required to pay its share of the loss on demand.
56
Capital Structure:
The I.B.R.D. was started with an authorised capital of $ 10 billion divided into 1,00,000
shares of $ 1,00,000 of this $ 9,400 million was actually subscribed. On 30th June 1988 the
authorised Capital Stock of the I.B.R.D. Comprised 7,16,500 authorised Shares of the par value of
S.D.R. (Special Drawing Rights) 1,00,000 each. In July 1994 the total authorised bank capital was
$ 185 billion with a capital increase of $ 9.3 billion.
Principal Purposes or Objectives of the Bank:

The principal purposes as set forth in its Articles of Agreement (or charter) are as follows:
1. To assist in the reconstruction and development of its member countries by facilitating the
investment of capital for productive purposes, thereby promoting long range growth of
international trade and improvements in standard of living.
2. To promote private foreign investment by guarantees of and participation in loans and other
investments made by private investors.
3. When private capital is not available or reasonable terms to make loans for productive purposes
out of its own resources or the funds borrowed by it.
4. To arrange the loans made or guaranteed by it in relation to international loans through other
channels so that more useful and urgent small and large projects are dealt with first.
Characteristics of Bank Loan:

Some basic provisions of Bank Loan may be mentioned as such:
1. They are meant for high priority productive purposes mainly to develop the infrastructure for
the development such as:
(a) Electric supply, (b) Power, (c) Rail, (d) Roads,
(e) Ports and inland waterways airlines and airports etc.
2. They must be used to meet only the foreign exchange components of the projects.
3. The interest rate of the bank is somewhat lower in relation to market rate.
4. From July 1, 1982-Bank adopted a policy of resulting its lending rates half-yearly.
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Subsidiaries of the World Bank:
There are two subsidiaries of the World Bank. They are:
1. International Development Association (I.D.A.), and
2. International Finance Corporation (I.F.C.)
1. International Development Association (IDA):
This association was set up in 1960. It is an aiding centre for those developing countries
who look up to it for financial assistance. It is an association of donor countries who have come
under the “Aegis” (protection of) of the World Bank. It offers credit to the eligible developing
countries on extremely favourable terms.
The main criteria for the allocation of I.D.A. (International Development Association)
credit are the per capita income of the recipient country. Countries which have an annual per capita
Gross National Product (G.N.P.) of less than $ 681 (in 1989) dollars are eligible for I.D.A. credits.
Other parameters taken into consideration are Country’s credit Worthiness, its accessibility to
commercial borrowing its, economic performance, the density of its population and the existence
of viable projects in the borrowing nations.
I.D.A. interests free credit are available to Governments only and may be obtained on
payment of nominal service charges at 0.75% per annum. The period of repayment of loan is 40
years. The purposes for which the I.D.A. has advanced the credits are agriculture, rural
development education, energy, industrial development and finance, population and nutrition,
transportation and tourism, telecommunication etc.
India has been the largest beneficiary from I.D.A. Since its inception India’s share is 40%
of I.D.A. Funds. India has not been able to utilise this aid fully, both because of infrastructural
difficulties at home and the adverse conditions imposed by donor countries governing such aid.
2. Industrial Finance Corporation (IFC):
This corporation was set up in 1956. It extends credits to private business enterprises. It
provides equity and loan capital for private enterprises in association with private investors and
management, encourages the development of local capital market and stimulates the international
form of private capital.
It supports joint ventures which provide opportunities to combine domestic knowledge of

market and other conditions with the technical and managerial experience available in the
58
industrial nations. The corporation has about 200 members. Its paid up capital is about 544 million
dollar and its retained earing were 205 million dollars.
The project, for which the corporation advances assistance, must satisfy the following
conditions:
a. It should have the prospects of earning profits,
b. It should boost the economy of the best country,
c. Local investors should be able to participate in the project in the beginning of the
project or later,
d. The required funds for the project are not available from private investors at
reasonable terms,
e. The management should be capable and experienced,
f. The sponsor of the project has a substantial holding in the enterprise.
India is the topmost borrower of I.D.A. Loans. The prospects of getting larger funds from
the World Bank seem to be bleak because of constraints on resources. The situation is not much
better as regards I.D.A. Loans because of the failure of the U.S.A. to provide funds for its
replenishment.
India and the World Bank:

As we are aware that India is one of the founder members of the Bank and has occupied a
permanent seat on its Board of Executive Directors for a number of years.
Therefore, India is very much attached and is in link with the bank and has received many
benefits which are as follows:
1. The Bank has extended assistance to India in its planned economic development by granting
loans, conducting field surveys, rendering expert advice and training Indian personnel at the E.D.I.
(Economic Development Institute).
2. The Bank has established a Chief of Mission of the Bank at New Delhi, who monitors the aided
projects in India.
3. It is said that India has been the largest receiver of the World Bank assistance.
4. The Bank also helped India to solve amicably its river water dispute with Pakistan.
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TOPIC-3 : EXPORT-IMPORT BANK OF INDIA
The Export-Import Bank (Exim bank) was set up on January 1, 1982 to take over the
operations of international finance wing of the IDBI and to provide financial assistance to
exporters and importers and to function as a head financial institution for coordinating the working
of other institutions engaged in financing of exports and imports of goods and services.
The authorised capital of Exim bank is Rs. 200 crore and paid-up-capital is Rs. 100 crore
wholly subscribed by the Central Government.
Organisation and Management:
The Exim Bank is managed by a Board consisting of a Managing Director who is the
Chairman and 17 Directors representing different areas. They are Secretary to the Department of
Industrial Board, Commerce Secretary, Finance Secretary, Secretary to Banking, Secretary IDBI,
Secretary ECGC Secretary RBI, 3 directors representing other scheduled commercial banks, 4
Directors chosen from export community and 3 others representing ministries and departments.
Functions of Exim Bank:

The important functions of Exim Bank are as follows:
(i) It provides direct financial assistance to exporters of plant, machinery and related service in the
form of medium-term credit.
(ii) Underwriting the issue of shares, stocks, bonds, debentures of any company engaged in
exports.
(iii) It provides rediscount of export bills for a period not exceeding 90 days against short-term
usance export bills discounted by commercial banks.
(iv) The bank gives overseas buyers credit to foreign importers for import of Indian capital goods
and related services.
(v) Developing and financing export oriented industries.
(vi) Collecting and compiling the market and credit information about foreign trade.
60
Activities of Exim Bank:
The bank can raise additional resources through borrowing from Government of India,
from RBI and from the market through the issue of bonds and debentures. Exam bank also provides
refinance facilities to the commercial bank and financial institutions against their export-import
financing activities.
During the Year ending on 31 March, 2003, Exim Bank sanctioned loans of Rs. 7,828 crores while
disbursements amounted to Rs. 5,320 crores, Net Profit (before tax) of the bank for the period
2002-03 on account of General Fund amounted to Rs. 268 crore.
Topic-4 : Asian Development Bank (ADB)
The Asian Development Bank (ADB) is a multilateral development finance

institution whose mission is to reduce poverty in the Asia Pacific region.
Although the ADB claims to operate in the interest of Asia’s poorest citizens, civil
society groups have long been concerned about the ADB’s role in promoting sustainable
and equitable growth in the region. The ADB was founded in 1966 with the goal of
eradicating poverty in the region. With over 1.9 billion people living on less than $2 a day
in Asia, the institution has a formidable challenge.
It plays the following functions for countries in the Asia Pacific region:
i. Provides loans and equity investments to its Developing Member Countries (DMCs)
ii. Provides technical assistance for the planning and execution of development projects
and programs and for advisory services
iii. Promotes and facilitates investment of public and private capital for development
iv. Assists in coordinating development policies and plans of its DMCs
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Though well-intentioned, ADB-funded operations have been responsible for
causing widespread environmental and social damage, adversely affecting some of the
regions poorest and most vulnerable communities.
Though publicly financed by taxpayer dollars, ADB activities (and those of other
multilateral development banks) are often carried out without the informed participation
of affected people, Non- Governmental Organizations (NGOs), or, in many cases, the
elected officials in the borrowing countries.
A global movement to reform the ADBs has based its activities on the assumption
that sustainable development and poverty alleviation are impossible without informed
public participation in the decision making process.
Membership:
From 31 members at its establishment in 1966, ADB has grown to encompass 67

members of which 48 are from within the Asia and Pacific region and 19 outside. Georgia
is the 67th and newest member, having joined ADB effective 2 February 2007.
Organization Structure:
The highest decision making tier at ADB is its Board of Governors, to which each
of ADB’s 67 members nominate one Governor and an Alternate Governor to represent
them. The Board of Governors meets formally once a year at an Annual Meeting held in a
member country.
The Governors’ day to day responsibilities are largely delegated to the 12-person
Board of Directors, which performs its duties full time at ADB’s Head Quarters in Manila.
The ADB President, under the Board’s direction, conducts the business of ADB.
The President is elected by the Board of Governors for a term of five years and may be re-
elected.
Management:
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The President is Chairperson of the Board of Directors and under the Board’s
direction conducts the business of ADB. He is responsible for the organization,
appointment and dismissal of the officers and staff in accordance with regulations
adopted by the Board of Directors. The President is elected by the Board of Governors for
a term of five years and may be reelected. He is also the legal representative of ADB.
In this context, it will focus on five core areas of operation:
i. Infrastructure
ii. Environment, including climate change
iii. Regional Cooperation and Integration
iv. Finance Sector Development
v. Education
ADB will continue to operate on a more selective basis in health, agriculture and disaster
and emergency assistance.
ADB will focus its efforts on five drivers of change in the region:
i. Private sector development and private sector operations
ii. Good governance and capacity development
iii. Gender equity
iv. Knowledge solutions
v. Partnerships
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Operations:
ADB works in partnership with governments and public and private enterprises in its
developing member countries on projects and programs that will contribute to economic
and social development, based on the country’s needs and priorities.
In 2008, ADB approved loans worth $10.5 billion for 86 projects, most of which went to
the public sector. Technical assistance, which is used to prepare and implement projects
and support advisory and regional activities, amounted to $274 million. Grant-financed
projects totaled $811 million.
How ADB’s Assistance is financed:

Ordinary Capital Resources (OCR):
These are a collection of funds available for ADB’s lending operations, replenished by
borrowings from the world’s capital markets. OCR loans are offered at near market terms
to better-off borrowing countries.
Asian Development Fund (ADF):

Funded by ADB’s donor member countries, ADF offers loans at very low interest rates
and grants that help reduce poverty in ADB’s poorest borrowing countries.
Technical Assistance (ТА):

Assists countries in identifying and designing projects, improving institutions,
formulating development strategies, or fostering regional cooperation. ТА can be
financed by grants, or more rarely loans through ADB’s central budget or a number of
special lands provided by ADB’s donor members.
Innovation and Efficiency Initiative (IEI):

Financing Instruments and Modalities. In 2005, new financing instruments and
modalities were introduced under the IEI. These new financing instruments are intended
to provide ADB clients and operational teams with additional alternatives to help finance
development projects.
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TOPIC-5 : EXPORT CREDIT GUARANTEE CORPORATION
Export Credit Guarantee Corporation (ECGC) of India, established in 1957 by the

Government of India is the principal organization for promoting exports by covering the risks of
exporting on credit. It functions under the administrative control of the Ministry of Commerce.
ECGC is the world’s fifth largest credit insurer in terms of coverage of national exports.
The ECGC mainly:

i. Provides a range of credit risk insurance covers to exporters against loss in export of goods and
services
ii. Offers guarantees to banks and financial institutions to enable exporters obtain better facilities
from them
iii. Provides overseas investment insurance to Indian companies investing in joint ventures abroad
in the form of equity or loan
WTO Compatibility of Trade Finance and Insurance Schemes:

The multilateral trade regime under the WTO sets the framework for the types of subsidies that
can be provided by a country for export promotion. The agreement on Subsidies and
Countervailing Measures (SCM) prohibits national governments from providing subsidies that are
contingent upon export performance or upon the use of domestic goods over the imported ones.
Among the prohibited subsidies in the first category are direct subsidies to a firm or industry
contingent on export performance, such as:
i. Currency retention schemes giving a bonus to the exporters
ii. Internal transport and freight charges on export shipments on more favourable terms than for
domestic shipment
iii. The provision of subsidized inputs for the production of goods for exports
iv. Remission or exemptions from direct taxes and charges for export products
The SCM agreement also constrains government intervention in the area of export
financing and insurance. In particular, it prohibits the provision of export credits at conditions
more favourable than those set in international capital markets and the extension of export credit
insurance and guarantee programmes at subsidized premium rates.
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Evolution of international monetary systems, prevailing exchange rate arrangements, and
exchange rate quotations used in foreign exchange markets help international managers in making
foreign exchange decisions.
Alternative modes of payment used in international trade have been elucidated so as to

make readers appreciate, evaluate, and select the most suitable option, depending upon the speed,
security, cost, market competition, and risks associated. Access to adequate finance is crucial to
successful completion of an export transaction. Various instruments used for financing
international trade have also been examined.
TOPIC-6 : MULTILATERAL INVESTMENT GUARANTEE AGENCY

(MIGA)
Considerable attention has been focused in recent years on the need to remove barriers
impeding the growth of foreign investment in developing countries. Many countries have enacted
new laws to promote foreign investment and entered into bilateral investment treaties with capital-
exporting countries for this purpose.
The concept of providing foreign investors with financial guarantees against non-
commercial risks in developing countries has emerged as a means of improving the investment
climate in these countries and, hence, of stimulating investment flows to them.
Almost all developed countries and two developing countries have established official
schemes to provide guarantees against noncommercial risks to their nations for investments into
developing countries. In addition, the Inter Arab Investment Guarantee Corporation provides
guarantees on a regional basis.
A private political risk insurance market has also been operating internationally for over a
decade. The activities of these entities are subject to several limitations and the perception of
political risk remains a significant barrier to investment in developing countries.
There is need for a multilateral investment guarantee agency to complement these schemes
and improve the investment climate by issuing guarantees and engaging in other investment
promotion activities.
Mission:
As a member of the World Bank Group, MIGA’s mission is to promote Foreign Direct
Investment (FDI) into developing countries to help support economic growth, reduce poverty and
improve people’s lives.
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Membership and Capital:
(a) Membership:
Membership in the Agency is open to all members of the Bank and to Switzerland. There
is, however, no obligation for Bank members to join the Agency. The Convention recognizes the
importance attached to participation by both capital-exporting and capital-importing members
particularly in the provisions for its entry into force and for voting. At present 173 countries are
members.
(b) Capital:
Earlier Bank proposals envisaged the Agency as having no share capital and conducting its
operations on behalf of the member countries which would sponsor investments for guarantee by
the Agency.
Under the convention the Agency will have a share capital and can issue guarantees in its
own right which will be supplemented by guarantees issued for investments sponsored by
members; with respect to the latter, the Agency will act only as administrator. The subscribed
capital can be leveraged, allowing for guarantee coverage several times its size.
MIGA AND FDI:
Concerns about investment environments and perceptions of political risk often inhibit
foreign direct investment (FDI), with the majority of flows going to just a handful of countries and
leaving the world’s poorest economies largely ignored.
MIGA addresses these concerns by providing three key services: political risk insurance
for foreign investments in developing countries, technical assistance to improve investment
climates and promote investment opportunities in developing countries and dispute mediation
services, to remove possible obstacles to future investment.
MIGA’s operational strategy plays to our foremost strength in the marketplace, attracting
investors and private insurers into difficult operating environments. The agency’s strategy focuses
on specific areas where we can make the greatest difference:
Infrastructure development is an important priority for MIGA, given the estimated need
for $230 billion a year solely for new investment to deal with the rapidly growing urban centers
and underserved rural populations in developing countries.
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Frontier markets high-risk and/or low-income countries and markets represent both a
challenge and an opportunity for the agency. These markets typically have the most need and stand
to benefit the most from foreign investment, but are not well served by the private market.
Investment into conflict-affected, countries is another operational priority for the agency.
While these countries tend to attract considerable donor goodwill once conflict ends, aid flows
eventually start to decline, making private investment critical for reconstruction and growth. With
many investors wary of potential risks, political risk insurance becomes essential to moving
investments forward.
South investments (investments between developing countries) are contributing a greater

proportion of FDI flows. But the private insurance market in these countries is not always
sufficiently developed and national export credit agencies often lack the ability and capacity to
offer political risk insurance.
MIGA offers comparative advantages in all of these areas, from our unique package of
products and ability to restore the business community’s confidence, to our ongoing collaboration
with the public and private insurance market to increase the amount of insurance available to
investors.
MIGA’s Added Value Services:

(a) Confidence, Security and Credibility:
MIGA gives private investors the confidence and comfort they need to make sustainable
investments in developing countries. As part of the World Bank Group and having as our
shareholders both host countries and investor countries, MIGA brings security and credibility to
an investment that is unmatched.
Our presence in a potential investment can literally transform a “no-go” into a “go.” We
act as a potent deterrent against government actions that may adversely affect investments. And
even if disputes do arise, our leverage with host governments frequently enables us to resolve
differences to the mutual satisfaction of all parties.
(b) Market Leader:

MIGA is a leader when it comes to assessing and managing political risks, developing new
products and services and finding innovative ways to meet client needs. But we don’t stop there.
We also provide expert advice to help countries attract and retain quality foreign investment and a
host of online services to make sure investors know about business opportunities in our developing
member countries.
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(c) Complex Deal:
MIGA can be the difference between make or break, by providing that all critical things that
enables a complex transaction to go ahead. MIGA offers innovative coverage of the nontraditional
sub-sovereign risks that often accompany water and other infrastructure projects.
(d) PRI Market:

MIGA complements the activities of other investment insurers and works with partners through
its co-insurance and re-insurance programs. By doing so, we are able to expand the capacity of the
political risk insurance industry to insure investments, as well as to encourage private sector
insurers into transactions they would not have otherwise undertaken.
The work of the IEG-MIGA encompasses:

i. Programs, guarantee projects, advisory and technical services and the strategies, policies and
procedures that relate to them with particular attention to the achievement of agreed objectives for
private sector development and the effects of guarantee activity.
ii. Assessing the quality and usefulness of MIGA’s evaluation processes and products and
participating in the formulation and continuous improvement of appropriate evaluation policies,
practices and instruments.
iii. Identifying and disseminating lessons and making recommendations drawn from evaluation
findings to contribute to improved operational performance, accountability for results and
corporate transparency.
UNIT III: SHIPPING DOCUMENTS
Topic -1 Trade Documentation
Topic -1.1 Shipping documents in foreign trade – Commercial documents – Regulatory

Documents Invoice. (Proforma, commercial Invoice, customs invoice, consular invoice, legalized
invoice) Packing list, Certificate of origin, Insurance Policy, Bill of lading, Bill of exchange
certificate of Inspection and Q.C. G.R./ PP/VP/COD/ , Softex forms , AR4 , Freight payment
certificate Insurance premium payment certificate , Bill of Entry Logistics , Container service,
Topic -2 : Types of Shipping Bill (Shipping Bill for duty free, dutiable, ex-bond, for duty
drawback and port trust copy)
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TOPIC-1.1 SHIPPING DOCUMENTS IN FOREIGN TRADE
Meaning of Trade Documentation:
Trade documentation is considered a critical constituent of international sales as

export transactions involve much complex documentation work. Trade documentation
facilitates international transactions, protecting interests of exporters and importers
located in two different countries governed by different statutory and legislative
frameworks.
The successful execution of an export order ensuring physical delivery of goods and
remittance of sale proceeds is as important as procurement of an export order and
sourcing or production of goods for exports. An export manager should carry out the
documentation meticulously so as to avoid problems related to smooth flow of goods and
getting remittances from overseas importers.
Export Documents
Commercial Documents Regulatory Documents
Principal Auxiliary
PRINCIPAL DOCUMENTS
1. THE COMMERCIAL INVOICE
This is a basic export document. It should contain all the information on the basis
of which other documents can be prepared. It is the exporter’s bill for the goods
exported. It is a formal demand note for payment issued by the exporter to the importer
for goods sold under a sales contract. It should give details of the goods sold, payment
terms and trade terms. It is also used for the customs clearance of goods and sometimes
for foreign exchange purpose by the importer. It is prepared by the exporter.
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No standard format has been prescribed for such an invoice. Generally, it can be
designed as per the requirements of the exporter and must contain all the essential
details. Care should be taken to include any information as per the special requirement
of the importer so as to comply with the requirements of the importer’s country. Many
countries require a special type of invoice. It is issued by the exporter for the full
realizable amount of goods as per the terms of trade.
A Commercial Invoice serves as a documentary proof in case of disputes between

both the parties to the contract i.e the exporter and the importer regarding various
aspects, being mainly the amount due by the importer. A copy of this invoice is required
to be maintained and preserved by the exporter and the importer for Income-Tax and
Audit purposes as also for future reference. For claiming export incentives like Duty
Drawback and Excise Refund, the exporter has to produce a copy of commercial
invoices. It serves as a basis for the preparation of other export documents such as the
shipping bill. A copy of it is required to be submitted by the exporter to the Export
Inspection Agency (EIA) and also to customs for customs clearance. It helps to
establish the amount of customs duty that is payable by the importer at the port of
destination. A Commercial Invoice may also be useful to obtain a loan from the bank
against the import of goods. This document shows the value of goods.
There are three types of Commercial invoice used in export trade.
1) Custom Invoice - When the Commercial invoice is prepared on the format

prescribed by the custom authorities of importer's country, it is called custom invoice,
this invoices required in USA, Canada and Australia.
2) Consular Invoice: - When the Commercial invoice is duly verify (sign) by the
Embassy/Consulate of the importer country based in the country of exporter is called
consular invoice. Embassy/Consulate attested invoice become legalized/ consular
invoice. This type of invoice is required in countries like Mexico & Middle East
countries.
3) Legalized Invoice : - It is same as consular invoice. This term is use in country

like Turkey, Liberia, Taiwan, Latin American countries.
2. PACKING LIST
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A Packing List is a list with detailed packing information of the goods shipped. It is
prepared by the exporter/shipper. It shows the details of goods contained in each parcel
/ shipment.
It is a list providing information needed for transportation purpose, such as details of

invoice, buyer, consignee, country of origin, vessel/flight date, port/airport of loading,
port/airport of discharge, place of delivery, shipping marks / container number, weight
/ volume of merchandise and the fullest details of the goods, including packing
information.
3. BILL OF LADING/AIRWAY BILL
Bill of Lading is an evidence of contract between the shipper of the goods and
the carrier. It is a document issued by the shipping company upon the shipment of
goods. It is a contract between the shipper (exporter) and the shipping company for the
carriage of the goods to the port of destination. Bill of Lading is a document title to
goods. The customer i.e the importer usually needs the original as proof of ownership
to take possession of the goods. This document is prepared by the Shipping company.
Airway Bill is a kind of waybill used for the carriage of goods by air. This serves
as a receipt of goods for delivery and states the condition of carriage but is not a title
document or transferable/ negotiable instrument. It is prepared by the Airline company.
The Bill of Lading is usually prepared in signed set of 2 originals any one of which
can give title to the goods. Non-negotiable copies are also issued by the shipping
company. These are not document title to goods but are usually made for record
purposes. The terms and conditions of the contract of carriage are mentioned on the
reverse side of the bill of lading. Usually, the clauses on the bill of lading are similar.
A bill of lading should not be qualified. The shipping company should not mention any
adverse remarks pertaining to the quality and condition of the goods. A bill of lading
can be endorsed by the exporter. This is normally done on its reverse side. Thus, goods
can be consigned to order. As such the importer can authorize someone else to collect
the goods on his behalf. The order shall be released only to the importer/endorsee
named in the bill of lading.
There are several types of bill of lading. These include:
• Clean bill of lading – Such a bill does not contain any adverse remarks as to the
condition and quality of the goods. An importer always insists on a clean bill.
• Stale bill of lading – A bill of lading becomes stale if it is presented to the bank
for negotiations after too many days from its issue.
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• To order bill of lading – Such a bill of lading is issued to the order of the
importer.
• Freight paid bill of lading – When freight is paid by the shipper, then this bill is
issued with the words ‘fright paid’
• Claused bill of lading – This bill of lading contains an adverse remark by the
shipping company.
• Freight collect bill of lading – When freight is payable by the importer, such a
bill will contain the words ‘to be collected from the importer’
• Straight bill of lading – A bill of lading which contains the name of the
importer/endorsee/agent is called straight bill.
• Container bill of lading – This is issued by the container shipping lines when
the cargo is transported from an inland place of the shipper to its final
destination.
4. CERTIFICATE OF INSPECTION/QUALITY CONTROL
A report issued by an independent surveyor (inspection company) or the

exporter on the specifications of the shipment, including quality, quantity, and/or
price, etc; required by certain buyer and countries is called the certificate of
inspection. It is prepared by the inspection company/exporter.
It is a type of document describing the condition of goods and confirming

that they have been inspected. A document in which certification is made as to the
good condition of the merchandise immediately prior to shipment. The buyer
usually designates the inspecting organization, usually an independent inspection
agency or government body. This is usually performed by a third party and often
obtained from independent testing organizations.
5. CERTIFICATE OF ORIGIN
A certificate of origin from the exporter is to be obtained by the importer in

certain countries. Such a certificate is needed to certify the origin of the goods
without which the clearance of imported goods would be rejected. Such a certificate
is issued by the Chamber of Commerce or the Trade Association or some other
competent authority. It may even form a part of the commercial invoice.
Countries in the Middle East and Gulf demand a certificate of origin attested by
their consulate stationed in India.
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The 3 types of certificate of origin are as follows:
1. Certificate required in general by all countries for clearance of goods by the

importer
2. Certificate required for availing concessions under Common Wealth
Preferences.
3. Certificate required for availing concession under GSP extended to imports
from India by certain countries like Germany, BENELUX countries, Italy,
Japan, USA and New Zealand.
All these certificates are to be obtained in the prescribed form from the prescribed
authority.
For the exporter, this document certifies that goods are of Indian origin. It, thus,
helps to clear the goods from the customs of the exporter’s country.
The importer can be satisfied that the goods are not re-shipped by the exporter. It
helps him to get easy clearance of goods from his customs. The importer can claim
concessional tariff rates extended to goods from India under Common Wealth
Preferences and GSP arrangements.
6. BILL OF EXCHANG
A bill of exchange is a negotiable instrument. It is an unconditional order in

writing, in which the importer is addressed to and required by the exporter to pay
on demand or at a future date a certain amount of money to the order of a person or
bearer. A bill of exchange is prepared by the exporter.
The essentials of a bill of exchange are:
• It must be in writing.
• There must be an order to pay.
• This order must be unconditional, it is payable at all events. A conditional
bill of exchange is invalid.
• The drawee must sign the negotiable instrument.
• The three parties to the bill of exchange – the drawer (person who draws the
bill), drawee (person who accepts the bill, on whom the bill is drawn) and
the payee (person to whom the bill is payable) should be named in the
instrument with reasonable certainty.
• The sum must be certain
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• The medium of payment must be money only.
7. SHIPMENT ADVICE : It is prepared in aligned document to be used to inform

the overseas customer about the shipment of goods.
8. INSURANCE CERTIFICATE : An insurance certificate certifies that the

shipment has been insured under a given open policy and is to cover loss of or
damage to the cargo while in transit. It is prepared by the insurer or insurance agent
or the insurance broker.
9. BILL OF ENTRY : This document is filed by the importer with the Customs
authority upon the arrival of the goods at the port of destination.
AUXILIARY DOCUMENTS
1. PROFORMA INVOICE : An invoice provided by a supplier prior to the shipment

of merchandise, informing the buyer of the kinds and quantities of goods to be sent,
their value, and importation specifications (weight, size and similar characteristics).
It is prepared by the exporter. It is a quotation send by exporter to his buyer. This
is issued by exporter to his buyer giving details about the order. On the basis of pro
forma invoice buyer open the letter of credit.
2. INTIMATION FOR INSPECTION: A report issued by an independent surveyor

(Inspection Company) or the exporter on the specifications of the shipment,
including quality, quantity, and/or price, etc; required by certain buyer and
countries. Inspection is usually performed by the third party, often an independent
testing organization.
3. SHIPPING INSTRUCTIONS : This form gives details of the consignment such

as its size, weight and volume of each package, number of packages, date of
shipment, name of the vessel, name of the liner, port of entry, date of arrival at the
destination and trans-shipment details, if any.
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4. INSURANCE DECLARATION: This is also known as Insurance Certificate. It
assures the consignee that the loss, if any, to the cargo will be covered by the
mentioned insurance company. The certificate can be obtained from the freight
forwarder.
5. APPLICATION FOR CERTIFICATE OF ORIGIN : In this case, the applicant

makes an application to the Chamber of Commerce or Trade Association for giving
the certification as stipulated in the Letter of Credit.
6. MATE’S RECEIPT: Mate’s receipt is a receipt issued by the commanding officer

of the ship when the cargo is loaded. The captain of the ship or the mate will issue
a receipt which is called ‘mate’s receipt’ after the goods have been loaded. This
receipt contains particulars like quantity of goods, number of packages and
condition of packing.
7. LETTER TO BANK FOR COLLECTION / NEGOTIATION OF

DOCUMENTS : It is a letter written to the bank requesting it for release of the
stipulated funds as provided by the Letter of Credit.
8. LETTER OF CREDIT: This letter highlights the documentation requirements of

the buyer which the seller has to fulfill to realize his dues against the dispatch of
materials. It is issued by the buyer through his banker. For the seller, it is acts as a
guarantee for realizing his payments upon execution of documental requirement by
the buyer as stated in the Letter of Credit.Issued by an importers bank in favour of
exporter giving him the authority to draw bills to assure the payment against
delivary of goods.
The exporter can get immediate payment on the strength of the letter of credit which
is issued by the importer’s bank in favour of the exporter. The exporter has to draw
the bill in order to get the payment from the local branch of the bank (in home
country) which has issued the letter of credit on behalf of the importer.
9. LETTER OF HYPOTHECATION : If the exporter wants to receive the payment

immediately, he can get the bill of exchange accepted by the importer and given to
the exporter, discounted with his bank (minus the discount charges of the bank).
But for this purpose he has to give a letter of hypothecation to his bank. Letter of
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hypothecation is a letter addressed to the bank attached with the bill of exchange
(accepted by the importer) drawn by the exporter for the goods shipped by him.
Through this letter, the exporter authorizes the bank to sell the goods in case of
dishonour of the bill by the importer so that the bank can realize the amount
advanced by it to the exporter. It gives the bank a charge on the goods and its sales
proceeds. In this letter, it is clearly mentioned that if the sales proceeds of goods
(after meeting expenses of selling the goods) exceeds the amount advanced, the
excess will be returned to the exporter, but if it is less, then the exporter has to pay
the difference to the bank.
REGULATORY DOCUMENTS
1. ARE FORM (for central excise): Every manufacturer for clearance of excisable
goods files an application in the ARE Form from his factory for export. The
clearances can be ‘under claim for rebate of duty’ or ‘under bond.’ The goods can
be examined and sealed at the factory by a central excise officer having jurisdiction
over the factory. After shipment of goods, the customs officer endorses AR-4 form,
which is taken as evidence by excise authorities for considering rebate in duty or
cancellation of bond.
2. GR FORM (EXCHANGE CONTROL DECLARATION) : This is a

declaration by the exporter in the format prescribed by RBI to be submitted along
with the shipping bill to customs. The declaration must contain the information
about sender, consignee, description of goods, and full export value of goods in
foreign currency, etc. The exporter submits a duplicate of GR form with its bank
along with shipping documents. The bank endorses the copy after realization of
sales proceeds and sends it to RBI. The original copy submitted at customs is also
directed to RBI by the customs. The RBI confirms the realization of the proceeds
as per full export value after comparing the two copies.
3. SHIPPING BILL OF EXPORT: Shipping Bill/ Bill of Export is the main

document required by the Customs Authority for allowing shipment. A shipping
bill is issued by the shipping agent and represents some kind of certificate for all
parties, included ship's owner, seller, buyer and some other parties. For each one
represents a kind of certificate document.
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These include shipping bill for export of goods ex. Bond, shipping bill for export
of duty free goods, shipping bill for export of goods under claim of Duty Drawback
and shipping bill for export of goods under claim of DEPB.
4. DOCK CHALLAN & WAREHOUSE RECEIPT: These receipts are used to

transfer accountability when the export item is moved by the domestic carrier to the
port of embarkation and left with the international carrier for export.
5. INSURANCE PREMIUM PAYMENT CERTIFICATE: This certification is

provided by the insurers to the insured stating that the premium for the mentioned
cargo has been made and the goods and cargo are insured as per the Term’s and
Conditions stated in the Policy.
6. VEHICLE TICKET: This document is a discharge note (delivery note) issued by

the Port authorities upon completing the formalities of Customs,i.e payment of
duties and port charges, if any.
7. FREIGHT PAYMENT CERTIFICATE: This certificate is issued by the

Steamer agents/Shipping company to the exporter upon payment of the ascertained
amount of freight.
8. PP/VP/COD
The Foreign Exchange Regulation Rules, 1974 prescribe export declaration forms
called Exchange Control Declaration (GR) form, hereafter referred to

as GR form, PP
and VP/COD forms. All exports to which the requirement of
declaration applies must be declared on appropriate forms as
indicated below:
(a) Exchange Control : Exports to all countries made

Declaration
(GR)Form otherwise than by post.
(b) PP Form : Exports to all countries by parcel

post, except when made on 'value
payable' or 'cash on delivery' basis.
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(c) VP/COD Form : Exports to all countries by parcel
post, under arrangements to realise
proceeds through postal channels on
'value payable' or 'cash on delivery'
basis.
9. SOFTEX Form Filing

There are cases when software exporting companies that operate outside an export oriented
scheme (STP, SEZ, EOU etc.) are advised to not file SOFTEX forms. Also, in some cases,
companies ceased getting SOFTEX certification done, after moving out of STP/SEZ schemes due
to this advice. However all software companies associated with an export oriented scheme are
advised to file for SOFTEX forms. The article studies the reason, process and consequences of
non-compliance to filing related to SOFTEX Form.
SOFTEX Form
In general exports refers to sending ‘goods and service’ to clients in foreign country that is
outside territorial borders of India for reason of sale. Physical goods are exported by means of a
physical port of shipping i.e. a sea port, airport or foreign post office and is monitored by Central
Customs department.
When physical goods depart from India, the exporter is required to declare the value of
goods exported. In India, this declaration by exporters is done in the GR Form or PP form together
with invoice and other supporting documents. Of late, as part of simplification of process, the GR
and PP form have been substituted by a form called ‘EDF’ (export declaration form) and SDF has
been merged with the shipping bill. Further, the value of the goods exported must be accepted
andcertified by the customs office, at the port of shipment. This is referred to as “valuation of
export”. One time the valuation of export is finished, the value is accepted both by RBI and its
authorized dealer i.e. the exporter’s bank). RBI then monitors, the payment of an equivalent value
in exporter’s bank account. ‘Software’ exported on a media i.e. CD or DVD or magnetic on
physical form are covered by the above two forms.
In case of any other type of software export, SOFTEX form must be filed by the exporter
after the actual export of software has taken place. Hence, SOFTEX form is a post-facto
authorization.
Requirement for Filing SOFTEX Form

The following parties are required to file SOFTEX form.
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• Exporters registered under STP and SEZ must file SOFTEX form to value the software
exports done by exporter.
• Some exporters of Software i.e. both IT and ITeS companies that are not registered in STP
or SEZ or other EOU schemes scheme must also file SOFTEX, according to foreign trade
policy. Such exporters are commonly called non-STP units and can file the SOFTEX form
with the concerned jurisdictional STPI Director. Exports of services that do not fall under
IT and ITeS category are not liable to file the export declarations or the SOFTEX form.
Penalty for Not Filing SOFTEX Form

If SOFTEX or EDF – in case of physical exports form is not filed, and exports proceed is obtained,
the remittance received is treated as ‘general services’ or not as an export proceed. In addition, the
Bank could also freeze an account, in case SOFTEX forms are not filed on time.
10. AR4
The Central Excise and Salt Act of India and the related rules provide the refund of excise
duty paid. This also provides exemption from the payment of excise duty both on the final export
production and inputs used in the manufacture of export products, popularly known as rebate in
excise duty. The documents used are Invoice and AR4/ AR5 forms. As soon as goods are ready
for dispatch to the port for shipment, the production department of export firm is to apply to the
central excise authority for excise clearance of the goods.
The exporters prepare six copies of AR4/AR5 forms. The exporters are now allowed to
remove the goods for export on their own without getting the goods examined or after the
examination by the Central Excise Officers. In case of without examination, exporter submits 4
copies of 1):R4 /ARS form to the superintendent of Central Excise having Jurisdiction over the
premise of the exporter within twenty-four hours of the removal of the consignment. The
Superintendent examines the AR4/AR5 form and having being satisfied, signs the form and returns
it to the concerned persons. Sometimes the exporter desires sealing of the goods by the Central
Excise Officers so that the custom officers at the port of shipment may not examine the export
goods. In such a case, the exporter submits AR4/ AR5 forms in sixtuplicate to the superintendent
of Central Excise having jurisdiction over the premises of the exporter. The superintendent may
depute an inspector of Central Excise or may himself go for selling and examination of export
cargo. After be is satisfied, he allows the clearance of cargo.
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11. FREIGHT PAYMENT CERTIFICATE :-
A charge paid for carriage or transportation of goods by air, land, or sea. 2. A colloquial term
for freight charge
A colloquial term for freight charge. Goods may be transported on freight-prepaid or freight-
collect basis: (1) If the freight is paid by the consignor (as under C&F and CIF terms) the goods
remain the consignor's property until their delivery is taken by the consignee upon their arrival at
the destination, and payment of the consignor's invoice. (2) If freight is paid by the consignee (as
under FOB terms) the goods become the consignee's property when handed over to the carrier
against a bill of lading.
TOPIC-2 TYPES OF SHIPPING BILLS
(1) Free Shipping Bill: It is used in case of goods which neither attract any duty nor entitled for
duty drawback. It is printed on simple white paper.
(2) Dutiable Shipping Bill: It is used in case of goods, which attract export duty. It may or may
not be entitled to duty drawback. It is printed on yellow paper.
(3) Drawback Shipping Bill: It is used in case when refund of duties is allowed on the goods
exported. Generally, it is printed on green paper, but when the drawback claim is paid to a bank,
then it is printed on yellow paper.
(4) Shipping bill for Shipment Ex-Bond: It is used in case of imported goods for re-export and
which are kept in bond. It is printed on yellow paper.
(5) Coastal Shipping Bill: It is used in case of shipment that is moved from one port to another
port, by sea, within India. It is not an export document. When bill goods are sent by sea, it is called
Shipping Bill and it is Airway bill when goods are sent by air.
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UNIT IV: FOREIGN EXCHANGE THEORIES
Topic-1 : Foreign exchange theories past and present

Topic-2 : Exchange rate arithmetic
Topic-3 : spot & forward rates
Topic-4 : Exchange control Regulations FEMA and PML
Topic-5 : Foreign exchange Dealers Association of India (FEDAI) and RBI
Topic-6 : IMF and SDR – Convertibility
Topic-7 : Factors that influence exchange rate
TOPIC-1 : FOREIGN EXCHANGE THEORIES PAST AND PRESENT
Foreign Exchange rate (ForEx rate) is one of the most important means through which a
country’s relative level of economic health is determined. A country's foreign exchange rate
provides a window to its economic stability, which is why it is constantly watched and analyzed.
If you are thinking of sending or receiving money from overseas, you need to keep a keen eye on
the currency exchange rates.
The exchange rate is defined as "the rate at which one country's currency may be converted
into another." It may fluctuate daily with the changing market forces of supply and demand of
currencies from one country to another. For these reasons; when sending or receiving money
internationally, it is important to understand what determines exchange rates.
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THEORY 1 - BALANCE OF PAYMENTS
There are two segments involved with a country's balance of payments (BOP), which is a
listing of all transactions between one country and others during a particular period of time.
When you are discussing BOP it is normally discussed from either a standpoint of capital
accounts or current accounts. This is a measure of influx and outgo of a nation's capital and
goods.
Normally, the BOP Theory looks at a country's current accounts rather than the capital ones.
This is used to determine the direction that a currency is heading in based on the trading of
tangible goods. When a country runs a large current account with either deficits or surpluses, its
monetary exchange rates are said to be out of equilibrium or are unbalanced. Adjustments to the
currency rates will need to be made. When a country's imports outweigh their exports, this is
considered a deficit and it normally devalues the currency. Conversely, when exports exceed
imports, a surplus exists and the currency will normally ascend in value.
THEORY 2 - INTEREST RATE PARITY
This exists when the difference between two country's interest rates are equal to the
difference between forward exchange value versus the spot exchange value. Due to the
connection between interest rates and the two aforementioned values, interest rate parity plays an
extremely significant role in the Forex market.
The mindset is that if there is no difference in the rates of interest between to comparative
countries, then there most likely won't be any opportunities for financial gain. This is due to the
fact that risk ceases to exist, therefore thwarting much hope for any monetary gain via investing.
THEORY 3 - INTERNATIONAL FISHER EFFECT (IFE)
This theory basically states that any expected changes in currency rates between two
countries is roughly equal to the differential of nominal interest rates between the two subject
countries. The theory suggests that exchange rates between two nations should fluctuate based on
amounts that are most like these nominal interest rates. If the rate is lower in one of the countries
compared to the other, than its exchange rate should appreciate against the higher exchange rate -
-- or so the theory would predict.
THEORY 4 - PURCHASING POWER PARITY (PPP)
Estimating the amount of adjustments needed between two country's exchange rates so that
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these rates equal the purchasing power of the countries is how PPP functions. The theory
mandates that the price levels of the two countries in question should be equal once the
adjustments to the exchange rates are completed. The theory also is also suggestive of the "law
of one price" wherein the pricing of identical goods be the same on a global basis.
THEORY 5 - ASSET MARKET MODEL THEORY
The Asset Market Model theory suggest that a currency will be in more demand and hence
will likely appreciate in value if the flow of funds into other financial market of the country such
as equities and bonds increases and vice versa.
This is specially true in developed nations like the U.S.A., Japan and Euro zone where
both public, and institutional investors hold their funds in investment products such as stocks and
bonds which dwarf the amount of funds that are exchanged as a result of import and export
processes.
TOPIC-2 EXCHANGE RATE ARITHMETIC
Understanding Foreign Exchange Arithmetic
Forces of demand and supply in the local interbank market drive the exchange rate.
Direct and Indirect Quote
A foreign exchange quotation can be either a direct quotation and or an indirect

quotation, depending upon the home currency of the person concerned. For example, $ 1 = Rs.
67.00, means that one dollar can be exchanged for Rs. 67.00. Alternatively, we maypay Rs.
67.00 to buy one dollar. A direct quote is the home currency price of one unit of the foreign
currency.Thus, in the aforesaid example, the quote$ 1 = Rs. 67.00 is a direct quote for an
Indian national.
An indirect quote is the foreign currency price of one unit of the home currency. The
quote Re. 1 = $ 0.0149 is an indirect quote
Basic Exchange Rate Arithmetic
(a) Cross rate : If a person wants to remit Euros from India, and as a banker, and for
argument sake, rupees/Euros are not normally quoted and therefore, we have to first buy
dollars against the rupees and the same dollars will be disposed off overseas to acquire the
Euros.
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(b) Chain rule: Calculation of the cross rate is based on a commonsense approach.
However, it can be reduced to a rule known as the chain rule with similar steps.
(c) Value date: The value date is a date on which the exchange of currencies actually takes
place.
Based on this concept, we have the following types of exchange rates.
• Cash/ready: It is the rate when an exchange of currencies takes place on the date
of the deal.
• TOM: When the exchange of currencies takes place on the next working day, i.e.
tomorrow it is called the TOM rate.
• SPOT: When the exchange of currencies takes place on the second working day
after the date of the deal, it is called the spot rate.
• Forward rate: If the exchange of currencies takes place after a period of spot date,
it is called the forward rate. Forward rates generally are expressed by indicating a
premium/discount for the forward period.
• Premium: When a currency is costlier in forward or say, for a future value date, it
is said to be at a premium. In the case of the direct method of quotations, the
premium is added to both the selling and buying rate.
• Discount: If currency is cheaper in the forward or for a future value date, it is said
to be at a discount. In the case of a direct quotation, the discount is (deducted)
subtracted from both the rates, i.e. buying and selling rates.
The forward rates are quoted in terms of forward margins or forward differentials. For
example:
Spot Euro 1 = US$ 1.3180/90

1 month forward 35-32
It is understandable that if a currency is at a premium vis-a-vis another currency, the natural

consequence is that the later will be at a discount vis-a-vis the former currency.
In the above exchange rate quotations Euro is at a discount and hence US $ is at a premium.
We can buy US $, one month forward at
Euro 1 = US$ 1.3190 (-) 0.0032 = 1.3158

Similarly, we can sell
Euro 1 = US$ 1.3180 (-) 0.0035 = 1.3145
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If the rates in Mumbai market are US$ 1 = Rs. 66.8450/545 and rates in London market are
US$ 1 = Euros 0.7587 we will get US$ 1 for Rs. 66.8545 and for one US$ we will get Euro
0.7587. Thus, we can form a sort of chain rule as under:
0.7587 Euro = US$ 1

Rs. 66.8545 = US$ 1
1 Euro = Rs. 66.8545 / 0.7587
1 Euro = Rs. 88.1172
If an export customer has a bill for £100,000, the bank has to purchase the £(Pound
Sterling) from him and give an equivalent amount in rupees to the customer. Presuming the
inter-bank market quotations for spot delivery are as follows:
US$ 1 = Rs. 66.8450/545

The London market is quoting cable (STG/DLR) as
£ 1 = US$ 1.9720/40
The bank has to sell £'s in the London market at US$ 1.9720, i.e. the market's buying rate
for £ 1. The US dollars so obtained have to be disposed off in the local inter-bank market at
US$ 1 = Rs. 66.8450 (market's buying rate) for US$.
By chain rule, we get:

£ 1 = 1.9720 x 66.8450
= Rs. 131.8183
The precaution which should be taken is that one should know who is the quoting party and
who is facing the quote. The thumb rule of the market is that if you ask for a quote, the
quoting party will give you a quote and it is for you to do the deal or not to do a deal on the
prices quoted. You cannot dictate prices. However, you can ask for a fresh quote.
TOPIC-3 EXCHANGE CONTROL REGULATIONS FEMA AND PML
The phenomena of cross border transactions are not new. Trade on the silk route
connected Asia with the Mediterranean world including North Africa and Europe. In the 15th
century Vasco de Gama followed the spice trade route by sea to India. Opium was said to be
grown in India and exported by Great Britain to China in the 18th and 19th century and silk,
tea and ceramics were exported by China. Transatlantic slave trade was established as early
as the mid-17th century. However, the barter system of payment was practiced and thus there
was no requirement of exchange control. Exchange Control became necessary so as to
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protect the interests of economies based on the emerging political concept of nations in the
20th century.
The OECD defines Cross-border operations as transactions between residents of

different countries. The definition is all encompassing and deceptively simple.
As the commercial interdependencies thrive globally, cross border

transactions involve a very broad spectrum of activities including Financing and Investment
,manufacturing and trading in products & services having different features with respect to
business models, modes of transfer, infrastructure, permanent establishment, Business
Process Outsourcing and cost sharing by MNEs
In Cross Border Transactions, Exchange Controls are important tools for protection of
Balance of Payments, elimination of short-term fluctuations in exchange rate and economic
policy and planning in any economy. Exchange Control basically refers to governmental
restrictions imposed by a country on the movement of currency between countries in private
transactions in foreign exchange (foreign money or claims on foreign money),and includes
bank transactions, book transfers, electronic payments,current account transactions payments
due in connection with foreign trade, and capital account transactions
Laws For Exchange Control in India were first introduced by the Defense of India Act
1939 on a temporary basis. Subsequently, the Foreign Exchange Regulation Act was enacted
in 1947 to be replaced by a restrictive Foreign Exchange Regulation Act (FERA), 1973. Due
to Economic liberalization in 1991, foreign investments were sought to be encouraged in
many sectors and consequently FERA was replaced by a less restrictive Foreign Exchange
Management Act (FEMA), 1999, w.e.f. 1st June, 2000. In FEMA offences are civil
offences punishable with monetary penalty and imprisonment is only when penalty amount
is not paid, unlike erstwhile FERA where offences were criminal offences punishable
with imprisonment and heavy penalty.
Today we have a plethora of laws governing exchange control in cross border

transactions, which include: Foreign Exchange Management Act 1999( F E M A), Foreign
Contribution Regulatory Act 2010 (F C R A), Prevention of Money Laundering Act, 2002
(PMLA) & Prevention of Money Laundering (Amendment) Act 2012,amended periodically
and supplemented by regulations and rules.
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The objective of FEMA is the law relating to foreign exchange with the objective of
facilitating external trade and payments and for promoting the orderly development and
maintenance of foreign exchange market in India. It has a very wide applicability and it
applies not only to India but also to all branches, offices and agencies outside India owned or
controlled by a person resident in India and also to any contravention there under committed
outside India by any person to whom this Act applies.The regulatory bodies are the Union
Government , the Reserve Bank of India, and the DIPP(Department of Industrial Policy and
Promotion).The Directorate of Enforcement continues to be the agency for enforcement of
the provisions of the Act, including coercive measures.
The second law PMLA,( Prevention of Money Laundering Act, 2002 as amended in
2012) was brought in, to prevent money laundering and to provide for consfication of
property derived from or involved in, money laundering and for matters connected therewith.
The term Money Laundering is used for the disguising or concealing of illicit income in
order to make it appear legitimate, employed by launderers worldwide to conceal criminal
activity associated with it such as drugs / arms trafficking, terrorism and extortion.
India is a member of the Financial Action Task Force on Money Laundering (FATF),
an intergovernmental body, established by the G-7 Summit in Paris in 1989, responsible for
setting global standards on anti-money laundering and combating financing of terrorism.
Offences under the PML Act have cross border implications if either the offence is
committed outside India and the proceeds of such conduct or part thereof are remitted to
India, or offence is committed in India and proceeds of crime are transferred outside India.
Crimes includes certain offences specified the Indian Penal .Code---waging or attempting or
abetting conspiring to wage war against Govt. of India; Narcotics Drugs and Psychotropic
Substances Act. & in some conditions, murder, culpable homicide, causing hurt to extort
property, kidnapping for ransom, counterfeiting, forgery; Offences under Wild Life
Protection Act, Arms Act, Prevention of Immoral Trafficking Act, Prevention of Corruption
Act etc.
P M L A is in the news in the ongoing investigations in Bank Of Baroda Case where

illegal overseas transfer of Rs 6,172 crores to Hong Kong and Dubai on the pretext of
advance payment for import orders have been alleged..
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Recently the huge pendency of FEMA and PMLA cases came up in the parliament on 18th
December 2015.It was stated by the Minister Of State, Finance, that more than 6000 cases
were pending under FEMA and PMLA cases involving Rs.10,309 crores.
The FCRA (Foreign Contribution Regulatory Act 2010, replacing the1976 act)) as
supplemented by the rules and regulations of 2011, & amended in 2015 was brought in with
the objective of regulating acceptance and utilization of foreign contribution or foreign
hospitality by specified persons and to prohibit acceptance and utilization of foreign
contribution or foreign hospitality for any activities detrimental to the national interest.
Foreign Contribution refers to contribution by any foreign source, including articles,

currency, hospitality, and securities as specified by the Govt. from time to time In case of
Association for Democratic Reforms v. UOI (2014), Del. HC DB), two companies
incorporated in India had given donations to political parties. Majority shares of these
companies were held by a company incorporated outside India. The Court held that the
donations were received from foreign sources
However certain foreign contributions are exempt from the restrictions of FCRA including
contributions by U.N. and its specified agencies, World Bank, IMF, or other agencies as
notified by the Govt. as also gifts from relatives ,scholarships , remittances for salaries and
wages, payments in the course of normal trade and commerce ,etc, subject to prohibitions
notified by the Govt. u/s 10.
FCRA is applicable to the whole of India and also to citizens of India outside India and
associates/branches and subsidiaries outside India of companies or bodies registered or
incorporated in India. FCRA is administered by the Ministry of Home Affairs, Foreign
Division.
Recently the Non Governmental Organizations (NGOs) in India have had to face the
restrictions on foreign contributions under this Act. In June 2015, the MHA cancelled the
licenses of 15,000 NGOs for violation of FCRA. FCRA violations have been frequently in
the news. On 4th Sept.2015: the N.G.O. Greenpeace India’s FCRA licence was cancelled.
CBI interrogation is ongoing in the case of social activist Ms.Teesta Setalvad for violation
of FCRA in receiving donations from the Ford Foundation. On 28th Dec..2015 ,changes
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were made in FCRA enabling the Govt.. to receive account details of NGOS online. NGOS
will be required to publish details of foreign contributions on specified websites.
The Black Money (Undisclosed Foreign Income And Assets) And Imposition Of
Tax Act, 2015 deals with undisclosed foreign income and assets, but it provides for
exemption from prosecution under FEMA to those disclosing their assets.
Another recent development is the Tax information sharing agreement, under

the FATCA , (Foreign Account Tax Compliance Act of USA) signed by India with the USA
which is designed to increase transparency between the two nations on the investment and
tax matters. Consequential regulations are issued by the RBI on reporting requirement under
FATCA and Common Reporting Standards (CRS). The Income Tax Dep’t has also made
necessary amendments to the Act and the rules to implement FATCA.No doubt it is more of
an information exchange law but one which shall have consequential implications for
exchange control.
The Exchange Control laws are becoming increasingly significant tools in the hands
of authorities who have to perform the tough balancing act of protecting the commercial and
economic interests of the nation by regulations and controls without causing collateral
damage to International trade.
TOPIC-4 FOREIGN EXCHANGE DEALERS ASSOCIATION OF INDIA

(FEDAI) AND RBI
Established in 1958, FEDAI (Foreign Exchange Dealers' Association of India) is a group

of banks that deals in foreign exchange in India as a self regulatory body under the Section 25 of
the Indian Company Act (1956).
The role and responsibilities of FEDAI are as follows:
• Formulations of FEDAI guidelines and FEDAI rules for Forex business.

• Training of bank personnel in the areas of Foreign Exchange Business.
• Accreditation of Forex Brokers.
• Advising/Assisting member banks in settling issues/matters in their dealings.
• Represent member banks on Government/Reserve Bank of India and other bodies.
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Rules of FEDAI also include announcement of daily and periodical rates to its member
banks.
FEDAI guidelines play an important role in the functioning of the markets and work in
close coordination with Reserve Bank of India (RBI), other organizations like Fixed Income
Money Market and Derivatives Association (FIMMDA), the Forex Association of India and
various other market participants.
Foreign Exchange Dealer's Association of India (FEDAI) was set up in 1958 as an

Association of banks dealing in foreign exchange in India (typically called Authorised Dealers -
ADs) as a self regulatory body and is incorporated under Section 25 of The Companies Act, 1956.
It's major activities include framing of rules governing the conduct of inter-bank foreign exchange
business among banks vis-à-vis public and liaison with RBI for reforms and development of forex
market.
Presently some of the functions are as follows:
• Guidelines and Rules for Forex Business.

• Training of Bank Personnel in the areas of Foreign Exchange Business.
• Accreditation of Forex Brokers
• Advising/Assisting member banks in settling issues/matters in their dealings.
• Represent member banks on Government/Reserve Bank of India/Other Bodies.
• Announcement of daily and periodical rates to member banks.
Due to continuing integration of the global financial markets and increased pace of de-
regulation, the role of self-regulatory organizations like FEDAI has also transformed. In such an
environment, FEDAI plays a catalytic role for smooth functioning of the markets through closer
co-ordination with the RBI, other organizations like FIMMDA, the Forex Association of India and
various market participants. FEDAI also maximizes the benefits derived from synergies of member
banks through innovation in areas like new customized products, bench marking against
international standards on accounting, market practices, risk management systems, etc.
TOPIC-5 : SPECIAL DRAWING RIGHT (SDR)
ABOUT IMF
The International Monetary Fund (IMF) was founded in 1945 as part of the Bretton
Woods system agreement a year earlier. The goal of the IMF is to foster macroeconomic stability
and global growth and to reduce poverty around the world. Interestingly, economist John Maynard
Keynes first proposed a supranational currency known as "Bancor" at the Bretton Woods
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conference, but his proposal was rejected. Instead, the IMF adopted a system of pegged exchange
rates tied to the value of gold bullion. At the time, the world reserve assets were the US Dollar and
gold. However, there was not enough supply of these internationally to keep sufficient reserves for
the IMF to function properly. In order to fulfill its mandate, in 1969 the IMF created Special
Drawing Rights, or SDRs as a supplement to help fund its stabilization efforts.
By 1973, the original Bretton Woods system had been almost completely abandoned.
President Nixon restricted gold outflows from the United States, and major currencies shifted from
a pegged system to a floating exchange rate regime. Still, the SDR system has been largely
successful, with the IMF allocating approximately SDR 183 Billion, providing
needed liquidity and credit to the global financial system.
DEFINITION:
The International Monetary Fund is an organization of 189 member countries. It stabilizes

the global economy in three ways. First, it monitors global conditions and identifies risks. Second,
it advises its members on how to improve their economies. Third, it provides technical assistance
and short-term loans to prevent financial crises. The IMF's goal is to prevent these disasters by
guiding its members. These countries are willing to give up some of their sovereign authority to
achieve that aim.
Functions:-
Survey Global Conditions. The IMF has the rare ability to look into and review the economies
of all its member countries. As a result, it has its finger on the pulse of the global economy better
than any other organization.
The IMF produces a wealth of analytical reports thanks to that role.
It provides the World Economic Outlook, the Global Financial Stability Report, and the
Fiscal Monitor each year. It also delves into regional and country-specific assessments. It uses this
information to determine which countries need to improve their policies. The IMF can identify
which ones threaten global stability. The member countries have agreed to listen to the IMF's
recommendations. They want to improve their economies and remove these threats.
Advise Member Countries. Since the Mexican peso crisis of 1994–95 and the Asian crisis of
1997–98, the IMF has taken a more active role to help countries prevent financial crises. It
develops standards that its members should follow.
For example, members agree to provide adequate foreign exchange reserves in good times.
That helps them increase spending to boost their economies during recessions. It reports on
members countries' observance of these standards. It also issues member country reports that
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investors use to make well-informed decisions. That improves the functioning of financial markets.
The IMF encourage sustained growth and high living standards. That's the best way to reduce
members' vulnerability to crises.
Provide Technical Assistance and Short-term Loans. The IMF provides loans to help its
members tackle balance of payments problems, stabilize their economies, and restore sustainable
growth.
Role
The role of the IMF has increased since the onset of the 2008 global financial crisis. In fact,
an IMF surveillance report warned about the economic crisis but was ignored. As a result, the IMF
has been called upon more and more to provide global economic surveillance. It's in the best
position to do so because its requires members to subject their economic policies to IMF scrutiny.
Member countries also committed to pursuing policies that are conducive to reasonable price
stability. They agree to avoid manipulating exchange rates for unfair competitive advantage.
SDR
Special drawing rights (SDR) refer to an international type of monetary reserve currency
created by the International Monetary Fund (IMF) in 1969 that operates as a supplement to the
existing reserves of member countries. Created in response to concerns about the limitations of
gold and dollars as the sole means of settling international accounts, SDRs augment
international liquidity by supplementing the standard reserve currencies.
An SDR is essentially an artificial currency used by the IMF and is basket of national
currencies. The IMF uses SDRs for internal accounting purposes. SDRs are allocated by the IMF
to its member countries and are backed by the full faith and credit of the member countries'
governments.
BREAKING DOWN 'Special Drawing Rights - SDR'
The SDR was formed with a vision of becoming a major element of international reserves,
with gold and reserve currencies forming a minor incremental component of such reserves. To
participate in this system, a country was required have official reserves. This consisted of central
bank or government reserves of gold and globally accepted foreign currencies that could be used
to buy the local currency in foreign exchange markets to maintain a stable exchange rate.
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However, the international supply of the U.S. dollar and gold — the two main reserve
assets — wasn’t sufficient to support growth in global trade and the related financial transactions
that were taking place. This prompted member countries to form a international reserve asset under
the guidance of the IMF.
A few years after the SDR was created, the Bretton Woods system imploded, moving major
currencies to the floating exchange rate system. With time, international capital markets expanded
considerably, enabling creditworthy governments to borrow funds. This saw many governments
register exponential growth in their international reserves. These developments diminished the
stature of the SDR as a global reserve currency.
How the Concept of SDR Is Used to Settle Claims
The SDR isn’t regarded as a currency or a claim against the IMF assets. Instead, it is a
prospective claim against the freely usable currencies that belong to the IMF member states. The
Articles of Agreement of the IMF define a freely usable currency as one that is widely used in
international transactions and is frequently traded in foreign exchange markets.
The IMF member states that hold SDRs can exchange them for freely usable currencies by
either agreeing among themselves for voluntary swaps, or by the IMF instructing countries with
stronger economies or larger foreign currency reserves to buy SDRs from the less-endowed
members. IMF member countries can borrow SDRs from its reserves at favorable interest rates,
mostly to adjust their balance of payments to favorable positions.
Besides acting as an auxiliary reserve asset, the SDR is the unit of account of the IMF. Its
value, which is summed up in U.S. dollars, is calculated from a weighted basket of major
currencies: Japanese yen, U.S. dollars, Sterling and the Euro.
The Bottom Line
Special drawing rights are a world reserve asset whose value is based on a basket of four major
international currencies. SDRs are used by the IMF to make emergency loans and are used by
developing nations to shore up their currency reserves without the need to borrow at high interest
rates or run current account surpluses at the detriment of economic growth. While SDRs
themselves are not currencies, and can only be accessed by members of the IMF, they play a crucial
role in maintaining macroeconomic stability and global growth by providing emergency liquidity
and credit when traditional methods fall short.
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TOPIC-6 FACTORS AFFECTING FOREIGN EXCHANGE
Foreign Exchange rate (ForEx rate) is one of the most important means through which a
country’s relative level of economic health is determined. A country's foreign exchange rate
provides a window to its economic stability, which is why it is constantly watched and analyzed.
If you are thinking of sending or receiving money from overseas, you need to keep a keen eye on
the currency exchange rates.
The exchange rate is defined as "the rate at which one country's currency may be converted
into another." It may fluctuate daily with the changing market forces of supply and demand of
currencies from one country to another. For these reasons; when sending or receiving money
internationally, it is important to understand what determines exchange rates.This article examines
some of the leading factors that influence the variations and fluctuations in exchange rates and
explains the reasons behind their volatility
1. Inflation Rates
Changes in market inflation cause changes in currency exchange rates. A country with a
lower inflation rate than another's will see an appreciation in the value of its currency. The prices
of goods and services increase at a slower rate where the inflation is low. A country with a
consistently lower inflation rate exhibits a rising currency value while a country with higher
inflation typically sees depreciation in its currency and is usually accompanied by higher interest
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rates
2. Interest Rates
Changes in interest rate affect currency value and dollar exchange rate. Forex rates,
interest rates, and inflation are all correlated. Increases in interest rates cause a country's currency
to appreciate because higher interest rates provide higher rates to lenders, thereby attracting more
foreign capital, which causes a rise in exchange rates
3. Country’s Current Account / Balance of Payments

A country’s current account reflects balance of trade and earnings on foreign investment. It
consists of total number of transactions including its exports, imports, debt, etc. A deficit in
current account due to spending more of its currency on importing products than it is earning
through sale of exports causes depreciation. Balance of payments fluctuates exchange rate of its
domestic currency.
4. Government Debt
Government debt is public debt or national debt owned by the central government. A country
with government debt is less likely to acquire foreign capital, leading to inflation. Foreign
investors will sell their bonds in the open market if the market predicts government debt within a
certain country. As a result, a decrease in the value of its exchange rate will follow.
5. Terms of Trade
Related to current accounts and balance of payments, the terms of trade is the ratio of export
prices to import prices. A country's terms of trade improves if its exports prices rise at a greater
rate than its imports prices. This results in higher revenue, which causes a higher demand for the
country's currency and an increase in its currency's value. This results in an appreciation of
exchange rate.
6. Political Stability & Performance

A country's political state and economic performance can affect its currency strength. A country
with less risk for political turmoil is more attractive to foreign investors, as a result, drawing
investment away from other countries with more political and economic stability. Increase in
foreign capital, in turn, leads to an appreciation in the value of its domestic currency. A country
with sound financial and trade policy does not give any room for uncertainty in value of its
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currency. But, a country prone to political confusions may see a depreciation in exchange rates.
7. Recession
When a country experiences a recession, its interest rates are likely to fall, decreasing its chances
to acquire foreign capital. As a result, its currency weakens in comparison to that of other
countries, therefore lowering the exchange rate.
8. Speculation
If a country's currency value is expected to rise, investors will demand more of that currency in
order to make a profit in the near future. As a result, the value of the currency will rise due to the
increase in demand. With this increase in currency value comes a rise in the exchange rate as
well.
Conclusion:
All of these factors determine the foreign exchange rate fluctuations. If you send or receive money
frequently, being up-to-date on these factors will help you better evaluate the optimal time for
international money transfer. To avoid any potential falls in currency exchange rates, opt for a
locked-in exchange rate service, which will guarantee that your currency is exchanged at the same
rate despite any factors that influence an unfavorable fluctuation.
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UNIT V: PROMOTION OF FOREIGN TRADE
Topic-1 : Trade control
Topic-2 : Exim policy highlights
Topic-3 : EPC
Topic-4 : EIA
Topic-5 : General provisions regarding exports, imports – Promotional measures – Duty

exemption/ remission scheme – Export promotion capital goods scheme – EOU, EPZ, EHTP,
STP, AEZ, SEZ – Deemed Exports.
TOPIC-1 TRADE CONTROL
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1. Purpose of the Policy
The Trade Control Policy is implemented for the purpose of enabling proper development
of foreign trade, and maintaining peace and safety in Japan as well as in the international
community by exercising the minimum necessary control or coordination measures over free trade,
while quickly and accurately taking into consideration regulation needs in internal and external
policies pertaining to border control and consistency with internal conditions and appropriate
measures regarding collateral, and establishing a proper trade control system.
2. Overview/Background of the Policy
It is a general rule that international trade should be free, but when taking into consideration
national security, the safety and security of thepeople, and the environment, it is necessary to
exercise the minimum necessary control and coordination measures at the border.
There has been, in particular, increasing concern regarding the development, usage, and
proliferation of weapons of mass destruction（WMDs） by international terrorist organizations
since the 9.11 attacks in 2001. Furthermore, in view of increasing international awareness over
environmental issues, it is necessary for Japan to continue ongoing appropriate measures in trade
control.
There is also an increasing need for trade remedy measures in the United States, Europe
and Asia. Japan also needs to appropriately execute its trade control policy in adherence with
international rules with regard to unfair trade by other countries such as export dumping, and as
FTA/EPA negotiations accelerate, there are increasing calls for the formulation and
implementation of a system to issue certificates of origin.
In order to handle such issues, the Ministry of Economy, Trade and Industry exercises
the following policies.
(1) Trade Control based on the Foreign Exchange and Foreign Trade Law
Exercise of proper trade control by way of appropriate implementation of measures that

are in compliance with the Foreign Exchange and Foreign Trade Law, such as screening for
import/export permission and approval, and on-site inspection and disposal of illegal exports.
Policy also undergoes continuous updates.
Furthermore, Japan actively exchanges information with other countries, and collects
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information concerning the situation of circumventing exports to countries of concern and
relevant sensitive technology that may be targeted for circumventing export , in order to increase
effectiveness in trade control.
Japan also acknowledges the importance in cooperating with other countries in introducing
an export control systems, and is conducting outreach activities for government officials and
industries in Asian countries to increase awareness. And the Government also reviews the export
control system and items of export control in accordance with other countries, by participating in
the international export control regimes.
(2) Appropriate Implementation of Trade Remedies
The Government prevents unfair damage to its industry and maintains a fair trade environment
by appropriately exercising trade remedy measures in compliance with WTO Agreements and the
Customs Tariff Act. It also researches and analyzes laws, guidelines, specific cases, and duty
imposition processes.
(3) Appropriate Maintenance of Internal Rules pertaining to Certificates of Origin
The Government adjusts and thoroughly establishes internal procedures in issuing

certificates of origin.
TOPIC-2 EXIM POLICY HIGHLIGHTS
1.service Exports
Duty free import facility for service sector having a minimum foreign exchange earning of
Rs.10 lakhs.The duty free entitlement shall be 10% of the average foreign exchange earned in the
preceding three licensing years. However, for hotels, the same shall be 5% of the average foreign
exchange earned in the preceding three licensing years. This entitlement can be used for import of
office equipments, professional equipments, spares and consumables. However, imports of
agriculture and dairy products shall not be allowed for imports against the entitlement. The
entitlement and the goods imported against such entitlement shall be non-transferable.
2. Agro Exports
Corporate sector with proven credential will be encouraged to sponsor Agri Export Zone
for boosting agro exports. The corporates to provide services such as provision of pre/post harvest
treatment and operations, plant protection, processing, packaging, storage and related R&D. DEPB
rate for selected agro products to factor in the cost of pre-production inputs such as fertiliser,
pesticides and seeds.
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3. Status Holders
Duty-free import entitlement for status holders having incremental growth of more than 25%
in FOB value of exports (in free foreign exchange).
This facility shall however be available to status holders having a minimum export turnover
of Rs.25 crore (in free foreign exchange). The duty free entitlement shall be 10% of the incremental
growth in exports and can be used for import of capital goods, office equipment and inputs for
their own factory or the factory of the associate/supporting manufacturer/job worker. The
entitlement/ goods shall not be transferable. This facility shall be available on the exports made
from 1.4.2003.
Annual Advance Licence facility for status holders to be introduced to enable them to plan
for their imports of raw material and components on an annual basis and take advantage of bulk
purchases. The Input-Output norms for status holders to be fixed on priority basis within a period
of 60 days. Status holders in STPI shall be permitted free movement of professional equipments
like laptop/computer.
4. Hardware/Software
To give a boost to electronic hardware industry, supplies of all 217 ITA-1 items from EHTP
units to DTA shall qualify for fulfillment of export obligation. To promote growth of exports in
embedded software, hardware shall be admissible for duty free import for testing and development
purposes. Hardware upto a value of US$ 10,000 shall be allowed to be disposed off subject to STPI
certification. 100% depreciation to be available over a period of 3 years to computer and computer
peripherals for units in EOU/EHTP/STP/SEZ .
5. Gem & Jewellery Sector
Diamond & Jewellery Dollar Account for exporters dealing in purchase/sale of diamonds
and diamond studded jewellery. Nominated agencies to accept payment in dollars for cost of
import of precious metals from EEFC account of exporter. Gem & Jewellery units in SEZ and
EOUs can receive precious metal i.e Gold/silver/platinum prior to exports or post exports
equivalent to value of jewellery exported. This means that they can bring export proceeds in kind
against the present provision of bringing in cash only.
6. Export Clusters
Upgradation of infrastructure in existing clusters/industrial locations under the Department of

Industrial Policy & Promotion (DIPP) scheme to increase overall competitiveness of the export
clusters. Supplemental efforts to be made under the ASIDE scheme and similar schemes of other
Ministries to bridge technology and productivity gaps in identified clusters.10 such clusters with
high growth potential to be reinvigorated based on a participatory approach.
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7. Rehabilitation of Sick Units
For revival of sick units, extension of export obligation period to be allowed to such units based
on BIFR rehabilitation schemes. This facility shall also be available to units outside the purview
of BIFR but operating under the State rehabilitation programme.
8. Removal of Quantitative Restrictions

Import of 69 items covering animal products, vegetables and spices, antibiotics and films
removed from restricted list. Export of 5 items namely paddy except basmati, cotton linters, rare
earth, silk cocoons, family planning devices except condoms removed from restricted list.
9. Special Economic Zones Scheme
Sales from Domestic Tariff Area (DTA) to SEZs to be treated as export. This would now entitle
domestic suppliers to Drawback/ DEPB benefits, CST exemption and Service Tax exemption.
Agriculture/Horticulture processing SEZ units will now be allowed to provide inputs and
equipments to contract farmers in DTA to promote production of goods as per the requirement of
importing countries. This is expected to integrate the production and processing and help in
promoting SEZs specialising in agro exports.
10. EOU Scheme
Agriculture/Horticulture processing EOUs will now be allowed to provide inputs and equipments
to contract farmers in DTA to promote production of goods as per the requirement of importing
countries. This is expected to integrate the production and processing and help in promoting agro
exports.
EOUs are now required to be only net positive foreign exchange earner and there will now be no
export performance requirement.
Foreign bound passengers will now be allowed to take goods from EOUs to promote trade,
tourism and exports.
The value of capital goods imported by EOUs will now be amortized uniformly over 10 years.
Period of utilisation of raw materials prescribed for EOUs increased from 1 year to 3 years.
Gems and jewellery EOUs are now being permitted sub-contracting in DTA.
11. EPCG scheme
The scheme shall now allow import of capital goods for pre-production and post-production
facilities also.
The Export Obligation under the scheme shall now be linked to the duty saved and shall be 8
times the duty saved.
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To facilitate upgradation of existing plant and machinery, import of spares shall also be allowed
under the scheme.
To promote higher value addition in exports, the existing condition of imposing an additional
Export Obligation of 50% for products in the higher product chain to be done away with.
12. DEPB Scheme
Facility for provisional DEPB rate introduced to encourage diversification and promote export of
new products. DEPB rates rationalised in line with general reduction in Customs duty.
TOPIC-3 EXPORT PROMOTION COUNCILS
EXPORT PROMOTION COUNCILS
Basic Objectives 13.1 The basic objective of Export Promotion Councils is to promote and
Role and develop the exports of the country. Each Council is responsible for the
Functions promotion of a particular group of products, projects and services. The
list of Export Promotion Councils (EPCs) and specified Agencies/
Boards which shall be regarded as EPCs are given in Appendix - 31 of
the Handbook (Vol.1)
13.2 The main role of the EPCs is to project India's image abroad as a
reliable supplier of high quality goods and services. In particular, the
EPCs shall encourage and monitor the observance of international
standards and specifications by exporters. The EPCs shall keep abreast
of the trends and opportunities in international markets for goods and
services and assist their members in taking advantage of such
opportunities in order to expand and diversify exports.
13.3 The major functions of the EPCs are:
(a) To provide commercially useful information and assistance to

their members in developing and increasing their exports;
(b) To offer professional advice to their members in areas such as

technology upgradation, quality and design improvement,
standards and specifications, product development, innovation,
etc.;
(c ) To organise visits of delegations of its members abroad to

explore overseas market opportunities;
(d) To organise participation in trade fairs, exhibitions and buyer-

seller meets in India and abroad;
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(e) To promote interaction between the exporting community and
the Government both at the Central and State levels; and
(f) To build a statistical base and provide data on the exports and
imports of the country, exports and imports of their members,
as well as other relevant international trade data.
Non-profit, 13.4 The EPCs are non-profit organisations registered under the Companies
Autonomous and Act or the Societies Registration Act, as the case may be.
Professional
Bodies
13.5 The EPCs shall be autonomous and regulate their own affairs.
However, if the Central Government frames uniform bylaws for the
constitution and/or for the transaction of business for EPCs, they shall
adopt the same with such modifications as Central Government may
approve having regard to the special nature or functioning of such
EPC. The EPCs shall be required to obtain the approval of the Central
Government for participation in trade fairs, exhibitions etc and for
sending sales teams/ delegations abroad. The Ministry of Commerce
and Industry/ Ministry of Textiles of the Government of India, as the
case may be, would interact with the Managing Committee of the
Council concerned, twice a year, once for approving their annual plans
and budget and again for a mid-year appraisal and review of their
performance.
13.6 In order to give a boost and impetus to exports, it is imperative that the
EPCs function as professional bodies. For this purpose, executives
with a professional background in commerce, management and
international marketing and having experience in government and
industry should be brought into the EPCs.
Government 13.7 The EPCs may be provided financial assistance by the Central
support Government.
Registration 13.8 An exporter may, on application, register and become a member of an

cum- Export Promotion Council. On being admitted to membership, the
Membership applicant shall be granted forthwith Registration-cum- Membership
Certificate (RCMC) of the EPC concerned, subject to such terms and
conditions as may be specified in this behalf.
TOPIC-4 : EXPORT INSPECTION COUNCIL
The Export Inspection Council (EIC) is the official export –certification body of India which
ensures quality and safety of products exported from India. EIC was set up by the Government of
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India under Section 3 of the Export (Quality Control and Inspection) Act, 1963 to ensure sound
development of export trade of India through quality control and inspection and matters
connected therewith. The role of EIC is to ensure that products notified under the Export
(Quality Control and Inspection) Act 1963 are meeting the requirements of the importing
countries in respect of their quality and safety.
The Export Inspection Council is located at Delhi and is headed by a Chairman. The
Executive Head of the Council is the Director of Inspection & Quality Control who is
responsible for day to day functioning of the Council. The assurance to quality and safety is
provided through either a consignment wise inspection or a quality assurance / food safety
management based certification through its field organization. The Export Inspection Agencies
(EIAs) located at Mumbai, Kolkata, Kochi, Delhi and Chennai with a network of 30 sub offices
backed by the state of art, NABL accredited laboratories at various places. EIC provides
mandatory certification for various Food items namely fish & fishery products, dairy product,
honey, egg products, meat and meat products, poultry meat products, animal casing, Gelatine,
Ossein and crushed bones and feed additive and pre-mixtures while other food and non-food
products are certified on voluntary basis. With more than four decade experience in the field of
inspection, testing and certification of food items as per importing country’s requirements, EIC is
the only organization in India having global acceptance.
TOPIC-5 GENERAL PROVISIONS REGARDING IMPORTS AND

EXPORTS
Exports and 4.1 Exports and Imports shall be free, except to the extent they are
Imports Free regulated by the provisions of this Policy or any other law for
Unless the time being in force. The itemwise export and import policy
Regulated shall be, as specified in ITC(HS) published and notified by
Director General of Foreign Trade, as amended from time to
time.
Restricted 4.5 Any goods, the export or import of which is restricted under
Goods. ITC(HS) may be exported or imported only in accordance with a
licence issued in this behalf.
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Terms and 4.6 Every licence shall be valid for the period of validity specified in
Conditions of the licence and shall contain such terms and conditions as may
be specified by the licensing authority which may include:
a Licence
(a) The quantity, description and value of the goods
(b) Actual User condition ;
(c ) Export obligation ;
(d) The value addition to be achieved and
(e) The minimum export price.
Licence not a 4.7 No person may claim a licence as a right and the Director
Right General of Foreign Trade or the licensing authority shall have
the power to refuse to grant or renew a licence in accordance
with the provisions of the Act and the Rules made thereunder.
Canalised Goods 4.8 Any goods, the import or export of which is canalised, may be
imported or exported by the canalising agency specified in the
ITC(HS). The Director General of Foreign Trade may, however,
grant a licence to any other person to import or export any
canalised goods.
Importer- 4.9 No export or import shall be made by any person without an

Exporter Code Importer-Exporter Code (IEC) number unless specifically
Number exempted. An Importer-Exporter Code (IEC) number shall be
granted on application by the competent authority in accordance
with the procedure specified in the Handbook (Vol.1)
Registration - 4.10 Any person, applying for (i) a licence to import/ export, (except
cum- items listed as restricted items in ITC(HS)) or (ii) any other
Membership benefit or concession under this Policy shall be required to
Certificate furnish Registration-cum-Membership Certificate (RCMC)
granted by the competent authority in accordance with the
procedure specified in the Handbook (Vol.1) unless specifically
exempted under the Policy.
Procedure 4.11 The Director General of Foreign Trade may, in any case or class
of cases, specify the procedure to be followed by an exporter or
importer or by any licensing, competent or other authority for
the purpose of implementing the provisions of the Act, the Rules
and the Orders made thereunder and this Policy. Such
procedures shall be included in the Handbook (Vol.1),
Handbook(Vol.2) and in ITC(HS) and published by means of a
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Public Notice. Such procedures may, in like manner, be
amended from time to time.
Compliance with 4.12 Every exporter or importer shall comply with the provisions of
Laws the Foreign Trade (Development and Regulation) Act, 1992, the
Rules and Orders made thereunder, the provisions of this Policy
and the terms and conditions of any licence granted to him, as
well as provisions of any other law for the time being in force.
All imported goods shall also be subject to domestic Laws,
Rules, Orders, Regulations, technical specifications,
environmental and safety norms as applicable to domestically
produced goods.
TOPIC-6 EXPORT PROMOTION CAPITAL GOODS SCHEME
Scheme
New capital goods, including computer software systems, may be imported under the
Export Promotion Capital Goods (EPCG) Scheme
Import on Concessional Duty
Capital goods (CG), including jigs, fixtures, dies, moulds and spares upto 20% of the CIF
value of the capital goods may be imported at 5% Customs duty subject to an export obligation
equivalent to 5 times CIF value of capital goods on FOB basis or 4 times the CIF value of capital
goods on NFE basis to be fulfilled over a period of 8 years reckoned from the date of issuance of
licence.
Eligibility
(a) Under the scheme, manufacturer exporters with or without supporting manufacturer(s)/
vendor(s), merchant exporters tied to supporting manufacturer(s) and service providers are eligible
to import capital goods. The capital goods imported by the licence holder shall be installed at the
factory of the licence holder or his supporting manufacturer(s)/ vendor(s). However, agricultural
exporters and service providers shall be allowed to shift the capital goods, provided advance
intimation is given to the concerned Assistant Commissioner of Customs and Excise. Such
equipments shall not be sold or leased by the licence holder.
(b) If the licence issued under the scheme has actually been utilised for import of a value in excess
of or less than 10% of the CIF value of the licence, license shall be deemed to have been enhanced/
reduced by that proportion. Export obligation shall accordingly be enhanced/ reduced as per the
actual utilisation of the licence.
Conditions for Import of Capital Goods
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Import of capital goods shall be subject to Actual User condition till the export obligation is
completed.
Export Obligation
The following conditions shall apply to the fulfillment of the export obligation:
(i) The export obligation shall be fulfilled by the export of goods manufactured or produced by
the use of the capital goods imported under the scheme. The export obligation may also be fulfilled
by the export of same goods, for which EPCG licence has been obtained, manufactured or
produced in different manufacturing units of the licence holder/ specified supporting
manufacturer(s)/vendor(s).
However, if exporter is processing further to add value on the goods so manufactured, the export
obligation shall stand enhanced by 50%.
(ii) The exports shall be direct exports in the name of the EPCG licence holder. However, the
export through third party(s) is also allowed provided the name of the EPCG Licence holder is
also indicated on the shipping bill. If a merchant exporter is the importer, the name of the
supporting manufacturer shall also be indicated on the shipping bills. At the time of export, the
EPCG licence No. and date shall be endorsed on the shipping bills which are proposed to be
presented towards discharge of export obligation.
(iii) Export proceeds shall be realised in freely convertible currency.
(iv) Exports shall be physical exports. However, deemed exports as specified in paragraph 10.2
(a), (b), (d), (f), and (g) of Policy shall also be counted towards fulfillment of export obligation,
but the EPCG licence holder shall not be entitled to claim any benefit under paragraph 10.3 of this
Policy in respect of such deemed exports
(V) The export obligation shall, in addition to any other export obligation undertaken by the
importer, except the export obligation for the same product under the Duty Exemption/ Remission
Scheme, be as specified in paragraph (vi) below. The export obligation shall be, over and above,
the average level of exports achieved by him in the preceding three licensing years for same and
similar products. Wherever the average level of export was fixed taking into account the exports
made to such countries as are notified by the DGFT from time to time for this purpose, the average
level of exports shall be reduced by excluding exports made to these countries. This waiver shall
be applicable to all EPCG licences which have not been redeemed/ regularised.
However, exports made against any EPCG licence, except the EPCG licences , which have been
redeemed, shall not be added up for calculating the average export performance for the purpose of
the subsequent EPCG licence. If the exporter achieves an export of 75% of the annual value of the
production of the relevant export product, the export obligation against the EPCG licence shall be
subsumed under that export, provided the aggregate value of such exports during the specified
107
period shall not be less than the aggregate value of the export obligation fixed under paragraph 6.2
of this Policy.
(vi) Where the manufacturer exporter has obtained licences for the manufacture of the same export
product both under EPCG and the Duty Exemption/ Remission Scheme or Diamond Imprest
Licence/ Replenishment Licence (under chapter-8), the physical exports made under the Duty
Exemption Scheme including the DEPB/ DFRC/ Diamond Imprest Licence/ Replenishment
Licence shall also be counted towards the discharge of the export obligation under this scheme.
(vii) In case of export of computer software, agriculture, aquaculture, animal husbandry,

floriculture, horticulture, pisciculture, viticulture, poultry and sericulture, the export obligation
shall be determined in accordance with paragraph 6.2 of the Policy, but the licence holder shall
not be required to maintain the average level of exports as specified in sub- paragraph (v) above.
Import of Components and Goods in Disassembled/ Un-assembled
A person may apply for a licence under the EPCG scheme to import the capital goods in dis-
assembled/ un-assembled condition to be assembled into capital goods by the importer or
components of such capital goods required for assembly or manufacture of capital goods by the
importer. This facility shall not be available for replacement of parts.
Indigenous Sourcing of Capital Goods
A person holding an EPCG licence may source the capital goods from a domestic manufacturer
instead of manufacturing them. In the event of a firm contract between the parties for such
sourcing, the domestic manufacturer may apply for the issuance of Advance Licence for Deemed
Exports for the import of inputs including components required for the manufacturer of said
capital goods .
The domestic manufacturer may also replenish the inputs including components after supply of
capital goods the EPCG licence holders. The export obligation relating to the EPCG licence shall
be reckoned with reference to the CIF value of the licence actually utilized. (Notification No: 36
dated 29.09.2000)
Benefits to Domestic Supplier
The domestic manufacturer supplying capital goods to EPCG licence holders shall be eligible for
deemed export benefit under paragraph 10.3 of the Policy.
TOPIC- 7 DUTY EXEMPTION/REMISSION SCHEMES
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7.1 The Duty Exemption Scheme enables import of inputs required for
export production. The Duty Remission Scheme enables post export
replenishment/ remission of duty on inputs used in the export product.
7.2 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.
For physical exports, Advance Licence can also be issued on the basis
of annual requirement in respect of export products for which SIONs
have been notified.
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).
Advance 7.3 (a) Advance Licence is issued for duty free import of inputs, as defined in
Licence paragraph 7.2, subject to actual user condition. Such licences (other
than Advance Licence for deemed exports) are exempted from
payment of Basic Customs Duty, Surcharge, Additional Customs
Duty, Anti Dumping Duty and Safeguard Duty, if any. However,
Advance Licence for deemed export shall be exempted from Basic
Customs Duty, surcharge and Additional Customs Duty only. Such
licences are issued to:
(i) Manufacturer exporter or Main contractor in case of deemed

exports.
(ii) Merchant exporter where the merchant exporter agrees to the

endorsement of the name(s) of the supporting
manufacturer(s) on the relevant DEEC Book and in the case
of deemed exports, sub contractor(s)whose names appear in
the main contract.
Such licences and/or materials imported thereunder shall not be

transferable even after completion of export obligation. However, in
exceptional cases, the material may be allowed to be transferred on
merits by ALC.
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Such licences shall be issued with a positive value addition. However,
for exports for which payments are not received in freely convertible
currency, the same shall be subject to value addition as specified in
Appendix- 39 of Handbook (Vol.1) , 1997-2002
Advance Licence shall be issued in accordance with the Policy and

procedure in force on the date of issue of licence and shall be subject
to the fulfillment of a time bound export obligation as may be
specified.
Advance Licence (b) Advance Licence may be issued for intermediate supply to a
for Intermediate manufacturer-exporter for the import of inputs required in the
Supply manufacture of goods to be supplied to the ultimate exporter/deemed
exporter holding another Advance Licence.
Advance Licence (c) Advance Licence can be issued for deemed export to the main
for Deemed contractor for import of inputs required in the manufacture of goods to
Export be supplied to the categories mentioned in `paragraph 10.2(b), (c), (d),
(e), (f) and (g) of the Policy.
In addition, in respect of supply of goods to specified projects

mentioned in paragraph 10.2 (d), (e), (f) & (g) of the Policy, an
Advance Licence for deemed export can also be availed by the sub-
contractor of the main contractor to such project. Such licence for
deemed export can also be issued for supplies made to United Nations
Organisations or under the Aid Programme of the United Nations or
other multilateral agencies and paid for in foreign exchange.
Duty Free 7.4 Duty Free Replenishment Certificate is issued to a merchant-exporter

Replenishment or manufacturer-exporter for the import of inputs used in the
Certificate manufacture of goods without payment of Basic Customs Duty,
(DFRC) Surcharge and Special Additional Duty. However, such inputs shall be
subject to the payment of Additional Customs Duty equal to the
Excise Duty at the time of import.
i. Duty Free Replenishment Certificate shall be issued only in

respect of export products covered under the SIONs as notified
by DGFT.
ii. Duty Free Replenishment Certificate shall be issued for import
of inputs, as per SION, having same quality, technical
characteristics and specifications as those used in the end
product and as indicated in the shipping bills. The validity of
such licences shall be 12 months. DFRC and or the material
imported against it shall be freely transferable.
iii. The Duty Free Replenishment Certificate shall be subject to a
minimum value addition of 33%.
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iv. The export products, which are eligible for modified VAT,
shall be eligible for CENVAT credit. However, non excisable,
non dutiable or non centrally vatable products, shall be eligible
for drawback at the time of exports in lieu of additional
customs duty to be paid at the time of imports under the
scheme.
v. The exporter shall be entitled for drawback benefits in respect
of any of the duty paid materials, whether imported or
indigenous, used in the export product as per the drawback
rate fixed by Directorate of Drawback (Ministry of Finance).
The drawback shall however be restricted to the duty paid
materials not covered under SION.
Jobbing, 7.5 Import of goods, including those mentioned as restricted in ITC(HS)

Repairing etc. but excluding prohibited items, in terms of paragraph 7.2 supplied free
For of cost, may be permitted for the purpose of jobbing without a licence
as per the terms of notification issued by Department of Revenue from
Re-Export time to time.
Export 7.6 The period for fulfillment of the export obligation under Advance
Obligation Licence shall be as prescribed in the Handbook (Vol.1).
Advance Release 7.7 An Advance Licence holder except Advance Licence for
Orders intermediate supply, holder of DFRC intending to source the inputs
from indigenous sources/ canalising agencies/ EOU/
EPZ/SEZ/EHTP/STP units in lieu of direct import has the option to
source them against Advance Release Orders denominated in foreign
exchange/ Indian rupees. In such a case the licence shall be
invalidated for direct import and a permission in the form of ARO
shall be issued which will entitle the supplier to the benefits of
deemed export. The transferee of a Duty Free Replenishment
Certificate shall also be eligible for ARO facility.
Back-to-Back 7.8 An Advance Licence holder, except Advance Licence for

Inland Letter of intermediate supply, and holder of DFRC may, instead of applying
Credit for an Advance Release Order, avail of the facility of Back-to-Back
Inland Letter of Credit in accordance with the procedure specified in
Handbook (Vol.1).
Prohibited Items 7.9 Prohibited items of imports mentioned in ITC(HS) shall not be
imported under the licences issued under the scheme.
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TOPIC-8 EXPORT ORIENTED UNITS (EOUS) UNITS IN EXPORT PROCESSING
ZONES (EPZS), SPECIAL ECONOMIC ZONES (SEZS), ELECTRONICS HARDWARE
TECHNOLOGY PARKS (EHTPS) AND SOFTWARE TECHNOLOGY PARKS (STPS)
Eligibility 9.1 Units undertaking to export their entire production of goods and
services may be set up under the Export Oriented Unit (EOU)
Scheme, Export Processing Zone (EPZ) Scheme, Electronic
Hardware Technology Park (EHTP) Scheme or Software
Technology Park (STP) Scheme. Such units may be engaged in
manufacture, services, trading, development of software,
agriculture, including agro-processing, aquaculture, animal
husbandry, bio-technology,floriculture, horticulture, pisciculture,
viticulture, poultry, sericulture and granites and may export all
products except prohibited items of exports in ITC (HS).
Importability Of 9.2 An EOU/EPZ/EHTP/STP unit may import without payment of duty

Goods all types of goods, including capital goods, as defined in the Policy,
required by it for manufacture, services, trading or in connection
therewith, provided they are not prohibited items of imports in the
ITC (HS). However, import of basmati paddy/brown rice shall be
prohibited. The units shall also be permitted to import goods
required for the approved activity, including capital goods, free of
cost or on loan from clients.
The duties on import/procurement from DTA of goods, including

capital goods, are only deferred.
EOU/EPZ/EHTP/STP units may procure goods required by it for

manufacture, services, trading or in connection therewith, without
payment of duty, from bonded warehouses in the DTA set up under
the Policy.
STP/EHTP/EPZ may import, without payment of duty, all types of

goods for creating a central facility for use by software
development units in STP/EHTP/EPZ. The central facility for
software development can also be accessed by units in the DTA for
export of software.
An EOU engaged in agriculture, animal husbandry, floriculture,

horticulture, pisciculture, viticulture, poultry or sericulture may
import without payment of duty only such goods as are permitted to
be imported duty free under a Customs Notification issued in this
behalf.
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Second Hand 9.3 Second hand capital goods may also be imported.
Capital Goods
Leasing Of Capital 9.4 An EOU/EPZ/EHTP/STP unit may, on the basis of a firm contract
between the parties, source the capital goods from a
Goods domestic/foreign leasing company. In such a case, the
EOU/EPZ/EHTP/STP unit and the domestic/foreign leasing
company shall jointly file the documents to enable
import/procurement of the capital goods without payment of duty.
Net Foreign 9.5 The unit shall be a net foreign exchange earner. The minimum Net
Exchange Earning Foreign Exchange earning as a Percentage of Exports (NFEP) as
as a Percentage of per paragraph 9.29 and the minimum Export Performance (EP)
Exports (NFEP) and shall be as specified in Appendix I of the Policy. Items of
Minimum Export manufacture for export specified in the Letter of Permission
Performance (EP) (LOP)/Letter of Intent (LOI) alone shall be taken into account for
calculation of NFEP and EP.
Legal Undertaking 9.6 The unit shall execute a legal undertaking with the Development
Commissioner concerned and in the event of failure to fulfil the
performance, as stipulated in Appendix-I, it would be liable to
penalty in terms of the legal undertaking or under any other law for
the time being in force.
Approvals 9.7 Applications for EOU /EPZ/EHTP/STP units, satisfying the

conditions mentioned in para 9.37 of the Hand Book of Procedures
(Vol-I) may be given approval within fifteen days by the concerned
Development Commissioner of the EPZ.
Other Cases 9.8 In other cases, approval may be granted by the Board(s) of
Approval (BOA) set up for this purpose or Secretariat for Industrial
Assistance within 45 days, as the case may be.
DTA Sales 9.9 The entire production of EOU/EPZ/EHTP/STP units shall be

exported subject to the following:
a. Unless specifically prohibited in the LOP/LOI, rejects may be

sold in the domestic tariff area (DTA), on prior intimation to the
customs authority. Such sales shall be counted against DTA sale
entitlement under para 9.9(b) of the Policy. Sale of rejects shall be
subject to payment of duties as applicable to sale under para 9.9(b).
b. DTA sale up to 50% of the FOB value of exports may be made

subject to payment of applicable duties and fulfillment of minimum
NFEP prescribed in Appendix 1 of the Policy. No DTA sale shall
be permissible in respect of motor cars, alcoholic liquors and such
113
other items as may be stipulated by Director General of Foreign
Trade by a Public Notice issued in this behalf.
c. Deleted
d. Deleted
e. EOU/EPZ/EHTP/STP units may be permitted to sell finished

products which are either freely importable under the Policy, or
against other import licenses, in the DTA, over and above the levels
permissible under sub paragraph (b) above, against payment of full
duties, on annual basis, provided they have achieved the stipula ted
NFEP and export performance.
f. Deleted
g. For services, including software units, sale in the DTA in any

mode, including on-line data communication, shall be permissible
up to 50% of FOB value of exports and/or 50% of foreign exchange
earned, where payment for such services is received in free foreign
exchange.
h. Items included as by-products in the LOP/LOI may be sold in the

DTA on payment of applicable duty.
TOPIC-9 DEEMED EXPORTS

Definition 10.1 "Deemed Exports" refers to those transactions in which the goods
supplied do not leave the country.
Categories of 10.2 The following categories of supply of goods by the main/ sub-
Supply contractors shall be regarded as "Deemed Exports" under this Policy,
provided the goods are manufactured in India:
(a) supply of goods against Advance Licence/DFRC under the
Duty Exemption /Remission Scheme;
(b) Supply of goods to Export Oriented Units (EOUs) or units
located in Export Processing Zones (EPZs) or Special
Economic Zone (SEZs) or Software Technology Parks
(STPs) or to Electronic Hardware Technology Parks
(EHTPs);
(c) supply of capital goods to holders of licences under the
Export Promotion Capital Goods (EPCG) scheme;
(d) supply of goods to projects financed by multilateral or
bilateral agencies/funds as notified by the Department of
114
Economic Affairs, Ministry of Finance under International
Competitive Bidding in accordance with the procedures of
those agencies/ funds, where the legal agreements provide for
tender evaluation without including the customs duty;
(e) supply of capital goods, including in unassembled /
disassembled condition as well as plants, machinery,
accessories, tools, dies and such goods which are used for
installation purposes till the stage of commercial production
and spares to the extent of 10% of the FOR value to fertiliser
plants.
(f) supply of goods to any project or purpose in respect of which
the Ministry of Finance, by a notification, permits the import
of such goods at zero customs duty coupled with the
extension of benefits under this chapter to domestic supplies;
(g) supply of goods to the power and refineries not covered in (f)
above and coal, hydrocarbon, rail, road, port, civil aviation,
bridges and other infrastructure projects provided minimum
specific investment is Rs.100 crores or more;
(h) supply of marine freight containers by 100% EOU (Domestic
freight containers–manufacturers) provided the said
containers are exported out of India within 6 months or such
further period as permitted by the Customs; and
(i) supply to projects funded by UN agencies.
The benefits of deemed exports shall be available under paragraph (d) (e) (f)
and (g) only if the supply is made under the procedure of International
Competitive Bidding (ICB)
Benefits for 10.3 Deemed exports shall be eligible for the following benefits in respect
Deemed of manufacture and supply of goods qualifying as deemed exports:
Exports
(a) Advance Licence for intermediate supply/deemed export.
(b) Deemed Exports Drawback;
(c) Refund of terminal excise duty.
115
TOPIC-10 EXPORT PROMOTION COUNCILS
Basic Objectives 13.1 The basic objective of Export Promotion Councils is to promote and
Role and develop the exports of the country. Each Council is responsible for the
Functions promotion of a particular group of products, projects and services. The
list of Export Promotion Councils (EPCs) and specified Agencies/
Boards which shall be regarded as EPCs are given in Appendix - 31 of
the Handbook (Vol.1)
13.2 The main role of the EPCs is to project India's image abroad as a
reliable supplier of high quality goods and services. In particular, the
EPCs shall encourage and monitor the observance of international
standards and specifications by exporters. The EPCs shall keep abreast
of the trends and opportunities in international markets for goods and
services and assist their members in taking advantage of such
opportunities in order to expand and diversify exports.
13.3 The major functions of the EPCs are:
(a) To provide commercially useful information and assistance to

their members in developing and increasing their exports;
(b) To offer professional advice to their members in areas such as

technology upgradation, quality and design improvement,
standards and specifications, product development, innovation,
etc.;
(c ) To organise visits of delegations of its members abroad to

explore overseas market opportunities;
(d) To organise participation in trade fairs, exhibitions and buyer-

seller meets in India and abroad;
(e) To promote interaction between the exporting community and

the Government both at the Central and State levels; and
(f) To build a statistical base and provide data on the exports and
imports of the country, exports and imports of their members,
as well as other relevant international trade data.
Non-profit, 13.4 The EPCs are non-profit organisations registered under the Companies
Autonomous and Act or the Societies Registration Act, as the case may be.
Professional
Bodies
13.5 The EPCs shall be autonomous and regulate their own affairs.
However, if the Central Government frames uniform bylaws for the
constitution and/or for the transaction of business for EPCs, they shall
116
adopt the same with such modifications as Central Government may
approve having regard to the special nature or functioning of such
EPC. The EPCs shall be required to obtain the approval of the Central
Government for participation in trade fairs, exhibitions etc and for
sending sales teams/ delegations abroad. The Ministry of Commerce
and Industry/ Ministry of Textiles of the Government of India, as the
case may be, would interact with the Managing Committee of the
Council concerned, twice a year, once for approving their annual plans
and budget and again for a mid-year appraisal and review of their
performance.
13.6 In order to give a boost and impetus to exports, it is imperative that the
EPCs function as professional bodies. For this purpose, executives
with a professional background in commerce, management and
international marketing and having experience in government and
industry should be brought into the EPCs.
Government 13.7 The EPCs may be provided financial assistance by the Central
support Government.
Registration 13.8 An exporter may, on application, register and become a member of an

cum- Export Promotion Council. On being admitted to membership, the
Membership applicant shall be granted forthwith Registration-cum- Membership
Certificate (RCMC) of the EPC concerned, subject to such terms and
conditions as may be specified in this behalf.
117

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COURSE : II MBA

SUBJECT CODE : MBA 421

SUBJECT NAME : EXPORT FINANCE & DOCUMENTATION

PROGRAMME COURSE HRS/

UNIT I : FOREIGN TRADE PROCEDURES [12 HRS]

EXIM Policy highlights

UNIT I: FOREIGN TRADE PROCEDURES

Topic-1 : Foreign trade compared to domestic trade Procedures involved in export

TOPIC-1 : FOREIGN TRADE COMPARED TO DOMESTIC TRADE

According to Wasserman and Haltman, “International trade consists of transaction between

residents of different countries”.

According to Anatol Marad, “International trade is a trade between nations”.

HOME TRADE FOREIGN TRADE

There is no exchange of Foreign Trade involves the

Restrictions on transfer of goods

Home trade usually doesn't have Foreign Trade is subjected to many

Foreign Trade involves very high

Home trade leads to economic Foreign Trade leads to the

The home trade involves fewer Foreign Trade involves more

Foreign Trade has many restrictions

Home trade usually have less

Home trade only involves the Foreign Trade facilitates countries

Foreign Trade helps in exchange of

TOPIC-2 : IMPORT FORMALITIES

The steps taken in import procedure are discussed as follows:

(i) Trade Enquiry:

(ii) Procurement of Import Licence and Quota:

(a) Established importer,

(b) Actual users, and

An established importer can make an application to secure a Quota Certificate. The

(iii) Obtaining Foreign Exchange:

(iv) Placing the Indent or Order:

(v) Despatching a Letter of Credit:

(vi) Obtaining Necessary Documents:

(a) D/P, D.P. (or Documents against payment) bills.

(b) D/A, D.A. (or Document against acceptance) bills.

(vii) Customs Formalities and Clearing of Goods:

(a) To obtain endorsement for delivery or delivery order:

(c) Bill of Entry:

(d) Bill of Sight:

(e) To pay Customs or Import Duty:

There are three types of imported goods:

(i) Non dutiable or free goods,

(f) Bonded and Duty paid Warehouses:

The bonded warehouses are used by the importer when:

(i) He has no godown of his own.

(ii) He cannot pay the duty immediately.

(iv) He wants to pay the duty in installments.

(viii) Making the Payment:

(ix) Closing the Transactions:

TOPIC-3 : VISIBLE AND INVISIBLE IMPORTS AND EXPORTS

DIVISIONS OF FOREIGN TRADE

TOPIC-4 BALANCE OF TRADE

Factors that can affect the balance of trade include:

India’s Merchandise Trade: Key Facts

Composition of India’s merchandise export Basket

Figure 2.2. Below illustrates various types of Balance of Trade:

Let us try to understand the various concepts one by one.

1. Favourable Balance of Trade: