Module 4

Various Government Institutes supporting

foreign trade and their role
Notes

Students should be able to examine and elaborate the role

of various Government institutions in India which support
international trade.

MBA Semester 2
Course – International Business

Topics Covered
1. Various Government Institutes supporting foreign trade and their role
2. DGFT
3. Export Promotion Council
4. ECGC
5. SEZs
6. EPZs and EOUs
7. EXIM Bank
8. FEMA

IB Notes – Compiled by Prof. Abdul Karim

 Module – 4

Various Government Institutes supporting foreign trade and their

role

DIRECTORATE GENERAL OF FOREIGN TRADE (DGFT)

The Directorate General of foreign Trade (DGFT) is the agency of the Ministry of
Commerce and Industry of the Government of India, responsible for execution of the
import and export Policies of India. It was earlier known as Chief Controller of
Imports & Exports (CCI&E) till 1991. DGFT plays a very important role in the
development of trading relations with various other nations and thus help in
improving not only the economic growth but also provides a certain impetus needed
in the trade industry. For promoting exports and imports DGFT establish its regional
offices across the country.

Directorate General of Foreign Trade is an attached office of the Department of

Commerce, Ministry of Commerce and Industry. It’s headquartered in Udyog
Bhavan, New Delhi. Under its jurisdiction, there are four Zonal Offices at Delhi,
Mumbai, Kolkata and Chennai headed by Zonal Joint Director General of Foreign
Trade. There are 35 Regional Authorities all over the country.

Functions and responsibilities of DGFT:

• DGFT entrusted with the responsibility of implementing various policies
regarding trade for example, Foreign Trade Policy.
• DGFT is the licensing authority for exporters, importers, and export and
import business.
• DGFT can prohibit, restrict and regulate exports and imports.
• DGFT has important role to issue Notifications, Public notices, Circulars, etc.
• DGFT grant 10digit IEC (Importer Exporter Code), which is a primary
requirement to Import Export.
• DGFT introduces different schemes from time to time regarding trade benefits
throughout the country.
• DGFT has introduced ITC (HS CODE) schedule-1 for import items in India and
Schedule-2 for Export items from India.

EXPORT PROMOTION COUNCILS OF INDIA

IB Notes – Compiled by Prof. Abdul Karim

The Export Promotion Councils are non-profit organisations registered under the
Indian Companies Act or the Societies Registration Act, as the case may be. They are
supported by financial assistance from the Government of India.

ROLE OF EPC
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 encourage and monitor the
observance of international standards and specifications by exporters. The EPCs
keep abreast of the trends and opportunities in international markets for goods and
services and assist their members intaking advantage of such opportunities in order
to expand and diversify exports.

FUNCTIONS OF EPC
The major functions of the EPCs are as follows:
• To provide commercially useful information and assistance to their members
in developing and increasing their exports.
• To offer professional advice to their members in areas such as technology
upgradation, quality and design improvement, standards and specifications,
product development and innovation etc.
• To organise visits of delegations of its members abroad to explore overseas
market opportunities.
• To organise participation in trade fairs, exhibitions and buyer-seller meets in
India and abroad.
• To promote interaction between the exporting community and the
Government both at the Central and State levels.
• 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.

EXPORT CREDIT AND GUARANTEE CORPORATION (ECGC) OF INDIA

ECGC functions under the ministry of commerce and industry, Department of
Commerce, Government of India. It is a central government undertaking body to
provide export credit guarantee/ insurance to the exporters in the case of the
default of payments by the buyer. If a situation arises wherein, the buyer fails to
make the payment to the seller (exporter), the ECGC acts as an insurance firm who
guarantees the payment to the exporter.
It is managed by a Board of Directors comprising representatives of the
Government, Reserve Bank of India, banking, and insurance
and exporting community It was initially registered as Export Risk Insurance
Corporation (ERIC) on 30th July 1957 in Mumbai as a Private Ltd. Company. Later

IB Notes – Compiled by Prof. Abdul Karim

ERIC’s name was changed to Export Credit & Guarantee Corporation Ltd in 1964 and
to Export Credit Guarantee Corporation of India in 1983. With effect from August
8th, 2014, it was renamed as ECGC limited.
It further insures the exporter’s credit risks against both commercial and political
conditions and guarantees payment to the exporters. The corporation provides
various types of insurance covers to suit the varying needs of customers. These may
be classified into four groups:
• Standard policies which protect the exporters against overseas credit risks.
• Services and construction works policies.
• Financial guarantees.
• Special policies.

The commercial risks which may be covered include:

• Insolvency of the buyer
• Non-acceptance of goods by the buyer
• Default by the buyer to pay for the goods accepted by him within six months.

The political risks which may be covered are:

• Government action blocking or delaying payment to the exporter
• War, revolution, civil disturbance etc. in the buyer’s country
• Imposition of new import restrictions or Cancellation of import licence.
• Cancellation of export licence
• War between India and other countries etc.

Roles of ECGC are as follows.

• In case of loss of export of goods and services, it provides credit risk
insurance covers to exporters
• Export Credit Insurance covers are offered to banks and financial
institutions to enable exporters to obtain better facilities from them.
• It assists exporters in recovering bad debts.
• It provides information regarding different countries with its own credit
ratings
• For Indian companies investing in joint ventures abroad in the form of
equity or loan, Overseas Investment Insurance is provided.
• It offers insurance protection to exporters in the case of any payment risks.
• It provides guidance to activities related to export.
• It Provides information regarding creditworthiness of overseas buyers.

IB Notes – Compiled by Prof. Abdul Karim

 • To protect exporters of India, from credit risks, arising from commercial
and political reasons.
• To protect banks in India, from risks of default or protracted delay in
payment by the exporters, in respect of export finance, and
• To encourage exporters to search out new markets and new importers
abroad, by the ECGC underwriting the major part of the credit risks.
SEZ

A special economic zone (SEZ) is an area in which the business and trade laws are
different from the rest of the country. SEZs are located within a country's national
borders, and their aims include increased trade balance, employment, increased
investment, job creation and effective administration.

Special Economic Zones in India were established in an attempt to accelerate

foreign investment and endorse exports from India and recognizing the need of a
global platform to expose the domestic firms and producers to the competitive
world market. The announcement of formulating a Special Economic Zones policy
in India was made by the government in April 2000 and was anticipated to be an
overseas province for trade purposes, commercial operations, duties and taxes.

SEZs when equipped are anticipated to provide premiere infrastructure services

and sustenance services, besides permitting for the tariff free import of
merchandize and raw materials. Furthermore, attractive financial subsidiaries and
trouble-free custom tariffs, banking and other methods are provided in such
business zones. Establishing SEZs is also recognized as communications
development methods.

Roles of SEZs
• Generation of additional economic activity.
• Promotion of exports of goods and services.
• Promotion of investment from domestic and foreign sources.
• Creation of employment.
• Development of Infrastructural facilities.
• Simplified procedure for development, operation and maintaining of the
special Economic Zones and for setting up units and conducting business.
• Single window clearance for setting up a unit in SEZ.

IB Notes – Compiled by Prof. Abdul Karim

 • Single window clearance on matters relating to Central as well as State
Governments.
• Easy and Simplified compliance procedures and documentations with stress
on self- certification.

EPZ & EOU

Export processing zone (EPZ) is set up generally in developing countries by their
governments to promote industrial and commercial exports. In addition to
providing the benefits of a FTZ, these zones offer other incentives such as
exemptions from certain taxes and business regulations.

Export Processing Zone (EPZ) special industrial park developed in response to

international market demand for cheaper goods. EPZ is industrial enclaves which
are formed in an international custom territory of a country (usually situated near
an airport or seaport). The manifest objectives of EPZs are to attract foreign capital
investment and mobilize investment for capital formation for rapid
industrialization, to create employment opportunities for the country’s manpower,
to induce transfer of technology, and to earn foreign exchange by boosting exports.
The entire production of such a zone is extended for export, it has economic laws
other than the economic laws of the country. Such zones are provided good
infrastructure and industrial flats are available at concessional rates.

Roles Of EPZs
• Encourage and generate economic development,
• Encourage Foreign Direct Investments (FDI),
• To channel the sources of foreign exchange within the system in a phased
manner,
• Foster the establishment and development of industrial enterprises within
the said zones,
• Encourage and generate wider economic activities by encouraging foreign
investments for the development of the zones,
• To attract foreign investment and earn foreign exchange and Promote
technology and create skilled manpower,
• Encourage establishment and development of industries and business
enterprises and facilitate with proper infrastructure Generate employment
opportunity,
• Upgrade labour and management skills and generate employment, to
increase the economic growth of the country

IB Notes – Compiled by Prof. Abdul Karim

 • Acquire advanced technology for increased productivity,
• Ensure world class quality of products.

The Export Oriented Units (EOUs) scheme, introduced in early 1981, is

complementary to the SEZ scheme. It adopts the same production regime but offers
a wide option in locations with reference to factors like source of raw materials,
ports of export, hinterland facilities, availability of technological skills, existence of
an industrial base and the need for a larger area of land for the project.

Initially, EOUs were mainly concentrated in Textiles and Yarn, Food Processing,
Electronics, Chemicals, Plastics, Granites and Minerals/Ores. But now a day, EOU
has extended it area of work which includes functions like manufacturing,
servicing, development of software, trading, repair, remaking, reconditioning, re-
engineering including making of gold/silver/platinum jewellery and articles
thereof, agriculture including agro-processing, aquaculture, animal husbandry,
bio-technology, floriculture, horticulture, pisciculture, viticulture, poultry,
sericulture and granites.

Roles of EOUs
• EOUs has a permit to procure raw material or capital goods duty-free, either
through import or through domestic sources;
• EOUs are eligible for reimbursement of GST;
• EOUs are eligible for reimbursement of duty paid on fuels procured from
domestic oil companies;
• EOUs are eligible for claiming input tax credit on the goods and services and
refund thereof;
• Fast track clearance facilities;
• Exemption from industrial licensing for the manufacture of items reserved
for SSI sector.

EXPORT IMPORT BANK

Export Import bank of India is the premier export finance institution in India,
established in 1982 under Export- Import Bank of India Act 1981.
Since its inception, Exim Bank of India has been both a catalyst and a key player in
the promotion of cross border trade and investment.

IB Notes – Compiled by Prof. Abdul Karim

Exim bank of India, over the period, evolved into an institution that plays an
important role in partnering Indian industries, particularly the Small and Medium
Enterprises
Headquarters: - Mumbai, India

ORIGIN OF EXIM BANK

• Post WTO era resulted in dismantling of protective barriers to trade and
investment
• Increase in trade opportunities in global markets
• Need for the country to enhance their domestic competitiveness
• Absence of any specialised institution to enhance foreign trade in country

OBJECTIVES
For providing financial assistance to exporters and for functioning as the principal
financial institution for coordinating the working of institutions engaged in
financing export and import of goods and services with a view to promote the
country’s international trade.

Functions of EXIM Bank

• Corporate Banking Group: - This group handles variety of financing
programmes for Export Oriented Units (EOU’s), Importers, and overseas
investment by Indian companies.
• Project Finance/ Trade Finance: - This group handles the entire range of
export credit services such as suppliers’ credit, pre-shipment Agri-business
Group etc. The group handles projects and export transactions in the
agricultural sector for financing.
• Export Services Group: - This group offers variety of advisory and value-
added information services aimed at investment promotion.
• Export Marketing Group :- This group offers assistance to Indian companies,
to enable them to establish their products in overseas markets.
• Support Services Group :- The services which are rendered by this group
includes the Areas of research and planning, Corporate Finance, Loan
Recovery, Internal Audit etc.

The roles of EXIM Bank

• Finances import and export of goods and services from India.
• It also finances the import and export of goods and services from countries
other than India.
IB Notes – Compiled by Prof. Abdul Karim
 • It finances the import or export of machines and machinery on lease or hires
purchase basis as well.
• Provides refinancing services to banks and other financial institutes for their
financing of foreign trade.
• EXIM bank will also provide financial assistance to businesses joining a joint
venture in a foreign country.
• The bank also provides technical and other assistance to importers and
exporters. Depending on the country of origin there are a lot of processes and
procedures involved in the import-export of goods. The EXIM bank will
provide guidance and assistance in administrative matters as well.
• Undertakes functions of a merchant bank for the importer or exporter in
transactions of foreign trade.
• Will also underwrite shares/debentures/stocks/bonds of companies
engaged in foreign trade.
• Will offer short-term loans or lines of credit to foreign banks and
governments.
• EXIM bank can also provide business advisory services and expert
knowledge to Indian exporters in respect of multi-funded projects in foreign
countries.

FEMA

FEMA (Foreign Exchange Management Act) was introduced in the year 1999 to
replace an earlier act FERA (Foreign Exchange Regulation Act). FEMA was
formulated to fill all the loopholes and drawback of FERA (Foreign Exchange
Regulation Act) and hence several economic reforms (major reforms) were
introduced under the FEMA act. FEMA was basically introduced to de-regularize
and have a liberal economy in India.
The Foreign Exchange Management Act, 1999 (FEMA), is an Act of the Parliament
of India "to consolidate and amend 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 gives powers to the Central Government to regulate the flow of payments to and
from a person situated outside the country.

All financial transactions concerning foreign securities or exchange cannot be

carried out without the approval of FEMA. All transactions must be carried out
through “Authorised Persons.”

IB Notes – Compiled by Prof. Abdul Karim

As per this act, Indians residing in India, have the permission to conduct a foreign
exchange, foreign security transactions or the right to hold or own immovable
property in a foreign country in case security, property, or currency was acquired,
or owned when the individual was based outside of the country, or when they
inherit the property from individual staying outside the country.

Roles of FEMA

The main objective for which FEMA was introduced in India was to facilitate
external trade and payments. In addition to this, FEMA was also formulated to
assist orderly development and maintenance of the Indian forex market.
FEMA outlines the formalities and procedures for the dealings of all foreign
exchange transactions in India. These foreign exchange transactions have been
classified into two categories — Capital Account Transactions and Current Account
Transactions.

Under the FEMA Act, the balance of payment is the record of dealings between the
citizen of different countries in goods, services and assets. It is mainly divided into
two categories, i.e., Capital Account and Current Account.
Capital Account comprises all capital transactions whereas Current Account
comprises trade of merchandise. Current Account transactions are those
transactions that involve inflow and outflow of money to and from the
country/countries during a year, due to the trading of commodity, service, and
income.

Objectives of FEMA
• To reinforce and amend the law relating to foreign exchange.
• To simplify and ease the external trade and payments.
• To promote the systematized development and maintenance of a healthy
foreign exchange market in India.
• To remove disparity of payments.
• To control and direct the employment business and investment of the non-
residents.
• To utilise the foreign exchange resources effectively for the country.

IB Notes – Compiled by Prof. Abdul Karim