MODULE 08: EXIM

❖ CATEGORIES OF EXPORTS

1. Physical Export

• Physical exports refer to the most straightforward type of export where tangible goods
physically leave the country's borders to be sold or used in another country.
• These goods can range from commodities like raw materials to finished products like
electronics or machinery.
• The process involves the shipment of physical goods across international borders and the
completion of necessary customs and documentation procedures.

2. Deemed Export

• Deemed exports, on the other hand, involve the supply of goods within the country for
projects or production processes that are classified as exports.
• Even though these goods don’t physically leave the country, they are deemed as exports
because they contribute to the production of goods intended for export.
• These could include supplies of raw materials, components, or machinery used in the
manufacture of products for export.

• For example, when a Kerala based manufacturer supplies goods to an Export oriented
Unit in Maharashtra, who further ships the product to its customer in the UAE - the first
part of the transaction is classified as deemed export while the second transaction is
considered an export.

3. Merchant Exports

• Merchant exports are goods that an exporter doesn’t manufacture but instead purchases
from a local supplier for exporting into international markets.
• They take ownership of the goods and handle the logistics, documentation, and financial
transactions related to the export.
• Advantages include:
➢ Lower Initial Investment: Doesn't require substantial investment in developing
technology or manufacturing expertise, reducing initial expenses for exporters.
➢ Cost-Effective Approach: Considered the easiest and least costly method of entering
the export market, minimizing financial risks for businesses.
 ➢ Expanded Sales Prospects: Offers increased sales opportunities by tapping into
international markets without extensive infrastructure or resource investments.
➢ Ideal for New Exporters: Particularly advantageous for new exporters due to its lower
risk profile, providing a smoother entry into global trade without significant financial
commitments upfront.

4. Manufacturer Exports

• Manufacturer exports, as the name suggests, involve the direct export of goods by the
manufacturer.
• The manufacturer is responsible for producing the goods and selling them directly to
customers or distributors in other countries. T
• his could involve various industries, from automotive to pharmaceuticals, where the
manufacturing company directly engages in international trade without involving
intermediaries.
• The main advantage is, Manufacturer exporter can easily prepare the sample as per
requirement of the importer and also can make changes or any modification in the product
comfortably.

❖ PRELIMINARIES OF EXPORTS

• Starting an export business is not an easy task; it needs a proper guidelines and
understanding of the foreign market. The base of every successful business is proper
planning and proper knowledge of all the aspects of business.

1. Step 1 - Selection of business: The first and the foremost important thing for a prospective
exporter have to decide about the kind of business for export. The proper selection of business
will depend upon:

➢ Ability to raise finance

➢ Capacity to bear the risk
➢ Desire to exercise control over the business
➢ Nature of regulatory framework applicable to you

2. Step 2: Selection of Mode of Operation: Options include being a Merchant Exporter, a

Manufacturer, or a Sales/ Commission/ Indenting Agent.

3. Step 3: Selection of Business Name: Choose an attractive, concise name reflecting the
nature of the business.

4. Step 3: Selection of Business Name: Choose an attractive, concise name reflecting the
nature of the business.

5. Step 5 - Select effective way of business correspondence: Include necessary information

about the buyer’s expectation from your product. Create a beautiful letter head giving fully
particulars of your firm’s name, telephone, telex and fax number etc. Your language should
be polite, soft, brief and to the point.
 6. Step 6: Market Selection Factors: Consider various aspects like political embargoes,
demand stability, distance of potential market, market penetration by competitor countries,
barriers, distribution infrastructure, and market size.

7. Step 7: Selection of prospective Buyers: One can collect addresses of the prospective buyers
of the commodity from the following sources:
➢ Enquiries from friends and relatives or other acquaintances residing in foreign countries.
➢ Visiting/ participating in International Trade Fairs and Exhibitions in India and abroad.
➢ Contact with the Export Promotion Councils, Commodity Boards and other Government
Agencies.
➢ Collecting addresses from various Private Indian Publications
➢ Making contacts with Trade Representatives of Overseas Govt. in India and Indian Trade
and Other Representatives/ International Trade Development Authorities abroad.
➢ Reading biweekly, fortnightly, monthly bulletins such as Indian Trade Journal, Export
Service Bulletin, Bulletins and Magazines issued and published by Federation of
Exporters’ Organizations, ITPO, EPCs, Commodity Boards and other allied agencies. A
list of Indian Trade Periodicals containing names and addresses of importers is given in
Appendix 6 of this book.
➢ Visiting Embassies, Consulates etc. of other countries and taking note of addresses of
importers for products proposed to be exported.
➢ Advertising in newspapers having overseas editions and other foreign newspapers and
magazines etc.
➢ Contacting authorized dealers in foreign exchange with whom exporter is maintaining
bank account.

8. Step 8 - Selection of Channel of Distribution: Some of the channels of distribution in

exporting business are as follows:
➢ Exports through Export Consortia
➢ Export through Canalizing Agencies
➢ Export through Other Established Merchant Exporters or Export Houses, or Trading
Houses
➢ Direct Exports
➢ Export through Overseas Sales Agencies

9. Step 9: Understanding International Trade Risks: Be mindful of risks like credit, currency
fluctuations, transportation, and country-specific risks while engaging in international trade.

❖ EXPORT PROCEDURE: HOW TO EXPORT?

1. Step 1 – Get an IEC code

• IMPORTER EXPORTER CODE ( in short IEC ) is a ten digit number granted by

Directorate General of Foreign Trade under Ministry of Commerce and Industry, to any
bonafide person/ company for carrying out import/export.
• IEC can be obtained from any of the Zonal and Regional offices of Director General of
Foreign Trade depending on area/region where the individual/company is located.
2. Step 2 - Get RCMC certificate from export promotion council

• As per the Foreign Trade Policy, a Status Holder exporter is required to get a
Registration-cum-Membership Certificate (RCMC) from FIEO (Federation of Indian
Export Organizations) for availing various benefits under the Policy. RCMC is also
required for getting certain benefits from the Customs and Central Excise authorities. For
registration purposes, FIEO has been recognized by the Government as an Export
Promotion Council.
• An individual applying for the following purposes can apply for this certificate.
➢ An authorization to import/ export on restricted items
➢ To seek benefits or concession under Foreign Trade Policy (FTP) like duty drawback,
duty credit scrips, etc.

3. Step 3: Receipt of an indent or export order

• Exporter may receive inquiries, directly. An inquiry is a request from the prospective
buyer to keep him informed of the terms and conditions of sale. Any export inquiry has to
be attended with promptness and meticulous care. It is to be remembered that importers
are in an advantageous position many exporters compete to clinch the deal.
• If the inquiry is from a new person it is usual to inquire about the credentials of the
potential importer. Importer may furnish his bank reference or trade reference.
• Trade reference means the importer may furnish the names of persons with whom he had
business dealings, earlier, to facilitate the exporter to gather required details.
• As export business is becoming highly competitive, many a time, exporters have to take
the initiative, without waiting for inquiries, in identifying potential buyers by gathering
information from trade journals which publish trade inquiries.
• Whatever be the mode of gathering information, exporter has to react with speed and
elegance by submitting the offer, through proforma invoice, with detailed literature in
respect of product such as specifications, quality, packing, price, mode of transport and
period required for supply of goods, after receipt of confirmed order.

4. Step 4 - Verify credit worthiness and details of buyer

• On receiving an export order, it should be examined carefully in respect of items,

specification, payment conditions, packaging, delivery schedule, terms of payment,
licenses, insurance documents etc. and then the order should be confirmed.
• Accordingly, the exporter may enter into a formal contract with the overseas buyer.

5. Step 5 - Check if an export license is required for the goods

• All items are freely exportable except few items appearing in prohibited/ restricted list.
• If its under prohibited list, proper licenses should be obtained for exporting

6. Step 6 - Order acceptance and Performa invoice generation

• It is a preliminary bill of sale that comes in advance of delivery, issued by sellers to

buyers. This type of invoice serves as a binding agreement for the seller to provide the
products or services.
• A proforma invoice outlines the terms of the sale and typically contains product
descriptions, price of products, terms of delivery, and an expiration date of the invoice. It
 is meant to give a cost estimate of the sale, not the final sale, and the terms are subject to
change.

7. Step 7 - Arrange for any pre-shipment finances

• Exporters are eligible to obtain pre-shipment and post-shipment finance from Commercial
Banks at concessional interest rates to complete the export transaction.
• Packing Credit advance in pre-shipment stage is granted to new exporters against
lodgment of L/C or confirmed order for 180 days to meet working capital requirements
for purchase of raw material/finished goods, labour expenses, packing, transporting, etc.
• Normally Banks give 75% to 90% advances of the value of the order keeping the balance
as margin. Banks adjust the packing credit advance from the proceeds of export bills
negotiated, purchased or discounted.
• Post Shipment finance is given to exporters normally upto 90% of the Invoice value for
normal transit period and in cases of usance export bills upto notional due date. The
maximum period for post-shipment advances is 180 days from the date of shipment. In
case export bill becomes overdue Banks will charge commercial lending rate of interest.

8. Step 8 - Arrange for goods

• After confirmation of the export order, immediate steps may be taken for
procurement/manufacture of the goods meant for export.
• It should be remembered that the order has been obtained with much efforts and
competition so the procurement should also be strictly as per buyer’s requirement.

9. Step 9 – Export Documentation

Export
Documents

Regulatory Commercial
Documents (6) Documents

Principal (8) Auxilary (7)

• Regulatory Documents include:

i. Shipping Bill/Bill of Export (for Customs)
ii. Port Trust Copy of Shipping Bill/ Export Application/Dock Challan-Port
iii. Vehicle ticket -Port
iv. Exchange Control Declaration/GR/PP forms-RBI
v. Freight Payment Certificate-Steamer Agents
vi. Insurance Premium Payment Certificate- Insurance Co.
 • Commercial Documents:

Principal Documents

•The Commercial Invoice

•Packing List
•Bill of Lading/Air Waybill
•Certificate of Inspection/Quality control
•Certificate of origin
•Bill of Exchange
•Shipment Advice
•Insurance Certificate

Auxilary Documents

•Proforma Invoice
•Intimation for inspection
•Shipping instructions
•Insurance Declaration
•Application for certificate of origin.
•Mate's Receipt
•Letter to bank of collection/negotiation of documents

Elaboration on Some Commercial Documents

1. Commercial Invoice:

➢ It is the basic and most important document in an export transaction and extreme care
has to be taken by the exporter to prepare this document.
➢ This document requires the exporter to submit details such as: his own details, Invoice
number with date, details of the consignee and buyer (if the buyer is other than
consignee), buyer’s order number with date, country of origin of the goods, country of
final destination, terms of payment and delivery, pre-carriage details
(Road/Rail), number and kind of packaging, detailed description of
goods, quantity, rate and total amount chargeable, etc.

2. Packing List:

➢ This document provides the details of number of packages; quantity packed in each of
them; the weight and measurement of each of the package and the net and gross
weight of the total consignment.
➢ The packing list serves a useful purpose of the exporter while dispatching the
consignment as a cross check of goods sent.
➢ For the port personnel, it comes handy while planning the loading and offloading of
cargo.
 1. Bill of Lading:

➢ This is issued when the goods are shipped using ocean (marine) transport.
➢ When the exporter finally hand over the goods to the shipping company for loading
on board the ship for transport to their final destination, the shipping company issues
a set of Bills of Lading to the exporter.

2. Airway Bill:

➢ Airway Bill is a bill of lading when the goods are shipped using air transport.
➢ It is also known as air consignment note or airway bill of lading.

3. Certificate of Inspection:

➢ This is the Certificate issued by the Export Inspection Agency after it has conducted
the pre-shipment inspection of goods for export provided the goods fall under the
notified category of goods requiring compulsory shipment of inspection.

4. Certificate of Origin

➢ This document serves as a proof of the country of origin of goods for the importer in
his country.
➢ Imported countries usually require this to be produced at the time customs clearance
of import cargo.
➢ It also plays an important part in computing the liability and the rate of import duty
in the country of import.
➢ This certificate declares the details of goods to be shipped and the country where
these goods are grown, manufactured or produced.

5. Bills of Exchange:

➢ Bill of Exchange can be understood as a written negotiable instrument, that carries

an unconditional order to pay a specified sum of money to a person or the holder of
the instrument, as directed in the instrument by the maker.
➢ The exporter is the drawer and he draws (prepares and signs) this unconditional
order in writing upon the importer (drawee) asking him to pay a certain sum of
money either to himself or his nominee (endorsee).

10. Step 10 - Shipment of goods

• The exporter has to make the necessary reservation, in case goods are to be sent by sea.
The reason is there is shortage of shipping space and equally their frequency is also
limited.
 • Exporter has to gather information about the sailings for the port of destination, matching
the delivery schedule. Necessary information can be gathered from Daily Shipping
intelligence to which exporters may subscribe.
• Clearing and Forwarding agents are the specialized people in this line of activity who can
be appointed. Exporter sends the cargo to the clearing and forwarding agents who take
care of shipment of goods.

11. Step 11 - Submission of documents to banks

• The exporter or the clearing and forwarding agent on behalf of the exporter should
present the following documents to the custom authorities :
➢ Shipping bill
➢ Invoice
➢ Export license (if required)
➢ Quality control inspection certificate (wherever required)
➢ Original contract
➢ Letter of Credit
➢ Packing List

12. Step 12 - Payment realization

• After shipping the goods the exporters should arrange to obtain payments for exports by
negotiation of the relevant documents through the bank.
• The set of negotiable documents usually consist of the following : letter of credit,
commercial invoice, packing slip, GR-I form, certificate of origin, Marine insurance
policy, bill of lading
• In accordance with the foreign exchange regulations the exporter must lodge a full set of
shipping documents with the bank within prescribed period. His bank would forward the
necessary documents to the buyer’s bank for the collection of the amount from the
importer.

13. Step 13 - Availing of export incentives schemes

• If the exporter is entitled to any export incentives, he should take the necessary steps to
realise it

❖ MARINE INSURANCE POLICY

• Marine insurance covers the risk of loss or damage to goods while they are being
transported via sea, air, or even land. A Marine Insurance Policy is a contract between the
insurer and the insured party (often the exporter or importer) that safeguards the goods
against various risks during transit.
• The fundamental principles of Marine Insurance are drawn from the Marine Insurance
Act, 1963 As in all contracts of insurance on property, the contract of Marine Insurance is
based on the:
➢ Fundamental principles of Indemnity,
➢ Insurable Interest,
➢ Utmost Good Faith,
➢ Proximate Cause
 • Principle of Indemnity: The object of an insurance contract is to place the assured after a
loss in the same relative financial position which the loss has occurred. Insurers cannot
undertake to reinstate or replace cargo in the event of loss or damage, they pay a sum of
money, agreed in advance, that will provide reasonable compensation. Upon total loss of the
entire cargo by an insured peril the sum insured is paid in full, and if part of the cargo is a
total loss, the appropriate proportion of the insured value is paid.
• Insurable Interest: It states that there must be a physical object exposed to marine perils and
that the insured must have some legal relationship to the object, in consequence of which he
benefits by its preservation and is prejudiced by loss or damage happening to it or where he
may incur liability in respect thereof.
• Utmost Good Faith: In Marine Insurance, it is the duty of the proposer to disclose clearly
and accurately all material facts related to the risk. A material fact is a fact, which would
affect the judgement of a prudent Underwriter in considering whether he would enter into a
contract at all or enter into it at one rate of premium or another and subject to what
terms. Apart from the duty of disclosure, the insured must act towards the insurer in good
faith throughout the duration of the contract.
• Proximate Cause: Proximate cause means “the active, efficient cause that sets in motion a
train of events which brings about a result, without the intervention of any force started and
working actively from a new and independent source.” This means that the insurer becomes
liable to pay for the loss if insured peril on risk is the proximate (nearest) cause of loss.

❖ FEATURES OF MARINE POLICY

• Offer & Acceptance: It is a prerequisite to any contract. Similarly, the goods under marine
(transit) insurance will be insured after the offer is accepted by the insurance company.
• Payment of premium: An owner must ensure that the premium is paid well in advance so
that the risk can be covered.
• Contract of Indemnity: Marine insurance is contract of indemnity and the insurance
company is liable only to the extent of actual loss suffered.
• Utmost good faith: The owner of goods to be transported must disclose all the relevant
information to the insurance company while insuring their goods.
• Insurable Interest: The marine insurance will be valid if the person is having insurable
interest at the time of loss
• Contribution: If a person insures his goods with two insurance companies, then in case of
marine loss both the insurance companies will pay the loss to the owner proportionately.
• Period of marine Insurance: The period of insurance in the policy is for the normal time
taken for a transit. Generally, the period of open marine insurance will not exceed one year.
• Deliberate Act: If goods are damaged or loss occurs during transit because of deliberate act
of an owner then that damage or loss will not be covered under the policy.
• Claims: To get the compensation under marine insurance the owner must inform the
insurance company immediately so that the insurance company can take necessary steps to
determine the loss.

❖ TYPES OF MARINE INSURANCE

a. Special Declaration Policy: This is a form of floating policy issued to clients whose annual
estimated dispatches (i.e. turnover) by rail / road / inland waterways exceed Rs 2 crores.

b. Special Storage Risks Insurance: This insurance is granted in conjunction with an open
policy or a special declaration policy. The purpose of this policy is to cover goods lying at the
 Railway premises or carrier’s godowns after termination of transit cover under open or special
declaration policies

c. Annual Policy: This policy, issued for 12 months, covers goods belonging to the insured,
which are not under contract of sale, and which are in transit by rail / road from specified
depots / processing units to other specified depots / processing units.

❖ ROLE OF OVERSEAS AGENT

• An export agent is a firm (or individual) that undertakes most of the exporting activities on
behalf of an exporter usually for a commission
• A sales agent acts on your behalf in the overseas market by introducing you to customers who
you supply and invoice direct.
• They are paid a commission for any sales they make ranging between 2.5 per cent and 15
percent
• The key benefit of using an overseas sales agent is that you get the advantage of their
extensive knowledge of the target market.
• Here are some essential services offered by export agents:

➢ Conduct target market research

➢ Advise exporter on how to adapt their marketing mix
➢ Prepare an export plan
➢ Make contact with potential buyers
➢ Negotiate deals with the buyers
➢ Handle the logistics and documentation
➢ Take care of all promotional activities
➢ Negotiate with bank for various documents and export realization
➢ Help buy an appropriate Cargo Insurance
➢ Provide warehouse services abroad
➢ Locate goods in case of shipment is misplaced
➢ Providing assistance in bringing goods back to the country of dispatch

• Advantages of using an overseas agent include:

➢ Saved cost and time for recruitment, training and payroll

➢ An agent should be well placed to identify and exploit opportunities.
➢ They have solid relationships with potential buyers – it might take you some time to build
up your own contacts.
➢ Using an agent allows you to maintain more control over matters such as final price and
brand image – compared with the other intermediary option of using a distributor.
❖ EXPORT INCENTIVES AND DUTY BENEFITS OFFERED BY THE INDIAN
GOVERNMENT (TAX CONCESSION)

Duty
Exemption
Tax Concession
Duty
Remission
RoSCTL
Scheme
Export SEIS
Incentives
Promotional
MEIS
Schemes

EOU/EFTP/STP
Schemes RoDTEP

• The Financial Benefits under the scheme are as follow:

i. Duty exemption schemes enable duty free import of inputs required for export production.
ii. A Duty remission scheme enables post export replenishment/remission of duty on inputs
used in export products.

❖ DUTY REMISSION SCHEME- DUTY DRAWBACK

• The Duty Drawback scheme rebates the incidence of Customs and Central Excise duties,
chargeable on imported and excisable material respectively when used as inputs for goods to
be exported. This WTO compliant scheme ensures that exports are zero-rated and do not carry
the burden of the specified taxes
• The duty drawback scheme has been notified for a large number of export products by the
Government after an assessment of the average incidence of Customs, Central Excise duties,
Service Tax and Transaction Cost suffered by the export products.
• Duty Drawback Scheme aims to provide the refund/ recoupment of custom and excise duties
paid on inputs or raw materials and service tax paid on the input services used in the
manufacture of export goods.
• The below following are the minimum criteria to claim for processing drawback claim.

➢ Any individual must be the legal owner of the goods at the time the goods are exported.
➢ You must have paid customs duty on imported goods.
➢ Duty drawback is available on most goods on which customs duty was paid on
importation and which has been exported