W' 4/

46') 414

ALAGAPPA UNIVERSITY
(Accredited with 'A' Grade by NAAC)
Karaikudi 630 003

DIRECTORATE OF DISTANCE EDUCATION

MBA ( IB )

Paper - 3.5 _
Export Management and
Documentation

Copyright Reserved for Private Use Only

'71 ALAGAPPA UNIVERSITY
(Accredited with 'A' Grade by NAAC)
KARAIKUDI - 630 003, TAMILNADU

DIRECTORATE OF DISTANCE EDUCATION

M.B.A.(IB)

PAPER - 3.5
Export Management And
Documentation

Copy Right Reserved For Private use only

PAPER . 3,5 EXPORT MANAGEMENT AND DOCUMENTATION

UNIT 1
Export Documentation — Framework — Standardized Pre-shipment
Export Documents — Commercial and Regulatory Documents.
Export credit instruments and Procedures: Letters of credit and types
Documents required for export credit.
UNIT 2
Shipment of Export cargo: By sea, by air and by post — Procedure —
and Documents required for shipment of cargo — Multimodel transport —
Procedure and documentation.
UNIT 3
Export incentives under EXIM Policy - EPCG scheme - Duty drawback -
Central excise and sales tax exemption — exemption of export profit from
Income Tax- Procedure for availing export incentives - Documents required fir
export incentives - Direction of India's exports: Thrust Products and
destinations.
UNIT 4
Cargo insurance - Marine Insurance - Institute cargo clauses - specific
Policy open policy - procedure for cargo insurance - Procedure for marine
insurance claims - Necessary documents for filing claim.
UNIT 5
Export credit insurance - services of Export Credit and Guarantee
Corporation in export credit insurance — Specific Policy and Small Exporters
Policy — Guarantees - Procedure for availing credit insurance and necessary
documents.
UNIT 6
Role and functions of Export Promotion Councils, Commodity Boards
Directorate of commercial Intelligence and Statistics, Indian Trade Promotion
Organization and Indian Institute of Foreign Trade - Role of Export Processing
Zones, Special Economic zones and 100% Export Oriented units.
REFERENCES:
1. IIFT Background Papers on "Export Procedures & Documentation".
2. Exporters Encyclopaedia Dun & Bradstrect-N.Y.
3. Indian Carriage of Goods by Air Act
4. Foreign Exchange Manual, RBI
5. Quality Control and Pre-shipmen. ipection for exports, S. Ramakrishna
et-al.
6. Exim Bank Publications.

Course Material Prepared by -

Dr. T.R. Gurumoothy
Reader in International Business and Commerce
Alagappa University, Karaikudi.

2
 UNIT — I
EXPORT DOCUMENTATION AND SHIPMENT OF
EXPORT CARGO

The important objective of this lesson is to help students understand

i) Commercial and regulatory documtits for export,
ii) Letter of credit and its types, and
iii) Export credit instruments and pr.( -lures

LESSON STRUCTURE
1.1 Introduction
1.2 Commercial Documents
1.3 Regulatory Documents
1.4 Classification of Documents
1.5 Documents related to goods
1.6 Documents related to transport
1.7 Documents related to payment
1.8 Documents related to inspection
1.9 Documents related to exchange control
1.10 Documents related to excisable goods
1.11 Aligned documentation system
1.12 Shipping terms
1.13 Letter of credit
1.14 Types of letter of credit
1.15 Export finance
1.16 Methods, procedures and sources of export finance
1.17 Self — assessment questions
1.18 References

3
1.1 INTRODUCTION
This lesson explains documents used in export. Documents are
authenticated records certifying that the goods are exported. In general,
export documents are classified as Commercial Documents and Regulatory
Documents. Commercial Documents are those, by customs of trade, are required
for effecting physical transfer of goods and their 'title' from the exporter to the
importer and the realisation of export sale proceeds. Regulatory Documents are
those which have been prescribed by different Government department/bodies in
compliance of the requirements of various rules and regulations under relevant
laws governing export trade such as, export inspection, foreign exchange
regulations, export trade control, customs etc.
1.2 COMMERCIAL DOCUMENTS are listed below:
1. Proforma Invoice
2. Commercial Invoice
3. Packing List
4. Shipping Instructions
5. Intimation for Inspection
6. Certificate of Inspection/Quality Control
7. Insurance Declaration
8. Certificate of Insurance
9. Shipping Order
10.Mate Receipt
11.Bill of Lading/Combined Transport Document
12.Application for Certificate of Origin
13.Certificate of Origin
14.Bill of Exchange
15.Shipment Advice
16.Letter to the Band for Collection/Negotiation of Documents
1.3 REGULATORY DOCUMENTS
The regulatory documents are listed below:
1. Gate Pass - I/Gate Pass - II Prescribed by Central Excise
Authorities
2. AR4/AR4A Form

3. Shipping Bill/Bill of Export Prescribed by Customs

Authorities
for export of Goods Ex-Bond
for export of Duty Free Goods
for export of Dutiable goods
for export of Goods under claim for
Duty Drawback

Export Application/Dock Challan/ Port Prescribed by Port Trust

Trust Copy of Shipping Bill

5. Receipt for payment of Port Charges

6. Vehicle Ticket

7. Exchange Control Declaration/ GR/PP Prescribed by RBI

Forms

Freight Payment Certificate

Insurance Premium Payment Certificate

Out of 16 commercial documents, exporters have to send as many as

eight documents to the importers. The eight documents are known as 'Principal
Export Documents'. Commercial Invoice, Packing List, Bill of
Lading/Combined Transport Document, Certificate of Inspection/Quality
Control, Insurance Policy, Certificate of Origin, Bill of Exchange and Shipment
Advice are called 'Principal Export Documents'. The remaining eight documents
are known as 'Auxiliary Documents'.
1.4 CLASSIFICATION OF DOCUMENTS
The export related documents can be classified into the following four
heads for easy understanding.

5
 I. Documents related to Goods,
II. Documents related to Transport,
III. Documents related to Payments,
IV. Documents related to Inspection,
V. Documents related to Exchange Control. and
VI. Documents relating to Excisable Goods
I. Documents related to Goods
1. Proforma Invoice
2. Commercial Invoice
3. Packing List
4. Certificate of Origin
5. Consular Invoice
6. GSP Certificate

II. Documents related to Transport

1. Shipping Order
2. Mate's Receipt
3. Bill of Lading
4. Airway Bill
5. Shipping Bill
6. Mrine Insurance Policy
7. Post Parcel Receipt
8. Port Trust Document

III. Documents related to Payment

1. Letter of Credit
2. Bill of Exchange
3. Bank Certificate of Payment

IV. Documents related to Inspection

1. Certificate of Inspection

6
V. Documents related to Exchange Control
1. Guaranteed Remittance (GR) Form
2. Post Parcel (PP) Form
3. Value Payable/Cast on-Delivery (VP/COD) Form

VI. Documents relating to Excisable Goods

1. AR4 Form
2. Form C
1.5 DOCUMENTS RELATED TO GOODS
Export documents relating to Goods are explained below:

1. Proforma Invoice
It is a provisional invoice. The primary purpose of the proforma invoice is
to state the terms and conditions and other subject matter relating to export to
export to the importer. The information contained in the proforma invoice are as
the same of commercial invoice and document format is also the same. The
proforma invoice sent by the exporter is used by the importer (i) to get import
license, (ii) to open letter of credit and (iii) to arrange for loan in foreign
exchange.
2. Commercial Invoice
The Commercial Invoice described the entire details of goods involved in
export transaction. It is an important export document. It serves as a bill for
goods exported. Import duty in the importer's country is calculated on the basis
of Commercial Invoice. It is the evidence of contract of sale. The Commercial
Invoice should be given in a prescribed format. It should correspond with the
specifications relating to goods given in the letter of credit.
Contents of Commercial Invoice
Commercial Invoice contains the following information related to goods:
i) Name and address of the Exporter and Importer,
ii) Invoice Number,
iii) Reference Number of exporter and exporter,
iv) Terms of delivery of goods and payment for export,

7
 v) Name of the ship/aircraft,
vi) Port of loading and port of discharge,
vii) Detailed description of goods,
viii) Details of packing, number of packages, types and specified
markings on the packages,
ix) Quantity of goods, unit price of goods and total price,
x) Details of freight and insurance.
3. Packing List
Exporter packs the export cargo according to the instructions of the
importer. Packing note reveals the contents of a single pack. One packing note is
prepared for one pack. In there are so many packs, consolidated statement of
packing notes is to be prepared. Packing list shows the contents of the whole
consignment of export. Exporter should submit packing list to the customs
authorities and insurance company in order to fulfil the documentary obligation
for export.
4. Certificate of Origin
Certificate of Origin is generally issued by the Chamber of Commerce.
Export Promotion Councils and other export related institutions which are
authorised by the Government of India are also issuing Certificate of Origin.
Contents of Certificate of Origin
i) Description of goods-quantity and value,
ii) Number of packages and markings packages-wise,
iii) Declaration by the exporter,
iv) Certificate by the Issuing Authority
In foreign trade, certain specified countries provide concession in import
duty to goods being exported from a particular country. This concession is given
under Generalised System of Preferences. A proof is required to the countries
providing concession that the goods are manufactured in that particular country.
Certificate of Origin serves as a proof in this regard.
5. Consular Invoice
In foreign trade, some importing countries may insist and require consular
invoiced in addition to commercial invoices. The format of the consular invoice

8
is to be received from the office of the respective consulate of the importing
country functioning in the exporter's country. After getting the format, exporters
should complete the form by providing necessary information about the
exportable goods. The consular invoice should be signed and authenticated by
the Consulate of the importing country functioning in the exporter's country.
Exporter has to pay a nominal fee to the local consulate for issuing and
certifying the Consular Invoice.
6. GSP Certificate
GSP Certificate is used by the developing country to get duty concession
from the developed countries. Concession refers that the developed countries
will reduce import duty when they import goods from the specified developing
countries. Developing countries are encouraged to export to developed countries
and developed countries levy concessional import duty under Generalised
System of Preferences (GSP) Scheme of the United Nation Conference of Trade
and Development (UNCTAD). India is also one of the countries getting
concessions under Generalised System of Preferences.
GSP Certificate is required to avail this type of concession. Export
Promotion Councils and Directorate General of Foreign Trade are authorised by
the Government to issue GSP Certificate to the .exporters. Central Silk Board,
Coir Board, All India Handicrafts Board, Textiles Committed and Jute
Commissioner are also authorised to issue GSP Certificate to the exporters
coming under their direction and control.
1.6 DOCUMENTS RELATED TO TRANSPORT
Documents related to transport of export goods are explained below:
1. Shipping Order
Exporter should apply to a Shipping Company in order to reserve the
required space for shipment of export cargo. After getting and scrutinising the
application, shipping company will send shipping ordet to the exporter
confirming the space arranged in the ship for shipment. Shipping Order shows
ship details, route, approximate dates on which the ship will reach various ports,
freight details and other relevant terms and conditions of shipping service.
2. Mate's Receipt
Capital of the ship will issue Mate's Receipt after the goods are loaded on
the board of the ship. It is a prime facie evidence shows \ that the goods are
9
loaded on the board of the ship. Master of Captain of the ship will inspect the
goods and packaging, when the goods are in the process of loading over the
board of the ship. Any discrepancy of defective is noticed in the goods or
packaging, a note about the specified discrepancy or defective is made on the
Mate's Receipt. A

3. Bill of Lading
Bill of Lading is issued by the shipping company after the goods are
loaded on the board of the ship. It is prepared based on the Mate's Receipt issued
by the Master or Captain of the ship. Bill of Lading is an acknowledgement of
goods loaded on the board of the ship. It is an undertaking of the shipping
company to deliver the goods in the condition in which it is received and to
execute the terms and conditions of carriage agreed between exporter and
shipping company. Bill of Lading is a document of title to goods. Delivery of
goods can be made by the person in whose favour.the bill of lading is endorsed.
As per the requirement of the exporter, Bill of Lading is issued in original in
many number as required and copied of Bill of Lading are also made available to
exporter. Exporter can use any one of the original copies of bill of lading for
negotiation with the bank. Bill of Lading can be made transferable by endorsing
in favour of a specified person or to his order. Bill of Lading may be endorsed in
blank.
Contents of Bill of Lading
i) Name and other details of the ship and shipping company
ii) Name of the port of loading
iii) Name and address of the exporter
iv) Name and address of the importer (In certain cases this column may be
either blank or in favour of a specified person or his order)
v) Name and address of the person to be notified when the goods reach the
port of destination
vi) Details of name of the port of discharge and delivery
vii) Details of freight paid or payable (to pay to be collected)
viii) Description of goods
ix) Number of packages, kind of packages and marks and numbers on
packages
x) Remarks about condition of goods, if any

10
Types of Bill Lading
i) Claused bill of lading
ii) Clear bill of lading
iii) Through bill of lading
iv) Direct bill of lading
v) Transhipment bill of lading
vi) Freight paid bill of lading
vii) Freight collect bill of lading
viii) Shipped bill of lading
ix) Received for shipment bill of lading
x) Stale bill of lading
If the captain or master of the ship finds, while inspecting the goods, that
the goods are is damaged condition or packages are damaged, the captain will
make a note in bill of lading about the damage of goods or packages. This bill of
lading is known as claused bill of lading or dirty bill of lading.
While inspecting the goods, if the goods and packages are found in good
condition a clear bill of lading will be issued by the captain of the ship.
Sometimes contract of carriage of goods between exporter and carrier
may cover transport by land on other sea carriers in addition to the main
carriage of goods by sea. In order cover the all stages of journey, a 'through bill
of lading' is issued.
Direct bill of lading in issued when the same vessel (ship) carried the
goods from the port of shipment to port of destination.
Transhipment bill of lading is issued (ship X) when the goods are
transhipped from one ship (ship X) to another ship (ship Y) for a part of the
journey. The ship Y (next ship) will carry the cargo for the remaining journey,
and deliver the goods in the port of discharge.
Freight collect bill of lading is issued when the imported in supposed to
pay freight.
Shipped bill of lading means that the shipping company has received
goods on board of the ship.

11
 Received for shipment bill of lading means that the goods are under the
custody of the shipping company. It means that the goods are received for
shipment.
Generally, bill of lading should reach the importer before the goods reach
the port of discharge (importer's port). They only importer can take necessary
steps to take delivery of goods. If the bill of lading is delayed to reach the
importer, he cannot take the delivery of goods in time. He has to incur extra cost
of demurrage. This type of bill of lading is known as stale bill of lading.
4. Airway Bill
It is issued by the airline company. When the goods are transported by air,
the airline company will issue airway bill to the exporters. Airway bill is an
evidence of contract of carriage. It is not a document of title to goods, whereas
bill of lading in a document of title to goods. Under airway bill the goods are
delivered to the party mentioned by the exporter.
5. Shipping Bill
Shipping bill is an important document used in export transactions. It is
an important document required by the customs authorities for verification of
export transaction. It is used for claiming duty drawback and other export
incentives. Shipping bill is classified into three types. They are, (i) DraWback
shipping bill, (ii) Dutiable shipping bill and (iii) Duty free shipping bill. This
classification is based on the type of goods exported i.e., drawback goods.
dutiable goods and duty free goods.
Drawback shipping bill is used for drawback goods. Exporters can claim
duty drawback or such goods. Dutiable shipping bill is used for dutiable goods
and exporter should pay duty. Dutifree shipping bill is used for dutifree goods.
Exporter need nor pay duty for such goods. Drawback shipping bill is Green
colour for sea transport and air transport. Dutiable shipping bill is in Yellow
colour for sea transport and Pink colour for aim transport. Dutifree shipping bill
is White colour for sea transport and Pink colour for aim transport. In the
Ele -tonic Data Interchange System colour of the shipping bill is not given
importance and the purpose is given due importance.
Contents of Shipping Bill are given below
(i) Name, address and lEA number of exporter and name and address of the
consignee
12
 (ii) Name of the ship
(iii) Name of the shipping agent
7: (iv) Description, Quantity and Value of goods
01/0 packages,
umbers on
tyPe OfCIP (1)14 of Maraigs and n
(vi) Number of
packages, details
container munbers
Port of loading and port of discharge
(vii)
(viii)Country of destination
(ix) Nature of export continent
A Number
rickens±n2e .1:: .

Shipping bi I l is pre treed fi „ s

((ii)v)CuEsxtomrt
and statistical copy, (ii) Port trust copy, (iii) Drawb:ct
promotion copy and (v) Exporter's copy.
6. Marine Insurance Policy
Marine insurance is a contract between policyholder (exporter) and
insurance company. The insurance company wili issue marine insurance policy
to the exporter. Marine insurance policy in a basic document related to transport
of exportable goods. Is indemnified the risks to the goods when the goods are
transported by sea. Marine insurance policy is taken to cover the risks related to
goods from the exporter's warehouse to importer's warehouse. If the export
contract is on CIF (Cost, Insurance and Freight) term, exPorter has to take
necessary steps to take marine insurance policy and pay premium for the policy.
Marine insurance policy is freely transferable by endorsement and delivery.
Contents of Marine Insurance Policy
(i) Name and address of the insurance company
(ii) Name and address of the insured (name of :xporter in whose
favour the insurance is effected)
(iii) Marine insurance policy certificate number and date of issue.
(iv) Name of the vessel (ship)
(v) Port of loading and port of discharge

13
 (vi) Description of goods, number and kind of packages and marks and
number on packages
(vii) Insured value, period of insurance and terms of insurance
(viii) Clauses of insurance (risk or risks insured against)
7. Post Parcel Receipt
Post Parcel Receipt is issued by the Postal Authorities when the goods are
exported through post. It is an evidence of receipt of goods for export and it is
not a document of Late to goods. The goods are delivered to the consigned
mentioned by the exporter. The terms of payment such as documents against
payment and document agarri.t acceptance can be used while exporting goods
through post also. It export through post, goods are consigned in the name of the
concerned banks. Prior permission should be obtained from the concerned bank
in this regard.
8. Port Trust Document
Ports design their documents (forms) for exporter's use to pay
port charges. The documents are used by the rt authorities to record the details
of transactions relating to shipment of goofs in their ports. The port trust
documents are designed by the ports based op the information required to they
about export transaction. Information regarding :cargo handled and port charges
received are also recovered in the port trust di)cuments. These documents are
used by the ports for their internal managegtent. Export Application, Dock
Challan and Port Trust Copy of Shipping Bill are different names of the port
trust documents used in different ports in our country.
1.7 DOCUMENTS RELATED TO PAYMENT
Documents related to export payment are explained below:
1. Letter of Credit
Letter of Credit is one of the most important documents used in the export
trade. It is defined as, "a promise by the overseas importer through his banker
where letter of credit is opened by him, to the exporter through his banker
(known as negotiating banker) to pay the proceeds on the receipt of documents
certifying the shipment of goods". It is defined by the Jacob Cheriam in his
book, Export Marketing as "a written undertaking issued by the buyer's bank
agreeing to pay a certain sum of money within a stipulated period against a

14
 specified set of documents". Letter of Credit is classified into various types.
They are, Irrevocable and Revocable Letter of Credit, With on Without Resource
Letter of Credit, Confirmed and Unconfirmed Letter of Credit.
2. Bill of Exchange
It is a negotiable instrument and can be transferred to another person. It
may be either sight bill on time (usance) bill. Sight bill is paid immediately on
the presentation of documents to the importer. Time bill on usancc bill is paid on
a fixed date mentioned in the bill (usually after 30. 60 or 90 days) after
presentation of documents to the importer.
When a draft is drawn on a foreign bank, it is named as foreign draft or
bill of exchange. It is a method of collecting export payment from the importer
through bank. Bill of Exchange is defined as. "an unconditional order in writing,
addresses by one person to another, signed by the person giving it, requiring the
person to when it is addressed to pay or demand or on a fixed on determinable
future time a sum certain in money to or to the order of a specified person. or to
bearer".
3. Bank Certificate of Payment
This a certificate issued by the negotiating bank (exporter's bank) stating
that the export payment is received from the importer as per the exchange
control regulations of the Government of India.

1.8 DOCUMENT RELATING TO INSPECTION

Document relating to Inspection of export goods are explained below:
1. Certificate of Inspection
Exporters should obtain Inspection Certificate from the Export Promotion
Agency as per the Export (Quality Control and Inspection) Act, 1962 and it is
obligatory also to the exporters. Exporter should apply to the Export Inspection
Agency in the prescribed format for export cargo inspection. After inspection,
Export Inspection Agency will issue Certificate of Inspection. Exporter should
submit this document to the customs authorities to obtain their approval for
shipment of export cargo. Exporter should attract the following documents with
his application for inspection to the Export Inspection Agency:

15
 i) Copy of the commercial invoice
ii) Draft/cheque for. the fie payable for inspection
iii) Copy of the export contract and
iv) Declaration of the importer's technical specifications of quality and/or
a sample approved by the importer is support of the declaration of
specifications.

1.9 DOCUMENTS RELATED TO EXCHANGE CONTROL

Documents related to Exchange Control for export goods are explained
below:
Exporters should observe Exchange Control Regulations in getting
export payment from foreign countries. Exporters should take steps to get export
payment within 180 days from the date of shipment. Otherwise, notice will be
served to the exporters and necessary Action will be taken against the exporter.
Exporter should give valid reasons and justification for the delay in getting
export payment. In the recent EXIM Policy (2002) exporters are permitted 360
days from the date of shipment to get export payment from foreign countries.
Exporters should take steps to get export payment within 360 days from the date
of shipment.
1. Guaranteed Remittance Form (GR)
Exporters are directed by the Reserve Bank of India to declare in time the
amount of foreign exchange they receive in every export consignment. The
declaration of exporter should be made in a prescribed form. This form is known
as GR-1 form. This form is prepared in triplicate. Exporter submits the original
GR-1 form to the customs authorities as the time of shipment. Duplicate and
triplicate copies of GR-1 form are submitted by exporter to the bank (authorised
dealer in foreign exchange) helping is collection of export payment and export
payment is routed through this bank. After the export payment is received from
the importer, the bank will send duplicate copy of GR-1 form to the Reserve
Bank of India certifying for the export money received.
Contents of GR-1 Form
i) Name, address and code number of exporter
ii) Name and address of the consignee

16
 iii) Name of the negotiating bank (bank through which payment is to be
received)
iv) Name of the ship/airline
v) Date of shipment, Port of shipment and Country of destination
vi) Nature of export contract (FOB, CIF, C&F)
vii) Description of goods, quantity of goods, export value, customs
assessable value.
2. Post Parcel (PP) Form
If the export is made through post parcel, exporter should declare the
details of export in Post Parcel (PP) Form. Exporter should submit this form to
the bank (authorised foreign exchange dealer) for counter signature. The bank
will counter sign and return the original copy of the PP form to exporter. The
counter signed PP form is submitted to the post office with the parcel (export
goods) for export. Bank retains the duplicate copy of the PP form. Exporter will
submit relevant export documents within 21 days from the date post parcel to the
bank for negotiation and collection. The duplicate PP form will be referred by
the bank for documents negotiation and collection of behalf of the exporter.
3. Value Payable/Cash-on-Deliver (VP/COD) Form
Exporter should declare export details in VP/COD Form in the
export is madd through post parcel and payment arrangement is made through
postal channels 'value payable' of.] 'cash-on-delivery' basis. VP/COD form is to
be submitted to the post parcel (export goods) for export.

1.10 DOCUMENTS RELATiNG TO EXCISABLE GOODS

Documents relating to Excisable Goods are explained below:
1. AR4 Form
AR4 Form is used to claim rebate on excise duty. Exporter should submit
this AR4 Form to the Central Excise Officials before removal of excisable goods
from the factory for export. Exporter should submit this AR4 Form to customs
authorities as the time of shipment. After shipment, the customs authorities will
certify, by endorsement in AR4 Form, that the goods have been shipped.

17
Exporter can claim rebate or excise duty on the basis of endorsement made by
the customs authorities.
2. Form C
Form C is used to apply for rebate on excise duty for export goods other
than vegetables, non-essential oils and tea exported by sea. This form is also
subtviitted to Central Excise Officials for necessary action and getting rebate on
excise duty. The documentary procedure of AR4 form is applied for Form C for
claiming rebate on excise duty.

1.11 ALIGNED DOCUMENTATION SYSTEM

Mahajan, in his book Export Documentation has definea Aligned
Documentation System as, "a method of creating information on a set of
standardised forms printed on paper of the same size and in such a way that
items of identical information occupy the same position of each form". Aligned
Documentation System is based on the UN Layout key. It helps to provide an
effective alternative to the repetitive and unproductive method of preparation of
export documents. Aligned Documentation System organised export documents
in such a way to facilitate the present day requirements of trade and transport.
This system simplifies and standardised the export documents. The objectives of
Aligned Documentation System are (i) to simrdify, rationalise and prioritise
information required by various commercial interests and government agencies
and align it in a standardised format and (ii) to achieve economy of time and
effort involved in the present method of export documentation.
In the export trade, the organisations such as, Federation of Indian Export
Organisation, Federation of Indian Chamber of Commerce and Industry,
Associated Chamber of Commerce, Federation of Freight Forwarders
Associations of India, Shippers' Association, Export Inspection Agencies, Port
Trusts, Shipping Corporation of India, General Insurance Corporation, Export
Credit and Guarantee Corporation, Collectors of Customs, Reserve Bank of
India and export companies are involved. 16 to 25 export documents are
prepared to fulfil the requirements of the above organisations in export trade.
Most of the information available in these documents are the same and
repetitive. Further the export documents are in different size, shape and layout.
So it becomes necessary to simplify and standardised all export documents and

18
number of export documents should be reduced as much as possible. The
Aligned Documentation System insists to prepare export documents on a
uniform and standardised A4 size paper. It is planned to prepare only two master
documents. (one for commercial documentation purpose and another for
regulatory documentation purpose) to fulfil all the documentary requirements of
export and instead of preparing 16 to 25 export documents. The
Aligned Documentation System helps to prepare export documents with
increased speed. convenience, economy and accuracy. The recently developed
Electronic Data Interchange (EDI) will contribute to simplify the export
documents and fulfil the objectives of Aligned Documentation System. All
major ports functioning in India are directed to implement Electronic Data
Interchange in their export documentary procedures and creating records relating
to shipment and other export related activities.
1.12 SHIPPING TERMS
Selected shipping terms are given below:
ANCHOR
A heavy iron implement usually in the form of a hook, lowered by means
of chains from the ship on to the bottom of the sea to keep the ship safe from
moving.
BERTH
1) A loading or discharging ancharge allowing a ship to go alongside.
2) This may also apply to a cabin in a ship.
BREAKWATER
Strong structure material to break the force of sea waves a breakwater us
constructed outside an open harbour to protect it from waves, and it possible for
ship to berth. Also a part of protection on the weather deck of a ship to stop the
waves over-riding the deck.
BUNKER
Fuel or coal utilized by engines of a ship.
CARGO
The general meaning of various merchandise transported on a ship or
airplane or by land vehicles. Cargo is accepted on production of a bill of lading
19
as a form of contract of Affreightment showing the full details of the carg.
carried, including freight charges involved.
CHARTER
1) The chartering or hiring of a ship. A ship which is hired out is said to be
on charter and the time during which a ship is hired out is known as
period of the charter. .4
2) Short term for charter party.
CHARTER PARTY
Documents containing all the terms and conditions of the contact between
a shipowner and a charterer, and signed by both parties or their agents, for the
hire of a ship or the space in a ship. Most charter-parties are standard forms with
printed clauses and spaces or boxes in which details relating to the individuals
charter, such as freight, laytime, demurrage, the ship's construction, speed and
consumption are inserted. The printed documents may be varied and/or added to
by agreement of the two parties. Some times spelled charter party or charter
partY.
CONTAINER
Box designed to enable goods to be sent from door — to —. door without
the contents being handled. There are several standards sizes used worldwide
such that the same container may be transferred from one more of transport to
other modes in the course of a single voyage. Indeed, specially designed road
and rail vehicles and special ships are frequently used to carry containers. The
most common sizes of containers arc the 20 footer, which measure about 20 feet
(6.1 metres) long by 8 feet (2.4 metres) wide by 8 feet 6 inches (2.6 metres) high
and the 40 footer, measuring about 40 feet (12.2 metres) long and having the
same width and height as the 20 footer. Typically made of steel, there are
containers of several types whose use depends principally on the nature of the
cargo, for example dry bulk, liquid or perishable cargoes.
CONTAINER FREIGHT STATION
Place where consignments are grouped together and packed into a
shipping container or where such consignments are unpacked. Abbreviated to
c.f.s.

20
DOCK
Enclosed basin surrounded by quays equipped with cargo handling
equipment used for loading and discharging ships. A dock is not a pier or wharf
(q.v) each of which has its own specific meaning. It would be appropriate,
however, to say that a vessel docked at a pier.
DRAUGHT (OR DRAFT)
Depth to which a ship is immersed in the water, this depth varies
according to the design of the ship and will be greater or lesser depending not
only on the weight of the ship and everything on board, such as cargo, ballast.
fuel and spares, hut also on the density of the water in which the ship is lying. A
ship's draught is determined by reading her draught marks, a scale marked on
the ship's stem and stern.
DREDGING
When the bottom of a part of harbour is shallow due to the send or
wreckages or silt etc., the authorities start clear sing or dredging the place by
engaging a vessel to recover this mud from the bed of the sea by mechanical
means.
FEEDER
Wooden boxes, open at the bottom, which is built under the hatchway of
a ship when grains in bulk is to be carried. The grain is loaded into the cargo
compartment filling the feeder which feeds the hold with grain as the cargo
settles during the voyage, in order to prevent if from shifting.
FORWARDING AGENTS
Persons engaged in taking care of cargo or personal effect to be
dispatched from one place to another by sea, land or air, similar to freight
forwards.
FREE ALONGSIDE SHIP OR FREE ALONG SIDE BERTH
Buyer is to pay all the expenses from the time shipment up to the time of
destination. These include the loading and loading expenses, freight and all other
charges involved in the process of its transportation route. Abbreviated to F.A
for free alongside, FAS or F.A.S for free alongside ship and f.a.q or FAQ for
free alongside quay.

21
FREE ON BOARD
The merchandise is offered up to the delivery on board; the buyers are to
bear to expenses for the freight, insurance and of course the subsequent landing
charges. Abbreviated to fo.b or F.O.B or FOB.
FREE ON RAIL OR FREE ON TRUCK
Sales term denoting that the seller is responsible for delivering goods into
the custody of the railway at a named place and if agreed in the contract of sale,
for loading into rail cars, at which time the risk of loss or damage to the goods
generally passes from seller to buyer. Abbreviated to fo.r or f.o.t.
FREIGHT
Charges quoted by the owners for the carriage of cargo. It may either be
freight prepaid and similar to Advance freight q.v or freight payable designation
of flat rate. Or Lump sum freight or Dead freight or back freight.
FULL CONTAINER LOAD
Quantity of cargo which fills a shipping container to capacity, either by
weight or cubic measurement. Abbreviated to f. c.t.
1
HARBOUR
Also known as have, though not so commonly termed in commercial use.
Enclosed commercial water safe area where ships can anchor or shelter for the
purpose of loading, discharging or fueling or repairing and/or other commercial
purposes. As the name implies, it must be protected in such a way as to give
complete security in case of storms, apart from the fact-that it must be well
equipped with the necessary customs, sheds and adequate operational
equipment,
INLAND CLEARNACE DEPOT
The secretariats of UNCTAD, ECE and the customs co-ordination council
have agreed on the following definition of an ICD: "A common user inland
facility, other than a part or an airport, with public authority status, equipped
with fixed installation and offering services for handling and temporary storage
of any kind of goods (including container) carried under custom transit by any
applicable mode of inland surface transport, placed under customs control and
with customs and other agencies competent to clear goods for home use,
warehousing, temporary admission re-export, temporary storage for onward
22
transit and outright export". It is important to note that the "C" in ICD refers to
"clearance", not "container". The person for this is that using the word
"container" would restrict the meaning of an ICD to a facility that only handled
containers, whereas most such facilities also stuff and strip 'containers in their
container freight station and customs clear the goods, ICDs should consequently
also be able to handle port containerized cargoes. The 'Above definition allows
them to do so. In a number of countries. The above of 1, covers in inland
dry port.
MULTIMODAL TRANSPORT
The carriage of goods by at least two different modes of transport on the
basis of a multi modal transport contract from a place in one country at which the
goods are taken in charge by the multimodal transport operator to a place
designated from delivery situated in a different country.
PORT
A place sheltered from the open sea where a ship can enter a load or
unload its merchandise.
TRANSHIPMENT
Transfer of goods from one ship to another. This transfer may be direct or
it may be direct or it may be necessary to discharge the goods on to the quay
prior to loading them on to the second ship, or on the vehicles should ship be
loading at a different berth.
WHARF
Structure built alongside the water where ships berth for loading or
discharging goods. Source: Shipping Directory, The Economic Times
Publication).
Reference to the specific INCOTERM in a purchase contract is a
shorthand way of affirming the respective responsibilities of the two parties. A
term defines the responsibilities of each party for arranging fon,the movement of
the goods, the appreciation of specific costs associated with this movement, and
the cut-off point where risk of damage or loss is transferred from the buyer to
seller. A reference to a specific INCOTERM in a purchase contract serves two
purposes. Firstly, it obviates the need for listing all the obligations of the two
parties to the contract and to the incidence of associated costs. Secondly, it

23
removes the possibility that the parties to the contract may interpret the terms
differently.
The six INCOTERMS more closely associated with deep sea maritime
transportation are:
FAS (Free Alongside Ship) FOB (Free on Board)
CFR (Cost and Freight) CIF (Cost Insurance and Freight)
DES (Delivered Ex Ship) DEQ (Delivered Ex Quay)
The other terms, will not applicable to deep sea transportation are more
appropriate for "short sea", road, rail and multi-model transportation.
EXW (Ex Work) CPT (Carriage Paid To)
CIP (Carriage and Insurance Paid To) DAF (Delivered at Frontier)
DDU (Delivered Duty Unpaid) DDP (Delivered Duty Paid)
The terms FOB, CFR (C&F) and CIF are the ones which are more
commonly used by importers in developing countries. With growth in
containerisation of cargo for deep sea transportation, another 1990 term, FCA
(Free Carrier), is also likely to be used increasingly.
Buyer's Responsibility (❑)

Nature of /Incidence CIF CFR FOB FCA

of cost/passing of risk

1. Obtain at his own risk and expense any Export - - - -

licence and carry out all export Customs
formalities in the supplier's country.

2. Contract at his own expense for the carriage of

goods fro the named: - - -
❑
(a) place in supplier's country. - _
_ ❑
(b) Port of shipment.
3. Take delivery of goods:
(a) For FCLs, when the loaded container is - - - ❑
taken over by the sea carrier;

24
 (b) For LCLs,' when the container has been
carried to an operator of a transport
terminal acting on behalf the carrier.
(c) When placed on board the ship on the date
or within the period stipulated in the 0
purchase contract.
4. Bear all risks loss or damage of goods:
(a) From the time the delivery of goods has
been taken. in accordance with 3 (a).
(b) From the time the goods have passed the
ship's rail. [NB. In an FOB contract, if the
Li
buyer fails to nominate a vessel in time to
arrive in accordance with the contract, the
risk will pass to the buyer on the day he
was supposed to take delivery and the
supplier has assigned the goods to the
contract]

5. Arrange for maritime transportation and bear

freight costs.

6. At his own cost, arrange insurance of goods

once the goods have been delivered in U 0
accordance with 3. above. [See also 4. above].

7. At his own risk and expense, obtain any import

licence or other official authorisation and carry ❑
out all customs formalities for importation into
his country.
0 ❑
8. Pay taxes, duties and other official charges
payable upon importation of goods.

Normally "terms of shipment" refer to the use of C.I.F., C & F, F.O.B.,

F.A.S. "Ex-works" and "Door-to-Door". They are explained below:

25
 C.I.F.: When goods are shipped C.I.F. to a named port of destination the
seller must
"Contract on usual terms at his own expense fcr the carriage of goods to
the agreed port of destination by the usual route, in a seagoing vessel (not being
a Bailing Vessel) of the type normally used for the transport of goods of the
contract description and pay freight charges and any charges for unloading at the
port of discharge which may be levied by regular shipping lines at the time and
port of shipment".
"Load the goods at his own expenses on board the vessel at the port of
shipment and at the date or within the period fixed or, if neither date nor time
have been stipulated, within a reasonable time, and notify the buyer without
delay, that the goods have been loaded on board the vessel".
"Procure, at his own cost and in a transferable for a policy of marine
insurance against the risk of the carriage involved in the contract. The insurance
shall be contracted with underwriters or insurance companies of good, repute on
FPA terms and shall cover the C.I.F. price plus 10 percent. The insurance shall
be provided in the currency of the contract, if procurable".
"At his own expense furnish to the buyer without delay a clean negotiable
bill of lading for the agreed port of destination, as well as the invoice policy not
be available at the time the documents are tendered, a certificate of insurance
issued under the authority of the underwriters and conveying to the bearer the
same rights as if he were in possession of the policy and reproducing the
essential provision thereof'.
"Provide at his own expense the customary packing of the goods, unless it
is the custom of the trade to ship the goods unpacked".
"Pay the costs of any checking operations (such as checking quality,
measuring, weighing, counting) which shall be necessary for the purpose of
loading the goods".
"Pay and dues and taxes incurred in respect of the goods upto time
of their loading, including any taxes, fees or charges, levied because of
expectation, as well as the costs of any formalities which he shall have to fulfil
in order to load the goods on board.

26
 C & F: When goods are shipped C & F to a named port of destination, the
seller must take all the action listed above, except that relating to insurance,
which is the responsibility of the purchaser.
F.O.B.: When goods are shipped F.O.B. from a named port of shipment.
the seller must:
"Deliver the goods on board the vessel named by the buyer at the named
port of shipment in the manner customary at the port, at the date or within the
period stipulated. and notify the buyer, without delay that the goods have been
delivered on hoard the vessel".
"Provide at his own expense the customary packing of the goods, unless it
is the custom of the trade to ship the goods unpacked".
"Pay the cost of any checking operations (such as checking quality,
measuring, weighing, counting) which shall be necessary for the purpose of
delivering the goods".
"Provide at his own expenses the customary clean document in proof Of
delivery of the goods on board the named vessel".
It is the responsibility of the buyer in the case of F.O.B. shipment to:
"At his own expense, charter a vessel or reserve the necessary space on
board, a vessel and give the seller due notice of the name, loading berth and
delivery dates to the vessel".
"Bear all costs and risks of the goods from the time when they shall have
effectively passed the ship's rail at the named port of shipment, and pay the price
as provided in the contract".
"Pay any costs and charges for obtaining a bill of lading".
F.A.S.: When goods are shipped F.A.S. from a named port of shipment
the seller must:
"Deliver the goods alongside the vessel at the loading berth named by the
buyer, at the named port of shipments in the manner customary at the port, at the
date or within the period stipulated, and notify the buyer, without delay, that the
goods have been delivered alongside the vessel".

27
 ".... bear all costs and risks of the goods until such time as they shall have
been effectively delivered alongside the vessel at the named port of shipment,
including the costs of any formalities which he shall have to fulfil in order to
s_.
deliver the goods alongside the vessel".
"Provide at his own expense the customary packing of the goods, unless it
is the custom of the trade to ship the goods unpacked".
"Provide at his own expense the customary clean document in proof of
delivery of the goods alongside the named vessel".
"The responsibility of the buyer in an F.A.S. shipment is two fold. Give
the seller due notice of the same, loading berth of and delivery dates to the
vessel".
"Bear all the charges and risks of the goods from the time when they shall
have been effectively delivered alongside the vessel at the named port of
shipment. at the date or within the period stipulated, and pay the price as
provided in the contract".
Ex-works: When goods are shipped ex-works it is the duty of the seller to
place the goods at the disposal of the buyer at the time and place specified in the
contract (usually the premises of the seller) and to bear all the costs involved in
doing so.
It is the responsibility of the buyer to take delivery of the buyer to take
delivery of the goods from the agreed place and to arrange and bear the costs of
transport and insurance.
Door-to-Door: Door-to-Door transport is not covered by INCO terms. In
a door-to-door operation the transport contract covers all stage and costs
(excepting customs dues) of transport between the point of sale and the point of
purchase of the goods, that is usually from the premises of the seller to those of
the buyer door-to-door is not a term in the same category as those described
above, since the use of the term does not deal with and so does not tix the
division of responsibility for arranging and paying for the transport of the goods
concerned. The term should be noted because of its increasing importance to the
trade of land-locked countries.
(Source: Export-Import Management, Management Study Centre. Chennai).

28
 SELECTED SHIPPING TERMS
173
Bale capacity Refers to the maximum amount of space, is cubic
meters, of a ship available for carrying cargo in
bales, cases, casks, etc.

2. Ballast To ensure stability of the ship, when there is no or

insufficient cargo in its holds, heavy material (the
ballast) may have to be placed in the ship.

3. Deadweight capacity The deadweight capacity is the total weight of

cargo, bunker (fuel), stores and spare parts,
provisions, water, etc.. which a vessel can carry

4. Demurrage A voyage charter-party usually includes a

provision that in case the loading and/or discharge
of cargo is not completed within a specified
number of days, the shipowner will be entitled to
demurrage (compensation for delay), for each day
of delay, at the rate specified therein.

5. Dispatch Is the opposite of demurrage (see 4 above). If the

loading and/or unloading is completed in less than
the number of days specified in the charter-party,
the charterer is rewarded by the shipowner for
each day saved at a rate as specified in the charter-
party.

6. Free in and out A contract of affreightness including these terms

implies that the responsibility for cargo
loading/unloading (and the associated costs) is that
of the shipper/consignee/charterer and not of the
vessel owner.

7. Hatch The rectangular opening in the ship's deck

(providing access to cargo holds) which are closed
by covers when not in use.

29
8. Hold Compartments in a ship's hull to enable different
cargoes to be segregated and/or to prevent the
cargo from shifting and thereby providing stability
to the ship.

9. Hull Actual shell or body frame of a ship

10. Liner term Also referred to as "berth terms", implies loading

and discharging expenses will be to shipowner's
account as is the case with liner supplies where the
freight rates are inclusive of these charges.

CHARTER PARTY
A sample charter, party is given_below
General Purpose Charter — Party
Owners; vessels; position; charterers. IT IS THIS DAY MUTUALLY AGREED
'between Owners of the of
gross/net tons register, classed now and
expected ready to loan under this charter on or about as
charterers.
1. Loading port; cargo; designation. That the said vessel shall proceed to
or so near thereto as she may safely get and lie always
atleast (except as per Clause No.11) and there load a full/part cargo Of
which the charters bind themselves to ship, and beings
loaded, the vessel shall proceed to as ordered on
signing Bills of Lading, or so near thereto as she may safely lie afloat
(except per clause No.11) and there deliver the eargo.
2. Rate and payment of Freight. Freight shall be paid on intaken/outturn
weight as follows:
Eighty percent of the freight on bill of lading weight to be prepaid in New
York within five days of signing and surrender in New York, or as
otherwise specified, of bills of lading to characters or the characters'
agents. The balance of freight to be paid in new york following
completion of discharge of the cargo and to include settlement of dead-

30
 freight, demurrage or dispatch and adjustment according to outturn
weight unless freight is payable on intaken weight. Full freight to be
deemed earned as cargo is loaded on board the vessel, and to be
discountless and non-returnable, vessel and/or cargo loss or not loss.
Charterers are entitled to deduct from the freight all brokerage, also
dispatch money at loading and discharging port(s) if any.
3. Laydays and canceling date. Laydays are not commence before
and, should the vessel not be ready o load (wether in
berth or not) at or before 5.00 p.m charterers shall
have the opinion of canceling this charter-party. Should the vessel be
delayed on account of average or otherwise, whether while an route to
loading port or thereafter, charterers are to be so informed immediately.
4. Notice of Expected Readiness. Owners are to give charterers at least 15
days' notice of vessel's expected readiness at loading port, also starting
exact quantity of cargo required to be loaded, subsequently owners are to
give characters 10 days and 5 days notice of vessel's definite readiness to
load.
5. Preparation of Holds for Loading. At loading port(s), owners are to
tender vessel with holds properly swept, cleaned and dried, and free of
residues of all previous cargoes to inspector's satisfaction, and in all
respects ready to receive the cargo. Where bulk cargo is to be loaded, and
prior to tendering the vessel for loading, cargo battens are to be removed,
bilge boards and limber boards are to be in place and made tight against
cargo see page, and rose boxes are to be suitably covered against cargo
seepage. Should hand labour ultimately be required to discharge cargo
from spaces so protected cost of same to be for owner's account, and such
discharge to be done at owner's risk and on owner's time. Where bagged
cargo is to be loaded, cargo battens are to be fitted prior to tendering the
vessel for loading.
6. loading Rate. Cargo is to be loaded, stowed, and/or trimmed by spout
only by charterers' stevedores at charterers' risk and expense, at the
average rate of tons of per workable
hatch per weather working day of 24 running hours, provided the vessel
can load at that rate, Sundays local and legal holidays excepted even if
used, whether in borth or not, time from noon on Saturday or a day

31
 preceding any holiday until 8.00 a.m on Monday or the day following
holiday not to count as loading time, even if used, whether in berth or not.
7. laftSttharging Rate. Cargo to be discharged by charterers' stevedores at
Chaftkx.s. risk and expense. at the average rate of tons
per workable hatch per weather working day of 24
running hours, pru-iMeel the vessel and discharge at that rate, Sundays,
local and legal holidays excepted, even if used, whether in berth or not,
time from moon on Saturday or a day preceding any holiday until 8.00
a.m on Monday or the day following any holiday not to count as
discharging time, even if used, whether in berth or not.
8. Laytime Reversible. Laytime at loading and discharging ports to be
reversible.
9. Time Commences. Time at loading/discharging port to commence at 8
a.m on the working day following the day master has tendered in writing
during business hours, if the charterers or their agents vessel's notice of
readiness to load or discharge. Business hours shall be considered to be
8.00 to 17.00 during weekdays and 8.00 to 12.00 noon on Saturdays.
Notice of readiness shall be rendered to
10.Demurrage and Despatch. Charterers are to pay demurrage at the rate of
US $ per day of 24 running hours or pro rata for any part
thereof, for all time used in excess of laytime, owners are to pay dispatch
money at half the demurrage rate per day of 24 running hours or pro rata
thereof for laytime saved.
11.Loading and Discharging Berth. The cargo is to be loaded and/or
discharged at any wharf, dock or place that charterers or their agents may
direct, provided the vessel can lie always safely afloat, except that
charterers or their agents shall have the privilege of ordering the vessel to
load and/or discharge at any wharf, dock or place where it is customary
for vessels of similar size to lie not always afloat but safely aground.
12.Privilege of Additional Berths. At loading and discharging port(s)
charterers shall have the opinion of ordering the vessel to more than one
berth, in which case shifting expenses shall be for owner's account. Time
used in shifting shall count as laytime, unless the shift is made during
excepted time.

32
 13.Winch and Light Clasue. Vessel to supply, at both ends, and at all times
free of charge to charterers , winches, steam and gear in good working
condition and full light for night work on deck and in holds if required,
unless otherwise specified, the vessel to supply a minimum of two
winches and derricks both either forward or art at each hatch. Winchmen
from shore, if required by the regulations or custom of the port, to be
charterers' account. Charterers to have the privilege of working all
hatches simultaneously.
• 14.Seaworthy Trim Clause. If more than one loading and/or discharging
part is used, the vessel to be so loaded and/or discharged as to leave her in
seaworthy trim for the passage between ports, but if this charter-party be
. for a part cargo only. characters shall have no liability in this respect
where other cargo abroad render seaworthy trim between ports beyond
the charterers' control.
15.Deck cargo. Charteres are to have the privilege of loading cargo on deck
at their risk and expense. same to be loaded, stowed and secured to
Master's satisfaction.
16.Dues, Wharfage and Taxes. At loading and discharging ports, all dues,
and/or wharfage and/or taxes on cargo to be for charterers' account. All
dues and/or wharfage and/or taxes on vessel to be for owners' account,
even when the same are measured by the quantity of cargo aboard

17.Extra Insurance. Any extra insurance or cargo on account t of vessel's

age, flag, class, size or ownership to be for vessel's account.
18.Dunnage. Charterers are to provide all mats, and/or paper and/or wood
for dunnage and any separations other than by hold, required. Owners are
to allow the use of any such material as may be on board, if required by
charterers. It is further understood that owners shall not dispose of any
such material without first determining whether charterers require the use
of same. On completion of the voyage, charterers shall have the option of
disposing of any dunnage purchased by them at Charterers' risk and
expense, and on charterers' time, or leaving same on board the vessel.
19.Stevedore Charge. When loading and/or discharging is effected by
Charterers' stevedores, charterers shall not be responsible for repairing

33
 any stevedore damage unless the master has obtained written
acknowledgement of same from the stevedores, or unless a joint survey
has been made, attended by representatives of owners and charterers.
20. Wireless Clause. The master is to send a radiogram to charterers or other
agents giving vessel's expected time of arrival 72 hours and again 24
hours before vessel is due at first loading and first discharging port.
21. Lien Clause. Owners shall have a lien on the cargo for freight, dead
freight and demurrage, charaterers shall remain responsible for dead
freight and demurrage incurred at port of loading. Chartereres shall also
remain responsible for freight and demurrage incurred at port of
discharge, but only to such extent as owners have been unable to obtain
payment thereof by exercising the lien on the cargo.
22. Bills of Lading. The captain, owners, or agents to sign Bills of Lading at
such rate of freight as presented, without prejudice to this charter-party,
but not at less than the total chartered freight.
23. General Average. General average to be settled in New York according
to York/Antwerp Rules 1050.
24. Agency. At the port(s) of loading and the port(s) of discharge, charterers
are to have the privilege of appointing vessel's agents, owners paying
customary fess.
25. Deviation. The vessel shall have liberty to tow and/or assist vessels in all
situations, and also to deviate for the purpose of saving life and/or
property.
26. The charterers to have the right to sublet part or all of this charter-party,
they to remain responsible to the vessel owner for due fulfillment of the
charter —party.
27. Arbitration. Should any dispute arise been owners and charterers, the
matter is dispute shall be referred to three persons at New York, one to be
appointed by each of the parties hereto, and the third by the two so
chosen; their decision, or that of any two of them, shall be final, and for
the purpose of enforcing any award, this agreement may be made a rule of
the court. The arbitrators shall be commercial men.

34
28.Description. Hag: . Year built:
Deadweight: . Draft: . Gross
reg.: . Cubic feet bale/grain in holds:
Number holds/hatches: . Deck arrangement:
Engine and bridge placeme9t: . Vessel's gear and where
located: . Unless otherwise specified, vessel's gear shall
be capable at each hatch during loading and/or discharging to lift a
minimum of 5 long tons per lifting and to handle open and closing of grab
buckets.
29.Brokerage. percent brokerage on the gross amount of
freight, deadfreight and demurrage earned is due to . In
case of non-performance of this charter-party, one-third of the brokerage
on the estimated amount of freight and deadfreight to be paid by owners
to the Brokers as indemnity for the latter's expense and work.
30.Special Provisions. Clauses Nos.31 to 38, inclusive as set worth on the
reverse side of this charter-party, also typewritten clauses No. to
inclusive, as attached hereto, are hereby made part of this
charter-party.
31.Computation of Laytime. Time lost by reason of any one or more of the
following causes shaft not be computed in the loading and/or discharging
time; act of God; perils of the harbor; war; rebellion; tumults; civil
commotion; insurrections; political disturbances, epidemics; quarantine;
riots; strikes, lock-outs or other work stoppage of seamen, workmen,
railwaymen, lgihtermen, tugboatmen, bargemen, longshoremen or any
bands essential to the working, carriage, delivery from point of origin to
shipside, shipment loading or discharge of the said cargo, whether partial
or general; accidents at receiver's works or wharf; floods, frosts, fogs,
storms or snow or other weather conditions; intervention of sanitary,
customs, and/or other, constituted authorities; mrtial or total stoppage on
ravers, canals or on railways; congestions of the port, or any other cause
of whatsoever nature beyond the control of the charterers, unless steamer
is already on demurrage.
i2. Owners' Responsibility Clause. Owners shall, before and at the
beginning of the voyage, exercise due diligence to make the vessel
seaworthy and properly manned, equipped and supplied, and to make the

35
 holds and all other parts of the vessel in which the cargo is carried, fit and
safe for its reception, carriage and preservation, owners shall properly and
carefully handle, carry, keep and care for the cargo. Unless elsewhere in
this charter-party it is provided that the loading, stowage and/or discharge
or the vessel is to be at charterers' risk and expense. Owners shall
properly and carefully load, slow and discharge the cargo.
Neither owners nor the vessel shall be liable for loss of or damage to the
cargo arising or resulting from; unseaworthiness, unless caused by want
of due diligence on the part of the owners to make the vessel seaworthy,
and to secure that the vessel is properly manned, equipped and supplied,
and to make the holds and other parts of the vessel in which the cargo is
carried, fit and safe for the reception, carriage and preservation; act,
neglect or default of the master, mariner, pilot or the servants of the
Owners in the navigation or in the management of the vessel; fire, unless
caused by the actual fault or privities of the owners perils, dangers or
accidents of the sea or other navigable waters; act of god; act of war; act
of public enemies; arrest or. restraint of princes, rulers or people, or
seizure under legal process; quarantine restrictions; acts or omissions of
charterers or of the shippers or owners of the goods, their agents or
representatives; strikes, lock-outs or stoppage or restraint of labour from
whatever cause, whether partial or general (provided that nothing herein
contained shall be construed to relieve owners from responsibility for
their own acts); riots and civil commotions; saving or attempting to save
life or property at sea; wastage in bulk or weight or any other loss or
damage arising from inherent defect, quality or vice of the goods;
insufficiency of packing; insufficiency or inadequacy of marks; latent
effects not discoverable by due diligence; any other cause arising without
the actual fault or privity of the owners or without the fault of the agents
or servants of the owners, but the burden of proof shall be on the owners
or other person claiming the benefit of this exception to show that neither
the actual fault or privity of the owner nor the fault or neglect of the
agents or servants of the owners contributed to the damage.
33. General Ice Clause — Loading Port. (a) In the event of the loading port
being inaccessible by reason of ice when vessel is ready to proceed from
here last port or at any time during the voyage or on vessel's arrival or in
case frost sets in after vessel's arrival, the captain for fear of being frozen

36
 in is at liberty to leave without cargo, and this charter shall be null and
void.
(b) If during loading the captain, for fear of vessel being frozen in deems
it advisable to leave, he has liberty to do so with what cargo he has on
board and to proceed to any other part or ports with option of completing
cargo for owner's benefit for any port or ports including port of discharge.
Any part cargo this loaded under this charter to be forwarded to
destination at vessel's expense but against payment of freight, provided
that no extra expenses be thereby caused to the Receivers, freight being
• paid on quantity delivered (in proportion if lumpsum), all other conditions
as per charter.
(c) In case of more than one loading port, and if one or more of the ports
are closed by ice, the captain or owners to be at liberty wither to load the
part cargo at the open port and fill up elsewhere for their own account as
under section (b) or to declare the charter null and void unless charterers
agree to load full cargo at the open port.
(d) This ice clause not o apply in the spring. ;i
Discharging Port. (a) Should ice (except in the spring) prevent vessel
from reaching port of discharge, receivers shall have the option .of
keeping vessel waiting until the reopening of navigation and paying
demurrage, or of ordering the vessel to a safe and immediately accessible
port where she can safely discharge without risk or detention by ice. Such
orders to be given within 48 hours after captain or owners have given
notice to charterers of the impossibility of reaching port of destination.
(b) If during discharging, the captain for fear of vessel being frozen in
deems it advisable to leave, he has liberty to do so with what cargo he has
on board and to proceed to the nearest accessible port where she can
safely discharge.
(c) On the delivery of the cargo at such port, all conditions of this charter
shall apply and vessel shall receive • the same freight as is she had
discharged at the original port of destination except that if the distance of
the substituted port exceeds 100 nautical miles, the freight on the cargo
delivered at the substitute port to be increased in proportion.

37
34. New Jason Clause. In the event of accident, danger, damage or disaster
before or after commencement of the voyage resulting from any cause
whatsoever, whether due to negligence or not, for which or for the
consequences of which, the earlier is not responsible, by statute, contract
or otherwiSe, the goods, shippers, consignees, or owners of the goods
shall contribute with the carrier in the general average to the payment of
any sacrifices, losses or expenses of a general average nature that may be
incurred, and shall pay salvage and special charges incurred in respect of
the gods.
•
If a salving ship is owned or operated by the carrier, salvage shall bed
paid for as fully as if such salving ship or ships belonged to strangers.
Such deposit a the carrier or his agents may deem sufficient to cover the
estimated contribution of the goods and any salvage and special charges
thereon shall, if required, be made by the goods, shippers, consignees or
owners of the goods to the carrier bofore delivery.
35. Both to Blame collision clause. If the liability for any collision in which
the vessel is, involved while performing this bill of lading, falls to be
determined in accordance with the laws of the United States of America,
the following clause shall apply:
If the ship comes into collision with another ship as a result of negligence
of the other ship and any act, neglect or default of the master, mariner,
pilot or the servants of the carrier in the navigation or in the management ti
of the ship, the owners of the goods carried hereunder will indemnify the
carrier against all loss or liability to the other or non-carrying ship or her
owners insofar as such loss or liability represents loss of, damage to, or
any claim whatsoever of the owners of said goods, paid or payable by the
other or non-carrying ship or her owners to the owners of said goods and
set off, recouped or recovered uy the other or non-carrying ship or her
owners as part of their claim against the carrying ship or carrier.
36. USA Clause paramonnt. This bill of lading shall have effect subject to
the provisions of the carriage of goods by sea act of the United States,
approved April 16, 1936, which shall be deemed to be incorporated
herein, and nothing herein contained shall be deemed a surrender by the
carrier of any of its rights or immunities or an increase of any of its
responsibilities or liabilities under said act. If any terms of this bill of

38
 lading be repugnant to said act to any extent, such terms shall be void to
the extent but no further.
37. Chamber of Shipping War Risk Clauses. 1. No bills of lading to be
signed for any blockaded port and if the port of discharge be declared
blockaded after bills of lading have been signed, or if the port to which
the ship has been ordered to discharge either on signing bills of lading or
thereafter to one which the ship is or shall be prohibited form going by
the Government of the Nation under whose flag the ship sais or by the
other government, the owner shall discharge the cargo at any other port
covered by the charter-party as ordered by the Charterers (provided such
other port is not a blockaded or prohibited port as above mentioned) and
shall be entitled to freight as if the ship had discharged at the port or ports
of discharge to which she was originally ordered.
2) The ship shall have the liberty to comply with any order or directions
as to departure, arrival, routes, ports of call, stoppages, destination,
delivery or otherwise howsoever given by the Government of the Nation
under whose flag the vessel sails or any department thereof, or any person
acting or purporting to act with the authority of such Government or any
department thereof, or by any committee or person having, under the
terms of the War Risks Insurance on the ship, the right to give such orders
or directions and if by reason of arid in compliance with any such orders
or directions anything is done or is not done, the same shall not be
deemed a deviation, and delivery in accordance with such orders or
directions shall be a fulfillment of the contract voyage and the freight
shall be payable accordingly.(Source: ITC Geneva Study Materials)

1.13 LETTER OF CREDIT

Documentary Credit or Letter of Credit is a populaK form of payment in
foreign trade. Documentary Credit minimises credit and payment risks. Exporter
is safe and payment for goods exported is assured. Dr.Varma and Agarwal in
their book 'Foreign Trade Management' have expressed that "under
documentary credit, the importer's bank, under instructions from the importer,
gives a written undertaking to the overseas exporter that if the goods are shipped
within a fixed period, the bank will make the payment of the given amount to the
exporter. In this way, the importer's bank guarantees the exporters for the
39
payment of goods shipped on behalf of the importer or receiving the
consignment".
A Letter of Credit is defined as, "a written undertaking issued by the
buyer's bank agreeing to pay a certain sum of money within a stipulated period
against a specified set of documents". (Jacob Cherian - Export Marketing).
Dr. Varma and Agarwal have states that "a documentary credit or letter of
credit is a document issued by importer's banker on behalf and
under instructions of the importer, undertaking a liability to pay for the goods
received. It is a guarantee given by the importer's bank to the exporter".
Documentary Credit or Letter of Credit is defined in the UNIFORM
CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS as, "any
arrangement, however named or described, whereby a bank (issuing bank),
acting as the request and in accordance with the instructions of a customer (the
applicant for the credit) is to make payment to on to the order of the third party
(beneficiary) or is to pay, accept or negotiate bill of exchange (drafts) drawn by
the beneficiary on authorised such payments to be made on such drafts to be
paid, accepted or negotiated by another bank against stipulated documents
provided that terms and conditions of the credit are complied with".
Jeevanandam C, in his book 'Foreign Exchange and Risk Management'
has defined Letter of Credit as "an undertaking by the importer's bank that if the
exporter exports the goods and produces documents as stipulated in the letter,
the bank would make payment to the exporter". Further he has stated that
obligation of the importer for payment under the export contract is supplemented
by a superior obligation of a bank to make payment.
The following diagrams show the procedural steps of and parties involved
in letter of credit.
OPENING OF LETTER OF CREDIT
Exporter Contract Importer
London of Sale Mumbai
(Beneficiary) (1) (Applicant)
Applied for
Opening of
Letter of Credit
(2)

40
 Forwards
Letter of Credit
to (4)

Midland Opens Letter Bank of India

Bank of Credit and Mumbai
London sends it to (Issuing Bank)
(Advising bank) (3)
•
UTILISATION OF LETTER OF CREDIT
Exporter Ships Goods to Importer
London (5) Mumbai
(Beneficiary) (Applicant)

Presents documents Recovers amount

and obtain payment from (8)
it
from (6)

Midland Bank Obtains Bank of India

London reimbursement (Mumbai)
(Negotiating Bank) from (7) (Issuing Bank)
Source: Jeevanaridam C., Foreign Exchange and Risk Management, Sultan
Chand & Sons, New Delhi. p.202.
Parties to a Letter of Credit
1. Applicant (Importer): One who requests the bank to open a letter of credit.
2. Beneficiary (Exporter): One in whose favour the letter of credit is opened and
issued.
3. Issuing Bank (Importer's Bank): Importer's bank issuing letter of credit
based on the instructions of the importer.
4. Advising Bank: It is the branch of the issuing bank on correspondent bank in
the exporter's country through whom the letter of credit is served (sent) to
the beneficiary.

41
5. Negotiating Bank: The bank where exporter presents documents and obtains
payments in accordance with the letter of credit.
6. Confirming Bank: It is the bank in the exporter's country confirming letter
of credit. This bank undertaken to make payment if the issuing bank (foreign
bank) fails to make payment.

Procedure of Letter of Credit

Procedure involved in getting payment through letter of credit is given
below:
i) Importer's Application
The importer has to apply and request to his bank to issue a letter of credit
to the exporter. Importer has to furnish all the relevant information to his bank
Letter of Credit will be issued based on information provided by the importer.
ii) Issue of Letter of Credit
The issuing bank (bank in the importers country) will issue letter of credit
in favour of the beneficiary (exporter) based on the information furnished by the
importer. Issuing bank verifies credit worthiness of the importer before issuing
letter of credit. It some cases, issuing bank may direct the importer to deposit the
entire value of (import) letter of credit before issuing letter of credit.
iii) Advice
The letter of credit is advised (sent) to the exporter through the issuing
bank's branch or correspondent bank in the exporter's country.
iv) Receipt
After receiving the letter of credit the exporter has to verify all the
conditions mentioned in is and he has to ascertain w hether he is capable of
satisfying all the conditions given in letter of credit.
v) Confirmation of Letter of Credit
The exporter can get the letter of credit confirmed by a bank for the
purpose of covering the risk on default by the issuing bank.

42
vi) Despatch of Goods
After confirming the letter of credit, exporter has to take necessary steps
to despatch the goods and relevant documents of exports in accordance with the
conditions mentioned in the letter of credit.
vii) Payment
After sending the goods, exporters can present the documents to his bank
for payment. The bank will verify all the documents to ascertain whether they
are as per the letter of credit. If the banker is satisfied, payment will be made to
the exporter.

1.14 TYPES OF LETTER OF CREDIT

The various types of letter of credit are given below:
i) Revocable Letter of Credit
ii) Irrevocable Letter of Credit
iii) Confirmed Letter of Credit
iv) Revolving Letter of Credit
v) Transferable Letter of Credit
vi) Back-to-back Letter of Credit
vii) Red Clause Letter of Credit
viii) Green Clause Letter of Credit
ix) With recourse Letter of Credit
x) Without recourse or sand recourse Letter of Credit
xi) Assignable Letter of Credit
xii) Non-Assignable Letter of Credit
1.14.1 Revocable Letter of Credit
It revocable letter of credit, the issuing bank stated that the letter of credit
can be revoked as any time without the consent of, or notice to the beneficiary
(exporter). Revocable Letter of Credit can be cancelled on modified by the
importer without prior approval or notice of the exporter. If the letter of credit is
revoked, it will be very difficult to the exporter to get payment. Exporter's

43
interest is not. protected in this type of letter of credit. Revocable letter of credit
is not common in foreign trade. This type of letter of credit is not confirmed.
S2
1.14.2 Irrevocable Letter of Credit
Irrevocable Letter of Credit cannot be modified of cancelled by the
issuing bank without the prior consent of, or notice to the beneficiary (exporter).
It is considered as a definite undertaking. The issuing bank is under obligation to
make payment once the required documents are submitted by the exporter within
the stipulated period mentioned in the letter of credit. Irrevocable letter of credit
may be confirmed or unconfirmed.
1.14.3 Confirmed Letter of Credit
If the exporter is not satisfied with the financial soundness of the issuing
bank, he may ask his bank on some other bank to confirm the letter of credit.
The commitment made for the payment by his bank on some other bank on
behalf of the issuing bank is known as confirmation of letter of credit. If the
issuing bank fails to pay, the exporter can get payment from the confirming
bank. The bank confirming letter of credit on correspondent bank, while
advising the exporter about the opening of letter of credit by issuing bank adds a
clause to the effect that, "The above credit is confirmed by us and we hereby
undertake to honour the drafts drawn under this credit of presentation provided
that all the terms and conditions of the credit are duly satisfied".
When the irrevocable letter of credit is confirmed by a bank, it is called 4
Confirmed Irrevocable Letter of Credit'.
1.14.4 Revolving Letter of Credit
If there is a continuous trade between the exporter and importer during
the entire year, opening and issuing a separate letter of credit for each transaction
will be difficult and inconvenient. In this situation, a single letter of credit is
opened which is renewed automatically upto a prescribed limit.
1.14.5 Transferable Letter of Credit
Transferable Letter of Credit can be transferred by the exporter
(beneficiary) to another person. It is used by the exporters who are willing to
make a part of credit available to their suppliers. This type of letter of credit can
be transferred only once, i.e., the second transferee cannot transfer further the
letter of credit in favour of another person.
44
 1.14.6 Back-to-back Letter of Credit
Back-to-Back Letter of Credit is used by the traders who buy goods from
one country and self the same goods to another country. The letter of credit
opened by the importer can be utilised as a security by the traders for credit they
open for their suppliers.
Example: A merchant exporter in India imports goods from a supplier in Japan
and exports to a buyer in Australia. Here letter of credit opened by Australian
buyer can be used as a security to buy goods from the Japan suppliers.
1.14.7 Red Clause Letter of Credit
Red Clause Letter of Credit authorised the negotiating bank to give
money in advance to the exporter ever before the despatch of goods and relevant
documents to the importers. The advance money provided by the negotiating
bank is recovered from the export proceeds.
1.14.8 Green Clause Letter of Credit
It is an extension of the Red Clause Letter of Credit. Green Clause Letter
of Credit authorised the bank to store goods in the name of the bank in addition
to providing advance payment before the goods and documents are despatched
to the importers.
1.14.9 With Recourse Letter of Credit
A Under Letter of Credit, issuing bank (importer bank) has to pay to the
exporter through advising bank (exporter bank). Issuing bank will collect the
value of the letter of credit from the importer. Sometimes, the importer may not
be in a position to pay to the issuing bank. In this situation, if the letter of credit
in 'with recourse', the bank can direct the exporter to return back the money
received.
1.14.10 Without Recourse on Sand Recourse Letter of Credit
In this type of letter of credit, if the importer fails to pay money to the
issuing bank, is cannot ask the exporter to return back the money received.
1.14.11 Assignable Letter of Credit •
This type of letter of credit may be assigned by the beneficiary (exporter)
to another person. Assignable Letter of Credit is issued in favour of a

45
representative of the importer especially when he does not know who will
actually be the exporter of the merchandise. Once the representative finds a
suitable person or firm (exporter) who is able and willing to ship the goods on
the terms specified by the importer, he assigned the letter of credit to the parts
(exporter) concerned. [Varma : Agarwal, Foreign Trade Management].
1.14.12 Non-Assignable Letter of Credit
This type of Letter of credit cannot be assigned by the beneficiary to
another party. It is opened in the name of the actual exporter after the export
order is confirmed by the exporter.
1.15 EXPORT FINANCE
Finance is the basic requirement of all business activities. The need for
export financing arises as soon as the exporter received export order. Export
financing transactions come to an end when the goods are loaded on the vessel
and export proceeds received from importer. Exporters should plan in advance is
arranging export finance from the beginning and to the end of the export trade.
Export finance is a risky one. So bankers take streneous efforts to judge
exportability of the exporter and his past trace records in export trade, for
sanctioning export finance. Export financing is a complicated lending
transaction because is involved traders of two countries and foreign exchange
transactions. It export trade, buyers and sellers are far away and sellers do not
know the socio, economic and cultural environment of the end users of their
products. Exporters have to exercise greater care is allowing credit to importers A
in the overseas market. They should be very careful regarding terms of payment.
Export document procedures should be duly fulfilled.
Competition in world markets, both for consumer and capital goods, is
becoming increasingly intensified and, in this situation, the bargaining power has
shifted from the seller to the buyer, who tends to dictate terms with regard to
price, quality and delivery schedules and above all, insists on appropriate credit
terms. The availability of an adequate supply of credit as reasonable rate,
therefore, greatly facilitates the task of the exporter and serves as an incentive to
augment his export efforts. The depleting foreign exchange position in many
developing countries makes is imperative for importers to ask for credits of
varying duration, and the credit terms offered often influence the buyer's choice
of supplied and thus the source of supply.

46
 According to David Kinley, "By credit we mean the power which one
person has to induce another to put economic goods as his disposal for a time on
promise of future payment. Credit is thus an attribute of power of the borrower".
Thus the main elements of credit are: The element of trust, the element of
capital and assets, the element of amount of credit and the element of duration of
credit.
Finance is the life blood of any business activity. Finance is the most
significant aspect in export trade. Once the export order is received, production
of exportable commodities should take in time. Is required adequate finance for
procuring the needed raw materials and other components. In some cases,
materials are to he imported from foreign countries. Is required foreign currency.
Unless the financial requirements for exports are fulfilled, export order cannot be
met in the scheduled time. Further, getting payment for the export cargo will
take sometime. Adequate credit facilities are to be extended to the exporters till
they receive export proceeds from foreign countries. Realising the significance
of export finance and to encourage exports, the Reserve Bank of India has come
forward to extend export finance to the Indian exporters as concessional rate.
There are two types of export finance. They are,
i) pre-shipment credit (or) packing credit and
ii) post-shipment credit.
The Reserve Bank of India has defined pre-shipment credit as, "any loan to
an exporter for financing the purchase, processing, manufacturing or packing of
goods".
Pre-shipment credit is given by the commercial banks for purchasing and
processing of materials, manufacturing of exportable commodities and packing
of such commodities.
Pre-shipment Credit is granted by the commercial banks for a period of
180 days from the date sanctioning the credit. Further extension will be given for
a period of 90 days, provided adequate reasons are given by the exporters for
such extension.
Interest rate for the Pre-shipment Credit is lower than the normal rate of
interest. Concessional interest rate is charged for pre-shipment credit in order to
maintain price competitiveness in the overseas market and to reduce interest
burden to the exporters.

47
 Commercial banks charge a rate of 11 percent of pre-shipment credit upto
180 days. Pre-shipment credit between 180 to 270 days will cost exporters 12 to
15 percent. The interest rate for post-shipment credit of usance bill beyond 90
days is 11 percent. The concessional rate of interest is one of the important
incentives provided by the Government for export trade. In order to reduce the
interest rate for export credit, the RBI has reduced the export refinance rate from
9% to 7%. Exporters should fulfil all the procedures prescribed by the
commercial banks for export credit. Exporters should submit export order of
letter of credit along with the application form for pre-shipment credit.
Exporters should give an undertaking that the advance will be used
exclusively for the purposes of procuring/manufacturing/ shipping of
commodities means for export as given in Export Order of Letter of Credit.
Banks will sanction the pre-shipment credit after verifying all the documents
required for it. The credit worthiness of the exporters, their capacity to produce
exportable commodities and the reputation of the organisation are also assessed
by the banks before sanctioning pre-shipment credit. Exporters are advised to
get appropriate insurance policy for export credit from the Export Credit
Guarantee Corporation (ECGC). Exporters should get Packing Credit Guarantee
also from the ECGC. Insurance Policy and guarantee from the ECGC are
insisted by the commercial banks for sanctioning pre-shipment credit. Exporters
can avail pre-shipment credit in foreign currency also.
Post-shipment credit refers to any loan or any other credit provided by
any institution to an exporter of goods from India from the date of extending the
credit after shipment of goods to the date of realisation of export proceeds and
included any loan on advance granted to an exporter, on consideration of or on
the security of any drawback of any case receivable by way of incentives from
the Government.
Dr. Varma and Agarwal, in their book 'Foreign Trade Management' have
specified the need for export finance. It is shown below:
i) procuring raw materials and components to process and product
exportable commodities,
ii) refinancing facilities so as to get the proceeds of bills after the
shipment,
iii) making availability of funds until the export benefits are realised and

48
 • ing facilities for long term credits offered for me export of
.,....u,,.

products.
The RBI in its letter dated January 31, '03, informed banks to use foreign
currency funds borrowed in terms of Para 4(2)(i) of Notification No'. FEMA
3/2000 as also foreign currency funds generated through buy-sell swaps in the
domestic forex market for granting export credit, subject to the Aggregate Gap
Limit approved by it. In simple terms, it means that banks can give such loans by
converting rupee funds into foreign currency and lending the dollars to
exporters. The directive to this effect from the Industrial & Export Credit
Department of RBI was meant to provide flexibility to banks to source foreign
currency funds for granting PCPC/EBR to exporters.
Pre-shipment credit in foreign currency (PCFC) means any credit
provided by a bank to an exporter for financing a purchase. processing,
manufacturing or packing of goods prior to shipment. Such a loan is granted on
the basis of letter of credit opened in his (exporter's) favour or in favour of some
other person by an overseas buyer or a confirmed and irrevocable order for the
export of goods from India.
Post-shipment export credit is provided to an exporter for the period
extending from the shipment of goods to the date of realisation of export
proceeds.
Banks are allowed to rediscount export bills abroad at rates linked to
fi international interest rates in the post-shipment stage. To make credit available
to exporters at internationally competitive rates, authorised dealers have been
permitted to extend PCFC to exporters for domestic and imported inputs of
exported goods at LIBOR/EURO, LIBOR/EURIBOR related rates of interest.
An exporter has the following export finance options:
To avail of pre-shipment credit in rupees and securing post-shipment
credit either in rupees or discountingi'rediscounting of export bills under the EBR
scheme.
If the pre-shipment credit is in foreign currency, the post-shipment credit
has necessarily to be under the EBR scheme since the foreign currency pre-
shipment credit has to be liquidated in foreign currency.

49
 Choice of currency: This facility may be extended to convertible
currencies like US dollars, pound sterling, Japanese yen, euro. To grant
exporters greater operational flexibility banks can extend PCFC in one
convertible currency with respect to an export order invoiced in another
convertible currency. For example, an exporter can avail of PCFC in dollars
against an export order invoiced in euros. The risk and cost of cross-currency
transaction will be that of the exporter.
The foreign currency balances with the bank in EEFC, RFC & FCNR(B)
could be utilised for financing pre-shipment credit in foreign currency and EBR.
Hence banks can allow an exporter to book forward contracts on the basis
of a confirmed export order prior to availing PCFC. (Source: The Economic
Times, 26th February, 2003).

FINANCE AND EXPORT TRADE

The Reserve Bank of India Export-Import Bank of India Development
Finance Institutions and Commercial Banks both private and public sector banks
are actively involved in providing export finance. The Reserve Bank of India
regulates interest rate for export finance. The Export Credit and Guarantee
Corporation of India in also involved in the process of export finance
transactions. Commercial Banks provide two types of export finance. They are
Pre-shipment Finance and Post-Shipment Finance. Commercial Banks are
directed by the Reserve Bank of India to provide 12% of their new bank credit
for export finance. Export Finance is needed to exporters to identify emerging
export market and to develop exportable products, establish production
infrastructure and facilities, procure raw materials and other assemblies for
producing export cargo, undertake export promotion activities and fulfil
financial requirements during the period bemeen shipment of goods and the
actual receipt of payment.
Data regarding Export Credit (Outstanding) furnished by the Reserve
Bank of India for the period 1990 to 1997 arc gig cn below:

50
Export Credit (Outstanding) for the period 1990 to 1997
Rs. in Crore

SI.No. Year Export Credit Rs.

1 1990 8245
2 1991 9186
3 1992 10261
4 1995 25051
5 1996 29570
.
6 1997 28588

RBI Initiative for Export Finance

While the bank rate has' come down to 7 percent, export credit remains
comparatively costlier as 10 per cent in the case of both pre-shipment as well as
post-shipment credit. The Federation of Indian Export Organisation (FIEO)
President K.K.Jain met RBI Governor Dr. Bimal Jalan to seen reduction in
export credit and also waives of bank processing charges in the case of
exporters. Industry sources said, the apex bank's chief has given positive _
indications regarding reduction in export credit, without going into details of the
quantum of reduction.
Interest charges of export credit stood as 11 per cent as of April 1998
while the bank rate stood as 1 per cent. Subsequently, bank rate came down first
to 8 per cent and then to 7 per cent. Interest charged on export credit came down
to 10 per cent with effect from April 1, 1991 but has been staying as the same
level despite a two percentage point reduction in bank rate since then.
Exporters have also pointed out that rival exporters based in other
countries enjoy cheaper export credit and this blunts the competitiveness of the
Indian industry. China, for example, charges only 3.20 per cent interest on
export credit while Japan offers credit to exporters as 1.38 per cent.
Indonesia charges 2.17 per cent interest on export credit while Singapore and
Taiwan charge. respectively, 5.7 per cent and 4.97 per cent. (The Economic
Times, April 19. 2001).
The FIEO president also informed the RBI chief that service charges
imposed by banks stand as 13.97 per cent and this is in addition to the cost of

51
export credit which stands as 10 per cent. Export credit outstanding increased
from Rs.38,885 crore in 1998-99 to Rs. 44,872 crore in 1999-2000 in line with
the growth in the country's exports. The export community accounted for 10.7
per cent of the total new bank credit outstandings in 1999-2000 as compared to
11 per cent in 1998-99.
Exporters have been demanding that the government should provide
cheaper credit so that Indian exports could become internationally competitive.
However, officials feel that any subsidy of export credit may not be in line with
norms laid out by the World Trade Organisation (WTO).
The central bank slashed export credit rates by one percentage point
across the board, raising hopes of a further reduction in key interest rates.
Expectation of a cut in the Bank Rate pushed down forward premium on the
dollar immediately after the export rate cut was announced.
In addition, the RBI, in consultation with the government, announced a
special financial package for large value exports of six products —
pharmaceuticals, agro-chemicals, transport equipment, cement, iron and steel
and electrical machinery, which are internationally competitive and have high
value addition.
•
Manufactures exporters in these products with export contracts of Rs.100
crore and above in one year will be eligible for the special financial package.
This will be valid for one year from October 1. 2001.
Exporters covered under the special financial package will be extended
credit for an extended period upto 365 days as the pre-shipment as well as post-
shipment stage. The rates of interest which are now decided by banks on a
commercial basis upto a maximum of prime lending rate plus 4 percentage
points, has now been capped at PLR + 0.5 per cent tbr the extended period of
pre-shipment and post-shipment credit. This measure. applicable for large value
exports is over and above the reduction in ceiling rates on export credit.
Exporters will also be allowed to import raw material on credit terms for
periods beyond 180 days as one percentage point above the prevailing Libor
Rate. Exim Bank has been permitted to extend buyers credit of Rs.200 crore
without reference to RBI. Similar permission will also be granted to the
participating banks.

52
IMPORTANCE OF EXPORT FINANCE
The importance of export finance are, presented below:
1) It enhances exports in the competitive market: Export finance paves the
way to increase exports. Increasing exports are essential for a developing
as well as developed country. But export market is operating in the
competitive environment. Hence, the government or banking institutions
usually extend concessional credit to its exporters, who are is need of
such credits to fulfil their export obligations.
2) Technological Development: The degree of technical know-how is very
low in less developed and developing countries. So, less developed
countries hire the services from other developed countries but their
charges are very high. Huge finance is needed to the less developed
countries to repay service charges. Export finance is needed to pay such
charges.
3) Easier terms and conditions: If the credit is available on easier terms,
exporters will be in a position to sell the goods to the importer on easier
payment terms.
4) It is a source for the economic development of nations: Developing
countries are having deficiency of foreign exchange reserve to copy with
their development needs. Exporters obtain long-term export credit from
specialised financial institutions to meet import commitments. Thus,
export finance does not create pressure over foreign exchange position
and help for economic development.
5) Balanced Growth: The deficiency of finance is one of the main
constraints for economic development of developing countries. In this
context, export finance contributed to economic development and helps to
establish balanced industrial development of different nations.
6) It reduces adverse balance of payments: Adverse balance of payment
creates serious consequences on development activities of any nation.
With sufficient export finance, the manufacturers of a country may
produce more and export more to different markets in the world. Increase
in export earnings will help to solve balance of payment crisis.

53
 7) It helps for sales promotion: The various sales promotion programme like
advertising, publicity, trade fairs and exhibitions, etc., need adequate
finance. Export finance can be used for undertaking aggressive export
promotional measured to increase export market.
8) It enhances customer services: Export finance is needed for product
adaptation, improvement of quality, adding new uses to the product and
to use an appropriate pricing method to increase export performance.
9) Export finance fulfils short, medium and long-term financial needs:
Exporters need short-term, medium-term and long-term finance to meet
their production and distribution requirements. Banks provide short-term
credit extending to a period upto one year, and other terms of financial
needs are met from other national and international financial institutions.
Long-term credit helps to bring modernisation and adoption of latest
technology.

1.16 METHODS, PROCEDURES AND SOURCES OF EXPORT FINANCE

The main methods of export finance can be grouped into two. They are:
•
1) Short-term Finance, and
2) Medium and Long-term Finance
Short-term Finance
Short-term finance facility is extended for a period from 30 days to 180
days. It is granted by the commercial banks for import-export trade in consumer
goods and industrial goods like small machines, commercial vehicles, spare
parts, etc.
The main importance of short-term finance to exporters is presented
below:
(1) procuring raw materials,
(2) manufacturing and processing of making advances to other producers
from whom the exportable goods are ordered,
(3) meeting expenses of packing, handling, internal transport and to meet
insurance and warehousing charges, and
(4) shipment and other related needs.

54
 The requirements of short-term finance to the importer are as follows:
(1) For payment of advance to the exporter
(2) For meeting the shipping charges, insurance etc.
(3) To pay duty is obtaining import licence etc.
The main short-term credit or finance included pre-shipment finance and
post-shipment finance. They are explained below:
Pre-shipment Finance
Pre-shipment finance may be defined as any loan or advance granted or
any other credit provided, by a financial institution to an exported for financing
the purchase, processing or packing of goods, on the basis of letters of credit
opened in his favour by an overseas imported of the goods, on upon a confirmed
and irrevocable order for the export of the goods, or any other evidence of the
placement of an order with the exporter. The maximum period for which any
loan on advance may be granted or any other credit facility may be
provided does not usually exceed 180 days, on such extended period as the
central bank of the exporting country may allow. Normally, there are two ways
open to an exporter to obtain licence as the pre-shipment stage. They are
anticipatory letters of credit and packing credits.
Preshipment Finance in Foreign Currency
Exporters can get preshipment finance in foreign currency from
commercial banks. Exporters can use the foreign currency for the purpose of
importing necessary raw materials and other inputs for manufacturing exportable
commodities. Preshipment fmance in foreign currency is made available to the
exporters who have a fire export order or a letter of credit. This type of financial
arrangement is provided by banks for a maximum period of 180 days.
Preshipment finance in foreign currency can be obtained from any Authorised
Dealers in Foreign Exchange.
Commercial Banks provide preshipment finance to the exporters against
the security of, (i) Pledge, (ii) Hypothecation, (iii) Export Trust Receipt, (iv)
Incentives Receivables, (v) Red Clause Letter of Credit and (vi) Back-to-Back
Letter of Credit.
Banks will insist exporters to take appropriate export credit, insurance
policy from the Export Credit Guarantee Corporation of India Limited, for
providing preshipment finance.
55
 The following documents are required for getting preshipment financt..
from banks: i) Confirmed Export Order, ii) Letter of Credit. iii) Policy of
Export Credit Guarantee Corporation, iv) Copy of Audited Financial Statements
and Income Tax Assessment, v) Copy of the CNO Exporters/Code Number and
vi) Copy of the Registration-cum-Membership Certificate issued by an Export
Promotion Council.
Anticipatory Letters of Credit
Anticipatory letters of credit is also known as red clause letters of credit.
It is a normal lettu- of credit, which contains a special clause (usually typed in
red) authorizing the negotiating or confirming bank.
The Red Clause of Letters of Credit is generally opened to enable the
exporter to procure material and execute the foreign buyer's order without
looking up to naluch of his own funds. The advance made to the exporter is of
course as the risk of the opening bank and in restricted to the amount authorised
in the red clause letter of credit. The bank must ensure that there are
proper instructions on the red clause letter of credit as regards reimbursement of
the amount to be advanced to the exporter. Generally, the reimbursement of the
pre-shipment advance under a red clause letter of credit .is provided by the
negotiation of a clear draft under the letter of credit, in which case the invoice
submitted as the time of the negotiation of the documents should show a
deduction to the extent of the drawings already made. Before advancing against
a red clause letter of credit, it is advisable to ensure that the bank will be is a
position to negotiate the bills drawn under the letter of credit.
Packing Credit
Packing credit is essentially a loan or advance granted by a hank to an
exporter to assist him in buying, processing, packing and shipping the goods.
These advances are generally made by commercial banks in different forms.
Forms of Advances
The main forms of financing the exports as the pre-shipment stage are:
(1) loans
(2) overdrafts, and
(3) case credits

56
(i) Loans: Under loan account, the entire amount is paid to the borrowed
either in case or by transfer to his current account as one time. Generally,
its repayment is stipulated by instalments. The main advantage of the loan
system is that the loans are for predetermined short periods and have a
built-in-programme of repayment. They are automatically reviewed by
banks on the due dates. The main disadvantage of the system in its
inflexibility and the need for borrowers to negotiate fresh loans every time.
Verification of the ultimate use of funds in difficult in this system
compared to the case credit system.
(ii) Overdrafts: An overdraft is a fluctuating account and its balance is
sometimes in credit and sometimes in debit. Cheques drawn on a current
account are normally honoured only is the balance it is credit, but the
overdraft arrangement enabled a customer to draw over and above his own
balance up to the extent of the limit stipulated. Drawings and repayments
are permitted as needed by the customer, provided the total amount
overdrawn does not exceed the agreed limit.
(iii) Case Credits: Case credits are ordinarily allowed against pledge or
hypothecation of goods against personal security. If there is a good
turnover in the account and quick movements of goods, a case credit limit
is renewed periodically. The case credit system has the advantage of
flexibility. It enables the borrower as to route all their case earnings through
the account and keep drawings as the minimum level, thereby minimising
interest charges. The main disadvantage of the system is that the banks may
find is difficult to ensure the end-use of funds due to its emphasis or the
security aspect and the roll-over nature of credits.
Operational Mechanisms for Pre-Shipment Financing
Pre-shipment finance is essentially a working capital finance made
available for the specific purpose of manufacturing of goods means for export.
All costs prior to shipment would be eligible for financing under packing credits.
The following points will usually be examined by the banks when considering
proposals for export packing credits:
1) The capacity of the exporter to execute the orders within the stipulated
delivery schedules
2) The ability of the exporter to absorb export business

57
 3) Whether the quantum of finance asked for in or equal rate with the
company's turnover
4) The degree of arrangements made for the import of raw materials and its
component
5) The spread of risk
6) Whether the exports are covered by irrevocable letters of credit
7) The statue of the issuing banks
8) The statue of the buyer's country in terms of economic and political
conditions
9) The availability of security such as export credit insurance cover
10) Covering of exchange risk.
Post-Shipment Finance
Post-shipment finance is defingd as any loan of advance granted or any
other credit provided by an institution to an exporter of goods from India from
the date of extending the credit after shipment of goods to the date of realisation
of export proceeds, in consideration cr on the security of any drawback on any
case payment by way of incentive frlm the Market Development Assistance
(MDA) or any other relevant source. Thus, post-shipment finance is given
against:
1. Export bills drawn on foreign buyers, and
2. Export case incentives to be received by the exporter.
Negotiation of Bills
Bills of exchange drawn either in Indian rupees of foreign currencies
under a letter of credit or otherwisOre offered to banks for negotiation such as
sale of discount. Normally, the bills arawn against a letter of credit are accepted
without any difficulty due to the fact sthat banks do not have any risk. Besides,
the negotiation of bills depends upon following factors:
1) Credit rating: Status report on Iipth drawee and drawer in terms of both
financial and moral standing inee prime consideration in accepting a bill
for negotiation.
2) Product characteristics: The nature, quality and price of the export
product also influence the banker's decision in accepting a bill: For

58
 instance, banks will accept the bill if the product is of international
standard and quality and offered as most competitive rates and has good
demand abroad.
3) Documentary requirements: In case of documentary bill, the banks will
examine the documents like bill of lading and invoice or various aspects
such as whether the bill is supported by all the documents mentioned in
the letter of credit.
4) Credit limit of drawer: If the amount does not generally exceed the credit
limit of the drawee a fixed by the bank, then the bills are accepted
5) Rate of Negotiation: The rate of negotiation mainly depends upon the
currency in which the bill is drawn, the banking organisation in the
country concerned, period of maturity, etc. The banker treats the
negotiation of the bill as an advance of rupees for a period from the date
of negotiation until the final remittance is received. The banks consider
the following factors is calculating such a rate:
(i) Prevailing rate of interest,
(ii) The period which the bill has to run before maturity,
(iii) Stamp duty to which the bill is liable in the foreign centre,
(iv) Charges for collection which the foreign banks may make,
(v) An appropriate allowance for possible delays of mails or other
contingencies and the banker's own profit over the transaction.
6) Collection of bills: The 'Sight' Documents against payment as well as
`Usance' bills Documents against Acceptance can be offered to the banks
of collection basis. Banks send such bills to their foreign branch for
collection of payment. Banks may give advance against such bills and is
may take the following forms:
(1) Cent Percent advance: Bank may discount the bill of exchange
by advancing to the drawer the full face value of the bills if a
rupee bill of exchange has been drawn and received by the
bank for discount with instructions from the drawees that in
addition to face amount of the bill, the drawee is to pay interest,
collection charges and foreign bill stamps

59
 (ii) Percentage of advance: The usual procedure is that the bank
will advance upto a certain percentage of the amount of each
bill of exchange depending upon the integrity and financial 5274
standing of the drawer. Besides, the collection charges are
made on the full value of the bill
(iii) Percentage advance against pending collections: Under this
system the drawing limit is calculated as a percentage times of
outstanding amount and the customer can draw, if he needs,
upto the amount indicated by the drawing limit.
Sources of Short-term Export Finance
The mail sources of short-term export finances are presented below:
Foreign Trade Financed by Exporter
This is one of the sources of export credit buy very few exporters will
employ their capital to finance for export. Exporter will employ this method
when he is financially sound and he may consider to supply goods to the
importer on the basis of credit. In this situation, exporter will provide credit to
the importer on the following terms:
(i) Open Current Account: Generally, this method will operate between
the exporter and importer who have long-term dealings. Exporter
sends the letter of rights to the importer. Importer makes payment
within appointed time on the basis of the exporter's letter of rights.
Interest is charged as certain rates if the importer delays the payment
beyond the agreed time limit;
(ii) Open Account: Exporter ships the goods without financial documents
to his advantage except commercial invoice. Sales on open account
are settled through agreed periodic remittances. Considerable risk is
involved in the open account method as seller carries no documentary
evidences of transaction with him. Hence, this method is generally
confined to interrelated companies.
(iii) Payment by return mail: Under Payment to return mail method, the
seller ships the goods and a shipment advice is sent to the importer.
The importer must make the remittance immediately of receipt of
shipment advice.

60
 (iv) Payment against bills of exchange: Under this method, the exporter
ships the goods to the importer on the basis of bills of exchange drawn
documentary bill of exchange
goof' WC II) addition to exporter send;
of bill and insurance are enclosed, The
the bank for collection of
' ' or through
INOICet shipping directly
Mg exchange
the bills of
(

payment.
Foreign Trade Financed by the Exporter with the Assistance of his Bank
Under this category, exported obtains bill oftime.
exchange period
Afterfrom the importer
the expiry
of
which will remain with his for a certain period
the exporter accepts payment from !he importer. Besides.. the exporter can
from any commercial bank for finance if he needs finance
discount the bill
before the expiry period of the bill.
Foreign Trade Financed by the Importer
o f paying case is advance.
imports the goods to the exporter by
Sometimes, the importer it given
The following
are the main types of short-term cred
the importer:
Payment of placing orders: The importer makes full payment is
(i)
advance of placing
cable message will be send o the
Cable transfers: Under this system, a Ot oth
(ii) by the exporter once the goods are ready for dispatch.e
importer
receipt of the cable message, payments are made to the exporter
.-“yments through confirming houses: Resident Buyer or a Forwarding
: _iginiling-Ilikuger....11a-4444--„ames- vyr:-..ht,---vyruer-try my —
Agt"( ma} be cc
.trni..._However. exporter will he prepared to accept payment on
importer.
the basis of credit worthiness of confirming houses.
Foreign Trade Financed by Importer with Bank Assistance
The exporter can get import finance through a bank by any of the

Ulna oto methods: daltalgi

draft is one of
Bills of Exchange.. Documentary Wt
(1) the main methods of payment in export trade. Under this system. the
exporter has to draw a bill of exchange on the buyer, payable as sight
hen no trade credit ic being extended or payment as some future date
6l
 to take care of inherent credit terms. The exporter is supposed to
submit the bill with documents of title namely, commercial and
custom invoices, marine insurance policy. The sets of documents are
to be surrendered to the importer of the payment of the bill. In respect
to sight bill, the amount is realised and remitted back to the exporter's
bank account. But, in time bills, after the bill in accepted by the
importer is returned to the exporter's bank to be presented again to the
buyer for payment on the date of maturity.
(ii) Letter of Credit: Under letter of credit method, the exporter why
desired to get an assurance of payment against documents usually
stipulated in his contract with the overseas imported by means of
banker's letter of credit which enables the exporter to obtain
immediate payment of his invoice against shipping documents. The
two main kinds of letter of credit are: (i) Irrevocable letter of credit
and (ii) Revocable letter of credit. At Irrevocable letter of credit in one
which after issuance cannot be cancelled without the consent of
parties concerned. A Revocable letter of credit can be altered or
cancelled as any time without any consent or reference to the
beneficiary or seller or exporter.
ONO

Foreign Trade Financed by Banks

Under this category, on the basic of the request of the importer, the bank
opens documentary credit and makes payment to the exporter by obtaining the
documents. The bank accepts the bills drawn by the exporter and the exporter
gets the accepted bills discounted and gets the short-term finance.
Foreign Trade Financed by Accepting Houses
The main function of an accepting house is to accept the bills drawn by
the exporters. Normally, the imported and Accepting house will have a written
agreement is which the house accepts the bill drawn by an exporter.
Accepting house accepts commission for its work from the importer. After
sending the acceptance from Acceptance house, the exporter gets such bills
7•rments.
Foreign Trade Financed by Discount Houses
Discount houses are trading houses engaged in discounting of bills. The
Discount houses discount the bill if it is accepted by any accepting house.

62
Further, the Discount house discounts the bill on the basis of credit worthiness
and financial soundness of the exporter as well as importer even if the bill is
non-accepted by an Accepting house.
Medium and Long-Term Finance
Long-term finance refers to the credit facility extended upto a period from
five to twenty years. It is provided for long-term development activities such as
purchase of capitalised heavy items such as ship-building, purchase of electric
machines, heavy engineering goods, etc. Long-term finance generally involved
higher levels of risk that short-term finance. Hence, the interest rate for long-
term finance is more that other forms of credit. The World Bank, International
Monetary Fund, International Development Association and Asian Development
Bank are some of the International financial institutions granting long-term
credit. The main purposes of long-term credit for both exporter and the importer
are presented below:
(i) To import and export of capital goods
(ii) To provide credit facility on liberal terms to the importer
(iii) To execute the export promotion programme
(iv) To establish new enterprise, and
(v) To make capital investment in other countries.
•The medium and long-term credit can be divided into two. They are:
(i) Supplier's Credit, and
(ii) Buyer's Credit
(i) Supplier's Credit: Under this system, the Indian exporter will oiler
credits to the overseas buyer. The exporter can, on the other hand.
secure reciprocal credits from the commercial banks which in turn.
can get refinance from the Exim Bank.
(ii) Buyer's Credit: It is a means of financing an export transaction
involving capital goods and equipment of large value or complete
turnkey projects on long-term credit. Loan is extended by a bank of
other financial institutions in the supplier's country to the overseas
buyer why in thus in a position to pay case for the supplier received.
The loan is guaranteed by the buyer's bank or often extended to the
buyer's bank itself for the specific purpose in view. The main two

63
 points to be made in this connection are: (i) supplies gets his money if
he fulfils his responsibility, and (ii) there is no involvement of transfer
of funds from one country to another. (Source: DDA Course Material
`EXIM Financing and Documentation' Pondicherry University).
Forfeiting
The term 'forfeit' is derived from the French word meaning 'the surrender
of rights'. Forfeiting is non-recourse discounting of export bills. Forfeiting in
one of the forms of financing to the exporters. The Export-Import Bank of India
is authorised by the Reserve Bank of India to undertake forfeiting for export
financing. Alan C. Shapiro, in his book, 'Multinational Financial Management'
has defined Forfeiting as, "the discounting as a fixed rate without recourse-of
medium-term export receivables denominated in fully convertible currencies-.
Example: ABC Co. Ltd. has exported to a imier in London and ABC Co. Ltd.
will get export payment after 5 months. In this situation, under forfeiting, ABC
Co. Ltd. can get export bills discounted with a forfeiting agency, through EXIM
Bank. The forfeiting agency will pay the amount after deducting a few
(commitment fee, discount fee and documentation fee) prescribed for forfeiting.

SELF-ASSESSMENT QUESTIONS
1. What is Letter of Credit? Explain its importance in export.
2. What are documents related to export payment?
3. What is GR Form?
4. W hat do you understand by AR-4 Form?
5. What is aligned documentation system?
6. What are commercial documents?
7. What are regulatory documents?
8. What is commercial invoice
9. What is Mate's Receipt?
1v. i. \plain Bill of Lading.
1. Explain Shipping Bill.
12.What are the various types of shipping Bill?
13.What are shipping terms?
64
 14. Explain Charter party agreement.
15. What is Letter of Credit?
16. What are the various types of Letter of Credit?
17. what is Bill of Exchange?
18. What is Usance Bill?
19. Give the procedure for opening of letter of credit and utilization of letter of
credit.
20. What is EXIM Bank? What are its objectives?
21. Discuss the financial assistance schemes of EXIM bank for exporters.
22. What is Export Finance?
23. What is Preshipment Finance?
24. What is Postshipment Finance?
25. What are the external sources of funds for export trade?

REFERENCES
Himalaya Publishing
1. Jacob Cherian and B.Parab, 'Export Marketing'.
- House, Bombay.
2. Jacob Cherian and B.Patab, 'Export Marketing', Himalaya Publishing
House, Bombay.
RBSA Publishers,
3. M.J.Mathew, 'Management of Export Marketing',
Jaipur.
Publications Private
4. R.K.Jain's Customs Law Manual 2001-02, Centax
Ltd., New Delhi.
Management - An
5. R.L.Varshney and S.Bhashyam, 'International Financial
Indian Perspective', Sultan Chand and Sons, New Delhi.
6. V.A.Avadhani, 'International Finance', Himalaya Publishing House,
Bombay.
7. Warren J. Keegen, 'Global Marketing Management', Prentice Hall of India
Private Limited, New Delhi.
* * *

65
 UNIT — II
TRANSPORTATION
After studying this lesson, students can understand shipment procedures
of export cargo and multimodal transport.

LESSON STRUCTURE
2.1 Introduction
2.2 Multimodal Transportation
2.3 Shipping and Air Transport
2.4 Movement by Air — The Airway Bill
2.5 Movement by Road and / or other modes
2.6 Transportation by rail
2.7 Customs formalities
2.8 Self — assessment questions
2.9 References

2.1 INTRODUCTION
Observing the environment in the overseas market helps to ascertain the
appropriate distribution system. Physical distribution policies in foreign market
are quite different from the domestic market. Expenses relating to physical
distribution represents a major share of the final selling price in foreign markets
that in domestic markets. It export marketing. exporters should take care of
problems caused by humidity, pilferage, improper kindling and inadequate
marking. Exporters have to fulfil shipping and insurance formalities. Fulfilling
documentary procedures is as essential aspect in international shipments.
Sak Onkvisit and John J.Shaw in their book International Marketing have
stated that in the developed economies, the distribution sector typically accounts
for one third of the Gross Domestic Product (GDP). Furthermore international
logistics costs can account for 25 to 35 percent of the sales value of a product, a
significant difference from the 8 to 10 percent for domestic shipment.

66
 DECISION AREAS
Cost and transportation are important decision areas of physical
distribution.
There are three modes of transportation such as air, water (ocean and
inland) and land (rail and truck). Ocean and air shipments are suitable for
transportation between countries. Inland water, rail and highway are more
appropriate for domestic and inland transportation. Selection of appropriate
mode of transport is influenced by the following factors:
a) market location
b) speed and
c) cost
Market location determines mode of transport. Rail or truck can be used
to transport products in contiguous markets. Adjoining markets or markets
having common border are known as contiguous markets. Markets of United
States, Canada and Mexico are called contiguous markets. Ocean or air transport
is used to transport goods between countries or continents.
Philip Kotler has defined Physical Distribution as, 'planning,
implementing and controlling the physical flow of materials, final goods and
related information from points of origin to points of consumption, to meet
customer requirements as a profit'. Physical Distribution is otherwise called
• Marketing Logistics. The basis objective of marketing logistics is to provide a
targeted level of consumer service as the least cost. Integrated Logistics
Management is a felt need of the hour which emphasised teamwork, both inside
the company and among all the marketing channel organizations, in order to
improve the performance of the entire distribution system.
Warehousing is an important component of physical distribution.
Exporters should decide on how many and what types of warehouses they need
and where they will be located. If exporters have a large number of warehouses,
goods can be delivered more quickly to customers. Establishing a large number
of warehouses will increase warehousing costs. Exporters should balance the
level of customer service against distribution costs. The Federation of Indian
Exporters Organisation (FIEO) has taken efforts to establish warehouses for
Indian products in the emerging world markets for the purpose of quick and

67
immediate delivery of goods to the buyers. This is a unique feature of I
international physical distribution.
Speed is another important factor influencing mode of transport in export
market. When speed is given preference in shipment. aim transport is quiet
appropriate mode of transport for distribution. Aid transport is preferred for the
export of perishable products. Direct flight is given preference for the shipment
of perishable cargo. Direct flight reduces transport period. Shorter period in
transport reduces spoilage and theft. Aid transport accounts for only one percent
of total international freight movement. Though the cost of transportation is very
high is aim transport, is speeds us delivery, minimises the time the goods are in
transit and paved the way to achieve greater flexibility in delivery schedules.
Aid cargo is most appropriate for high value products.
Cost is also one of the factors determining mode of transport. Cost is an
important decision making area in physical distribution in export market. Cost is
associated with speed of transport and speed of delively or exportable
commodities.
Rankings of Transportation Modes
(1 = Highest Mode)
•I
Types of Speed (door Dependability Capability Availability Cost per
Transport to door (meeting (ability to (No. of tonmile
delivery schedules on handle geographic
time) time) various points 1
products) served)
Rail 3 1
A
Water 4 1 4 I

Truck 2 2 3 4
Pipeline 5 1 5 2
Air 1 3 4 3 5
(Source: Philip Kotler, Principles of Marketing)
2.2 MULTIMODAL TRANSPORTATION
International multimodal transport has been defined as the carriage of
goods from one country to another by more than one mode of transport on the

68
basis of a single contract. The essential features of this system which distinguish
it from the conventional segmented transport are firstly that it is based on a
single contract and secondly the multimodal transport operator who assumes
responsibility for the execution of the contract acts as the principal and not as the
agent of the consignor or of the carriers participating in the multimodal transport
operations. The system is based on the principle that maximum efficiency in
transport can be achieved if goods are transported from door-to-door on the basis
of a single contract and through freight rate. When such a door-to-door service is
planned and co-ordinated as a single operation. the burden of documentation and
other formalities connected with the conventional system is reduced to the
minimum. To the traders, the faster transit of goods made possible under such a
system would reduce the disadvantage of distance from the market and of capital
being tied up. Further, they would be able to replenish the stocks more quickly
and with greater certainty.
Status of the Multimodal Transport Organisation (MTO): The MTO is a
new legal entity which has emerged out of the introduction of multimodal
transport. As already stated, he acts as the principal for the performance of the
MT contract and, in that capacity, undertakes to contract and provide for the
different modes of transport and other services required for the expeditious,
efficient and safe transport of goods from the place where he takes the goods in
charge to the place where he delivers the goods according to the contract.
In the execution of the contract, he has necessarily to engage the services
of several carriers and non-carriers except to the extent that he himself directly
provides such services. The carriers may be:
a) Ship-owners
b) Road operators
c) Railways
d) Airlines
e) Inland waterway operators
The non-carriers may be those who own or control:
a) Container terminals (in which case they may be called terminal
operators).
b) Warehouses.
c) Container freight stations (CFS) or groupage or consolidation depots.
69
 d) Container leasing organisations.
e) Organisations like freight, forwarders attending to packaging,
customs clearance, import/export formalities, foreign exchange
transactions and connected documentation.
The MTO enters into separate contracts with each of the persons or
organisations whose services he engages, subject to the applicable international
convention, national law or customary practice, but the terms of such contracts
in no way affect his obligation to the consignor of the goods under the MT
contract. Some MTOs have subsidiary organisations instead of sub-contractors,
for rendering such services.
Types of Multimodal Transport Organisations: There are different types
of organisations or enterprises functioning as MTOs, but essentially they may be
grouped under two categories:
i) Vessel Operating MTOs:
a) Individual shipping companies or groups of consonia of shipping
companies.
b) Producers/exporters of certain commodities who are the major users
of their own multimodal transport operations who operate with owned
or chartered ships.
ii) Non-vessel Operating MTOs (NVO-MTOs):
a) Freight Forwarders
b) Road Transport Operators
c) Railways
d) Airlines !A!

e) New companies specialised in MT operations only.

Liability of the MTO: The MTO is liable for loss of or damage to goods
as well as for delay in delivery irrespective of the stage at which it occurs. His
liability is based on the principle of presumed fault, or neglect, i.e. he is liable
unless he proves that he, his servants or agents or other persons whose services
he makes use of for the performance of the multimodal transport contract took
all reasonable measures to avoid such damage or loss or delay. In this respect,
the liability rule applicable to the MTO is similar to the role applicable to the
carrier under the Hamburg Rules pertaining to the carriage of goods by sea.
70
 Documentation: When the goods are taken in charge by the multimodal
transport operator he shall issue a multimodal transport document which shall be
prima facie evidence of the taking in charge of the goods by him. The issue of
such a document is mandatory on the part of the multimodal transport operator.
The multimodal transport document may be issued in either negotiable or non-
negotiable form at the option of the consignor. There is also provision in the
U.N. Convention for the issue of a non-negotiable document by making use of
mechanical means so as to allow technological developments in documentation
such as the E.D.P. system to be followed, wherever necessary. .
Pending the entry into force of the U.N. Convention multimodal transport
operators have evolved their own combined transport documents but essentially
two types documents are in common use, viz. the COMBIDOC used by vessel
operating MTOs and the FBL used by non vessel operating MTOs i.e. freight
forwarders.
Traditionally, shipowners have confined their services to transporting
goods from a port in one country to a port in another one. The shipowner has had
the custody of goods during the sea voyage and has therefore been responsible
for their safety and condition during this period. The shippers' responsibility has
been for arranging the movement of goods from the supplier's premises to the
loading port and from the discharge port to the buyer's premises. Under the
purchase contract the shipper may be buyer himself (as in ex-works contract) or
the seller (as in DDP contract). Naturally this has meant several contracts of
affreightment: one with a shipping company for the voyage part, and one each
with a road/rail hauler in the supplier's and the importer's countries.
It has also meant loading and unloading goods from one carrier to
another, involving high incidence of delay, pilferage, theft, damage and loss of
goods. When claims are made or settled, establishing responsibility for the
damage or loss has itself been a difficult task when many parties have been
involved.
The advent of multimodal systems of transportation has overcome some
of these advantages associated with the urn-model transportation of goods.
Multimodal Transportation
Multimodal transportation system signifies a totally new concept in the
international movement of cargoes. Instead of viewing this movement as the

71
transportation of goods from one country to another, it is now seen as the
movement of goods from supplier in one country to importer in another. The
different segments of transportation are no longer viewed as independent and
separate operations but as linked sequential stages in an integrated chain.
(I) Definition
The United Nations Convention on International Multimodal Transport of
Goods defines multimodal transport as:
"... the carr;ve of goods by at least two different modes of
transport on the basis of multimodal transport contract from a
place in one country at which the goods are taken in charge by
the multimodal transport operator to a place designated far
delivery situated in a different country".
Multimodal transport has the following characteristics:
• The carriage of goods involves at least two modes of transportation.
i.e., a sea-going vessel.
■ A multimodal transport operator (MTO) assumes full responsibility.
He may be either a vessel owner (VO —MTO) or a non-vessel owner
(NVO-MTO). •
■ Transportation extends backwards at one port and forwards at the
other, thereby providing these services not only on a port-to-port
basis.
■ A single contract of affreightment is made between the shipper and
MTO to cover all modes of transport.
(2) The multimodal transport operator (MTO)
Along with the concept of multimodal transportation has emerged the
multimodal transport operator (MTO), who has given the idea an operational
content. Instead of having to enter into a series of contracts with different
transporters, the shipper now has an institution available to him. The MTO can
assume full responsibility for the custody and carriage of goods from the
moment they leave the supplier's premises to the moment the consignment is in
the hands of the importer at the place of his choice. The shipper signs only one
contract of affreightment. The MTO concludes all the necessary sub-contracts of
affreightment with several transport operators — airlines, railway companies,
72
r road haulage operators or shipping lines. These sub-contracts. however, do not
affect the MTO's obligations to the shipper. It is to the shipper that the MTO
remains solely respinsible for any damage, pilferage or loss, even if the goods
may have been in the custody of any one of the sub-contractors with the loss
occurred.
The MTO may have own as well as operate a sea, air, land and/or any
other carrier. However, the functions of the MTO are being increasingly
performed by non-vessel owning operators (NV-MTOs).
Depending on the nature of the contract, the duties of an MTO will begin
and end at any point in the transport chain as shown in the box below.

Supplier Buyer

■ Door Door

■ Door Container yard

■ Door --110 Destination port

■ Container yard Destination port

The point of demarcation where risk is transferred from the seller to

buyer is no longer the ship's rail. In a multimodal transportation system. it is the
point where the seller delivers the goods to the first carrier.
The multi-modal system offers certain benefits to the importer. Among
these are the cost benefits of quick transit time, cheaper packing and less
susceptibility to damage during the journey. The use of containers, trailers, self-
propelling pallets and other equipment for the multimodal transportation of
cargo makes port handing much faster than in conventional systems. Both time
and transportational costs are saved.
However, if multimodal transportation of international cargo is to be
successful and effective it requires:
■ appropriate institutions, like the MTO,
73
 ■ streamlined procedures and documentation, 1
■ standerdised containers, trailers, self-propelling pallets and other
equipment,
■ suitable infrastructure at ports and in the hinterland in both the
buyer's and seller's countries.
To acquire the equipment and construct or modernize the infrastructure
requires a great deal of capital investment. In the short term, many developing
countries are not in a position to provide this. This means that many these
countries have not so far been able to raise the standard of their facilities high
enough to benefit from the advantages of multimodal transportation.
The importer should therefore always carefully verify the standard of port
and inland facilities before he agrees to a multimodal shipment. Depending on
purchase contract terms, an importer may not be responsible for arranging any
part of the movement of goods from suppliers' warehouse to his own place of
use as would be the case in DDP (delivered duty back) contract. Alternatively,
the entire responsibility for this may be his as in ax EXW (exwbrks) contract. In
the latter case, all the documentation connected with arranging for movement of
goods from the supplier's delivery point in his country to the importer's
warehouse in the latter's country will have to be made out by the importer (or
his agent).
(Source: ITC Study Materials. Geneva)

2.3 SHIPPING AND AIR TRANSPORT

The movement of goods from the supplier's to the importer's country
may involve the use of one, some or all of the li► llo ing modes of transportation:
sea, air, road, river or other inland waterway and rail. Each of these requires
completion and use of documentation which has evolved through custom and
usage and/or as a result of international elIbrts at standardisation through
international conventions. Even though not all countries may have acceded to all
such conventions, a certain degree of standardization has taken place, through
commercial intercourse, in the documentation formats in use. In the following
paragraphs the requirements of documentation are discussed for some of the
more important modes of transportation.

74
Movement by Sea Transportation
i) Shipping Instructions
Normally the importer will entrust the job of receiving the goods from the
supplier and arranging for their sea transportation to a freight forwarder in the
supplier's country. He will have to give suitable information to the freight
forwarder which he can use in completing the required documentation (for
booking shipping space, arranging for insurance, customs clearance, etc.). Most
of the required information will be the same as in the commercial invoice which
will often be an attachment to the shipping instructions. Even so, to avoid errors
and omissions in the required information many forwarders have devised special
forins for shipping instructions which the shipper (e.g., the importer in case of an
ex-works or FAS contract) will be required to complete.
ii) Forwarder's Certificate of Receipt
Once a freight forwarder has been instructed to receive the goods from
the supplier, make arrangements for port and customs clearance, and for
shipping, he will accept the goods and accordingly issue a receipt to the supplier.
There is no standardized format the use of which is obligatory on all forwarders.
Each can use his own format. However, in countries where trade facilitation
measures have progressed and the system of aligned documentation has been
introduced for customs and port clearance purposes, trade and industry has also
restructured other documentation connected with movement of international
cargo, including the certificate of receipt.
iii) Packing List •
A list of packages forming a consignment is called the packing list. It is
an important document as it lists complete packing details such as total number
of packages, weight and volume of each and the description of contents. It gives
a reference to the invoice for the consignment. The packing list enables the
consignee (or his agent) to check the contents of the packages and helps identify
the goods during different stages of their onward movement.
There is no specific form that trade and industry has evolved for it
However, the general features of packing lists are common.
iv) Mates Receipt
Once goods are placed on board the ocean carrier, the master of the ship
(or chief officer on his behalf) will issue a receipt called the "mates receipt" to

75
 certify that the goods (packages) named therein have been received. The mates
receipt is, in some places first handed over to port authorities to enable them to
collect port charges and then to the shipping line to enable the latter (or its
agents) to issue a regular bill of lading.
v) The Bill of Lading
The bill of lading is an important document on contract of afreightment
between the shipper and the shipowner. How and when this document came to
be used in maritime transport is somewhat obscure. However, its format has over
time evolved as a standard for the industry and is in use universally. It serves the
following useful purposes:
• Balance of contract of carriage between the shipper and the carrier;
• Receipt for goods into charge of the shipowner;
• A document of title allowing title to goods to be transferred by
endorsement and delivery of the bill of lading
• Normally, bill of lading formats provide for inclusion of the following
details;
• Name and address of the shipper;
• The name of the vessel;
• Description of cargo including identifying marks, numbers and types of
packages, contents. gross weights and volume;
• Port of shipment;
• Port of discharge:
• Details of freight including whether it is to he "prepaid" (at port of
despatch) or "payable at destination- (freight collect):
• Consignor's name and address;
• Terms of sale;
• The date on which the goods are received for sh Ipn :cult or shipped on
board the named vessel;
• Number of original hills issued:
• Signature of shipping line or its appointed agent.
It should be noted that the responsibility for getting the bill of lading and
making it available to the importer will depend on the terms of purchase

76
contract. If the contract is on (seller's) ex-works or F.A.S. terms the freightage
of goods will have to be arranged by the importer himself or, and more likely, by
his agent. In such a case, a non-negotiable bill of lading (namely the liner
waybill) would be the appropriate alternative.
Carriage by Sea: Bill of Lading
The document covering transport by sea is called a bill of lading. It is the
roost important document in international trade.
As was noted earlier in discussing the carrier, the bill of lading attests to
the carrier's assumption of responsibility for the goods, and is evidence of the
existence of a transport contract and of the conditions accepted. In addition it is
a title of ownership, in the sense that only the person presenting it can take
possession of the goods.
The bill of lading is furnished by the ship owner or shipping company,
and confirms that the named goods (nature, packages, marks) have been loaded
or received for loading in a specified ship for carriage to and discharge at a
specified port.
Apart from the master bill of lading, two, three or four originals are
signed and sealed by the carrier or his agent, as well as many non-negotiable
copies as may be needed. The copies are not signed and have no legal value.
The number of originals is shown on each bill of lading. The originals and
copies make up the complete set of bills of lading.
An original copy of the bill of lading is equivalent to a title of ownership
and enables its bearer to take possession of the goods by exchanging it with the
cargo agent who holds the master bill of lading.
All the originals have the same legal value.
After endorsement anyone of them can be used to withdraw the goods.
The endorsed bill of 'lading is said to be completed and unused originals
have no further legal value.
There are three types of bill of lading:
i) a bill of lading made out to a named person: only the person named
can withdraw the goods on production of an original copy of the bill
of lading;

77
 ii) a bill of lading made out to bearer: the holder of the document is
considered to be the legal owner of the goods and may take
possession of them simply by presenting the bill of lading;
iii) a bill of lading made out to order: this means that the bill of lading is
to the order of the shipper who must endorse it by signing it on the
back.
-DP

It should be noted that a bill of lading can be endorsed by a number of

persons in succession and may thus be transmitted with the rights flowing from
it from one signatory to another.
The on board or shipped type of bill of lading is the type most commonly
used. It attests to the actual loading of the goods on the ship named in the bill of
lading.
Other types of bill of lading are also in use:
• the received for shipping bill of lading, which does not record the
loading of the goods on the ship but simply the ship owner's
assumption of responsibility for them. He undertakes to load them on a
designated or subsequent ship;
• the rough bill of lading, issued, when the goods are to be transhipped.
• the initial carrier draws up a through bill of lading covering the whole
voyage.
Mention should also be made of the combined transport bill of lading,
which is adapted to the requirements of new transport methods, particularly the
use of .containers. The bill of lading is a mixed bill of lading
(sea/rail/road/air/river) and covers the whole journey of goods using at least two
modes of transport.
One result of international efforts to standardize and codify multimodal
transport documents is the International Chamber of Commerce's uniform rules
of a combined transport document.
Overland Transport: The Way Bill
Goods carried internationally by rail are covered by a way bill. The same
applies to goods carried by road, to which the CMR Convention or regulations
based on it apply.

78
 There are three originals signed by the consignor and the carrier of each
way bill. The first is given to the consignor, the second accompanies the goods,
and the third is retained by the carrier.
The way bill is not a negotiable document or title of ownership. The
designated consignee must furnish proof of identity before receiving the
consigned goods.

2.4 MOVEMENT BY AIR — THE AIR WAYBILL

The Air waybill, like the bill of lading for maritime transportation, serves
several purposes when goods are shipped by air, such as:
■ Evidence of contract of carriage;
■ Receipt of goods for shipment;
■ A freight bill.
The International Air Transport Association (IATA) has designed the
IATA Standard Air waybill format which is used by all IATA member carriers.
It embodies the standard conditions set out or implied in the Warsaw Convention
including the carrier liability for loss, damage or delay to the goods while
charge at an airport or an board the aircraft.
The basic information to be shown in an air waybill is as follows:
• Shipper's name and address;
• Consignees name and address;
• Customs reference/status;
• Agents' IATA Code;
• Airport of departure and destination;
• First carrier;
• Value of goods and currency;
• Description of goods, dimensions, commodity code, rate class, chargeable
weight and freight rate;
• Freight charges -. prepaid or payable at destination;
• Auxiliary charges payable, if any.

79
Carriage by Air: The Air Way Bill
The air way bill is the transport document for freight carried by air.
The air way bill is to air transport what the bill of lading is to sea
transport. There is, however, one essential difference. The air way bill is not a
negotiable document. It is not a title of ownership and cannot be endorsed. Nor
is there an original of the air way bill allowing the consignee to take possession
of the goods. There are normally three copies of anair way bill, one for the
carrier, one for the consignor and one for the consignee.
The goods are delivered to the consignee on provision of proof of identity
and payment of any charges due or on the basis of a bank transfer order if the air
way bill is to the order of a bank responsible for payment.
In the case of grouped air freight for several consignees at the same
destination, the airline issues a single air way bill covering the whole shipment
and addressed to its agent at the airport of arrival as well as separate way bills
for each consignee. The separate way bills are used by the individual consignees
to secure delivery of their cargo.
2.5 MOVEMENT BY ROAD AND/OR OTHER MODES
i) The CMR Note
International haulage of goods by road is regulated by the Convention on
the Contract for the International Carriage of Goods by Road 1956 referred to as
the CMR Convention. Most countries in Europe have acceded to this
convention. Others may make the provisions applicable to their contracts of
affreightment. The provisions of this convention require that, when goods are
transported by road the haulier should have an international consignment note
with him from the point of origin to the point of destination. It may be noted that
unlike the bill of lading and the air waybill, the CMR Note is not a document of
title and is non-negotiable. The Union Internationale des Transports Routiers has
designed a format for this which is in common use in Intra-European trade. The
main elements of information provided for in this format are:
- Name of consignor;
- Name of consignee;
- Place and country from where goods were taken;
- Description of goods;

80
 - w eig111/ volume ul guuus,
- Charges and by whom payable.
ii) Through Bill of Lading
The normal ocean bill of lading covers shipments of goods from the port
of origin to port of destination. However, a through bill of lading covers
multimodal cargo transportation (particularly containerized), from the supplier's
to the buyer's premises. Thus such a bill may cover road/rail transport besides
ocean shipment. During the voyage period, the goods will be in the custody of
different operators. In this context, it should be noted that the first transport
operator only accepts responsibility for the goods during the period when they
are in his actual custody and control. For losses or damage to goods when they
are in the custody of other transporters, the consignor/consignee will have to
deal directly with them for claims.
iii) Combined Transport Bill of Lading
This form of bill of lading has evolved in response to introduction of
containers for international carriage of goods. Under this system, the ocean
carrier usually becomes principal to the contract of carriage and accepts any
liability for loss or damage en route on behalf of other carriers as their agent.
However, the combined transport bill of lading is non-negotiable and is not a
---- document of title to goods. This is a shortcoming which has been overcome in
the negotiable FIATA combined transport bill of lading which is increasingly
being used in place of the combined transport bill of lading.
iv) The Negotiable FIATA combined Transport Bill of Lading
The International Federation of Forwarding Agents' Association (FIATA)
has designed a FIATA bill of lading, with a negotiable status, as is the case with
the ocean bill of lading. In this respect, this is an advance over the combined
transport bill of lading which is not a negotiable document.

TRANSPORTATION BY RAIL
International movement of goods by rail is regulated by the Convention
on the Contract for International Carriage of Goods by Rail 1980, which came
into effect from 1985, and which is referred to as the COTIF Convention. The
Organisation intergouvernementale pour les transports internationaux

81
 ferroviaires (COTIF) has designed this transport document for movement of
goods by rail. This document is referred to as Consignment Note (CIM).
ARRIVAL NOTICE
The notice of arrival of goods is given by the shipping line, airline, or
transport operator to the "Notify Party" shown on the bill of lading, air waybill
or other transport document travelling with the goods. Normally an importer,
while placing the order, instructs the seller, or the forwarding agent at the port of
origin, the name and address of the party to be notified of the arrival of goods so
that these can be received and cleared without delay to avoid demurrage and
other charges.
(Source : Export-Import Management, Management Study Centre, Chennai).
Inland water transport: Inland water bill of lading
As in the case of sea transport, bills of lading are used for transport by
river or canal.
The bill of lading issued by a bargemaster or an inland water transport
company is not very different from its marine counterpart. It has very nearly the
same characteristics, being a transport document and also a title of ownership
transferable by endorsement.
Inland water shipments may also be covered by a river way bill, which
differs from an inland water bill of lading. It is a transport document but is not a
valid title of ownership and is therefore not endorsable or transferable.
Despatch by post: Postal receipt
Proof of despatch is provided by special postal package forms (despatch
form CP 2 and customs declaration C2/CP 3). These documents are governed by
Universal Postal Union arrangements.
The post office issues a postal receipt which bears the recipient's name
but is not endorsable and not transferable.
2.7 CUSTOMS FORMALITIES
Shipping bill is an important document used in export transactions. It is
an important document required by the customs authorities for verification of
export transaction. It is used for claiming duty drawback and other export
incentives. Shipping bill is classified into three types. They are, (i) Drawback

82
shipping bill, (ii) Dutiable shipping bill and (iii) Duty free shipping bill. This
classification is based on the type of goods exported i.e., drawback goods,
dutiable goods and duty free goods.
Drawback shipping bill is used for drawback goods. Exporters can claim
duty drawback or such goods. Dutiable shipping bill is used for dutiable goods
and exporter should pay duty. Dutifree shipping bill is used for dutifree goods.
Exporter need nor pay duty for such goods. Drawback shipping bill is Green
colour for sea transport and air transport. Dutiable shipping bill is in Yellow
colour for sea transport and Pink colour for aim transport. Dutifree shipping bill
is White colour for sea transport and Pink colour for aim transport. In the
Electronic Data Interchange System colour of the shipping bill is not given
importance and the purpose is given due importance.
Contents of Shipping Bill are given below
(i) Name, address and IEA number of exporter and name and address of the
consignee
(ii) Name of the ship
(iii) Name of the shipping agent
(iv) Description, Quantity and Value of goods
(v) Type of Cargo (bulk, liquid)
(vi) Number of packages, details of markings and numbers on packages,
container numbers
(vii) Port of loading and port of discharge
(viii)Country of destination
(ix) Nature of export continent
(x) Customs House Agent LIA Number
(xi) Invoice number and date
(xii) AIWAR4A number and date
Shipping bill is prepared in five copies. The five copies are (i) Customs
and statistical copy, (ii) Port trust copy, (iii) Drawback copy, (iv) Export
promotion copy and (v) Exporter's copy.
Clearance of Export Goods
Section 50. Entry of goods for exportation - (1) The exporter of any goods
shall make entry thereof by presenting to the proper officer in the case of goods

R1
to be exported in a vessel or aircraft, a shipping bill, and in the case of goods to
be exported by land, a bill of export in the prescribed form.
(2) The exporter of any goods, while presenting a shipping bill or bill of export,
shall at the foot thereof make and subscribe to a declaration as to the truth of its
contents.
Section 51. Clearance of goods for exportation - Where the proper officer is
satisfied that any goods entered for export are not prohibited goods and the
exporter has paid the duty, if any, assessed thereon and any charges payable
under this Act in respect of the same, the proper officer may make an order
permitting clearance and loading of the goods for exportation.

SELF-ASSESSMENT QUESTIONS
1. What is multimodal transportation? Explain.
2. Explain shipping and transport procedure for export of cargo.
3. Briefly explain the customs formalities for clearance of export cargo.

REFERENCES
1) M.J.Mathew, 'Management of Export Marketing', RBSA Publishers,
Jaipur.
2) R.K.Jain's Customs Law Manual 2001-02, Centax Publications Private
Ltd., New Delhi.
3) Maritime Transportation Guidelines for Importers, International Trade
Centre, UNCTAD / GATT, Geneva.

* * *

84
 UNIT — III
EXPORT INCENTIVES
The objective of this lesson is to help students understand export
incentives and direction of India's exports.
LESSON STRUCTURE
3.1 Introduction
3.2 Duty drawback
3.3 Income tax relief to exporters
3.4 Market development assistance
3.5 Export finance
3.6 Export promotion capital goods (EPCG) scheme
3.7 Cash compensatory support
3.8 Air freight subsidy
3.9 Foreign trade policy 2004 — 09
3.10 Thrust products and destinations
3.11 Direction of India's exports
3.12 Self — assessment questions
3.13 References

3.1 INTRODUCTION
Fiscal incentives are provided by the government to promote exports in
India. The incentives help the exporters to keep in the international market fiscal
incentives are inevitable in the developing countries for promoting exports. The
following fiscal incentives are provided by the Government to the exports.
• Duty Drawback (Customs and Central Excise Exemption
• Tax Concession
• Market Development Assistance
▪ Concessional Export Finance
• Export Promotion of Capital Goods Scheme
• Cash Compensatory Support
• Air Freight Subsidy
85
 3.2 DUTY DRAWBACK
Duty drawback is an incentive prowled by' The Central Government to
the exporters for encouraging exports. Duty drawback help's the exporters to
keep the Indian products competitive in the overseas market. The duty paid on
the inputs (indigenous and imported) used in the production of export goods can
be refunded after the exporters provide proof of export of such goods. The
refund of duty is called duty drawback.
According to Rule 2(a) of the Customs and Central Excise Duty
Drawback Rules 1995, 'drawback' in relation to any goods manufactured in
India and exported means the rebate of duty chargeable on any imported material
or excisable materials used in the manufacture of such goods.
DUTY DRAWBACK RULES
The relevant provisions for duty drawback are listed in section 75 of the
Customs Act, 1962 under which the Government may notify such goods in
respect of which drawback of duties paid on imported raw materials utilised in
the production of export goods may be allowed in accordance with the rules and
regulations. The refund of duty (drawback) is to be equal to the average amount
of duty paid or inputs used in :the .ptoduction of export goods and the drawback
rates may relate to the manufacturers in general or to any particular
manufacturer. For availing the duty drawback, the exporters should produce
documents in evidence of duty paid and the exporters may give access to the
authorized officer of customs to their manufacturing premises for verification.
Section 75 of the Customs Act, provides a provision for (he concept of
`Deemed Import' in respect of those raw materials whose import into India is
more than the total quantity of like materials used in the manufacture of goods in
India and exported; In such cases the government notifies those materials which
will be considered 'Deemed Imported'. Some of the major materials in this
category, are lead, nickel, .zinc, copper, copper/brass scarp etc. Thus when such
materials are used in the production of export goods, .the exporters can claim
drawback to the extent of import duty payable on such raw materials even
though he may have used indigenous raw materials.
Section 37 of the Central Excise Act provides rebate for Central Excise
paid on inputs used in the production of export goods._ Under the provision of
Section 37 of the Central Excise Act and Section 75 of the Customs Act, Central

86
Government notified the Customs and Central Excise Duties Drawback Rules,
1995. Following are the pro visions of drawback rules.
Under the provisions of section 75 of the Customs Act and section 37 of
the Central Excise Act, Government have notified the Customs and Central
Excise Duties Drawback Rules, 1995. Some of the main provisions of drawback
rules are given below:
❖ In respect of goods (inputs) on which lesser duty has been paid or rebate
etc. has been claimed, the drawback admissible on said goods shall be
reduced taking into account the lesser duty paid or the rebate, refund or
credit obtained.
❖ No drawback shall be allowed if no duty (customs or central excise duty)
has been paid.
❖ While determining the rate of drawback the government shall nave regard
to average quantity or value of each class or description of the materials
from which a particular class of goods is produced; and the average
amount of duties paid on such materials.
❖ Where amount or rate of drawback has not been determined (i.e cases
other than those where all industry rate of drawback is available), an
application shall be made by the manufacturer/ exporter within 60 days of
export for fixation of drawback, giving all relevant facts and information
in the prescribed proformas of DBK.
Pending fixation of drawback rate, the exporter can make an application
for provisional payment of drawback. For this purpose me exporter has
to give a bond undertaking to pay back the amount of drawback or the
differential that may be so required after fixation of rate of drawback.
❖ Where the manufacturer/exporter finds that the all inch.stry rate of
drawback is low (less than four-fifth of the duties actually paid on the
materials or components used in the manufacture of export goods), he
may within 60 days from the claw of export make an application for
fixation of brand rate of Duty Draw Back (DBK). In the meantime he can
avail the drawback provisionally.
❖ In both the above cases, the department verifies the data submitted, and
then the brand rate is fixed for that particular product and that exporter for
one Shipment or for a specified period of time.

87
 ❖ No drawback is to be determined when the DBK is less than one per cent
of the FOB value of export or less than Rs.500.
❖ The exporter/manufacturer has to submit information and documents that
may be unnecessary for fixation, of brand rate of DBK. He has also to
give access to his manufacturing unit.
❖ Draw is also admissible on export of goods by post.
Triplicate copy of the shipping bill is the claim of drawback. No separate
claim is required to be filed by the exporter. Other documents required to
be furnished are export contract, LC, packing list, AR 4 form, insurance
Certificate. copy of rate fixation authorisation, where applicable.
❖ Where the amount of drawback sanctioned is found to be less that what
was admissible, the exporter may file a supplementary claim.
❖ Where it is found that the drawback amount has been paid erroneously, it
can be recovered from him.
❖ Drawback can also be recovered in cases where export proceeds have not
been realized.

DUTY DRAWBACK - ALL INDUSTRY RATE AND BRAND RATE

There are two types of drawback rates. I hey. are •all industry rate' and
`brand rate'. All industry rates are announced once in a year after three months
from the presentation of Central Budget. The rates are fixed for various export
commodities based on the current rate of import duties and central excise duties
on various input materials used in the production of export goods. All industry
rates are subject to revision either on the initiative of the government or export
promotion councils. The revision will depend upon the changes in the import
duties and central excise.
Brf.nd rate is applicable to the products for which drawback rate is not
mentioned in the table of duty drawback. This table reveals the all industry rate
for the various types of products produced and exported. Brand rate is approved
by the Drawback Directorate for the products for which all industry rate is not
available. The exporter should apply to the Drawback Directorate, Ministry of
Finance for getting brand rate. The brand rate is fixed for a particular commodity

88
and for a particular exporter for a particular shipment or for a specified period of
time on the basis of the Information submitted by the exporter.
Exporters can avail special brand rate also. If the existing duty drawback
rate is less man 4/5 of the duty paid, exporters can approach the Drawback
Directorate, Ministry or Finance for getting special brand rate. A separate
application is to be made to the Drawback Directorate for availing special brand
rate. Based on the information provided by the exporters. Drawback Directorate
will fix the special brand rate after verification of the documents submitted by
the exporter. The exporters have to submit the relevant information in the
prescribed formats stating the quantum of each raw material used for
manufacture of a specified quantity of fmished export products, central excise
and customs duty paid on the inputs used and other documentary evidence about
the duty paid 'and export of goods for getting brand rate/special brand rate.

PROCEDURE FOR CLAIMING DRAWBACK

Exporters availing all industry rate of duty drawback, <hey have to
submit all the relevant information about the export of goods and inputs used in
the prescribed format to the customs department. Shipping bill is treated as a
claim for drawback and the customs department will approve and sanction the
claim and the amount of duty drawback will he credited to the account of the
exporters directly.
For availing brand rate, exporters should apply to the Drawback
Directorate, Ministry of Finance within 60 days from the date of export. An
extension of 30 days will be allowed provided there is sufficient reason for not
filing the application within 60 days.
Exporters are expected to use the imported inputs as early as possible for
the manufacture of exportable commodities. The percentage of import duty to be
paid as drawback to the exporters will depend upon the period between the date
of clearance for home consumption and the date when goods are exported. As
per the notification issued by the Government the eligibility to drawback is given
below.
 Period between the data of clearance for Percentage of
home consumption and the data when import duty to
goods are exported be paid
Not more than 6 month's 85%
More than 6 months but 1.Qt more than 12 months 70%
More than 12 months butr not more than 18 months 60%
More than 18 months but not more than 24 months 50%
More than 24 months but not more than 30 months 40%
More than 30 months but not more than 36 months 30%
More than 36 months Nil

DRAWBACK. ON DEEMED EXPORT

Deemed export refers to goods which are not physically exported.-
Deemed exports are also eligible for duty drawback. The following supplies are
considered as 'Deemed Exports and they are listed in the Exim policy also.
i ) Supply of goods against duty free .licenses issued under the Duty
exemption scheme.
ii) Supply of goods to export oriented units or units in export processing
zones etc.
iii) Supply of capitol. goods to holders of licences under the Export
Promotion of Capital Godds (EPCG) scheme.
iv) Supply of goods to projects financed by multilateral or bilateral
agencies/funds notified by the Department of Economic Affairs,
Ministry of Finance, etc.
The above supplies are eligible to avail the benefit of duty drawback on
deemed exports. The suppliers of goods can claim duty drawback. Duty
drawback on deemed export is granted by the office of the Directorate General
of Foreign Trade, Ministry of Commerce. All industry rates and brand rates are
applicable to deemed exports. The procedure for fixation of duty drawback and
claiming duty drawback for deemed exports are the same adopted for physical
exports.

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 3.3 INCOME TAX RELIEF TO EXPORTERS
1. No tax on Export Profits
Under the provisions of section 80 HHC of THE Income Tax Act, 100
percent deduction is allowed to the exporters for the profit derived from the
export of goods to foreign countries.
• The essential requirements of section 80 HHC are listed below:
a. The assessee (exporter) must be an Indian company or a person
resident in India.
b) The assessee should be involved in the business of exporting goods at
merchandise to foreign countries
c) Income tax deduction is also available to the suppliers of goods at
merchandise to export houses/trading houses.
d) Income tax deduction under section 80 HHC is allowed if the sale
proceeds are receivable in convertible foreign exchange. Deduction
under this section will be allowed only if the sale proceeds are
receivable in or brought into India within a period of six months Corn
the end of the relevant previous year, with effect from the assessment
year 1991-92.
2. Tax concession for the Export of Computer Software and for Import of
system under section 80 HIM of the Income Tax Act, income tax concession is
provided for the export of computer software and for the import of system.
Indian companies and resident non-tax payers will be eligible for a
deduction of an amount equal to the profits arised from the export of computer
software.
Any lumpsum payment for getting use of systems software supplied by a
non-resident manufacturer along with hardware shall not be subjected to income
tax.
The approval of the central government atom Hie. agreement for applying
the lowest rate of lax at 30% shall not be applicable in cases where the royalty
payment is for the use of software permitted to be imported under UUL.
50% lax exemption for the profits from overseas projects.

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 Under section 80 FIHB, the Income Tax Act, 50pncent tax exemption is
provided for the profits from the overseas projects.
This assistance is revised in the Union Budget 2000 S276 1

Year Exemption
2000 80% of export profit
2001 60%
I
2002 40%
2003 20%
2004 nil
Following are the conditions for availing the deduction:
a) the sum equal to 50% of the pro fits is to be brought by the assessee
within a period of six months from the end of the previous year in
convertible foreign exchange.
b) assessee should maintain a separate account for the overseas projects.
c) assessee should create a 'Foreign project Reserve Account' equal to
50 percent of the profit derived from the overseas project. It is to be
utilised by the assessee for a period of . 5 years next following for
business purposes other than for distribution of dividends or profits.
d) any break of the above conditions will forfeit the benefit of income tax
concession tax holidays for the Free Trade Zone/Export processing
zone units and Software Technology parks.
Under section 10 A of the Income Tax Act, a five year tax holiday is
provided to the units in Free Trade Zone/Export Processing Zones and
Electronic Hardware/Software Technology Parks. The profits of the newly
established industrial units in Free Trade Zones are not taxed for a period of five
years, out of eight assessment years relevant to the previous year in which the
industrial units begin production.
The tax holiday period for export processing zone / export oriented units
is extended from five years to ten years as a package to boost export announced
by the Commerce Ministry, Government of India on 4th August 1998.
Under section 10 B of the Income Tax Act, the 100% Export Oriented
Units can avail tax holiday for a period often years.;

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 3.4 MARKET DEVELOPMENT ASSISTANCE
Market Development Assistance (MDA) is one of the export promotion
schemes of the Ministry of Commerce, Under MDA, financial assistance is
provided for sponsoring trade delegations abroad, market studies, publicity,
establishing warehouses and show rooms abroad, research and development,
quality control etc. Market development assistance is available to approval
organisations (Export Promotion Council) including personnel thereof, export
houses, trading houses, association of small scale industries and individual
exporters sponsored by the approved organisations/export houses/association of
small scale industries.
Market development assistance grant is disbursed by two agencies. They
are federation Indian Export Organisations, and Ministry of Commerce.
Federation of Indian Export Organisation provides and disburses MDA
grant for the following activities.
. Participation in fairs and exhibitions abroad sales teams
. combined proposals for participation in fairs/exhibitions followed or
preceded by sales teams
. broad publicity by means of catalogues, brochures, advertisements in
foreign media.
The Ministry of Commerce provides and disburses MDA grant for the
• following activities:
. research and development
. establishing warehouse, show rooms or after sales service
establishments abroad
▪ opening of foreign offices by export houses.
The activities covered by FIEO for MDA grant are also dealt by the
Ministry of commerce. All export other than export houses should apply for
MDA grant to the Ministry of Commerce through the concerned export
11% promotion council.
O Individual exporters should send their applications to the Federation of
Indian Export organisations or Ministry of Commerce for obtaining MDA
assistance atleast 28 days before commencement of the activity i.e the date on
which export promotion activity is commenced.
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 After completion of the export promotion activity, the exporters should
submit a claim in he prescribed format for reimbursement of the expenses upto
the admissible limit. After verifying the claim. Federation of Indian Export
Organisations/ Ministry of Commerce will release the grant to the exporters.

MAXIMUM LIMIT FOR MARKET DEVELOPMENT ASSISTANCE TO

EXPORT HOUSES

A) Sales cum Study Tour Grant

One representative is permitted. Air India Economy class is to be used
Two sales cum study tours only are permitted in one calendar year. One
additional tour will be permitted to Latin America/ Caribbean countries.

Maximum limit for grant

i) Manufacturing small scale units/ 60% of Air Fare and
export houses/trading houses/ 30% of Daily Allowance
star trading houses.

Large Scale units/ 25% of Air Fare and

Merchant Export Houses 12.5% of Daily Allowance

B) Participations in Fairs/Exhibitions Abroad

One representative will be permitted for one export unit to participate in
the fairs/exhibitions abroad. Air India Economy Class is to be used. Only three
participations in fairs/ exhibitions abroad and one additional participation to
Latin America/Caribbean countries for one export unit in a calendar year will be
permitted.

94
Rate of Grant
i) Participation through I. 50% of Air Fare
Export Promotion Councils 2. 25% of Daily Allowance for two
days before the fair plus duration
of the fair and one day after the fair
3. 25% of the expenditure incurred
for publicity (minimum Rs.10000)

ii) Participation through Indian In addition to above three incentives,

Trade Promotion Organisation
the following is also provided space
rent @ 50% is allowed subject to
submission of a certificate from the
Indian Trade Promotion Organisation
That the space rent is not subsidized.

iii) Direct Participation In addition to above three (mentioned

in (i)) the following incentives are also
provided
a) Space rent @ 50% (maximum of
Rs. 2 lakhs only)
b) Interpreter ?-is 50% or Rs.2000 per
day for the period of the fair /
exhibition.
c) Water/Electrieit) charges 50%

Grant for the repeated participations in the same fair/exhibition under

market development assistance.

Participation
Particulars 2nd 3rd 4th 5th 6th
1st

I. Air fare 50% 40% 30% 20% 10% Nil

2. DA 25% 20% 15% 10% 5% Nil

3. Publicity (Rs.10000) 25% 25% 25% 20% 10% Nil

4. Space rent 50% 40% 30% 20% 10% Nil

5. Interpreter 50% 40% 30% 20% 10% Nil

6. Electricity / water 50% 40% 30% 20% 10% Nil

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GRANT FOR ADVERTISEMENT IN FOREIGN MEDIA
A maximum grant of 25% of Rs.2 lakhs in one calendar year will be
allowed for publication and advertisement together in foreign media. This grant
is given for brand publicity in foreign countries.
3.5 EXPORT FINANCE
Finance is the life blood of any business activity. Finance is the most
significant aspect in export trade. Once the export order is received, production
of exportable commodities should take in time. It requires adequate finance for
procuring the needed raw materials and other components. In some cases,
materials are to be imported from foreign countries. It requires foreign
currency. Unless the fmancial requirements for exports are fulfilled, export
order cannot be met in the scheduled time. Further getting payment for the
export cargo will take sometime. Adequate credit facilities are to be extended
to the exporters till they receive export proceeds from foreign countries.
Realising the significance of export finance and to encourage exports, the
Reserve Bank of India has come forward to extend export finance to the Indian
exporters at concessional rate.
There are two types of export finance. They are,
i) pre-shipment credit (or) packing credit
ii) post-shipment credit.
The Reserve Bank of India has defined pm-shipment credit as. "any loan
to an exporter for financing the purchase, processing, manufacturing or packing
of goods".
Pre-shipment credit is given by the commercial banks for purchasing and
processing of materials, manufacturing of exportable commodities and packing
of such commodities.
Pm-shipment Credit is granted by the commercial banks for a period of
180 days from the date of sanctioning the credit. Further extension will be given
for a period of 90 days, provided adequate reasons are given by the exporters for
such extension.
Interest rate for the Pre-shipment Credit is lower than the normal rate of
interest. Concessional interest rate is charged for pre-shipment credit in order to

96
 1,„

maintain price competitiveness in the overseas market and to reduce interest

burden to the exporters.
Commercial banks charge a rate of percent on pre-shipment credit upto
180 days. Pre-shipment credit between 180 to 270 days will cost exporters 12
percent. The interest rate for post-shipment credit on usance bills beyond 90
days is 11 percent. The concessional rate of interest is one of the important
incentives provided by the Government for export trade. In order to reduce the
interest rate for export credit, the RBI has reduced the export refinance rate from
9% to 7%. Exporters should fulfill all the procedures prescribed by the
commercial banks for export credit. Exporters should submit export order or
letter of credit along with the application form for pre-shipment credit. Letter of
credit is an important document is to submitted to bank for availing pre-shipment
credit. Exporters should give in undertaking that the advance will be used
exclusively for the purposes of procuring/manufacturing/shipping of
commodities meant for export as given in Export Order or Letter of Credit.
Banks will sanction the pre-shipment credit after verifying all the documents
required for it. The credit worthiness of the exporterS, their capacity to produce
exportable commodities and the reputation of the organisation are also assessed
by the banks before sanctioning pre-shipment credit. Exporters are advised to get
appropriate insurance policy for export credit from the Export Credit Guarantee
Corporation (ECGC). Exporters should get Packing Credit Guarantee also from
the ECGC. Insurance Policy and guarantee from the ECGC are insisted by the
commercial banks for sanctioning pre-shipment credit. Exporters can mail pre-
shipment credit in foreign currency also.
Post-shipment credit refers to any loan or any other credit provided by
any institution to an exporter of goods from India from the date of extending the
credit after shipment of goods to the date of realisation of export proceeds and
includes any loan or advance granted to an exporter, on consideration of or on
the security of any drawback or any cash receivable by way of incentives from
the Government.
Post-shipment credit is classified into the following categories:
i) Negotiation/payment/acceptance of export documents under the Letter
of Credit
ii) Purchase/discount of export documents under confirmed order
iii) Advances against bills sent on collection basis
97
 iv) Advances against export on consignment basis
v) Advances against undrawn balances
vi) Advances against cash incentives
vii) Advances against duty drawback entitlement
viii) Advances against retention money
ix) Financing exports under Deferred Payment Arrangements, turnkey
projects, construction contracts etc.
3.6 EXPORT PROMOTION CAPITAL GOODS SCHEME (EPCG)
Export Promotion Capital Goods Scheme has been introduced for the
purpose of encouraging exports. Under this scheme capital goods import is
permitted with concessional import duty. Modern textile mills and readymade
garment units are in need of modern machineries and improved equipments
available in the developed and newly industrialized nations, international market
concentrates on quality. Modem advanced and updated technology oriented plant
and machineries contribute quality which is insisted in the international market.
In order to help the Indian exporters to import advanced machineries from
the developed countries. the Government of India introduced a novel scheme,
`Export Promotion Capital Goods (EPCG) Scheme from the year 1990-91.
While introducing this scheme 15 percent import duty was charged for the
capital goods import upto Rs. 20 crores. Import above Rs. 20 crore, import duty
was nil.
EPCG scheme is totally export linked. If the capital goods import is made
under 15 percent import duty (upto Rs. 20 crore), the export commitment is 4
times of the CEF value of import during 5 years, from the date of license to
import is given under the EPCG scheme. If the capital goods import is made
under zero duty scheme, the export commitment is 6 times of the CIF value of
import during 8 years. This scheme is an incentive to the exporters to import
capital goods at concessional duty which are needed to prpduce exportable
commodities.
The percentage of meeting the export commitment by the exporters under
the EPCG scheme is getting down since 1992-93. Under this scheme, exports are
not increased upto the expected level. In the year 1990-91 and 1991-92,90
percent of the export commitment was met by the exporters. In the year 1992-93,
exporters met only 53.5 percent of their export obligation and it is reduced to
98
28.70 percent in 1993-94 and 14.50 percent in 1994-95. The poor performance
of the EPCG scheme is also one of the reasons for the sluggish export growth.
In the year 1995, the import duty of this scheme was reduced from 15
percent to 10 percent. Import duty 10 percent was levied for the import of capital
goods upto Rs. 20 crore. Capital goods import above Rs. 20 crore, the same zero
import duty continued. Zero import duty was applied to the equipments import
upto Rs. 5 crore for agriculture operations.
In the year 1998. the Commerce Ministry, Government of India modified
the EPCG scheme. lyder the modified scheme, no import duty is charged for
the import of capital goods above Rs. 1 crore. Zero import duty is applicable for
the import of equipments upto Rs. 10 lakhs for the manufacture of computer
software.
This scheme facilitates small exporters. Zero import duty was applicable
for the import of capital goods above Rs. 20 crore. The small exporters are not in
a position to avail this Scheme. Their import of capital goods requirement is not
above Rs. 20 crore. So they do not avail the zero duty benefit. Only the large
exporters utilised the zero duty scheme. In order to help the small exporters, the
Government of India reduced the capital goods import limit for zero duty above
Rs. 20 crore to Rs. 1 crore, for computer software it is Rs. 10 lakh.
Under the EPCG scheme, the importers should fulfil the export
commitment. The export commitment is given below:

Export Commitment
Import duty 10% scheme (Capital goods 4 times of the CIF
import below Rs. 1 crore) value of import within 5 years

Zero import duty scheme (Capital goods 6 times of the CIF

import above Rs. 1 crore; value of import within

Capital goods import abov e Rs. 10 lakh 8 years

for computer software)

99
 The exporters are directed to pay normal import duty as penalty if they
fail to honour their export commitment under the EPCG scheme. In some cases
the imported capital goods may be confiscated by the Government and the
import license may be withdrawn. This scheme is totally modified in the new
FXIM policy Apil 2000. 5 % import duty is levied for the import of capital
goods under this scheme.
3.7 CASH COMPENSATORY SUPPORT
It is one of the incentive schemes introduced by the Government of India
for the benefit of the Indian exporters. This scheme was introduced in the year
1972. The basic objective of this scheme is to compensate the Indian exporters
for the loss incurred in the export of non-traditional goods. This scheme
encouraged the export of non-traditional goods in the overseas market so as to
increase the volume of exports in India. The losses covered under the cash
compensatory support are related to the competition faced by the Indian
exporters in the overseas market. The compensation will be based on the
declared FOB value of the export goods or per unit of goods exported. The rates
tbr the compensation is fixed by the Government. It is fixed commoditywise and
amended from time to time.
The price of the Indian products and the price of the same products of the
foreign competitors in the internal market is compared and reasons are
ascertained for the high cost of the Indian products and the Indian exporters are
compensated for the high costs incurred by them through the cash compensatory
support scheme and Indian prices are made at par with the foreign competitors. j,•.
Thus the Indian exporters could compete with the price competition. The
following may be the reasons for the higher cost incurred by the Indian
exporters:
■ higher domestic cost of input
■ higher interest on export credit
■ costs of delays at port and
■ higher product promotion costs
The Alexander Committee (Export-Import Policies and Procedures
Committee) has identified the following as the basic principles of cash
compensatory support.

100
 This scheme should compensate fully the indirect taxes paid by the
exporters for the inputs imported or procured domestically but which are not
refunded.
This scheme must he adequate enough to encourage the Indian exporters
while taking suitable marketing strategies to face competition in the export
market and to compensate the disadx antages of freight, inadequacy of port
facilities etc to compete in the export market.
The cash compensatory scheme should cover the costs incurred by the
exporters to promote new products in the export market.)
The cash compensator support schemes has been criticised in the
following aspects:
The exporters do not give adequate and correct information while availing
the support under this scheme. The data given by the exporters are inadequate
and manipulated to show higher domestic resource cost than what is actually
incurred. It is done to get more compensation than what they actually deserve.
The Public Accounts Committee of the Government of India directed the
Central Government in the year 1983 to review the scheme to plug the
operational problems of the scheme.
The cash compensatory support scheme will not help the exporters in the
long run and will not make them self-reliant.
The scheme encourages commercially non-viable units also by
compensating their higher input costs and promotion costs.
The rates for compensation and the procedure for implementation under
this scheme are subject to changes in the policies of the Government.
3.8 AIR FREIGHT SUBSIDY
Air Freight. Subsidy is one of the incentives provided by the Government
to the exporters of flowers and spices.
The following subsides are provided by the Government of India for
encouraging exports:
i) Concessional finance for both preshipment and postshipment credit
ii) Duty drawback (customs and excise)

101
 iii) Income tax concession for export pro fit.
iv) Export Promotion of Capital Goods Scheme - facilitating duty free
import of capital goods
v) Market Development Assistance - providing financial assistance for
trade delegation and organising trade fairs abroad.

3.9 FOREIGN TRADE POLICY 2004 — 09

The annual supplement to the foreign trade policy for 2004-09,
announced by Union Commerce and Industry Minister Kamal Nath on April 7,
2006 has addressed the longstanding demand of exporters to cut down
transaction costs of exports. Apart from providing a slew of new export
incentives, the policy has promised to beef up the electronic data inter-change
(EDI) system for online filing of advance license, license under Export
Promotion Capital Goods (EPCG) scheme and refund under duty entitlement
pass book (DEPB) scheme.
Paying heed to exporters' demand in expediting and simplifying
procedures for filing applications and obtaining licenses on various counts, the
ministry has now assured exporters that, henceforth, all applications submitted
on online EDI will be processed within one working day.
Exporters will not be required' to submit applications and supporting
documents manually. Instead, they can file all applications relating to advance I
license, EPCG license and refund on DEPB to the DGFT website with a digital
signature and can pay licence fee through electronic fund transfer mode.
The government has targeted a 20% increase in merchandise exports over
2005-06's achievements. The Minister of Commerce and Industry Mr.Kamal
Nath explained that with each passing year the export base was increasing. So, in
real terms, a 20% growth would be higher than the 25% growth in 2005-06.
In the year ending March, 2006, the value of merchandise exports touched
the "auspicious figure" of $ 101 billion, registering a 2 5 % growth over the
previous year. "This year's export figures are unprecedented. Merchandise
exports have crossed the magic figure of $100 billion, "Minister of Commerce
ana industry Mr.Kamal Nath said, while announcing the annual supplement to
the foreign trade policy 2004-2009.

102
 However, this increase was also accompanied by a 32% increase in
imports, which stands at $140 billion. Trade deficit for the year 2005-06 is $39
billion, up from $25 billion in the previous year. The Minister of Commerce and
Industry said: "Our imports have grown 32%, and stand at $ 140 billion, but $43
billion is our oil bill. Thus, our non-oil imports are $97 billion, a full $4 billion
lower than our exports. On the non-oil front, therefore, we have a positive
balance of trade."
What is worrisome is that India's oil import bill increased from close to
$29 billion in 2004-05 to $43 billion in 2005 -06, largely on account of high
global oil prices. India imports nearly 73% of its crude oil requirement and also
sources petroleum products like LPG from abroad. This accounts nearly 30% of
the country's import bill. Nonetheless. the minister said exports could touch
$165 billion by 2009/10. This is x% ithout taking into account trade in services,
which constitutes 52% of GDP, export-import in services exceeded $ 100 billion
in 2005-06.
Exports from many sectors surpassed expectations. "Project goods
exports grew at the rate of 173%. Exports of non-ferrous metals, guar gum meal,
computer software in physical form, rice, pulses, dairy products, all recorded a
growth surpassing 50%. Commodities dike man-made staple fibres, cosmetics
and toiletries, iron-ore, coffee, processed food and transport equipment grew at
the rate above the average, that is more than 2 5 % during this period".
"India is steadily increasing its share in important markets. Growth in
exports to UK has been 30%, to Singapore (with which we implemented the
CECA) 54%. India's exports to South Africa giew at 44% while for China the
growth rate is 35%," the minister said. The government proposes to bring out a
detailed ready reckoner in May, 2006 showing India's increasing share in
important markets.
NEW STEPS TO REPLACE TARGET PLUS
Scrapping of the Target Plus scheme has left exporters fretting, but
companies focusing on emerging markets, or rural products, are on a better
wicket than others. Companies with buyers in Africa, CIS countries and Latin
America stand to gain on all the products they export to these regions. The
annual supplement to the Foreign Trade Policy promises 2.5 % additional
import entitlement on their export turnover, irrespective of the product they
export.
103
 The move is aimed at encouraging exporters to tap non-traditional
markets more aggressively. The list of countries that would be eligible to be
covered under the 'Focus Market' scheme is yet to be finalised, government
officials said. However, they feel Africa, CIS countries and Latin America
would definitely be included in the scheme.
The Focus Products scheme promises 2.5% additional import
entitlement for exporters shipping value-added fish, leather products,
stationary, himdlooms and handicraft items. However, the entitlement in this
case would be only on 50% of their export turnover.
Together the two schemes are expected to result in duly exemption
valued at around Rs 2,500 crore. This is no compensation for the Rs 8,000
crore worth of duty-free import, entitlement taken away by scrapping Target
Plus, exporters feel. 0 P Garg, president of the Federation of Indian Export
Organisations (FIEO), said the Target Plus Scheme was the only benefit
available lo large exporters. This category of exporters have not been provided
any new facility though they contribute 60% of India's exports, he added.
Interestingly, even small exporters do not seem to be too happy with the
policy. "What's there in the policy for exporters?" quipped S P Agarwal,
President of Delhi Exporters Association. Revenue notifications for the new
schemes should he issued without delay, he said.
Scrapping of Target Plus could be an indication that the government is
moving away from fiscal incentives for boosting exports. Instead, the emphasis
is on facilitation and reduction of transaction cost.
While the 'Focus Market' scheme is aimed at enhancing India's export
competitiveness in emerging markets, the 'Focus Products' scheme is aimed at
compensating exporters for infrastructure inadequacies. Though the commerce
department is bullish on the job creation potential of new measures, especially
the boost of select products, there are concerns that the schemes may be
labeled as not compatible with World Trade Organisation (WTO) norms.
EOUs receive more words than matter
The policy has enabled fast-track clearance for disposal of left-over
material. Units having a turnover of Rs 15 crore, or more, will he allowed the
facility of submitting consolidated procurement certificate and pre-authenticated

104
procurement certificates. It has also been decided that interest would be paid on
delayed payment of refunds to ensure accountability and cut delays.
The policy stated that that the new units, which are involved in export of
agriculture, horticulture and aquaculture products, will now be allowed to take
capital goods out of their premises. This can be done by producing bank
guarantee equivalent to the duty forgone on the capital goods proposed lo be
taken out. EOUs can use this provision to take their equipment to farms, for
example.
The export promotion council for FOUs and SEZs said that the idea of
fixing time limits tier finalising the decision on matters related to EOUs would
help this sector.
EXPORT OBLIGATION EXTENDED BY 2 YEARS
While the industr)'s demand for a duty-free import of machinery has
been rejected, the government has decided to give greater flexibility to exporters
under the Export Promotion Capital Goods (EPCG) scheme.
It has decided to extend the export obligation period by another two years
for those exporters that are unable to meet their obligation on time. However,
such an extension will be allowed only on the payment of 50% of the duties
payable in proportion to the unfulfilled export obligation.
The EPCG scheme allows imports of capital goods at 5 % customs duty
subject to the fulfilment of export obligations which could range from six-to-
eight times of the duty saved on capital goods imported under The scheme.
This export obligation has to be met over a period of time, depending on
the category of the industry seeking exemption under the scheme. For instance,
in the case of agro units, the exemption is allowed subject to fulfilment of the
export obligation.equivalent to six times the duty saved over a period of 12 years
from the date of issue of authorisation.
Thus, all units seeking exemption under the scheme are required to
maintain the level of their base export performance and undertake additional
export obligation for availing the facility of importing capital goods at reduced
custom duty.
However, in a number of situations exporters find it difficult to maintain
average export performance, owing to reasons such as sickness 01 the unit nu
international market dynamics among others.
105
 In all such cases, the exporter approaches the government for an
extension of the time period permitted for such exports.
Such cases are now being considered by the government on a case-by-
case basis.
oreover, obligations to meet a base level of exports every year have also
been .amlined to give exporters the flexibility to cover up for lack of exports
in one ear in subsequent years.
BOOSTER DOSE FOR SERVICES
A special thrust on increasing exports of services is evident in the annual
supplement to the foreign trade policy which was unveiled on 7TH April, 2006.
Hotels now count payments received from foreign tourists in rupees for
obtainiqg export incentives. Commerce & Industry Minister Mr.Kamal Nath has
also ex0andecl the Served from India' scheme to allow more flexibility to service
expoas. The measures announced by the government are with a view to bring
serve export norms in line with recent Reserve Bank guidelines.
Services account for 52% of GDP, and trade in services in 2005-06
exceeded $100 billion. The supplement to the foreign trade policy makes service
:Aborts in Indian rupees, which are otherwise considered as having been paid for
in free foreign exchange by KB!, win now quanry for benefits under the 'Served
from Scheme. In addition, the foreign exchange earned through
International Credit Cards and other instruments as permitted by RBI for
rendering of service by the service providers shall be taken into account for the
purposes of computerisation of entitlement under the Scheme.
Benefits of the Scheme earned by one service provider of a group
company can now be utilised by other service providers of the same group
company including managed hotels. The measure aims at supporting the group
service companies not earning foreign exchange in getting access to the
international quality products at competitive prices.
This new initiative allows transfer of both the scrip and the imported
input to the Group Service Company, whereas the earlier provision allowed
transfer of imported material only.
Stand-alone restaurants will now be eligible for benefits under 'Served
from India' Scheme at the rate of 10% of FOB value of exports (instead of the
earlier 20%). (Source: The Economic Times, 8th April, 2006).
106
EXEMPTION FROM SERVICE TAX & FBT
This should come as a major relief to exporters who have been paying
service tax and fringe benefit tax on exports. The government has decided that-
exemption from these taxes is necessary to make sure that taxes are not exported.
The finance minister had introduced services taxes on a host of services
including customs house agents and freight forwarders who are hired by
exporters regularly. Imposing such levies on exports was counterproductive to
the government's moves to boost export earnings. There was strong lobbying by
the exporters to do away with these taxes.
Although official figures were not available, studies done by Chambers of
Commerce indicated that the taxes paid on this account would be in the range of
around 1 % on the FOB value of exports. "It could differ from sector to sector
depending on the exports and value addition". •
3.10 THRUST PRODUCTS AND DESTINATION
Thrust products and destination related to India's exports are given
below:
Product-Country Profile
SI. No Product Country
1. Gems and Jewellery Canada,Australia, UK, Italy. France
2. Cotton Yarn China, Tunisia, Canada
3. Marine Products Denmark, Canada, Korea
4. Leather Products Brazil, Indonesia, Canada, Korea

5. Drugs and Pharmaceuticals Switzerland, Canada, Australia, Sweden

6. Transport Equipment Canada, Mexico, Austria, Switzerland,

Spain, China
7. Machinery and Instruments Iran, Spain, Korea, Canada
8. Dyes and Intermediates Canada, Spain, Austria, Switzerland,
China
9. Oil meal Spain, Denmark, Canada
10. Plastic and Lenoleum Spain, Canada, Switzerland, Korea,
Austria, China

107
 3.11 DIRECTION OF INDIA'S EXPORTS
Kindle Bergar defines balance of payments as, 'a systematic record of all Sr,
economic transactions between the residents of the reporting country and
residents of foreign countries during a given period of time'. It is a statement of
systematic record of all —oncimic transactions between one country and the rest
of the world. In contaii tv%%b sets of accounts. They are capital account and
current account.
A modest attempt has been made to analyse balance of payments position
of Government of India and composition of exports and imports. Balance of
payments is analysed for the period 1990-91 to 2004-05 and composition of
exports and imports for the two years, 2002-03 and 2003-04. Indicators of
India's external sector are also analysed in this paper. The data required for the
above analysis are gathered from the various issues of Economic Survey,
Government of India.
BALANCE OF PAYMENTS
Trends in exports, imports, trade balance, invisibles, current account
balance and capital account are analysed for the period 1990-91 to 2004-05. The
following table shows balance of payments position during the review period
1990-91 to 2004-05.
TABLE 1
BALANCE OF PAYMENTS
(US $ million
S.No. Year Exports Imports Trade Invisibles Current Capital
Balance (net) account account
balance balance
1 1990-91 18477 27915 -9438 -242 -9680 8402
2 1997-98 35680 51187 -15507 10007 -5500 9393
3 1998-99 34298 47544 -13246 9208 -4038 7867
4 1999-00 37542 55383 -17841 13143 -4698 10840

108
 5 2000-01 45452 57912 -12460 9794 -2666 8508
278
6 2001-02 44703 56277 -11574 14974 3400 8357

7 2002-03 53774 64464 -10690 17035 6345 10640

8 2003-04 64723 80177 -15454 26015 10561 20860

9 2004-05 34451 51892 -17441 14182 -3259 10149

(April to
September)

Table 1 reveals that India's export in the year 1997-98 was US $ 35680
million and it has increased to US $ 37542 million in 1999-00, US $ 44703
million in 2001-02 and US $ 64723 million in 2003-04, showing the percentage
increase of 81 per cent during the period 1997-98 to 2003-04. In the year 2004-
05, for the period April to September, export remains at US $ 34451 million.
India's major trading partners are USA, UK, Belgium, Germany, Japan,
Switzerland, Hongkong, UAE, China, Singapore and Malaysia.
The Economic Survey, Government of India. 2004-05, reveals that
exports registered an increase of 25.6 percent in US dollar terms in April —
January 2004-05, substantially higher than the annual target of 16 percent as
well as the rise of 11.7 percent recorded in the corresponding period of the
previous year. In the foreign trade policy 2004-09, Government has fixed an
ambitious target of US $ 150 billion for exports by the year 2008-09, implying
an annual growth rate in US dollar terms of around 20 percent, thus doubling the
share of India in global exports to 1.5 per cent.
India's import in the year 1997-98 was US $ 51187 million and it has
increased to US $ 55383 million in 1999-00, US $ 56277 million and US $
80177 in the year 2003-04, recording the percentage increase of 57 percent
O during the period 1997-98 to 2003-04. In the year 2004-05, for the period April
3 to September, import remains at US $ 51892 million.
It is also attempted to compute Karl Pearson Coefficient of Correlation
between exports and imports during the period 1992-93 to 2004-05. Correlation
shows relationship between exports and imports. Correlation between India's

109
exports and imports during the period 1992-93 to 2004-05 is +0.962. It shows
that there is a perfect positive correlation between India's exports and imports.
Export-import ratio is also computed to assess what is imported for every
one rupee of export? The following table shows export-import ratio for the
period 1997-98 to 2004-05.
TABLE 2
EXPORT-IMPORT RATIO

Year 1997- I998- 1999- 2000- 2001- 2002- 2003- 2004-

98 99 00 01 02 03 04 05

Import for 1.46 1.38 1.45 1.27 1.27 1.19 1.23 1.53
one rupee of
export (Rs.)

Table 2 shows for every one rupee of export, import was 1.46 in 1997-98,
1.38 in 1998-99 and 1.45 in 1999-04. After 1999-00, this ratio is on declining
trend. It shows that the magnitude of gap between export and import is getting
narrowed. The ratio was 1.27 in the year 2000-01 and 2001-02, 1.19 in 2002-03
and 1.23 in 2003-04.
Trade balance is on increasing trend during the review period 1997-98 to
2004-05. It was US $ 15507 million in 1997-98 and increased to US $ 17841
million in 1999-00. It remains at US $ 15454 million in 2003-04. The trade
deficit is decreased by one percent during the period 1997-98 to 2003-04.
Invisibles play a vital role in determining balance of payments in India.
Invisibles (net) is on increasing trend after liberalization. Invisibles (net) was US
$ 10007 million in 1997-98 and it has increased to US $ 13143 in 1999-00. US $
14974 million in 2001-02 and US $ 26015 in 2003-04 recording the percentage
increase of 160 per cent during the review period 1997-98 to 2003-04. Invisibles
(net) during the period April to September, 2004-05 remains at US $ 14182
million. Invisibles receipts for the year 2001-02, 2002-03 and 2003-04 are more
than trade deficit. So current account balance remains at surplus during the three
years.
The current account balance was negative in the year 1997-98, 1998-99,
1999-00 and 2000-01, current account had a surplus in the year 2001-02, 2002-

110
03 and 2003-04. In the year 2004-05, April to September, current account deficit
retains at US $ 3259 million. The Economic Survey, Government of India
2b04-05 reveals that the current account surpluses during the current decade are
largely attributable to the buoyant inflows of invisible receipts. As a proportion
of GDP, the invisibles balance increased by 1.2 percentage points from 3.1 per
cent in 2001-02 to 4.3 per cent in 2003-04. The increase was particularly sharp
in 2003-04, when net invisihles intim% s increased by more than 50 per cent from
US$17 billion in 2002-03 to l'SS26 billion in 2003-04. Non-factor services and
private transfers comprised more than 90 per cent of total invisible receipts in
2003-04, with their individual shares in total receipts at 47.1 per cent and 43.7
per cent, respectively.
The steady growth of non-factor services receipts, and the concomitant
strengthening of the invisibles balance, can be, inter alia, attributed to the rapid
rise in software services exports. From a relatively low share of only 10.2 per
cent in 1995-96, exports of software services came to occupy 48.9 per cent of
India's total services exports in 2003-04, highlighting the country's growing
comparative advantage in production and export of such services. The growth in
information technology IT-enabled services (ITES) and business process
outsourcing (BPO) has been very satisfactory, with such exports experiencing
more than six-fold increase between 1999-00 (US$565 million) and 2003-04
(US$3.6 billion). The year 2003-04 was also characterized by a turnaround in
travel receipts, which increased by more than US$800 million compared to
2002-03. This turnaround not only bolstered overall invisible inflows, but also
underlined a sharp revival in tourism interest in India. Besides software services
and travel, transportation receipts increased by nearly US$700 million in 2003-
04, primarily on account of higher earnings by the Indian shipping industry. The
year experienced net positive transportation earnings (almost US$ 1 billion) after
almost two decades.
Apart from software services, growing volume of private transfers, driven
essentially by workers remittances, have been one of the main reasons behind
the expanding surpluses in the current account. Private transfer inflows increased
by around US$6 billion in 2003-04_ nn nearly 35 ner cent over the previous year.
Remittances from overseas Indians constituted 83 per cent of these transfers. As
a proportion of GDP, workers remittances have increased from 0.7 per cent in
1990-91 (US$2.1 billion) to 3.2 per cent in 2003-04 (US$19.2 billion), making
India one of the largest global recipients of such inflows. Source-wise,
remittances from Indians in advanced economies (mainly the US and Europe)
now form the bulk of such transfers, as compared to those from the Gulf
countries in the past.
By growing faster than merchandise trade, services trade is increasingly
becoming of paramount importance in the global trade matrix. Services trade has
special relevance to India, a country with a good potential in many services.
While the first quarter of the current fiscal witnessed buoyant invisibles
inflows (net). the second quarter, in a sharp reversal of the trend, experienced a
fairly significant drop in the volume of invisibles (net). As a result, the trade
deficit of US$12.3 billion during the second quarter was left uncovered by
US$6.4 billion, which resulted in not only a current account deficit of an
equivalent amount for the quarter, but also a current account deficit for the first
half of the current year. Receipts of both non-factor services and private
transfers dropped during the second quarter, by US$1 billion and US$1.7 billion,
respectively, compared to the first quarter of the current fiscal. Among non-
factor services, transportation earnings recorded net outflows (US$90 million)
during the second quarter, as against net inflows (US$339 million) during the
first quarter, largely on account of higher transportation expenses arising from
growing domestic demand for imports. Software service exports, however,
continued to remain buoyant, registering an increase of 28.7 per cent in April-
September 2004 over April-September 2003. The invisibles balance for the first
half however was significantly. affected by the sharp decline in workers
remittances.
Capital account balance was US $ 9391 million in 1997-98 and it has
increased to US $ 10840 million in 1999-00 and I'S $ 20860 million in 2003-04.
The India, external trade transactions arc more than external investment
transactions. So current account is given greater importance than capital account
in balance of pay ments. If a country receives more and more external loans, it
may add capital account inflow, but it will create heavy out110‘\ in current
account in the form of debt service. Capital account surplus which is created by
foreign / international loans may contribute to current account deficit.

112
 TABLE - 3
INDICATORS OF EXTERNAL SECTOR
S. Year Exports imports Trade - Invisible Current External Import
No. Balance Balance Account Debt cover
Balance of
forex
reserve
in
months
1. 1990-91 5.8 8.8 -3.0 0.01 -3.1 28.7 2.5
2 1997-98 8.3 11.5 3.2 2.2 -1.0 23.6 8.2
3 1999-00 8.4 12.4 -4.0 2.9 -1.0 22.1 8.2
4 2000-01 9.9 12.7 -2.7 2.2 -0.5 22.6 8.8
5 2001-02 9.4 11.8 -2.4 3.1 0.7 21.2 11.5
6 2002-03 10.6 12.7 -2.1 3.3 1.2 20.3 14.2
7 2003-04 10.8 13.3 -2.5 4.3 1.8 17.8 16.9
Table 3 shows that in the year 1998-99, India s export was 8.3 percent of
GDP and it has slowly increased to 9.9 per cent in 2000-01, and 10.8 percent in
2003-04. Similarly imports 11.5 per cent of GDP in 1998-99, 12.7 percent in
2000-01 and 13.3 per cent in 2003-04. India's foreign exchange reserve position
is comfortable. Import cover of foreign exchange reserve was 8.2 month in
1998-99 and it has increased to 14.2 months in 2002-03 and 16.9 month. in
2003-04.
TABLE 4
COMMODITY COMPOSITION OU vxpowrs
S.No. Commodity Group Percentage Share

2002 - 03 2003 04
Primary products 16.6 15.5
Agriculture & Allied 12.8 11.8
Ores & Minerals 3.8 3.7

113
2. Manufactured goods 76.6 76.0
Textiles 21.1 19.0
Gems & jewellery 17.2 16.6
Engineering goods 17.2 19.4
Chemicals and related products 14.2 14.8
Leather & manufacturers 3.5 3.4
3. Petroleum, Crude & products 4.9 5.6
4. Others 1.9 2.9
Though India is agriculture based country, in total exports, the share of
manufactured goods is more than primary products (agriculture and allied and
ores and minerals). The share of export of manufactured goods in total export
remains at 76 per cent during the year 2002-03 and 2003-04. In manufactured
goods, the shares of textiles, gems and jewellery, engineering goods, chemical
and related products and leather and manufactures are 19%, 16.6%, 19.4%,
14.8% and 3.4% respectively in 2003-04.
TABLE 5
COMMODITY COMPOSITION OF IMPORTS
S.N0. Commodity Group Percentage Share
2002 - 03 2003 - 04
POL 28.7 26.3
Pearl, Precious & Semi precious stones 9.9 9.1
Capital goods 12.1 13.3
4. Electronic goods 9.1 9.6
5. Gold and silver 7.0 8.8
6. Chemicals 6.9 7.4
7. Edible oils 3.0 3.3
8. Coke, coal & briquettes 2.0 1.8
9. Metal ferrous ores and metal scrap 1.7 1.7

114
10. Professional instruments & Optical Goods 1.8 1.6
11. Others 17.8 17.1
100.0 100.0
In total imports. the share of petroleum. oil and lubricants (POL) remains
at 26.3 per cent in 2003-04. P01. occupies a major share in total imports.
The important findings are given below:
i) India's export was US $ 35680 million in 1997-98 and it has increased to
US $ 64723 in 2003-04. Similarly import is increased from US $ 51187
million in 1997-98 to US 4 80177 million in 2003-04.
ii) Import for one rupee of export was Rs. 1.23 in 2003-04 and 1.53 April to
September, 2004-05.
iii) Trade balance was US $ 15507 million in 1997-98 and it remains at US $
15454 million in 2003-04.
iv) During the period 2001-02 to 2003-04, invisibles receipts (net) are mol
than the trade balance and it contributes to current account surplus.
) Import cover of foreign exchange reserve was 8.2 months in 1998-99 and
increased to 16.9 months in 2003-04.
vi) Textiles products occupy first place in total manufactured goods exports
in the year 2003-04 followed by gems and jewellery, engineering goods
and chemicals and related products and leather and leather manufactures.

SELF-ASSESSMENT QUESTIONS
1) What are export incentives? Explain.
2) What is duty drawback? Explain the procedure to claim it.
3) What is market development assistance?
4) Explain 'export promotion capital goods' scheme.
5) State the salient features of foreign trade policy 2004 - 09.
6) Describe direction of India's exports.

115
REFERENCES
1. Jacob Cherian and B.Patab, 'Export Marketing', Himalaya Publishing House,
Bombay.
2. R.K.Jain's Customs Law Manual 2001-02. Centax Publications Private Ltd.,
New Delhi.
3. R.L.Varshney and S.Bhashyam. 'International Financial Management — An
Indian Perspective'. Sultan Chand and Sons, New Delhi.
4. V.A.Avadhani. 'International Finance', Himalaya Publishing House,
Bombay.

* * *

116
 UNIT—IV

MARINE INSURANCE
The objective of this lesson is to help students understand marine
insurance, types of marine policies and marine insurance claims.
LESSON STRUCTURE
4.1 Introduction
4.2 Insurable interest
4.3 Procedure of insuranccI
0.•c\port cargo
4.4 Institute cargo clauses
4.5 Types of policies
4.6 Procedure for marine insurance claims
4.7 Self — assessment questions
4.8 References

4.1 INTRODUCTION
Section 3 of the Marine Insurance Act, 1963 defines a contract of Marine
Insurance as under:

`A contract of Marine insurance in an agreement whereby the insurer

undertakes to indemnify the assured in the manner and to the extent thereby
agreed to against marine losses, that is to say, the losses incidental to marine
adventure'.
4.2 INSURABLE INTEREST
Section 8(1) of the Marine Insurance Act provides that the assured must be
interested in the subject matter insured as the time of the loss though he need nor
be interested when the insurance is effected. A person has an insurable interest
in a thing if he will be benefited by its sailor or due arrival on be prejudiced by
its loss, damage on detention on incur liability in respect thereof.
4.3 PROCEDURE OF INSURANCE OF EXPORT CARGO
Insurance cover can be obtained either by shippers/exporters or buyers,
depending upon their contract of sale i.e. CIF, C&F of FOB. Under CIF
contract the shipper/exporter has to take insurance on the goods and under C&F

117
and FOA contracts, the buyer has to take the cover. The exporter may obtain
policy for covering the risk of full CIF value plus ten per cent. All goods sent on
consignment basis are covered under CIF contract must be insured by
shippers/exporters only.
Persons/firms/companies etc., resident in India are nor permitted to take
marine insurance cover with insurance companies in foreign countries without
the prior permission of Reserve Bank of India.
Marine Insurance Act and Policy
Transaction of marine insurance is governed by the Marine Insurance Act,
1963. This specified that a contract of marine insurance canpot be admitted in
evidence unless it is embodied in a marine insurance policy in accordance with
the Act. The London Market has simplified, the policy format in the year 1982.
This has also been followed by the Indian Market from 1.4.1983.
The Insurers attach various clauses known as the Institute Cargo
Clauses to define the terms and conditions of the policy. These clauses drafted
by the Institute of London Underwriters are used by several countries.
These Institute Clauses has also been revised by the U.K. Market in 1982. These
revisions have been adopted by the Indian Insurers since 1.4.83. The details of
the new clauses and the cover available are discussed in the following
paragraphs.
It may be noted that the revision in the clauses has been effected in order
to bring about simplicity and clarity. Earlier these clauses were found to be
replete with technical jargon and antiquated phraseology. This has now been
avoided in the new set of clauses. The losses payable, exclusions, the duration of
cover, claim procedure and the obligations of the claimant are clearly outlined.
Not all risks can be covered
The Insurance System caters to occurrences which are of an accidental
nature. Inevitable events are nor insurable. Insurance does not cover and loss
auses by wean and tear, 'inherent vice' of the goods - the tendency of the
commodity to deteriorate - e.g. fruits, vegetables decaying in course of time -
ordinary leakage of evaporation, e g. certain liquid cargoes suffer natural
evaporation which in termed as ullage - loss of market due to delay in voyage.

118
 There should nor be an element of catastrophic potential in the risk. Thus
nuclear perils are excluded in the Marine Policies.
Types of Cover
Ocean Transit: Earlier the covers available were
a) F.P.A. (free of particular average)
b) W.P.A or W.A. (with particular average on with average)
c) All Risks
The Institute clauses formulated by the technical and clauses committed
of the Institute London Underwriters (I.L.U.) were revised in 1982. The covers
now available for cargo shipment stand revised as below,
a) Institute Cargo Clause (A)
b) Institute Cargo Clause (B)
c) Institute Cargo Clause (C)
ICC (C) cover (Basic on Minimum cover)
This cover is granted by attaching Institute Cargo Clauses (C). This
policy covers loss or damage to the insured property due to a) fire or explosion
b) stranding, grounding, sinking of the vessel on chart c) over-turning or
derailment of and conveyance (d) collision or contact of vessel or conveyance
with and external object (e) discharge of cargo as port of distress.
This insurance also pays:-
i) General Average and salvage charges
ii) Charges properly and reasonable incurred in unloading, storing and
forwarding cargo to destination in the event of termination on transit
as a port on place other than the destination covered, due to operation
of a risk under the policy.
Exclusions

The following are the losses excluded under this polio.

1. Loss or damage due to wilful misconduct of the assured.
2. Ordinary leakage, wear and tear and loss in weight/volume.
3. Insufficiency of packing.

119
 4. Inherent vice.
5. Delay.
6. Loss due to financial default on insolvency of the vessel owners,
charterers on operators on managers of the vessel.
7. Nuclear Perils.
8. Malicious damage.
9. Unseaworthiness of the vessel.
This cover 's also subject to the exclusions of war as well as strike perils.
Whenever war and strike perils have to be included, these would be as per the
appropriate Institute War and SRCC Clauses."
Duration
Salient points of this clause are summarized below:
The Insurance commences from the time the goods leave the warehouse
continues during transit and terminates.
1) On delivery to the consignees as the final warehouse on any other place of
storage as the destination, or
2) On delivery to any other warehouses which is used by the insured for
storage on allocation on distribution, or
3) On expiry of 60 days after completion of discharge, as the final port of
discharge.
Whichever shall first occur.
The cover, it is clear, in on a "warehouse to warehouse" basis.
It should be noted that the 60 days period is not automatic. It is only the
maximum period upto which the cover is available. Once the goods have
reached the destination warehouse, cover will cease even though the 60 days
limit would still nor have expired.
The time limit of 60 days in prescribed to control the hazards of
unlimited delay, say, in clearance of the goods as the final port. In the delay is
avoidable by prompt action on the part of me insurea, the cover ceases
immediately on the occurrence of such avoidable delay. However, it is important
to note, that whereas insurance cover continues during delay beyond the control

120
of the insured, is does not mean that loss on damage proximately caused by
delay is payable even though the delay may be due to an insured peril.
Another Destinclon: If after discharge of goods as the final port of
discharge, but prior to delivery of expiry of 60 days, as the case may be the
goods are to he tbrwarded to a destination. other that the one insured, the cover
ceases. Extension of cover may he sought and obtained on paxment of additional
premium.
Change of \'() age: If after commencement of insurance the destination is
changed by the insured. the insurance continues only if prompt notice is given
subject to payment of additional premium.
4.4 INSTITUTE CARCO CLAUSES (B)
Risk Covered
All losses covered under ICC (C) are covered under this policy and in
addition, the following further perils are covered.
1. Loss on damage attributable to earthquake, volcanic eruption pre-
lightning.
2. Loss on damage by washing over-board.
3. Sling loss, i.e., total loss of any package loss on dropped during loading
into on unloading from the ship.
4. Sea water on lake on river water damage.
Exclusions
Same as for ICC (C)
Institute Cargo Clauses (A)
Risk Covered
This insurance covers all risks of loss on damage to the subject matter
except those specifically excluded under the Exclusion Clause.
Exclusions
Same as for ICC (C) and ICC (B) except that the exclusion No.8 on
"malicious damage" does not apply to this cover.
In other words ICC (A) included Malicious damage also.

121
 to-—Malicious Damage cover can also be taken under ICC (B)oD (C) on
payment of appropriate additional premium. Similarly the extreneous perils-theft
pilferage and non-delivery, can also be included in these restricted types of
cover\where the insured does not require the widest cover as pen Institute Cargo
Clausef (A).
.-
Extraneous Perils
Goods in transit are subject to large number of non-maritime extraneous
perils. Due to rapid growth of trade, demand has grown for cover against these
extraneous perils. It is possible to extended ICC (B)/ICC (C) policy to cover any
or all of the following extraneous perils by payment of additionahpremium.
This term includes perils such as theft, purchase, not-delivery, fresh on
rail water damage, hope damage, damage by mud (country damage), oil acid and
other extraneous substances, heating, sweating, breakage, denting, chipping, etc.
A few of these extraneous perils are explained below:
1. Theft and Pilferage: This includes larceny on petty theft and skilled
pilferage (without any evidence of tampering of containers).
2. Non-delivery: This term refers to loss of packages due to
unascertainable cause.
3. Fresh water on rail water damage.
4. Damage by hook. oil and mud hook damages extends to include
snortage in contents caused by the tearing of sacks when hooks are
used for handling.
War and S.R.C.C. Risk Cover: This cover is extended by the insurance
Companies for capture, seizure, arrest, restraint, detainment, hostilities, civil
war, revolution, civil strike on warlike operations.
War risks are covered only when the cargo is water born and for fifteen
days or land a port of transhipment from the date of arrival of the steamer. This
type of cover is granted by Insurance Companies by attaching Institute War
Clauses (Cargo) to the Insurance Policy.
Insurance for Registered Postal Despatches:
This type of cover is extended by Insurance Companies to cater to special
needs of import/export in diamonds and precious stones by air freight, post

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parcels on registered post parcels by aim under a special insurance scheme
designated by the General Insurance Company in India.
The insurance is against all risks of payment loss on damage as pen
Institute Cargo Clause (A) for registered insured post parcels, and as pen
Institute Cargo Clauses (Air) tbr sending by aim freight.
This cover incorporates the door to door clause similarAo transit clause in
ocean cargo.
This cover will nor cover the risks excluded under Institute Cargo Clause
(A) (B) (C), but to certain changes, due to special mode of transport.
Inland Transit Cover (Rail/Road). This type of cover is granted or rail as
well as road risks against tire, collision, breakage of ridges, derailment or
accidents of like nature. According to the all tariff clause, insurance commences
with the loading of each package into the railway wagon and terminates
three days after arrival of the train as the destination or on delivery of the goods
by Railways, whichever is earlier.
Insurance of Airfreight
Air Freight consignments are covered under following three sets of
clauses-
i) Institute Cargo Clauses Clauses (Air) excluding despatch by post,
ii) Institute War Clauses (Air Cargo) excluding despatch by post: and
iii) Institute Strike Clauses (Air Cargo).
4.5 TYPES OF POLICIES/COVERS
There are three types of Policies/Covers
1) Specific Policy: Marine insurance policy in respect of individual
shipments is issued by the insurance underwriter of application from the
exporter giving details of the consignment to be insured, risks to be
covered, value for ..vhich the cover is required and the name of the
country and currency in which the claims are payable. These details are
given in the declaration form. On receipt of these details the Insurance
Company issued stamped Insurance Policy in duplicate.
2) Open Cover: Open cover is not a policy but it is a contract for a period of
time (usually 12 months) whereby the Insurance underwrites agreed to

123
 grant insurance during that period nor exceeding the agreed limit pen
vessel I, ith a view to avoid accumulation of liability to any one vessel on
locati
3) Open Policy: It is cargo policy expressed is general term and effected for
an amount sufficient to cover the number of shipments. It covers all
shipments of the exporter until the sum insured in exhausted. The names
of the steamers may not be available when the Open Policy in issued.
Therefore. the Company stimulated that the shipment should be made by
First Class Steamer (nor over 20 years old) carrying highest class in any
one ol' the classification societies mentioned in clause.
In terms of S.25 of the Marine Insurance Act, !963 a marine insurance
policy must-specify -
a) name assured, or of some person who effect the insurance on his
calf;
b) subject matter insured and the risk insured against it;
c) me voyage on period of time on both, as the case may be, covered by
the insurance;
d) the sum insured;
e) the place where claims are payable together with details of the agent
of whom claims may be directed;
0 the declaration of the assured, where applicable. His endorsement on
the reverse of the document is also required so that the rights to claim
may be transferred to another party (usually the importer); and
g) the date of issue which must be the same as on earlier that the date of
the document evidencing despatch except where warehouse to
warehouse cover is indicated.
Duty and Increased Value Insurances
Any cargo landed as the port of destination is subject to the payment of
duty and this goes to increase the value of the imported item. Such ditty can also
be insured separately. Similarly in some cases the market value of the uoods as
destination on the date of landing is higher than the OF and duty value of the
cargo. Then a separate insurance on the increased value can be effected. These
two specialised insurances are governed by specific provisions of the All India

124
 Marine Cargo Tariff. The important features of these insurances are summarised
below:
.79
1. This can be given only when a policy for the CIF value of the Cargo has
been taken. The perils covered tinder the Cargo policy and the increased
value policy should he identical. Where. however, there is an unavoidable
contractual obligation to insure abroad. this restriction does not apply.
2. The insurance can he granted only to the holder on assigned of the import
licence on the actual used who has purchased the goods from a recognised
export house/channel ising agency.
3. The policy is nor assignable.
4. The policy is nor a valued policy and hence claims are payable on the
basis of the actual duty paid, or on the basis of the sum insured whichever
is less.
5. No claim shall be paid for duty until the claim under the C.I.F. value
insurance is payable and proof of liability for loss under that policy shall
be furnished to the company.
6. No cover can be granted after arrival of the ship as the port of destination.
7. The indemnity provided shall be 75% of the liability, the balance 25%
must be borne by the insured himself, in the case of increased value
policy.
8. For the issue of duty and increased value insurances, a proposal form has
to be filled in by the insured in which he must declare all other insurances
in respect of the consignment.
9. Insurance of cargo in inland transit in excess of established market value,
cannot be granted under any circumstances.
10. The rate of premium for insurance of duty shall be 75% of the rate
charged for covering the C.I.F. value of cargo itself.
Marine cum Erection Insurance
When a project is under execution, a number of items are imported and
numerous items are purchased locally. A few of these items undergo some
fabrication/modification before being send to the project site. As the project site
the material is kept in storage pending erection. The storage may be extended to
ti
125
as long as a year on ever two years depending on the size of the project, the
arrival of erection personnel, arrival of the other connected materials/
machinery/ equipments etc. After completion of erection the plant is handed over
after a test run.
During this entire period starting from the time of procuring the materials
from the manufacturer's warehouse, during the transit, during the storage, while
undergoing erection and till handing over after successful completion of the test
run, the entire value is an risk. To ensure that there is a continuous insurance
cover for the project materials in transit, is storage and while undergoing
erection and test run. two types of policies are issued.
A combined marine-cum-erection policy can be taken incorporating the
ocean transit and inland transit risks to the storage and erection portion: As an
alternative, separate policies can be taken for the transit portion and the storage
cum erection portion of the risk. It our company is in the practice to issue
separate policies for marine transit and for storage and erection risk applying
MCA tariff rates. It is usual to incorporate an excess of loss during erection and
testing to avoid small claims. The premium rates for marine-cum-erection and
marine-cum-storage-cum-erection, are tariffed. Projects costing over Rs. 25
crores are specially rated by TAC. Further details of the cover, the salient
provisions of the tariff, the underwriting features etc., will be found in the
engineering manual.
CARGO CLAIMS
Classification of Losses:
The various type of losses in Marine can be classified as below:
L9ss

4,
To al Parti

Actual Constnictive General average Particular average

Sacrifice Expenditure Total Loss Damage

of part (shortage)

126
These can be briefly explained as below:
Total Loss: As indicated above this could be either actual or constructive total
loss.
Actual Total Loss
This occurs when the cargo suffers irrepairable physical destruction and
becomes no longer the cargo which was initially insured or where once and for
all, the insured has lost use of the commodity.
Examples: A ship carrying salt or sugar sinks resulting in the soluble cargo
being permanently. When a vessel sinks in mid-Ocean the shipment cannot be
salvaged. So it is permanently loss to the insured.
Constructive Total Loss
This is also known as Commercial Total Loss. In this the insured loses
possession of the goods and is not likely to recover the same. Even if it can be
recovered, the cost of such recovery will be far higher compared to the value of
the good after recovery, e.g., if Rs. 1,000/- has to be spent to save the cargo
worth Rs. 900/-, definitely it is uneconomical and would be treated as a
constructive Total Loss.
Partial Loss
This is referred to as 'Average' in Marine terminology. It could be either
a General or Particular Average depending on the manner in which it happens.
A) General Average
The principle of Genera' Average is very old and dates back to 9th century
B.C. This affords indemnity only when losses are incurred voluntarily - for
example, deliberately throwing cargo overboard in an attempt to save the ship
from sinking. This loss is brought about to save the ship, freight and other cargo
in it. Naturally these saved interests have to share the loss due to which, their
safety has been ensured. This is called General Average Sacrifice. There could
also be an severe storm, on fire, is order to save the ship and goods. Insurers are
liable for such General Average contributions on General Average loss even
under policies issued under I.C.C. C).
A few examples are:
a) Cargo jettisoned in an attempt to refloat the vessel.
. 127
 b) Goods destroyed by water used to extinguish a fire (Provided the goods
were themselves nor on fire).
c) Expenses of entering and leaving a port of refuge (a port of refuge in the
nearest port/harbour to which the vessel in taken immediately after a
casualty).
d) Expenses of discharging, storing and reloading of cargo which becomes
necessary in the common interest.
B) Particular Average
Partial loss other than General Average loss is Particular Average. It may
be either total loss of a part such as shortage on damage to the goods. These
losses are adjusted for the proportionate insured value. In the case of damage, a
degree of depreciation is applied to the insured value to ascertain the loss. If
repairs are effected to see right a damage, the actual repair charges are paid. And
franchises on excess stipulated in the policy, is taken into account before the
claim is arrived at.
Sum and Labour Charges
These are expenses incurred by the insured on his agent for the purpose of,
minimising the loss on damage caused by the insured peril. They are payable in
full. These are paid in addition to the loss on damage payable under the main
policy including a total loss.
Extra Charges
• Survey fees, setting agent's fees etc., which are incurred by the insured to
prove the loss are paid if the claim itself is admitted.
4.6 CLAIM PROCEDURE
Calculating a loss is a complex activity. It involves several factors
depending of the circumstances of the loss, cause of the loss, nature of the cargo
and the extent of actual loss on damage. Invariably survey of an independent
surveyor is required.
Here are a few important documents which have to he produced to
substantiate a marine claim.
1. Shipments: Documents required are:
a) Original insurance policy/certificate duly endorsed.
128
 b) Insurance Survey report.
c) Carriers survey report/shortlanding or non-delivery certificate.
d) Certified true copy of the B/G (in the case of shore landing of entire
shipment, original and all negotiable copies of the Bill of Lading duly
endorsed would be required).
e) Certified copy of the Sales Invoice with Packing List.
f) Customs Bill of Entry (for Duty claim).
g) Claim Bill
h) Letter of subrogation cum Power of Attorney.
i) Copies of correspondence exchanged with carrier/Customs/Port
Authorities with Acknowledgement Due Cards.
j) Letter of Undertaking (in case of short-landing claims).
2. Inland Transit: Documents required are
a) Original Insurance Policy/Certificate of Insurance duly endorsed.
b) Insurance survey report.
c) Open Delivery Certificate/Carrier's Survey Report for damage
observed as the time of discharge/delivery as destination
station/point.
d) In the case of non-delivery of an entire consignment, original Railway
Receipt/War Bill alone with the latest endorsement of the carrier
about the non-availability of the consignment.
e) Sales Invoice with Packing List.
f) Copies of correspondence exchanged with the carriers alone with the
A.D.Cards.
E,) Claim Bill.
h) Letter of subrogation cum Power of Attorney.
i) Letter of undertaking (in the case of Non-delivery).
j) Letter of authority addresses to the carrier.
Duties of the Insured (Preservation of Recovery Rights)
In the case of a claim is has to be ensured by the claimants has the right of
recovery against the carrier is properly preserved. In the absence of the same,
recovery action against the carrier becomes prejudiced. This will adversely
129
affect the right of the insured to claim under the policy. This has been
incorporated as a specific provision in the Institute Cargo Clauses (A), (B) & (C)
under the heading 'Duty of Assured'.
Clients must be clearly told that they should insist on a carrier's survey, if
they observe and damage to the goods while taking delivery. They should
demand an open delivery certificate indicating the condition of goods before
delivery is taken. No clear receipt should be issued to the carrier, when the goods
are is an apparently damaged condition. The carrier may refuse to give a
Damage certificate/Open Delivery Certificate. Then the insured on his
representatives, should send a letter stating that he is arranging for a survey to be
conducted. If the carrier does not join with the surveyor insured/claimant should
serve a notice on him that the findings of such a survey will be binding of him
(carrier). When damage is noticed in the case of an inland transit, the insured
must give only a qualified receipt on he can write about the damage upon the
delivery challan. Underwriters must also inform the insured of the period within
which they have to issue notice of claim against the carrier.
The Statutory Time Limits for lodging notice of claim and filing suits
Time Limit for Lodging claim Time Limit for Filing suit
Steamer Within the period of 3 days Within one year from the
from date of discharge of date of discharge from
cargo from overseas vessel overseas vessel.

Port Trust For "short landing- and
Authorities "Landed out missing"
within 7'5 day s From the
General Landing Dt.
(Bombay Port within 7
days of landing)
Within 6 months from the
date of discharge.
6 months from the date
of accrual of the cause
(lioinha and Madras
Ports)

(Calcutta and Madras 3 months from the date

Ports within 8 days of of accrual of the cause
Landing) (Calcutta port)
In all cases, one month's notice of intention to file suit must be given.

130
 Notices against the Port Authorities Customs/Carriers must be by
Registered Post (A.D) copies sent to the insurers, to enable they to decide on
questions of eventual recovery.
The above are as per provisions of the Indian Carriage of Goods by Sea
Act (1925) and provisions of the major Port Trust Act.

Rail carriers 6 months from date of 3 years from the date of

booking (as per Sec.78B of
the Indian Railway Act)
Motor lorry 6 months from the time loss or 3 years from the date of
carriers damage came to knowledge.
(Sec.10 of the carriers Act)
Air 14 days from the date of
International delivery of cargo
Domestic 7 days from the date of
delivery of cargo
Non-delivery 21 days from the date of
booking of cargo
Domestic 14 days from the date of
booking of cargo
Postal Immediately
Authorities
Comparison Between I.C.C. (A) (B) & (C)
Loss and/or Damage to the subject matter insured reasonably attributable
to/caused by as shows in the appropriate clause:
delivery or date when
consignment ought to have
been delivered
delivery or date when
consignment ought to have
been delivered
2 years from the date of
arrival at destination or the
date on
Which aircraft ought to have
arrived (as per Indian
Carriage by AIR Act)
3 years from the date of
postal receipts

131
 : : 1. Fire or Explosion
: : 2. Vessel being stranded, grounded, sunk or capsized
: C 3. Overturning or derailment of land conveyance
: L 4. Collision or contact of vessel/craft or conveyance with any external
: : A object and other than water
: 1. 5. Discharge of cargo as a port of distress
6. General Average Sacrifice
I I 7. Jettison
R. General Average & Salvage Charges
: 9. Both to blame collision clause
S

E 10. Washing Overboard

1. (B) 11. Earthquake. Volcanic Eruptionor Lightning
A : 12. Entry of sea, Lake or river water into vessel, craft, hold, container,
U: Liftvan at place of storage
S : 13. Total loss of any package loss overboard of
E: dropped whilst loading on to on unloading from
(A) : vessel and craft

: 14. Any other risk not specifically excluded in the policy or the clauses

Clause (B) contains ALL THE CLAUSES OF (C), plus 10 to 13 above. (A) IS
ALL RISKS COVER

Duty Insurance Clause

This insurance is on increased value of cargo by reason of payment of
customs duty as the port or place of destination and in subject to the same
clauses and conditions as the insurance on cargo and to pay the same percentage
of duty payable (excluding charges and expenses) as may be paid thereon, but
excluding claims in respect of:

132
 a) Total loss of whole on part of cargo prior to the duty becoming payable.
b) General Average, Salvage and/or Salvage Charges arising from any
casualty occurring prior to the duly becoming payable.
In ascertaining the account of the claim recoverable hereunder credit shall
be given for any rebated of refund of duty which may become available.
The insurance shall nor he valid if effected after the arrival of the vessel
as the destination port.
Warranted that:
1) The Assured in the holder on assigned of the import Licence, or is the
actual uses why has purchased goods from recognised Export
I louse. Channelising Agency.
2) This Policy is not assignable.
3) No Claim shall be paid for Duty until the claim under the C.I.F. value
insurance policy is payable and proof of liability for loss under the policy
shall be furnished to the Company. This provision need nor apply to cases
where CIF is insured overseas due to contractual obligation.
4) This is nor a valued policy is defined in the Marine Insurance Act. Claims
under this policy are payable on the basis of actual duty paid on or the
basis of the sum insured whichever is less.
5) In the event of a claim under this policy, immediate notice of loss shall be
given to the company and a reasonable opportunity given to the company
survey and assess the loss. The Assured shall co-operate with the
company and take all reasonable measures to minimise on prevent loss.
The Assured shall also lodge a claim with the customs authorities within
the stipulated time for refund of duty where admissible, and with the
carriers on others for recovers for the duty paid in respect of such
damaged on loss cargo and any recovery relating to the duty paid shall be
credited to the Company.
Increased Value Insurance Clause
This insurance is on increasing value by reason of the market value of the
goods as destination on the date of landing being higher than the CIF and duty
value of the cargo and is subject to the same clauses and conditions as the

133
insurance of CIF value of cargo, and to pay 75% of the actual lost suffered in the
market of realisable value of the cargo nor exceeding 75% of the sum insured of
Rs..... because of the operation of any of the perils insured against after taking
credit for claims recovered under the basis cargo (CIF value) insurance and duty
insurance for the cargo.

This insurance shall nor be valid if effected after the arrival of the vessel
as the destination port.
Warranted that:
1) The assured is the holder or assignee of the Import Licence or is the
actual user who has purchased goods from a recognised Export
House.
2) This p6licy is not assignable,
3) No claim shall be paid for Duty until the claim under the C.I.F. value
insurance policy is payable and proof of liability for loss under the
policy shall be furnished, to the company. This provision need nor
apply to cases where CIF is insured overseas due to contractual
obligation.
4) This is not a valued policy as defined in the Marine Insurance Act, if
the total insured value under the Cargo Polky covering CIF value,
the Duty Policy and all increased Value policies together shall
exceed the market value of the goods as destination, then the claim
payable together shall nor exceed the specified proportion of the
market value of the goods as destination. This insurance will pay in
the same proportion as the sum insured hereunder bears to the total
insurance or increased value policies where the total sum insured
under the relative CIF value insurance policy, duty policy and all
policies, for increased values is less than the market or realisable
value of the cargo is good condition as destination the Assured, shall
be considered to be his owner insured to the extent of such shortfall
in sum insured.
5) in ,he event of a claim under this policy, immediate notice of loss
shal be given to the company and a reasonable opportunity given to
the 'ompany to survey and asset the loss. The assured shall co-

134
 operate with the company and take all reasonable measures to
minimise or prevent loss.
6) This insurance shall nor pay any part of General Average
Contribution or Salvage Charges arising from any casualty
whatsoever. (Source: Export - Import Management - Vital Issues,
Emerging Trends. Legal and Practical Aspects) Study materials
prepared by the Management Study Centre, Chennai = 90 for
training purposes.

SELF-ASSESSMENT QUESTIONS
1. What is marine insurance? Explain its importance in foreign trade.
2. What is marine insurance policy? What are the various types,pf losses covered
under marine insurance policy?
3. Explain the following
a) Specific policy
b) Open policy
4. Explain in detail about marine insurance claim procedure.
REFERENCES
1) Warren J. Keegen, 'Global Marketing Management', Prentice Hall of India Private Limited,
New Delhi.
2) Sak Onkvisit and John J. Shaw, 'International Marketing', Prentice Hall of India Private
Limited, New Delhi.
3) Varsheney and Bhattacharya, 'International Marketing Management', Sultan Chand and
Sons, New Delhi.
4) Jacob Cherian and B.Parab, 'Export Marketing', Himalaya Publishing House, Bombay.
5) M.J.Mathew, 'Management of Export Marketing', RBSA Publishers, Jaipur.
6) A.V.Rajwade, Foreign Exchange, International finance and Risk Management, Academy
of Business Studies, New Delhi.
7) Annual Report, Ministry of Finance
8) Annual Report, Ministry of Commerce
9) R.L.Varshney and 6.Bhashyam, 'International Financial Management — An Indian
Perspective', Sultan Chand and Sons, New Delhi.
10) R.K.Jain's Customs Law Manual 2001-02, Centax Publications Private Ltd., New Delhi.
11) V.A.Avadhani, 'International Finance', Himalaya Publishing House, Bombay.
12) Maritime Transportation Guidelines for Importers, International Trade Centre, UNCTAD /
GATT, Geneva.

* * *

135
 UNIT — V
EXPORT CREDIT GUARANTEE CORPORATION
Objective of this lesson is to help students understand polices and
guarantees provided by ECGC for the benefit of exporters.
LESSON STRUCTURE
5.1 Introduction
5.2 Standard policy
5.3 Small Exporter's policy
5.4 Specific Policies
5.5 Services Policy
5.6 Construction works policy
5.7 Guarantees to banks
5.8 Special Schemes
5.9 Self — assessment questions
5.10 References

5.1 INTRODUCTION

In order to provide export credit insurance support to Indian exporters, the

Government of India set up the Export Risks Insurance Corporation (ERIC) in
July, 1957. It was transformed into Export Credit & Guarantee Corporation
Limited (ECGC) in 1964. To bring the Indian identity into sharper focus, the
Corporation's name was once again changed to the present Export Credit
Guarantee Corporation of India Limited in 1983. is a company wholly
owned by the Government of India. Is functions under the administrative control
of the Ministry' of Commerce and in manager by a Board of Directors
representing Government, Banking. Insurance, Trade, Industry. etc. (Source
materials for this chapter : Brouchers issued by ECGC).
The covers issued by ECGC can be divided broadly into four groups:
i) Standard policy issued to exporters to protect they against payment risks
involved in exports on short-term credit and Small Exporter's Policy
issued for the same purpose to exporters with small export;

136
 ii) Specific Policies designed to protect Indian firms against payment risks
involved in (a) exports or deferred terms of payment (b) services
rendered to r‘weign parties and (c) construction works and turnkey
projects undertaken abroad;
iii) Financial guarantees issued to banks in India to protect they from risks of
loss involved in their extending financial support to exporters as the pre-
shipment as well as post-shipment stages; and
iv) Special schemes, viz., Transfer Guarantee means to protect banks which
add confirmation to Letters of Credit opened by foreign banks.
Insurance cover for Buyer's Credit, Line of Credit, Overseas Investment
Insurance and Exchange Fluctuation Risk Insurance.
5.2 STANDARD POLICY
Shipments (Comprehensive Risks) Policy, which is commonly known as
the Standard Policy, in the one ideally suited to cover risks in respect of goods
exported on short-term credit, i.e., credit nor exceeding 180 days. This policy
covers both commercial and political risks from the date of shipment. It is issued
to exporters whose anticipated export turnover for the next 12 months is more
than Rs. 25 lakhs. (The appropriate policy for exporter with an anticipated
turnover of less than Rs. 25 lakhs in the Small Exporters Policy, which is
described in the next section).
Risks covered under the policy
Under the Shipments (Comprehensive Risks) l'olicy, the Corporation
covers from the date of shipment, the following risks:
Commercial Risks
• Insolvency of the buyer
• Failure of the buyer to make the payment due within a specified period.
normally 4 months from the due date.
• Buyer's failure to accept the goods, subject to certain conditions.
Political Risks
• Imposition of restrictions by the Government of the buyer's country or
any Government action which may block or delay the transfer of payment
made by the buyer.

137
 • War, civil war, revolution of civil distribution in the buyer's country
• New import restrictions or cancellation of a valid import licence.
• Interruption of diversion of voyage outside India resulting in payment of
additional freight of insurance charges which cannot be recovered from
the buyer.
• Any other cause of loss occurring outside India, nor normally insured by
general insurers and beyond the control of both the exporter and the
buyer.
Risks nor covered
The policy does not cover losses due to the following risks:
• Commercial disputes including quality disputes raised by the buyer,
unless themxporter obtains a decree from a competent court of law in the
buyer's country in his favour.
• Causes inherent in the nature of the goods
• Buyer's failure to obtain necessary import of exchange authorisation
from authorities in his country
• Insolvency or default of any agent of the exporter or of the collecting
bank.
• Loss or damage to goods which can be covered by general insurers.
• Exchange rate fluctuation.
• Failure of the exporter to fulfil the terms of the export contract or
negligence of his part.
Shipments
The Shipments (Comprehensive Risks) Policy is meant to cover all tlic•
shipments that may be made by an exporter of credit terms during a period ol. 24
months ahead\ In other words, as exporter is required to gCt the insurance
provides by the Policy for each and every shipment that may be made by his in
the next 2r months on DP, DA or Open Delivery terms to all buyers other that
his own associates. The Policy cannot be issued for selected shipments, selected
buyers of selecting markets.

138
Exclusions
An exporter may, of course, exclude shipments made against advance
payment of those which are supported by irrevocable Letters of Credit, which
carry the confirmation of banks in India, since he faces no risk in respect of such
transactions. Where an exporter is dealing with several distinct items. ECGA
may agree to exclude all shipments of certain agreed items, provided that what is
offered for insurance consists of all items of allied nature and offers the
Corporation a reasonable portion of the exporter's total business with a fair
spread of risks.
Shipments against Letters of Credit
Unless they are confirmed by banks in India, payments under irrevocable
Letters of Credit are subject to political risks. Exporters, therefore, will be well-
advised to get them also covered under the Policy. Such shipments, which are
excluded from the scope of the Policy, can be covered under it if an exporter so
desires. Lower premium rates are applied to they because them do not involve
commercial risks and only the political risks have to be covered.
For shipments made against irrevocable Letter of Credit, an exporter has
option to obtain either political risks cover only or cover for comprehensive
risks, i.e., for all political risks and the risk of insolvency or default of the bank
opening the irrevocable Letter of Credit. If either case. cover will be provided by
the Corporation only if the exporter agreed to get all the shipments made against
irrevocable Letters of Credit covered under the l'olicy. Cover will not be
available for selected transactions.
Shipments to Associates
Shipments to associates. i.e.. loreign huvers in whose business the
exporters has a financial interest arc norinall excluded from the policy. They
can, however, be coverer against political risks under the an exporter so
desires. Where the associate in a public limited eompan in x‘hielt the exporter's
share holding does not exceed 40%, Lover can he pros ided against insolvency
risks in addition to all the political risks. ?.f'
Shipments on consignment basis
Shipments which are made to an overseas agent under an agreement that
he will receive the goods as agent of the exporter and remit the proceeds of their

139
being sold by him are excluded from the scope of the Policy. However, if an
exporter wants it, the Corporation can get they included under the Policy. Cover
will be provided only against political risks, since the agent acts for the exporter. SI,
If however, goods are sold to ultimate buyers or credit terms, comprehensive
risks cover can be provided for sales to such ultimate buyers if the exporter
wants such clover.
Shipments made by air
Where shipments are made by air, the buyers are often able to obtain
delivery of the goods from the airlines before making payment of the bills of
accepting they for payment, as the case may be. If the buyer fails to make the
payment subsequently as per the contract, the risk of loss will not be covered
under the Policy if premium has been paid on the shipment for DP or DA terms
of payment. An exporter can, however, get cover for such contingencies also if
he obtains Credit Limit of such buyers or Open Delivery terms and also pays
premium as rates applicable to Open Delivery terms.
Additional cover for shipments to Government Buyers
All shipments made to Government buyers are covered under the Policy
against political risks. The exporter has, therefore, to declare such shipments to
the Corporation and pay premium as rates applicable for covering political risks.
The Corporation's Specific Approval should be obtained where the country is in
the list of Restricted Cover Countries. This cover does not extend to commercial
risks like default or non-acceptance of goods. If an exporter wants these risks •
also to be covered. then he should write to the Corporation asking that risk
number (xi) described in the Policy be also covered. It his letter the exporter
should give information about the name and address of the buyer. the status of
the buyer and the details of the contract if the Corporation approved the request,
the shipments concerned will be covered against comprehensiv e risks if the
exporter pays premium of those shipments as rates applicable for comprehensive
risks. It may be noted that the Corporation will consider the l'ollowing as
Government Buyers: (a) a department of the Central Government and (b) if the
buyer will be a Government body like a Board, State Government, Municipality
of Government owned Corporations Companies, if the performance of the
contract is guaranteed by the Central Government.

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 Contract Cover
The Standard Policy provides covers only for the post-shipment stage,
i.e., from the date of shipment. Cover for pre-shipment losses, i.e., losses which
may be sustained by an exporter due to impossibility of exporting goods already
manufactured or purchased for reasons like ban of export of the item, restrictions
or import of the item into the buyer's country or war, civil war, etc., are nor
covered under the policy because the risk is very low in respect of raw materials,
primary products, consumer goods or consumer durable which can easily be
resold. Where, however the export involved at item which is manufactured to the
non-standard specifications of a buyer, cover can be provided for pre-shipment
risks as well as the post-shipment risks, by means of an Endorsement to the
Standard Policy.
Shipments made on credit exceeding 180 days
The policy is means to provide cover for shipments involving a credit
period nor exceeding 180 days. In exceptional cases, however, cover may be
granted for shipments with longer credit period, provided that such longer credits
are justifiable for the export items concerned.
5.3 SMALL EXPORTER'S POLICY
The Small Exporter's Policy is basically the Standard Policy,
incorporating certain improvement in terms of cover, in order to encourage small
exporters to obtain and operate the policy. It will be issued to exporters whose
anticipated export turnover for the next 12 months does not exceed Rs. 25 lakhs.
The Small Exporter's Policy differs from the Standard policy in the
following respects:
i) Period of Policy: Small Exporter's Policy will be issued tbr a period of 12
months, as against 24 months in the case of Standard Policy.
ii) Minimum Premium: Minimum premium payable for a Small I \porter's
Policy will be an amount equal to 0.30% of the anticipated ttiritoNer of
D/P and D/A terms of payment plus where the exporter seeks coyer also
e• for L/A shipments, 0.10% of the anticipated turnover of 1./A terms of Rs.
1000 whichever is higher.
iii) Declaration of Shipments: Shipments need to be declared only twice: in
the seventh month of shipments made in the first six months of the policy

141
 period and in the 13 th month for shipments made in the last six months of
the policy period.
iv) Declaration of overdue payments: Small Exporters are required to submit
monthly declarations of all payments remaining overdue by more than 60
days from the due date, as against 30 days in the case of exporters holding
the Standard Policy.
v) Percentage of Cover: For shipments covered under the Small Exporter's
Policy, the Corporation will pay claims to the extend of 95% where the
loss is due to commercial risks and 100% if the loss in caused by any of
the political risks. Under the Standard Policy, the extent of cover is 90%
for both commercial and political risks.
vi) Waiting Period for Claims: The normal waiting period of months under
the Standard Policy has been halved in the case of claims arising under
the Small Exporter's Policy.
vii) Change in terms of payment of extension in credit period: In order to
enable small exporters to deal with their buyers in a flexible manner, the
following facilities are allowed:
a) a Small Exporter may, without the* prior approval of the
Corporation, convert a D/P bill into a D/A bill, provided that he
has already obtained suitable Credit Limit on the buyer of D/A
terms.
b) Where the value of the bill is nor more than Rs. 3 lakhs,
conversion of D/P bills into D/A bills is permitted even if Credit
Limit of the buyer has been obtained on D/P terms only, but nor
more than one claim can be considered during the policy period on
account of losses arising following such conversions
c) A Small exporter may, without the prior approval of the
corporation, extend the due date of payment of a D/A bill
provided that a Credit Limit on the buyer of D/A terms is in force
as the time of such extension.
viii) Resale of un-accepted goods: If, upon non-acceptance of goods by a
buyer, the exporter sells the goods to an alternate buyer without obtaining
prior approval of the Corporation as required under the Policy, the

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 Corporation may consider payment of claims upto an amount consiaereu
reasonable by the Corporation, provided that the Corporation is satisfied
that the exporter did his best under the circumstances to minimise the
loss.
ix) Claims due to loss or damage to goods: The corporation may also
consider payment of claim upto an amount considered by is as
reasonable where loss is due to loss or damage to the goods due to certain
risks which are nor normally included in general/marine insurance
policies. The exporters should, in such cases, have exercised normal core
in obtaining the general/marine insurance policies.
In all other respects, the Small Exporter's Policy is the same as the
Standard Policy.
5.4 SPECIFIC POLICIES
The Standard Policy is a whole turnover policy designed to provide a
continuing insurance for the regular flow of an exporter's shipments of raw
materials, consumer goods and consumer durable for which credit period does
not exceed 180 days. Contracts for export of capital goods on turn-key projects
or construction works or rendering services abroad are not of a repetitive nature
and they involve medium/long-term credits. Such transactions are, therefore,
insured by ECGA of a case-to-case basis under specific policies.
All contracts for export on deferred pa) ment terms and contracts for turn-
key projects and construction works abroad require prior clearance of Authorised
Dealers. EXIM Bank of the Working Group in terms of powers delegated to they
as per exchange control regulations. Applications for the purpose are to be
submitted to the Authorised Dealer (the financial bank) which will forward
applications beyond its delegated power to the EXIM Bank, Proposals for
Specific Policy are to be made to ECGA after the contract has been cleared by
the Authorised Dealer, EXIM Bank of the Working Group, as the case may be.
Specific Policy, for supply contracts may take any of the IblIoN% ing form
i) Specific Shipments (Comprehensive Risks) Policy;
ii) Specific Shipments (Political Risks) Policy;
iii) Specific Contract (Comprehensive Risks) Policy; and
iv) Specific Contract (Political Risks) Policy.

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 Specific Shipments (Comprehensive Risks) Policy provided cover against
all the risks covered under the Standard Policy in respect of shipments to be
made under the contract in question. It will, therefore, be the appropriate policy
for an exporter to take if the payments are open to both commercial and political
risks. Where the commercial risks are absent, e.g. where the payments are
guarantees by a bank or by the Government of the overseas country. The
exporter may opt for the Shipments (Political Risks) Policy for which the
premium rate will be lower than that for the Comprehensive Risks Policy.
Contract Policy differs from Shipments Policy in that the format provided
the exporter nor only with post shipment cover that a Shipments Policy provided
bus also with some pre-shipment cover. In case shipments could not be made
due to any of the risks covered or due to restrictions of export of the goods from
India, the loss in respect of unshipped goods will also be covered under Contract
Policies Premium rates for Contract Policies will be higher than those for
shipments policies.
To be eligible for cover under Specific policies, the terms of payment for
the export contracts should be in line with customary practices in the
international markets. At least 15% of the contract value should be payable
before shipment including an advance payment of atleast 5%. The balance
amount should be repayable in equal semi-annual instalments commencing six
months after the data of shipment of mean data of shipment. Where the contract
provided for supply and erection of a complete plant, the first instalment may
fall due after six months from the date of commissioning of the plant. The credit
period should nor normally exceed 4 years. Longer credit period may be
approved only in the case of exceptionally large projects if the circumstances of
the case justifies it. Adequate security should be obtained in the form of
government guarantee on bank guarantee.
In order to be sure of the cover. exporters should get in-principle approval
of the Corporation and obtain the premium rates well before concluding
contracts. If the terms and conditions undergo ari, change subsequently, the
Corporation should be kept informed of the same. Specific Policies are issued if
the Corporation approved proposals which are to be made of the forms specified
for the purpose. The entire premium is payable in advance. Instalment facility
may be granted for payment of a part of the premium if the Contract Value in
very large and if the shipments are spread over a relatively long period, but the

144
entire premium will have to be paid by the time the last shipment is made.
Interest will be charged for the instalment facility.
Insurance Cover for Buyer's Credit and Lines of Credit
Buyer's Credit is a credit extended by a bank in India to an overseas
buyer for the specific purpose of enabling the buyer to pay for machinery and
equipments that he may be importing from India for a specified project. A Line
of Credit is a credit extended by a bank in India to an overseas bank, institution
on government for the purpose of facilitating import of a variety of listed goods
from India into the overseas country. A number of importers in the overseas
country may be importing the goods under the Line of Credit.
ECGA has evolved schemes to protect the lending banks from certain
risks of non-payment. These covers take the form of an agreement between the
lending bank and ECGA and are issued on a case to case basis.
To be eligible for cover, a Buyer's Credit or a Line of Credit should nor
be higher than 85% of the value of the goods to be exported. Credit terms and
the length of the credit period should be in conformity with what is appropriate
for export of the items to be exported. There should be adequate security for the
repayments to be made by the borrower.
Cover can be granted either for political risks or for comprehensive risks.
Political risks covered under the scheme are the following:
i) The occurrence of war between the country of the overseas party and
India.
ii) The occurrences of war, hostilities, civil war, revolution. rebel! io.
insurrection of other disturbances. whether of the same kind as
hereinbefore enumerated or nor if the country of overseas party.
iii) The operation of law or of an Order. decree or regulation having
the force of law which in circumstances outside the control of the Lender
and/or the Overseas Party, prevents, restricts or controls. the transfer of
the sums due to the lender by the Overseas Party under the Financial
Agreement.
Where the Corporation agreed to provide comprehensive risks cover, the
risk of protracted default of the borrowed to pay the amounts due under the loan
agreement and insolvency of the borrower, where applicable, will be covered in

145
 addition to the political risks mentioned above. The premium rates applicable to
Comprehensive Risks cover will naturally be higher than that for political risks
cover.
Atleast 20% of the total amount of premium payable for the cover should
be paid in advance. The balance amount of premium may be paid on a quarterly
basis in proportion to the amount of credit disbursed.
5.5 SERVICES POLICY
Where Indian Companies conclude contracts with foreign principals for
providing them with technical or professional services, payments due under the
contracts are open to risks similar to those under supply contracts, In order to
give a measure of protection to such exporters of services, the Corporation has
evolved four types of policies:
i) Specific Services Contract (Comprehensive Risks) Policy;
, ii) Specific Services Contract (Political Risks) Policy;
iii) Wholeturnover Services (Comprehensive Risks) Policy; and
iv) Wholetumover Services (Political Risks) Policy.
Specific Policy, as its name indicates, is issued to cover a single specifies
contract, it is issued to provide cover for contracts which are large in value and
extend over a relatively long period. Whole turnover policies are appropriate for
exporters who provide services to a set of principals on a repetitive basis and II
where the period of each contract is relatively short. Such policies are issued to
cover all contracts that may be concluded by the exporter ever a period of 24
months ahead.
The Corporation would expect that the terms of payment for the services
are in line with customary practices in international tra in these lines.
Contracts should normally provide for an adequate advance :ent and the
balance should be payable periodically based on the prop: of work. The
payments should be backed by satisfied security in the form ( :titers of Credit
of Bank Guarantees.
Services Policies are designed to cover contracts under which only
services are to be rendered. Contracts under which the value of services to be
rendered forms only a small part of a contract involving supply of machinery or

lr
146
equipments will be covered under an appropriate Specific Policy for supply
contracts.
5.6 CONSTRUCTION WORKS POLICY
Construction Works Policy is designed to provide cover to an Indian
contractor why executed a civil construction job abroad. The distinguishing
features of a construction contract are that (a) the contractor keeps raising bills
periodically throughout the contract period for the value of work done between
one billing period and another; (b) to be eligible for payment, the bills have to be
certified by a consultant or supervisor engaged by the employee for the purpose
and (c) that, unlike bills of exchange raised by suppliers of goods, the bills raised
by the contractor do not represent conclusive evidence of debt but are subject to
payment in terms of the contract which may provide, among other things, for
penalties or adjustments on various counts. The scope for disputes is very large.
Besides, the contract value itself may only be an estimate of the work to be done,
since the contract may provide for cost escalation, variation contracts, additional
contracts, etc. It is, therefore, important that the contractor ensured that the
contract is well drafted to provide clarity of the obligations of the two parties and
for resolution of disputes that may arise in the course of execution of the
contract. Contractors will be well advised to use the Standard Conditions of
Contract (International) prepared by the Federation International Des Ingenieurs
Consells (FIDIC) jointly with the Federation International do Batiment et des
Travaux Publics (FIBIP).
The Construction Works Policy of ECGA is designed to protect the
Contractor from 85% of the losses that may be sustained by his due to the
following risks:
i) insolvency of the employee (when he is a non-Government entity);
iii failure of the employee to pay the amounts that become payable to the
contractor in terms of the contract, including any amount payable under
an arbitration award;
iii) restrictions or transfer of payments from the employer's country to India
after the employee has made the payments in local currency;
iv) failure of the contractor to receive any sum due and payable under the
contract by reason of war, civil war, rebellion, etc.,

147
 v) the failure of the contractor to receive any sum that is payable to his of
termination of frustration of the contract if such failure is due to its having
become impossible to ascertain the amount of its due data because of war,
civil war, rebellion, etc.,
vi) imposition of restrictions of import of goods of materials (nor being the
contractor's plans of equipments) or cancellation of authority to import
such goods or cancellation of export licence in India, for reasons beyond
his control; and
vii) interruption of diversion of voyage outside India, resulting in his
incurring, in respect of goods or materials exported from India, of
additional handling, transport or insurance charges which cannot be
recovered from the Employer.
Risks not covered
The Construction Works Policy excluded from its purview losses which
may be sustained due to the following causes:
i) failure of the contractor and/or the Employee (where the emplpyee is not
a Government) to obtain, issue or deliver any authority necessary under
the law of India or the Employer's country for execution of the project •
and to make payment therefore;
ii) risks which can normally be insured with commercial insurers;
•
iii) insolvency, default of negligence of any agent, seller or subcontractor;
iv) execution of any works or incurring of any expenditure by the Contractor
offer the Employee has been in default it making any payment for a
period of 120 days unless, of an application made by the contractor for
the purpose within 90 days of such default. the Corporation has agreed to
his continuing execution of the contract despite the said default of
the Employer;
v) execution of any works or incurring of any expenses by the Contractor
after the estimated data for completion of the contract unless, as the
request of the Contractor, the Corporation has agreed to a change in such
date.

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5.7 GUARANTEES TO BANKS
Timely and adequate credit facilities, as the pre-shipment as well as post-
shipment stage, are essential for exporters to realise their full export potential.
Exporters may not, however, be able to obtain such facilities from their bankers
for several reasons, e.g., the exporter may be relatively new to export business,
the extent of facilities needed by his may be out of proportion to the equity of the
firm or the value of collaterals offered by the exporter may be inadequate.
ECGA has designed a scheme of Guarantees to Banks with a view to enhancing
the creditworthiness of the exporters so that they would be able to secure better
and larger facilities from their bankers. The Guarantees seen to achieve this
objective by assuring the banks that, in the event of an exporter failing to
discharge his liabilities to the bank, and thereby making the bank incur a loss,
ECGA would make good a major portion of the bank's loss. The bank is
required to be a coinsured to the extent of the remaining loss. Any amount
recovered from the exporter subsequent to payment of claims shall be shared
between the corporation and the bank in the same ratio in which the loss was
borne by them as the time of settlement of claim. Recovery, expenses shall be
first charged on the amounts recovered.
To meet the varying needs of exporters, the Corporation has evolved the
following types of Guarantees:
1. Packing Credit Guarantee;
2. Export Production Finance Guarantee;
3. Postshipment Export Credit Guarantee;
4. Export Finance Guarantee;
5. Export Performance Indemnity; and
6. Export Finance (Overseas Lending) Guarantee.
PACKING CREDIT GUARANTEE
Any loan given to an exporter for manufacturing, processing, purchasing
or packing of goods meant for export against a firm order of Letter of Credit
qualified for Packing Credit Guarantee. Pre-shipment advances given by banks
to parties why enter into contracts for export of services of for construction
works abroad, to meet preliminary expenses in connection with such contracts
are also eligible for cover under the Guarantee. The requirement of lodgement of
Letter of Credit/export order for granting Packing Credit advances is waived if

149
the bank grants such advances in accordance with the instructions of Lae Reserve
Bank of India in that respect.
The Guarantee is issued for a period of 12 months against a proposal
made for the purpose and covers all the advances that may be made by the bank
during the period to a given exporter within an approved limit. The bank is
required to submit monthly declarations of advances and repayments and to pay
premium as the rate of 10 paise per Rs. 100 per month of the highest amount
outstanding on any day during the month. The account has to be conducted by
the bank with the usual care and prudence. Approval of the Corporation has to
be obtained if the period for repayment of any advance is to be extended beyond
360 days from the date of advance. If the bank apprehends a loss, is in required
to call back the outstanding advances and to take suitable action to prevent or to
minimise the loss including any action that may be suggested by the
Corporation. The bank will be entitled to claim 66 2/3% of its loss from the
Corporation if the entire amount due from the exporter is not recovered within a
period of four months from the due late of repayment. The claim is payable if
the Corporation is satisfied that the bank has conducted the account with normal
banking prudence and has also complied with the terms and conditions of the
Guarantee. Any amount that is recovered by the bank after the settlement of the
claim has to be shared between the Corporation and the bank in the same ratio in
which the loss was originally borne by them.
To banks which undertake to obtain cover for packing credit advances
granted to all its customers on an all-India basis, the Corporation issued Whole
Turnover Packing Credit Guarantee (WIPCG). It consideration of the
large volume of business offered for cover and the wide spread or risks that will
thus become available to its the corporation grants a higher percentage of cover,
lower premium rate and considerable reduction in procedural formalities. The
bank is required to notify limits sanctioned is to all its customers hut is not
required to seen the approval of the Corporation for limits it' they do not exceed
an agreed value called the Discretionary Limit. The percentage of cover under
WTPCG is 75. The premium rate is paise per Rs. 100 per month. payable of the
average outstandings for the month, Administrative work for the bank its kept as
the minimum.
Banks which opt for WTPCG will be eligible for similar concessions in
respect of Export Production Finance Guarantee End Export Finance Guarantee

150
also. These concessions are available also in respect of advances against
contracts for supplier on deferred terms and for construction works, but the
banks will have to obtain separate Guarantees for such advances.
EXPORT PRODUCTION FINANCE GUARANTEE
The purpose of this Guarantee is to enable banks to sanction advanced as
the pre-shipment stage to the extent of cost of production when is exceeds
the f.o.b. value of the contract/order, the differences representing incentives
receivable. The extent of cover and the premium rate are the same as of Packing
Credit Guarantee. Banks having WTPCG are eligible for concessionary premium
rate and higher percentage of cover.
POST-SHIPMENT EXPORT-CREDIT GUARANTEE
Post-shipment finance given to exporters by banks through purchase,
negotiation or discourit of export bills or advances against bills send on
collection qualify for cover under this guarantee. It is necessary, however, that
the exporter concerned should hold suitable policy of ECGG to cover the
overseas credit risks.
The premium rate for this Guarantee is 7 paise per Rs. 100 per month.
The percentage of loss covered under the individual Post-Shipment Guarantee is
75.
This Guarantee is also issued on whole turnover basis, offering a
higher percentage of cover as a reduced rate of premium. The percentage of
cover under the Whole turnover Post-shipment Guarantee is 85 for advances
granted to exporters holding ECGC Policy. Advances to non-policy holders are
also covered with percentage of cover being 60. The premium rate is 5 paise per
100/- per month, if advances against L/A bills are also covered under the
Guarantee, otherwise it is 6 paise.
Individual Post-shipment Export Credit Guarantee can also be has even
whereof exporter does not hole of ECGC Policy for finance granted against L/C
bills/bills raised on Associates, provided that the exporter makes shipments
solely against Letter of Credit or solely to their Associates. The premium rate for
this cover is 10 paise per Rs. 100/- per month of the highest amount outstanding
on any day during the month and the percentage of cover is 75. Advances
against bill under Letters of Credits opened by banks against bills of Associated

151
in countries placed under Restricted Cover shall be subject to prior approval of
the Corporation.
EXPORT FINANCE GUARANTEE
The Guarantee covers post-shipment advances granted by banks to
exporters against export incentives receivable in the form of cash assistance,
duty drawback, etc.
The premium rate for this Guarantee is 7 paise per Rs. 100/- per month
and the cover is 78 percent. Banks having WTPSG are eligible for concessionary
premium rate and higher percentage of cover.
EXPORT PERFORMANCE INDEMNITY
Exporters are often called upon to execute banks duly guaranteed by an
Indian bank of various stages of export business. An exporter who desires to
quote for a foreign tender may have to furnish a bank guarantee for the Big
Bond. If he wins the contract, he may have to furnish bank guarantee to foreign
buyers to ensure due performance or against advance payment or in lieu of
retention money or to a foreign bank in case he has to raise overseas finance for
his contract.
Further, for obtaining import licenses for raw materials or capital goods,
exporters may have to execute an undertaking to export goods of a specified
values within a stipulated time, duly supported by bank guarantees. Bank
guarantees are also furnished by exporters to the Customs, Central Excise or
Sa1084;ak authorities for the purpose of clearing goods without payment of duty
or for exemption from tax for goods procured for export. Exporters also furnish
Guarantee in estipport of their export obligations to Export Promotion Councils,
Comirto4ity Boards, the State Trading Corporation of India, the Minerals and
Metals Traditig Cdiporation of India or recognised Export Houses.
An export proposition may be frustrated if the exporter's bank is
unwilling4o issue the Guarantees. The Export performance Indemnity is aimed
as meet%hag, such situations. The indemnity which is in the nature of a counter
guarantee to the bank is issued to protect the bank against losses that is may
suffer on account of guarantees given by it on behalf of exporters. This
protection is intended to encourage banks to give guarantees on a liberal basis
for export purposes.

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 . Normally cover is extended upto 75 percent of loss but in the case of
guarantees in connection with bio bonds, performance bonds, advance payment
and local finance guarantees and guarantees in lieu of retention money, the
cover may be increased upto 90 percent subject to proportionate increase in
premium.
While the premium rate for indemnity issued to cover bonds relating to
exports on short-term credit is 0.90% p.a. for 75% cover and 1.08% p.a. for 90%
cover, it is lower for bonds, relating to exports or deferred credit and projects.
The rate of premium is 0.80% p.a. for 75% cover and 0.95% p.a. for 90% cover.
In the case of Big Bonds relating to exports of medium/ long term credit,
overseas projects and projects in India fmanced by International Financial
Institutions as well as supplied to such projects. ECGA is agreeable to issue
Export Performance Indemnity of payment of 25% of the prescribed premium.
The balance of 75% becomes payable to the corporation by the bankers if the
exporter succeeds in the Bid and gets the contract.
EXPORT FINANCE (OVERSEAS LENDING) GUARANTEE
If a bank financing an overseas project provides a foreign currency loan
to the contractor. It can protect itself from the risk of non-payment by the
contractor by obtaining Export Finance (Overseas Lending) Guarantee. Premium
rate will be 0.90% per annum for 75% cover and 1.08% per annum for 90%
cover. Premium is payable in India Rupees. Claims under the Guarantee will
also be paid in Indian Rupees.

5.8 SPECIAL SCHEMES

TRANSFER GUARANTEE
When a bank in India adds its confirmation to a foreign Letter of Credit. It
binds itself to honour the drafts drawn by the beneficiary of the Letter of Credit
without any recourse to him provided such drafts are drawn strictly in
accordance with the terms of the Letter of Credit. The confirming bank will
suffer a loss if the foreign bank fails to reimburse it with the amount paid to the
exporter. This may happen due to the insolvency or default of the opening bank
or due to certain political risks such as war, transfer delays or moratorium which
may delay or prevent the transfer of funds to the bank in India. The Transfer
Guarantee seeks to safeguard banks in India against losses arising out of such
153
 risks. Transfer Guarantee is issued, as the option of the bank, either to cover
political risks alone, or to cover both political and commercial risks. Loss due to
political risks is covered upto 90% and loss due to commercial risks upto 75
percent.
Premium will be charged as rates normally applicable to the
Corporation's insurance policy covering export of goods.
OVERSEAS INVESTMENT GUARANTEE
ECGA has evolved a scheme to provide protection for Indian investments
abroad. Any investment made by way of equity capital or united loan for the
purpose of setting up or expansion of overseas projects will be eligible for cover
under investment insurance.
The investments be either in case or in the form of export of Indian
capital goods and services. The cover would be available for the original
investment together with annual dividends or interest receivable.
The risks of war, expropriation and restriction on remittances are covered
under the scheme. As the investor would be having a hand in the management of
the joint venture, no cover for commercial risks would be provided under the
scheme. For investment in any country to qualify for investment insurance, there
should preferably by a bilateral agreement protecting investment of one country
in the other. ECGA may consider providing cover in the absence of any such
agreement provided it is satisfied that the general laws of the country afford
adequate protection to the Indian investments.
The period of insurance cover will not normally exceed 15 years in case
of projects involving the construction period cover may be extended for a period
of 15 years from the date of completion of the project subject to a maximum of
20 years from the date of commencement of investment. Amount insured shall
be reduced progressively in the last five years of the insurance period.
EXCHANGE FLUCTUATION RISK COVER
The Exchange Fluctuation Risk Cover Schemes have been intended to
provide a measure of protection to exporters of capital goods, civil engineering
contractors and consultants who have often to receive payments over a period of
years for their exports, construction works, or services. Where such payments
are to be received in foreign currency, they are open to exchange fluctuation risk

154
as the forward exchange market does not provide cover for such deferred
payments.
Exchange Fluctua'on Risk Cover is available for payments scheduled
over a period of 12 months or more, upto a maximum of 15 years. Cover can be
obtained from the date of bidding right upto the final instalment.
At the stage of bidding an exporter/contractor can obtain Exchange
Fluctuation Risk (Bid) Cover. The basis for cover will be a reference rate agreed
upon. The reference rate can be the rate prevailing on the date of bid or a rate
approximating it. The cover will be provided initially for a period of twelve
months and can be extended if necessary. If the bid is successful,
the exporter/contractor is required to obtain Exchange Fluctuation (Contract)
cover for all payments due under the contract. The reference rate for the contract
cover will be either the reference rate used for the Bid cover or the rate
prevailing on the date of contract, as the option of the exporter/contractor. If the
bid is unsuccessful, 75 percent of the premium paid by the exporter/contractor is
refunded to him.
The Exchange Fluctuation Risk (Contract) Cover can be issued only if the
payments under the contract are scheduled to be received beyond 12 months
from the date of contract but in such cases, the cover will apply for any
instalment due within 12 months as well. Cover will be available for all amounts
receivable under the contract, whether it is payment for goods or services or
interest or any other payment. Contracts coming under Buyer's credit and Lines
of Credit are also eligible tor cover unaer tne scnemes. 1 ne exporter nas also as
option to terminate the contract as the expiry of the year, by giving three months
advance notice.
Cover under the schemes is available for payments specified in US
Dollar, Pound Sterling, Deutsche Mark, Japanese Yen, French Franc, Swiss
Franc, UAE Dirhal and Australian Dollar. However, cover can be extended for
payments specified in other convertible currencies as the discretion of ECGC.
Exchange Fluctuation Risk cover will normally be provided along with
suitable credit insurance cover. There is, however, provision to grant the cover
independently also in which case premium will be loaded by 20%.
The contract cover provides a franchise of 2 per cent loss or gain within a
range of 2 per cent of the reference rate will go to the exporter's account. If loss

155
exceeds 2 per cent. ECGA will make good the portion of loss in excess of 2 per
cent but not exceeding 35 per cent of the reference rate in other words, gains or
losses upto 2 per cent and beyor 35 per cent of the reference rate will be to the S21
exporter's account. Gains or lows beyond 2 percent and upto 35 percent will be
to ECGC's account.
The rate of premium is 40 paise per Rs. 100/- per year or 10 paise per Rs.
100/- per quarter for the bid cover and the total premium is payable as the time
of issue of the Policy. Premium for contract cover is also payable as the rate of
40 paise per Rs. 100/- per annum. Ten per cent of the total premium payable and
premium for the first two years should be paid as the time of issue of the policy.
Thereafter the annual premium will have to be paid in such a manner that
premium for the next two years is always kept paid to the Corporation.

SELF-ASSESSMENT QUESTIONS
I. What do you understand by ECGC?
2. What is small exporter's policy?
3. What is standard policy?
4. What are the guarantees provided by the ECGC for the benefit of exporters?
5. Explain exchange fluctuation cover provided by ECGC.

REFERENCES
1) Varsheney and Bhattacharya. 'International Marketing Management',
Sultan ('hand and Sons, New Delhi.
2) M.J.Matho‘. 'Management 01 I \port Marketing . . R135:1 Publishers,
Jaipur.
3) Annual Report. Ministry(
0::0111111Crek:
4) V.A.Avadhani, 'International Finance'. Himalaya Publishing House,
Bombay.
5) ECGC Brouchers

156
 UNIT — VI
SERVICE ORGANISATIONS FOR EXPORT PROMOTION

The objective of this lesson is to help students to understand the service

provided by various service organizations ibr the benefit of exporters and salient
features of export processing zones. special economic zones and 100% export
orientation units.
LESSON STRUCTURE
ti
6.1 Introduction
6.2 Export promotion council
6.3 Commodity boards
6.4 Trade development authority
6.5 Directorate general of commercial intelligence and statistics
6.6 Federation of Indian export organizations
6.7 Indian institute of foreign trade
6.8 Government trade representatives abroad
6.9 Trade fairs organized by ITPO
6.10 Trade fair authority of India
6.11 Export oriented units
6.12 Export processing zones
6.13 Special economic zones
6.14 Self-assessment questions
6.15 References

6.1 INTRODUCTION
The Government of India has created a number of sere ice organisations
for export promotion and assistance and to meet the challenges in the changing
environment in industry and trade. The export houses should ascertain market
potential for their products in the overseas market. They have to organise trade
fairs and exhibitions for wider publicity of their products. They have to collect
43 and process and interpret the data on exports (countrywise and commoditywise)
to judge the trend in the export market. Conducting marketing research and

157
training the executives engaged in export-import business are difficult tasks to
the individual exporters.
In order to assist the individual exporters for conducting market surveys,
organizing trade fairs and exhibitions, collecting data on recent trends in the
global market, training the executives who are involved in foreign trade,
arranging buyers-sellers meet etc, the Government of India has established the
following service organisations.
SERVICE ORGANISATIONS
Name of the service organizations and the services rendered by them are
given below:
S.No. Name of the Service Organisation Services Rendered
1 Commodity boards [7 community Take care of the entire range of
boards] (Silk, coffee, coir, rubber, problems of production,
spices, tea, tobacco) marketing, promotion, competition
etc. in respect of the commodities
concerned
2 Export Promotion Councils [20 Providing a forum between
export promotion councils] government and exporters to
(apparel, chemicals, carpet, cashew, discuss export related issues;
pharmaceuticals, cotton, leather, sponsoring trade delegations;
electronics, engineering, arranging buyers-sellers meet;
handicrafts, handlooms, silk, publicity of Indian products in the
construction plastics, powerloom, overseas market; allocation of
shellac, sports, goods, rayon export quota etc.
textiles, woolen)
3. Trade Development Authority Arranging import licenses and
customs clearance; conducting
market surveys for exploring
export potentials; product
promotion and publicity;
consultancy services; supply of
information on trends in the
foreign trade etc.

158
4. Directorate general of commercia! Compilation and dissemination of
intelligence and statistics statistical information on India's
foreign trade; publication of
periodicals in foreign trade of
India.
5. Government Trade Supply of information in foreign
Representatives Abroad market; assisting Indian trade
Visiting foreign countries delegations and organisign trade
fairs in foreign countries;
Products in foreign market conducting market survey for
Indian
6. Federation of Indian Export Providing common services for the
Organisations benefit of exporters; collecting and
forwarding important market
information; sponsoring and
conducting market surveys;
sponsoring trade delegations;
coordinating the export promotion
activities etc.
7. Indian Institute of Foreign Trade Offering training progrmame ii,
international business; conducting
market surveys; offering diploma
courses and master's programme
on international business;
publication of periodicals and
occasional papers on foreign trade
and various aspects of
liberalization.
A detailed description of the services rendered by the above services
organisations are given in the following pages;
6.2 EXPORT PROMOTION COUNCILS
The Export Promotion Councils are established under the Companies Act
1956 to provide direct institutional support to the Indian exporters. The

159
Government of India has created a separate export promotion council for every
industry. Export Promotion Councils are the representative bodies of the various
exporting industries. They serve as a bridge between the Government and
exporters for export promotion and development. The exporters should register
themselves with the respective export promotion councils and become the
member of the councils. A nominal fee is charged by the export promotion I
council to issue membership certificate. This certificate is called Registration-
cum-Membership Certificate (RCMC). This certificate is issued in terms of the
EXIM policy. Export Promotion council helps the member-exporters on
technical matters, export marketing strategies and export promotion. Experts are
appointed in various working committees of the export promotion councils in
order to help the exporters to solve various issues relating to international trade.
The offices of the Indian Export Promotion Councils are established in foreign
countries for the benefit of the Indian exporters. The export promotion council
perform both advisory and executive functions.
The name and address of the Export Promotion Councils and the
products covered are listed below:
Apparel Export Promotion Ready made garments
Council, 15, NBCC Tower, (excluding woollen, leather, silk,
Bhikaji Cama Place, jute products)
New Delhi — 110 066.
2. Basic Chemicals, Drugs, pharmaceuticals, fine
Pharmaceuticals and chemicals, dyes, intermediates,
Cosmetics Export Promotion alcohol, organic chemicals, agro
Council 7, Cooperage Road chemicals, glycerine, soaps,
Jhansi Castle (4th Floor) detergents, cosmetics, toiletries,
Mumbai — 400 001 agrobatis, essential oils dehydrated
culture media and crude drugs
3. Carpet Export Promotion Handmade / Woollen / synthetic
Council, Flat No. 110-A/1, carpets, rugs, drug gets and namdhas
Krishna Nagar including handmade silk carpets
Street No.5, Safdarjung
Enclave, New Delhi — 110 029
4. Cashew Export Promotion Cashew products
Road, Chitoor Ernakulam
South, Cochin — 600 016
160
5. Chemicals and Allied Products Chemicals and allied products (glass
Export Promotion Council and glasswares, ceramics, paints,
World Trade Centre rubber products , paper and paper
14/1B, Ezra Street (II Floor) products, cement and cement
Calcutta — 700 001. products, safety matches, fire works,
6. Cotton Textile Export wood products, mica and mica based
Promotion Council products, granites, phototype set
Engineering Centre, 5 films and micro films
Mathew Road
Mumbai — 400 004.
7. Council for Leather Exports Cotton textiles
Leather Centre
53, Sydemhams Road,
Periamet, Chennai — 600 003
8. Electronics and Computer Finished leather and leather goods,
Software Export Promotion chrome tanned blue hides and skins,
Council, PMD House, Hauz crane tanned crust leather,E.I tanned
Khas, New Delhi — 110 016. hides and skins and El crust leather
9. Engineering Export Promotion Electronic Goods, computer
Council, World Trade Centre software and related services
14/1B, Ezra Street,
Calcutta — 700 001.
10. Export Promotion Council for Engineering goods, stainless steel
Handicrafts products
6 Community Centre
Basant Lok, Vasant Vihar,
New Delhi — 110 057.
11. Gems and Jewellery Export Handicrafts
Promotion Council
Diamond Plaza (V Floor)
391A, Dr. Dadasaheb
Ambedkar Marg,
Bombay — 400 004.

161
12. Handloom Exports Promotion Gems and Jewellery
Council, 18, Cathedral Garden
Road, Numgambakkam
Chennai — 600 034.
13. The Indian Silk Export Handloom products
Promotion Council
62, Mittal Chambers,
Nariman Point
Bombay — 400 021.
14. Overseas Construction All natural silk fabrics, made-ups,
Council of India garments and machine made carpets
Commerce Centre, 7th Floor,
J. Dedaji Road, Tardeo,
Bombay — 400 037
15. Plastic and Linoleum Overseas construction and civil
Export Promotion Council engineering products
Centre 1, 11 th Floor, Unit No.1
World Trade Centre, Cuffe
Parade, Bombay — 400005.
16. Powerloom Development Plastics, toys, polyester film and
Export Promotion Council Unit No.1, allied products, human
Cecil Court B Wing, 4th Floor, hair and human hair products
Mahakavi Bhusan Marg
Colaba, Mumbai — 400 039.
17. Shellac Export Promotion Powerloom cotton textiles
Council, World Trade Centre
1 4/1 B Ezra Street,Calcutta-1.
18. Sports Goods Export Lac in, all forms
Promotion Council
1E/6, Swami Ram Tirath
Nagar, New Delhi — 110 055.
19. The Synthetic and Rayon Sports goods, non-cellulosic
Textiles, Export Promotion products, cellulosic products, nylon
Council, Resham Bhavan polyester fibre or yarn acrylic
78, Veer Nariman Road, knitwear
Mumbai — 400 020.

162
20. Wool and Woollen Export Woollen textiles, hosiery, knitwear
Promotion Council and other woollen products
612/714, Ashoka Estate,
24, Barakhamba Road
New Delhi — 110 001.
Functions of the Export Promotion Councils
The important functions of the Export Promotion Councils are given
below:
• Providing a forum between the Government and the members of the
export promotion councils for consideration and early implementation of
the export promotion schemes Sponsoring and inviting trade delegations
and study teams for exploring export markets for the Indian industries
• Making arrangements for the distribution of scarce materials for export
production
• Allocation of export quota for the export products like textiles
• Arranging Buyer-Seller Meets and trade fairs/exhibitions in India and
abroad
• Foreign publicity for Indian products in overseas markets through the
scheme like Joint Foreign Publicity
• Recommending the Government regarding the formulation and
implementation of export incentive schemes like fixation of drawback
rates, market development assistance etc.
• Creating export consciousness among the exporters
• Collecting and disseminating statistical information and market
intelligence about the export opportunities through various media
including newsletters, bulletins and other periodicals
• Coordinating with the export inspection council on 'quality control and
preshipment inspection
• Speedy disposal of export assistance applications and assisting small
scale units to export their products
• Helping the member exporters in claiming various types of incentives
from the Government and

163
 • Keeping the member exporters informed with regard to trade enquiries
and opportunities
63 COMMODITY BOARDS.
Commodity Boards are established by the Government of India in order
to help the organisation of industry and trade. The Boards take care of the entire
range of problems of production, marketing, promotion, competition, etc in
respect of the commodities concerned. The odity Boards 'are statutory
bodies taking steps for the development of cu vation, increased productivity,
processing, marketing and research and development. Offices of the Commodity
Boards are established in forcign countries for increasing the exports of the
commodities concerned. The Boards for the respective cotnthodities arrange
trade fairs and exhibitions, sponsor trade delegations and conduct market
surveys for the purpose of promoting exports. All the Commodity Boards except
Central Silk Board are the registering authority and pro vide Registration-cum-
Membership Certificate (RCMC) to the member exporters in terms of the
Export-Import Policy. Commodity Boards are established in India for the
commodities such as silk, coffee, coir, rubber, spices, tea and tobacco.
The name, address and products of the Commodity Boards functioning in
India are given below:
St' No. Name of the Commodity Board Products
1 Central Silk board Silk
United Mansions Building (II Floor)
39. Mahatma Gandhi Road
Bangalore — 560 001
2 C'offee Board, No.1, Ambedkar Road Coffee
Bangalore — 560 001
3 Coir Board, Ernakulam South Coir
Cochin — 682 016
4 Rubber Board, Shastri Road, Natural rubber
Kottayam — 686 001, Kerala
5 Spices Board, Sygandh Bhavan Curry powder and
Near Ernalculam Medical Centre paste, spices, spices
Cochin — 682 025 oil, oleoresins
6 Tea Board, 14, Biplabi Trailokya Maharaj Tea
Sarani, Brabourne Road, Cochin — 700 001

164
 Tobacco Board, Srinivasa Rao Thota I Tobacco and tobacco
G.T.Road, Guntur — 522 004 products

6.4 TRADE DEVELOPMENT AUTHORITY (TDA)

The Trade Development Authority was established in the year 1970 under
the Societies Registration Act 1860. It is a non-profit service organisation
functioning under the Ministry of Commerce, Government of India. The
Director is the executive head of the organization and he is guided and assisted
.4
by a high powered committee consists of officials of the Government and
experts in the field of foreign trade. The Secretary of the Foreign Trade
department is the Chairman of the Organisation. The Trade Development
Authority has created three important divisions to execute its functions
effectively. The three divisions are, (i) Merchandising (ii) Research and Analysis
and (iii) Information.
The Merchandising division concentrates on ways and means to increase
Indian exports in the overseas market. This division identifies the emerging
market to penetrate Indian exports in the foreign countries in the year to come.
This division attempts to promote India's foreign trade by assisting the exporters
to plan marketing strategy, product development and capacity expansion.
The Research and Analysis division attempts to conduct marketing
research to assess the market potentials for the Indian product' in the domestic
as well as overseas market. This division helps the exporters to raise their export
capabilities.
The Information division collects the relevant data regarding the global
exports countrywise and commoditywise, trend in Indian exports and
opportunities for the Indian products in the overseas market. Me collected data
are processed and supplied to the exporters to plan their export strategies and to
maximise their exports.)
Package Services
The Trade Development Authority of India offers the following package
services for the benefit of the exporters:
(i) Product Development
(ii) Capacity Expansion

165
 (iii) Information Supply
(iv) Promotion and Publicity
(v) Consultancy Services and other Services
Product Development
Under the product development package TDA helps the exporters to
improve the quality of their products at par with the international standard, TDA
gets specifications and samples for the products from the foreign countries and
suggests the clients-exporters to develop their products at par with the
specifications and samples. TDA arranges import licenses and customs clearance
for the benefit of exporters to import the required raw materials and other
components. It identifies what is required and demanded in the overseas market,
based on that suggests the client-exporters to modify their production schedule.
TDA attempts to identify technically and commercially viable export units for
providing necessary inputs to expand their exports. The Trade Development
Authority takes steps to display the Indian products in the departmental stores of
the foreign countries. This service is done under the special product development
programme.
Capacity Expansion
The TDA helps the client-exporters for their capacity expansion. The
clients of the TDA are given priority for capacity expansion over other industrial
units. The TDA assists the client-exporters to obtain industrial license and
foreign exchange and to import capital goods. It conducts feasibility studies for
the expansion of the export oriented units.
Information Supply
The TDA has created 'Trade Information Centre' ,for collecting and
disseminating the data required by the exporters. The TDA has established
overseas offices in FGR, USA, Japan, Sweden and Libya. These offices gather
the trade related information and supply to the 'Trade Information Centre'. This
centre furnishes the uptodate information relating to export credit, shipping,
insurance, licenses and product development and promotion. It conducts certain
research study to ascertain the competitiveness of the Indian export units, the
findings of such research study are sent to the export units to improve their
competitiveness in exports. The Trade Information Centre furnishes the export
related information through its periodicals, reports and brochures. This centre
166
tries to explore export potentials for the Indian products in the overseas market
by undertaking marketing research and prepares action plan for the promotion of
Indian exports. The weekly bulletin brought out by the TDA furnishes the trade
related information such as, import policies and tariff, trade fairs and exhibitions,
addresses of the foreign buyers and agents, import-export procedure and trend in
the export market, for the benefit of the exporters.
Promotion and Publicity
Promotion and publicity is another service extended by the TDA for the
benefit of exporters. Under the promotion and publicity service, TDA has
organised a number of trade fairs, exhibitions and buyer-seller meets to expose
the Indian products to the prospective buyers and to increase Indian exports.
Consultancy Services
Consultancy services provided by the TDA is highly useful to its clients-
exporters. It extends the consultancy services for maintaining and improving
quality, export pricing, project expansion, ascertaining credit worthiness of the
importers, entering into new overseas market, shipping, import of raw materials
etc.
Other Services
The Trade Development Authority extends its services as and when the
client-exporters approach to solve issues in the export trade. The services needed
for export maximization are provided by the TDA promptly to the client-
exporters.

6.5 DIRECTORATE GENERAL OF COMMERCIAL INTELLIGENCE AND

STATISTICS (DGCF&S)
The Office of the Directorate General of Commercial Intelligence and
Statistics is situated at Calcutta. It is functioning under Ministry of Commerce,
Government of India.
The important functions of the DGCI&S are listed below:
• Collection, compilation and dissemination of commercial information on
India's Trade

167
 • It acts as a mediator in settling commercial disputes through the Indian
Commercial representatives abroad between Indian and foreign firms
• Publishing 'Directory of Exporters' of Indian products and manufacturers
• Publishing Indian Trade Journal (weekly) and monthly statistics of
Foreign Trade of India for disseminating the information relating to
India's Foreign Trade and
• Publishing periodical reports received from the Trade representatives of
the Indian
• Government stationed in abroad. This report reveals the trade prospects
and opportunities of the Indian products in the overseas market.
Publication of the DGC1&S
(i) Monthly Statistics of Foreign Trade of India
Vol I - Exports and Reexports
Vol II-Imports
(ii) Monthly Press Note on Foreign Trade
It is published within 30-35 days from the end of the reference month. It
reveals aggregate figures on India's exports and imports,
(iii) Monthly Brochure titles 'Foreign Trade Statistics of India (Principal
Commodities and Countries)
This brochure reveals the export and import of principal commodities in
India. The details are given in countrywise and commoditywise also.
(iv) Indian Trade Classification based on Harmonised Commodity
Description and Coding System
This publication shows the code number of any individual commodity or
product exported or imported. These codes are to be compulsorily quoted both in
export transaction and import transaction.
(v) Indian Trade Journal
It is a weekly journal and contains the reports of Indian Commercial
Representatives abroad. This journal highlights export opportunities for Indian
products, foreign tender notices, freight rates etc.

168
 (vi) Other Publications
(1) Directory of Exporters-both nomenclature as well as commoditywise
(2) Ancillary Trade Statistics viz.,
a) Trade Statistics on mter-State Movement of goods by Rail, River and
Air
b) Statistics on Customs and Excise Revenue Collections according to
different tariff heads
c) Shipping Statistics of the Foreign and Coastal Cargo Movement of
• India
(3) Index Number of Unit Value and Quantum of Export and Import in India
The DGCI&S has established a Commercial Library in its office at
Calcutta. This library is the best source for collecting the data relating to foreign
trade. The. relevant and uptodate books and periodicals on foreign trade are
available in this library.
6.6 FEDERATION OF INDIAN EXPORT ORGANISATION (FIEO)
The Federation of Indian Export Organisation was established in the year
1965. It is a non-profit service organisation. It is located at New Delhi. It
coordinates the various export organisations such as Export Promotion Councils,
Commodity Boards, Indian Trade Promotion Organisation and other service
organisations for deciding the policies on export promotion. It is an advisory
body to the Central and State Government for export promotion and
development. It is authorised to disburse grants under Market Development
Scheme to the exporters for the specified activities.
The important objectives of the FIEO are given below:
• Promotion and development of Exports in India
• Coordinating the Export promotion activities
• Sponsoring Indian trade delegations to abroad and inviting trade
deligations from abroad
• Sponsoring and conducting commodity and market surveys
• Establishing trade centre, design centre and show rooms and opening
offices abroad

169
 • Creating common services fof the benefit of exporters and export
organisations
• Establishing warehouses for highly demanded Indian products in the
emerging overseas market for facilitating export
• Organising trade fairs and exhibitions and publicity programmes for
Indian products
• Publishing periodical reports on achievements in foreign trade, facilities
and infrasftucture required for foreign trade, review ofEXIM Policy,
sectorwise growth in exports, Government policies on foreign trade etc
and
• Organising seminars and conferences to gather the recommendations and
suggestions for the promotion of exports and to disseminate the policies
announced by the Government for the cause of exports.
6.7 INDIAN INSTITUTE OF FOREIGN TRADE
The Indian Institute of Foreign Trade was established in the year 1964. It
is an autonomous body registered under Societies Registration Act. It is located
at New Delhi. It is functioning under the Ministry of Commerce, Government of
India. It is a pioneering institute offers training programmes on International
Trade Procedure and Documentation, Export Management, Logistics
Management, Foreign Exchange Management to the executives if export houses.
Government departments and trade organisations and other export organisations.
Training Programme on Human Resource Development in International
Business is also organised by the Institute periodically. The basic objectives of
this Institute are to provide training facilities to the executives involved in
foreign trade, to conduct marketing research in India and abroad and commodity
surveys to identify new market and market potentials for Indian products, to
collect, process and disseminate export market information to the exporters and
to undertake consultancy services to the export houses.
It undertakes a number of research studies on various subjects in the field
of foreign trade and International business. This Institute offers a two year Post
Graduate Diploma (full time) in International Trade and a one year Master's
Programme in International Business. It also offers a four months certificate
course (evening programme) to the executives who are already engaged in
export-import business.

170
 The Indian Institute of Foreign Trade publishes two periodicals viz..
Foreign Trade Review (quarterly) and Foreign Trade Trends & Tidings
(monthly) in order to highlight the latest trends and development in the global
trade scenario and to meet the felt needs of Indian Trade and Industry.
The Institute has published a number of books en foreign trade and
undertaken overseas market surveys/country studies and functional Research
Studies. The occasional papers published by this Institute on various aspects of
Liberalisation are very popular and used as study materials in many academic
institutions.
6.8 GOVERNMENT TRADE REPRESENTATIVES ABROAD
Government trade representatives stationed in abroad play a vital role in
boosting Indian 'exports. They supply periodical reports containing the demand
and supply of various products in the foreign markets, market surveys for Indian
products, market potential for Indian markets, new products introduced in the
foreign market and their demand, import tariff structure in overseas market,
political, social, cultural, technological and economic environment in the foreign
market etc. These reports help the Indian Government to devise suitable
strategies to tap the global market and to increase exports. Indian Government
Trade Representatives in abroad help the Indian Trade delegations to visit the
foreign countries, to meet the industrialists and foreign Government officials for
getting collaborations in trade and industry. They assist to organise trade fairs
and exhibitions in foreign countries sponsored by the Indian agencies. Of late.
Ministry of Commerce, Government of India has created a separate office in the
Indian embassies abroad for ascertaining opportunities for Indian products in the
foreign market and strengthening Indian brands in the overseas market.
6.9 TRADE FAIRS ORGANISED BY INDIAN TRADE PROMOTION
ORGANISATION (ITPO)
In the year 1996-97, ITPO has organised 30 fairs. Out of this 15 were
general fairs, 12 specialised commodity fairs and 3 exclusive Indian Exhibitions.
Indian exhibitions were organised in Almaty (Kazakhstan), Sao Paulo (Brazil)
and Kathmandu (Nepal). The ITPO has provided budgetary support for 12 fairs
and 18 fairs were organised on self-financing basis. The exclusive Indian
Exhibition organised by ITPO in Kathmandu during March 14 to 21,1997 was
the largest exhibition in Kathmandu so far.

171
 The Trade and Merchandising Department of ITPO has organised six S281
Buyers — Seller Meets, seven contact promotion programme, seven specialised
trade fairs abroad and one specialised trade fair in India.

No. of Place Products

Buyer-Seller
Meets
3 Osaka Japan Home furnishings Garments Fashion
Accessories Building Materials

1 Buenos Aires Argentina Variety of products •

1 Cape Town South Textile and Garments
Africa
1 Dubai Engineering and Consumer Sector

Contact Promotion Programme Organised

Products Country

Dyes and Int-nnediaries France Germany Italy

Hardware Germany UK
Medical and Hospital Equipment Kenya Egypt
Home Furnishings USA Canada
Household and Kitchenware South Africa l3otswana Swasiland
Power Equipments and Accessories UAE Oman Bahrain Saudi Arabia

Forgings France Germany

Given below is the specialised Trade Fairs organised by the Trade

Development and Merchandising Department of ITPO during 1996-97.
Four specialised trade fairs were organised in Japan. They are listed below:
Osaka International Trade Fair
• Osaka West Japan Import Fair
• Kitaueyushu Asia Auto Business Fair
• Foodexl997

172
 One trade fair was organised in Germany. (Auto Mechanika 96, Frankfurt)
The trade fairs were organised in USA. They are, Big-l/ APPAA' 96, Las
Vegas and mterbike '96 at Anaheim, for bicycles.
During the year 19c 6-97, ITPO has organised eleven fairs in India. Out of
these, seven were specialised fairs. These were Shoe Fair Shoecomp Fair,
AHARA, International Leather Goods Fair, India International Leather Fair,
Mystique India and Book Fair. The number of exhibitions in the India
International Trade Fair was approximately 3 000 including those participated
through the State pavilions and pavilions of Ministries.
Apparel Export Promotion Council (AEPC) is also actively involved in
organising trade fairs both national and international for the benefit of the Indian
exporters. Buyer-Seller Meets are also organised by the AEPC as one of its
activities of export promotion.
The following Buyer-Seller Meets were organised by the Apparel Export
Promotion Council during the year 1997-98.
1. Buyer-SeUerMeetinBrazilAhileandArgentmay^May, 1997)
2. Buyer-Seller Meet in South Africa (5-14 February 1998)
3. Buyer-Seller Meet in Australia and New Zealand (9-18 February 1998)
4. Buyer-SeUerMeetmMexico,ColumbiaandChile(3-18March1998)
The Apparel Export Promotion Council with the assistance of other
• leading associations representing Apparel Exporters organised the following
fairs during the year 1997-98.
1. 19th India International Garment Fair (II GF), 18-21 July 1997 at New Delhi.
2. 20th India International Garment Fair, 29-3lJanuary 1998 at New Delhi
The Apparel Export Promotion Council and Timpur Exporters
Association jointly organised the following fairs during the year 1997-98.
1. 3"i India Knit Fair (IKF), 29th April to 1 st May,1997 at Tirupur
2. 4th India Knit Fair (IKF), 27 - 29 November, 1997; at Tirupur
The Apparel Export Promotion Council in collaboration with the Apparel
Exporters and Manufacturers Association (AEMA), New Delhi, Apparel and
Handloom Exporters Association (AREA), Chennai, Clothing Manufacturers
Association of India (CMA1), Mumbai and Garment Exporters Association

173
 (GEA), New Delhi, is organising India International Garment Fair twice a year.
It has become one of the leading international fail for foreign buyers and their
buying agents in India to source high fashions garments from India The fair
provides excellent opportunities to the garment exporters to enter into the
international market extensively and to increase their market share in the
overseas market.
Trade Fairs Organised in India
The following information shows the details of Trade Fairs/Exhibitions
organised in India during the year 1997-98.
Fair Month & Place Scope
Year
Garmentech 29th Oct to 1S` Pragati Sewing Machines Knitting
Nov 1998 Maiden New Machine Embroidery
Delhi Machine Sewingrelated
equipments Facilities &
equipment for apparal
manufacturer CAD/CAM
systems Packaging Trimming
Embellishments Trade
Publications Turnkey Projects
Software Auxilharies Support
Service etc.
Textile'99 10th to 12 Feb Chennai
World Expo 1999
Gartex March/April Pragati Garment Machinery Fabrics
1999 Maidan New & Accessories
Delhi
India 29`h Janto 4th Pragati High Fashion Garments
International Feb 1999 Maidan New
Garments Delhi
Tex Styles 1g to 4th Feb Pragati Fabrics Yams Threads
India '99 1999 Maidan New Textiles Furnishing Made-ups
Delhi Accessories Embellishments

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India Knit Fair May 1999 Tirupur Sportwear Swimwear
Spring Summer Tamil Nadu nightwear lingeries T-Shirts
Polo Shorts Collection
Blouses Jacketies Shorts
Bermudas Kids-wear & other
knitwear.
Indian 10th to 13th Oct Pragati All Handicrafts and gifts
Handicrafts & '98 Maidan New item.
Gifts Fair Delhi
Autumn'98
Spring'99 26th to 28th
Feb.'99
Sajavat'99 August 1999 Pragati Giftwear Artificial Plants
Maidan New Flowers Leather Goods Toys
• Delhi Home Appliances Electrical
Goods.
Indian 31st Jan to 4th Chennai Leather products &
International Feb '99 Accessories Leather
Leather Fair'99 Machinery & Equipments.
Indian March 1999 Calcutta Leather Goods & Products.
International 4th Feb '99
Leather Fair'99
Delhi July'99 Pragati Footwear Dress Shoes for
International Maidan New Men Women and Children
Shoe Fair '99 Delhi
Shoecomp'99 July'99 Pragati Shoe components Accessories
Maidan New & Manufacturing aids.
Delhi
5th Indian Knit 28th to 30th Tirupur Sports wear Swim wear Night
Fair May 1998 wear Lingeries T-Shirts Polo
Shirts Blouses Jacketies
Shorts Bermudas Kids Wear
& Other Knit wears

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Health & 24th to 26th Mumbai Medical & Hospital
Medicare India June 1998 Equipment & Supplies Re-
'98 habilitation Health Care
Products in conjunction with
6th International Multifaculty
I Medical conference.
Shoe Comp '98 .2" to 4`h July Priaggi Components accessories and
1998 Wide New manufacturing aids like soles
Delhi insoles toe-puffs counters
diking knives tacks heals
straps adhesives chemicals
etc.
Delhnntl. Shoe 2nd to 5th July Pragati Footwear for men women and
Fair 1998 Maidan New children dress shoes for men
Delhi and women horachi shoes and
sandels Kothapur chappals
ballerines sandels etc.
Sajavat 8th to 16th Pragati Giftware artificial plants and
August 1998 Maidan New flowers crockery and cutlery
Delhi leather goods toys home
appliances food processing
equipment electrical goods
etc.
Mystique India rh to 15th Oct Pragati Aayurveda Siddha Unam
1998 Maidan New Homeopathy and Naturopathy
Delhi systems medicine acupunture
and acupressure alternative
therapies anit aids cancer
polio remedies and heart care
programme Yoga Mediation
Astrologer Palmistry
Numerology and Vastu
health food products and
nature cure equipment etc.

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3rd Delhi 9th to 12' Oct Pragati Jewellery of Diamond
International 1998 Maidan New platinum Gold Silver Gemset
Jewellery & Delhi Jewellery Pearls Corals &
Watch '98 Jade Machinery & Equps
packaging & publications
Jewellery watches Precious &
Semi-precious stone
Indian I Oth to 13'" Pragati All Handicrafts and Gifts
Handicrafts & Oct 1998 Maidan New item
Gifts Fair Delhi

6.10 TRADE FAIR AUTHORITY OF INDIA (TFAI)

Trade Fair Authority of India is one of the service institution functioning
under the Ministry of Commerce, Government of India for the purpose of
promoting exports. It was established in December, 1976 under the Companies
Act, 1956. It was established by amalgamating the two service institutions, viz.,
Directorate of Exhibitions and Commercial Publicity and India International
Trade Fair Organisation. TFAI started functioning from March, 1977. It has
become a nodel agency for organising trade fairs and exhibitions in India and
foreign countries.
The important objectives of the Trade Fair Authority of India tre 0\ en
below:
o to undertake promotion of exports and to explore
new markets for
traditional items of export by organising trade lairs and exhibitions in
India and abroad
o to establish show-rooms for the Indian products in India and
abroad
o to publicise the ensuing trade fairs and exhibitions in India and abroad
o to extend infrastructural support to the interested
organisations for
holding fairs and exhibitions in India and abroad
o to identify emerging markets for diversification and expansion of Indian
exports

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 1

o to take steps for projecting India's progress and achievements in

industrial and technological development in various fields through trade
promotion and development
The Trade Fair Authority of India has organised trade fairs and
exhibitions throughout he world and created awareness about the Indian products
in the global market by displaying Indian quality products in the overseas
markets. TFAI has successfully organised trade fairs and exhibitions in
engineering goods, publishing industries, power, mining and machinery
engineering. Pragati Maidan situated at New Delhi is a permanent venue for
organizing national and international trade, trade fairs and exhibitions. It is a
permanent exhibition complex and equipped with all infrastructural facilities
required for organising trade fairs and exhibitions such as, spacious place to
cover several halls and pavilions, warehousing facilities, banking, post and
telegraph office, control room, fire station, hospital, electricity, drinking water,
conference hall, auditorium, restaurant, etc. Many foreign countries participate
in the International Trade Fairs organised in India. It helps to identify the
-products to be imported and find out buyers to export our products and to
observe the recent sophisticated technology in diverse fields of agriculture,
industry and services sector. The Trade Fair Authority of India has organised
seminars and conferences to create awareness about the i trade fairs and
exhibitions among the Indian exporters.
The Trade Fair Authority of India has participated in many international
trade fairs in foreign countries and projected India's progress and achievement in
various sectors of the economy. It has coordinated with the Indian Mission
abroad, Ministry of Commerce and Ministry of External Affairs, Government of
India for organising multinational trade fairs and exhibitions. It brought out three
journals for disseminating the market potential for Indian products in the
overseas market. The three journals are, Udyog Vyapar Patrika, Indian Export
Bulletin and Economic and Commercial News. These journals published the
authentic information about the country's progress in business, trade and
industry.
6.11 EXPORT ORIENTED UNITS
In the year 1980, Government of India introduced the Export Oriented
Units Scheme to facilitate the establishment of 100% Export Oriented Units.
Concessions are provided to the 100% Export Oriented Units for increasing

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export and to meet the global competition in terms of pricing and quality. 100%
Export Oriented Units are industrial enterprises exporting their entire production
in the overseas market, excluding allowable level of DTA (Domestic Tariff
Area) sales and rejects.
General Provisions for establishing 100% EOUs
The following provisions are applicable for establishing 100% Export
Oriented Units in India.
1) Export Entire Production The industrial units have to export their entire
production, except DTA sales. The industrial units may be of involved in
the sectors such as, production of software, floriculture, horticulture,
agriculture, acquaculture, animal husbandry, pisciculture, poultry,
sericulture and other similar activities.
2) Submitting Application For setting up units under EOU Scheme, the
industrial units should submit their application to the Secretariat for
Industrial Approvals (SIA), Department of Industrial Development, Udyog
Bhavan, New Delhi -110011.
3) Customs Bonded Factory The production and other functions of 100%
EOU should be performed in the customs bonded factory, unless exemption
is given from physical bonding. The concerned Commissioner of Customs
provides the bonding including transit bond facilities in the factory locality
on payment. Once the bonding is given by the Commissioner of Customs,
goods can be imported into the customs bonded factory.
4) Industrial units approved under 100% EOU scheme, should execute a
bond/legal undertaking in the prescribed format with the concerned
Development Commissioner. Industrial units should fulfil the obligations
prescribed in the letter of approval/intent. Failure to fulfil the obligation will
make the units liable to penalty in terms of the bond/ legal undertaking or
under any other law which is in force.
5) Minimum Value Addition Industrial units approved as 100% EOUs
should achieve Minimum Value Addition (MVA) given in the Export-
Import Policy. The value addition norms are prescribed in the Appendix II
of the Export-Import Policy. For items other than those listed in the
Appendix, the minimum value addition is 20%. However the Board of
Approvals has the right to prescribe higher minimum value addition.
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 Without minimum ; value addition norms 100% EOUs can be established in
electronic hardware sector.
6) Maintaining Books of Accounts The 100% EOUs should maintain proper
books of accounts regarding the import of materials, utilisation of imported
materials and exports made. A detailed export about the import and export
should be submitted to the Development Commissioner, periodically.
7) Export Obligation If an 100% EOU is not able to fulfil its export
obligation, the (Board of approval will review the reasons for it and
recommend the future course of action.
8) The industrial unit should manufacture in the bonded area and export its
entire production for a period of 10 years ordinarily. If the products are
subject to technological changes, the period is reduced to 5 years.
9) Import of Capital Goods and Components The industrial units should
furnish the details regarding the import of capital goods, consumables,
components and spares for capital goods, raw materials, components,
intermediates and packing materials, along with the application for setting
up 100% EOUs. The import requirement over a period of five years should
be given. For import components, itemwise FOB value and CIF value
should be given both in foreign exchange and rupee equivalent. The name
of the countries supplying materials also should be given.
10) 100% EOUs can be established in any part of the country. But the industrial
units should consider locational advantages, environment laws and other
regulations while establishing 100% EOUs.
11) 100 percent duty exemption is given to the 100% EQUs for the import of
capital goods and other components required for production.
12) Second hand capital goods (having aminimum residual life of 5 years) can
be imported by actual users. Licence subject to actual user condition not
necessary. If the CIF value of second hand imported machinery is Rs. 1
crore and above, importer has to justify to the customs officials at the time
of clearance of goods specified in Appendix XIA of the Handbook of
Procedures 1992-97 that the purchase price is reasonable.
13) (13)100% EOUs can purchase capital goods from indigenous or domestic
sources. Such purchase will be eligible for Central Excise exemption.

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14) Export Finance 100% EOUs can avail export finance at concessional rate
of interest from commercial banks.
15) Transfer of goods produced and imported transfer of manufactured
goods from one 100% EOU to another 100% EOU may be permitted,
provided that a periodical report of such transfer should be sent to the
Development Commissioner concerned.
16) Transfer of imported materials from one 100% EOU to another 100% EOU
may be permitted with the permission of the Development Commissioner.
The transfer may be on loan basis also.
17) Supply of goods to 100% EOUs from the DTA are considered as 'Deemed
Exports' such supply is entitled to get refund of terminal excise duty,
deemed export duty drawback scheme, duty exemption scheme and special
import license @ 6% of the FOB value of supplies.
18) 100% EOUs have to obtain permission from the concerned Commissioner
of Customs for sub-contracting ,their production on job works in the
Domestic Tariff Area.
19) 100% EOUs are allowed to export their production through Export
Houses/Trading Houses/Star Trading Houses/Super Star Trading Houses or
other 100% EOUs.
20) DTA Sales 100% EOUs are permitted to sell 25% of their production in the
Domestic Tariff Area. 100% EOUs engaged in agriculture, acquaculture,
animal husbandry, floriculture, horticulture, pisciculture, poultry, viticulture
and sericulture are permitted to sell their 50% of their production inthe-
domestic tariff area. Domestic Tariff Area sales is not permitted to 100%
EOUs engaged in jewellery, diamonds, precious and semi-precious
stones/jems, silver, bullion, alcoholic liquors, motorcars and such other
products as may be notified by the Directorate General of Foreign Trade.
100% EOUs engaged in Electronics hardware are permitted DTA sales.
The limit is 30% of production in value terms provided the value addition
achieved must be between 15 to 25%. If the value addition achieved is more than
25%, DTA sales will be 40% of production. 100% EOUs engaged in software
are permitted to sell 25 % of their production in Domestic Tariff Area.

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21) Disposal of Waste 100% EOUs may be permitted to sell or dispose
scrap/waste/remnant materials arising during the production operation,
which involve indigenous or imported raw materials or both, in the
Domestic Tariff Area. Customs and excise duty and other relevant taxes
prescribed by the Development Commissioner should be paid for the sale of
scrap/waste in the DTA.
22) Incentives and Advantages 100% F.OUs may be allowed to reimburse
Central Sales Tax. This reimbursement is allowed by the Development
Commissioner.
23) 100% EOUs are exempted from the payment of corporate income tax for a
period of ten years.
24) The parent company functioning in the DTA can add the FOB value of
exports made by its subsidiary 100% EOU with its exports for getting
Export House, Trading House, Star Trading House and Super Star Trading
House recognition.
25) Foreign Direct Investment upto 100% is permitted in the 100% EOUs.
26) 100% EOUs are allowed to import one fax machine to be installed at the
place convenient to the units outside the approved area.
27) 100% EOUs can get Green Card from the Development Commissioner.
This card helps the 100% EOUs to get priority treatment while initiating
steps for setting up and implementation of their projects. Green Cards are
issued to the 100% EOUs to initiate various measures for speedy
implementation of the projects. Green Cards are given to the 100% EOUs
after the units have executed legal undertaking with the regional licensing
authorities. The validity period of this card is two years. This card reveals
the name and address of the 100% LOU, and details of the products
produced.
28) 100% EOUs may be allowed to establish private Bonded Warehouses for
duty free import, store and supply of raw materials, components etc.
29) Compulsory export inspection in notcompelled for the exports of 100%
EOUs.
30) Containers loaded in the 100% EOUs are not subject to reinspection at other
points as long as the seals on the containers are intact.

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31) Priority will be given to the 100% EOUs with regard to providing
telephone/telex connections. Temporary telephone connection is given
within aweek of payment of demand note. The period for temporary
telephone connection is two years.
32) 100% EOUs are permitted to operate foreign currency accounts in bank.
The export proceeds and export credit will be credited to the foreign
currency account payment for imports will be made from this'account.
33) 100% EOUs are entitled to avail financial assistance from the Market
Development Assistance for export promotion activities such as
participating international trade fairs and exhibitions, participating trade
delegations abroad etc.
34) In order to expedite customs clearance, imports of 100% FOUs are assessed
based on Provisional Assessment Basis.
35) 100% EOUs are permitted to insure their export credit risk with the Export
Credit and Guarantee Corporation of India. Guarantees to banks and other
financial institutions are also arranged by the Export Credit and Guarantee
Corporation to enable the 100% EOUs to get credit facilities from
banks/financial institutions.
36) 100% EOUs are given approval to establish their offices in the overseas
market for penetrating their global market. The industrial units should apply
to their bankers in the prescribed format (from OBR) for getting such
approval. The information such as, value of imports in the last two years,
commission paid to overseas agents, existing trade representatives abroad,
expenses for overseas trading and non-trading branch etc should be
provided by the 100% EOUs for getting approval to open offices abroad.
Board of Approval for 100% EOUs
Board of Approval plays a key role in setting up of 100% EOUs.
Applications requesting permission for establishing 100% EOUs are considered
and appointed by the Board of Approval. Approval for setting up of 100%
EOUs, import of capital goods, foreign investment and collaboration etc are
granted by the Board of Approvals. Secretary/Additional Secretary, Ministry of
Commerce is the Chairman of the Board Representative from the Department of
Industrial Development, Economic Affairs, Revenue, Company Affairs, Science
and Technology, Planning Commission, Directorate General of Foreign Trade
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other concerned Administrative Ministries are the member of the Board of
Approval.
The following factors are considered by the Board of Approval while
giving approval for setting up of 100% EOUs:
➢ Track record of the industrial unit/promoter
> Marketing/Buy -hack arrangements made in the overseas market
> Projected Exports
➢ Manufacturing process and content (assembling of components or
manufacturing)
> Equity participation of the overseas enterprises
➢ Extemational Commercial Borrowings if any
> Projected foreign exchange outflow on account ofknow-how fees,
royalty, technology tie-ups etc.
➢ Raw materials procurement from the indigenous sources and
overseas.
Statewise Distribution of 100% EOUs
(August 1991 - September 1996)
SI. State Number of Proposed Proposed
No. EOUs Investment Employment Rs. in
Cr (in number)
1 Maharashtra 405 5143 63731
2 Madhya Pradesh 98 4011 33838
3 Kamataka 280 2755 51511
4 Kerala 59 868 8318
5 West Bengal 77 1751 11809
6 AndhrA'Pradesh 352 8638 58414
7 Tamil Nadu 397 5450 69295
8 Gujarat 300 3774 43300
9 Rajasthan 160 1857 22428

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 10 1-laryana, 177 1786 27072
11 Delhi 73 221 7369
12 Uttar Pradesh 160 1622 23773
13 Punjab 82 2047 25715
14 Himachal Pradesh 25 839 T.) 11385
15 Jammu&Kashmir 2 23 322
16 Chandigarh 1 10 960
17 Daman & Diu 8 122 1050
18 Goa 23 307 3165
19 Lakshwadeep 1 3 34
20 Pondicherry 14 494 2592
21 Bihar 6 22 351
22 Assam 2 36 647
23 Tripura 2 4 153
24 Meghalaya 1 3 26
25 Orissa 30 7887 15273
Source: The Economic Times, February 1.1997

6.12 EXPORT PROCESSING ZONES / FREE TRADE ZONES

Establishing Export Processing Zones (EP2) is one of the export
promotional actvities of the Government of India. Exports from EPZ/EOU units
which stood at Rs. 13053.92 crore in 1996-97 rose to Rs. 15309.35 crore in
1997-98 representing a growth of over 17%. Infrastructure facilities such as,
developed land for construction of factory sheds, standard design factory
buildings providing ready-built sheds, roads, power, water supply and drainage
are proviaea to tne units mileuoning in ifIC crLs. In addition, customs clearance
is arranged within the zones at no extra cost. Provisions are also established for
locating banking/ post office facilities and offices of clearing agents in the zones.
528 units are in operation in the Export Processing Zones as on 31.3.1998.

185
 Export processing zones are the accelerators for the growth of exports in
our country, In Export Processing Zones, basic infrastructure facilities such as
developed land for construction of factory sheds, specific designed factory
buildings road, power, water supply and drainage are provided to the industrial
units, m additional to the infrastructure facilities customs clearance is also made
avananie in me trL. service centre is also iocatea in the EPL. ate centre
provides postal devices and banking services. The office of the clearing and
forwarding agents is also made available in the service centre.
The export processing zones are established as enclaves separated from
the Domestic Tariff Area by Physical barriers, and are intended to create an
internationally competitive duly free environment for export production, at low
costs. Export processing zones help the industrial units to keep their products
competitive, both qualitywise and pricewise in the overseas market.
Export processing zones have been established by the Government of
India and they are managed by the Ministry of Commerce. Each zone is headed
by the Development commissioner. He takes care of processing applications and
issuing licences for clearing the import of raw materials, components and capital
goods. t he aoetopment commissioner taxes steps in time in proviaing
infrastructural facilities tot he industrial units. The administrative machinery of
the EPZ provides customs clearance and regulations with regard to labour,
export incentives, foreign exchange, corporate tax etc. A separate customs
department is placed in the EPZ to take care of the customs formalities for the
units functioning in the, zone.
Each EPZ there is a Board to monitor the overall administration. The
Board is headed by the Secretary/Additional Secretary. Ministry of Commerce,
Government of India. The Board is a policy making body deciding the
investments in the zone, the nature of the industrial units and financial and other
incentives to the investors. The Board takes decisions relating to starting up
industries with zone, import of capital goods and other raw materials, disposal of
waster and by-products, proced Ll rat lonmilitieN for Ibreign investments in the
zone etc.
EPZ - Development and Administration

186
 APPROVAL OF INDUSTRIAL UNITS IN THE ZONE
The units seeking permission to establish their industrial activities in the
zone, should undertake production or manufacturing activities. The criteria for
permitting an industrial unit in the zone are given below:
a) 'The unit should be 100% export oriented,
b) The unit should achieve minimum value additiqn prescribed in the
EXIM policy,
c) The unit should possesses certain improvement in industrial
technology,
d) The unit should be capable to capture overseas market for its
products,
e) The unit should have the potentials to utilize skilled manpower in its
manufacturing operations,
f) The process of production of the unit should be pollution free.
PROCEDURE FOR APPROVAL
Industrial units fulfilling the conditions prescribed by the Governmeni.
will be given automatic approval to set up manufacturing/production operations
in the zone. The development commissioner of the zone is empowered to grant
automatic approval. This approval will be given within a period of 15 days from
the date of application. Industrial units donot fulfil the conditions prescribed by
the Government will be referred to the Board of Approvals for granting
permission to set up industrial activity. The Board of Approvals will gave
permission to said industrial units within a period of 45 days from the date of
application. Industrial units should submit their applications to the development
commissioner of the zone and the letter of Intent and Letters of Approval will be
provided by the Development Commissioner.
EXPORT PROCESSING ZONES IN INDIA
There are eight free trade and export processing zones in India. They are
given below:
1. Cochin Export Processing Zone, Kerala.
2. Falta Export Processing Zone, West Bengal.
3. Kandia Free Trade Zone,. Gujarat.
4. Madras Export Processing Zone, Chennai.

187
5. Noi da Export Processing Zone, Uttarpradesh.
6. Santacmz Electronic Export Processing Zone, Bombay. S28
7. Visakapatnam Export Processing Zone, Andhrapradesh.
8. Surat Export Processing Zone, Gujarat.
COCHIN EXPORT PROCESSING ZONE
Cochin Export Processing Zone was established in the year 1984. This
zone is located in the area of 103 acres. It is situated 22 km from the Cochin port
in Kerala state on the South West Coast, 20 km from the Cochin Airport and 10
km from the Ernakulam Railway Station.
The infrastructural facilities such as developed plots, uninterrupted water
and power supply, telecommunication facilities, banking and forwarding
services, in house facilities for stuffing and destuffing of containers etc. are
made available in the Cochin Export Processing Zone.
Developed plots and built-up factory shed are provided to the industrial
units, suitable to their manufacturing operations. Cochin Export Processing Zone
fulfils the snecific reauirements of the industrial units The Garment comnlex
anu luny air conditioned electronics complex established in the zone Mils me
specific requirements of the industrial units. The turnover of the Cochin Export
Processing Zone was at Rs.5.45 crorein 1990-91 audit i has increased to Rs. 120
crore in 1995-96.
FALTA EXPORT PROCESSING ZONE
Falta export processing zone is located on the Bank of the river Hoogly. It
was established in the year 1984. The total area of the zone is 280 acres. The
zone is well connected by highways and railways. It a located at a distance of 55
km from the city. It is a multi product export processing zone. The hinterland of
this zone covers West Bengal, Bihar. Orissa. Assam and other North Eastern
States. In all these states plenty of mineral resources such las coal, iron ore,
mica, bauxite, petroleum and limestone are available. Steel, cement, fertilizers
and other heavy industries are also located in the Hiriderland of this zone. This
zone utilise the skilled manpower available in plenty in its hinterland.
This zone provides standards design factory building suitable to the needs
of the industrial enterprises. Industrial sheds are constructed and plots of various
sizes are developed in the zone for use at concession al rent by the industrial

188
1
units. Uninterrupted water supply, power supply and excellent
telecommunication facilities are also provided by the zone for the benefit of the
industrial units. The Central warehousing corporation has established its
warehouse in this zone. The industrial units can use this warehouse to store their
output., Sinking facility is also made available in the zone: The number of units
functioning in this me has increased from 12 in the year 1991-92 to 24 in 1995-
96. The turnover of the 'one was at Rs.35.36 crore in 1993-94anditisRs.32.31
crore in the year 1994-95.
KANDLA FREE TRADE ZONE
Kandia free,trade zone was established in the year 1965. It is the India's
largest multi-product export processing zone. It is the first free trade zone in
Asia. Kandia port is very near to the Kandia free trade zone. This zone is
connected by air ways and railways. Gandhigram railway station is 4 km away to
the zone. This zone is connected by the Kandia and Bhuj airports. There are 95
industrial units functioning in this zone. These industrial units engage in the
manufacture of readymade garments, made-ups, cosmetics, toiletry preparations,
tooth paste, plastic products, engineering goods, drugs and pharmaceuticals, etc.
This zone provides entire infrastructural facilities required to set up
industrial units in the export processing zone. Developed plots and standard
design factories are maae available in this zone tar the industrial units. The size
of the standard design factories is varied in the zone based on the requirements
of the industrial units. Uninterrupted power supply and water supply is provided
to the industrial units. The Gujarat State Electricity Board has exempted. This
zone from the statutory power cut. The other infrastructural facilities such as
banking services, postal services, telecommunication services and warehouses
are also provided in this zone.
In Kandia free trade zone, import for re-export is permitted. The export
may be in freely convertible currencies. The re-export is done by repacked and
assembling. These activities are also permitted in this zone. Import for the
purpose of reengineering, repairs and reconditioning is also permitted in this
zone. Value added norm does not apply to the reexport. Private bonded
warehouses are also permitted in this zone to fulfill the storage requirements of
the units.
The Gujarat State Government has established export promotion
industrial park in Baroda. This park is financed (75% of the total cost) by the
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Central Government Industrial Units export 33 percent of their production can
establish their units in this park. The Kandia free trade zone is given powers to
manage and monitor the units functioning in the export promotion industrial
park.
MADRAS EXPORT PROCESSING ZONE
This zone is well connected by highways, airport and railway stations,
and harbor. It was established in the year 1984. Foreign investors and NRIs have
invested and started industrial units in this zone.
The Madras export processing zone has been rated second among the
seven export processing zones in India, in terms of export volume. It has 98 EPZ
units employing over 17000 persons. Exports of this zone was at Rs.281 crore in
1994-95 and exports increased to Rs.392 crore in 1995-96 and Rs.993 crore in
1996-97. The central and state governments after a variety of incentives to the
industrial units such as, 10-20 percent capital subsidy, special subsidies for
employing women employees, establishing an affluent treatment plant and
purchase of generators. TNGST is reimbursed for the inputs used for export
production. Stamp duty and registration fee are waived for conveyance of leased
plots. The EPZ, in addition to providing developed plots, also provides standard
design factories in four different sizes and models. An exclusive gem and gold
jewellery complex with eight units has also been constructed. Other facilities
include declaration of Madras Export Processing zone as a public utility, and
even place for a operated by Madras export processing zone manufacturers
Association. This zone allows upto 5% rejection and 25% DTA (Domestic Tariff
Area) sales, governed by certain conditions under specific categories, 1 even
50% DTA sales is also considered. This zone recently created a website at
ywww.mepz.com, where details of the constituent units are listed for reference.
The Madras Export Processing Zone (MEPZ) is only on infrastructure provider
and business facilitator for those in the export business. The MEPZ welcomes
industrial units to establish 100 percent EOUs at locations of their choice in
Tamil Nadu, Pondicherry and Andaman & Nicobar Islands.
In built infrastructural facilities (telecommunications, banking services,
postal services, power, water facilities, warehouse) are made available in the
Madras export processing zone for the benefit of the industrial units. Madras
port is the advantageous to this zone. This port provides cargo handling facilities
to this zone. Container terminal is also established ; in this zone. The terminal is

190
 also established in this zone. The facilities for stuffing and destuffmg of cargo is
also made available in this zone. The products produced and exported from this
zone are electronic goods, engineering goods, soft toys, pharmaceuticals, video
cassettes, sport goods, leather products, garments, disposable syringes, gems and
jewellery, perfumes and gloves. Goods are exported to Singapore, Germany,
Japan and Saudi Arabia, USA, UK, Italy and Canada from this zone.
NOIDA EXPORT PROCESSING ZONE
Noida Export processing zone is an inland export processing zone
functioning in our country. This zone get its operations in the year 1985. It was
established into two phases based on the entrepreneurial response from the
industrial sector. This zone is situated in the Ghaziabad District, Uttarpradesh
and it is placed 25 Kms from Connaught place and 15 kms from Nehru place.
New Delhi. This zone is instrumental for the industrial development in the
Uttarpradesh. The Noida Export processing zone produces and export a wide
range of products such as garments, shoe uppers, fashion, jewellery, software,
woollen knitwear, ayurvedic products, video cassettes etc.
It is fast developing export processing zone. Industrial units both in India
and foreign countries have come forward to invest in this zone. The total exports
V. of this zone was at Rs.145.23 crore in 1992-93 and increased to Rs.263 crore in
1993-94. Its exports reached Rs.500 crore in the year 1995-96 valued added
exports is concentrated in this zone.
Developed plots, and standard design factories of various sizes are
provided to the industrial units at concessional rent in the zone. Power supply,
water supply, telecommunication facilities, banking and postal facilities,
customs and warehousing facilities are the other infrastructural facilities
extended by this zone for the benefit of the industrial units. The minerals and
metal trading corporation (MMTC) has established an office in the Noida Export
processing zone for the purpose of facilitating the supply of raw materials to the
gems and jewellery units.
For sanctioning clearance for the pollution control to the industrial units,
a local office of the pollution control Board is established in this zone. The
Central Warehousing Corporation helps the units to handle export consignments.
Software Development complex is also available in this zone. This complex
provides infrastructural facilities to the software exporters. Employees state
insurance dispensary and hospital, industrial canteens and executive restaurant,
191
 sub-contracting facilities and residential infrastructure nearer to NOIDA
township, are the added advantages to the zone.
SANTA CRUZ ELECTRONICS EXPORT PROCESSING ZONE (SEEPZ)
The SEEPZ was established in the year 1974. This zone was setup to
maximise India's share in the global electronics market. The global trade on
electronics is on increasing trend. This zone is located in an area of 100 acres in
Bombay. The entire area of the zone is taken up on 99 years least from the 41P

Maharashtra Government in Marol Industrial Area, Bombay. The zone was

established to produce electronics products exclusively for exports. In the year
1986-87, Government of India has created a 100% export oriented gems and
jewellery complex in this zone. The total exports of the Santacruz electronics
Export processing zone was at Rs.806.31 crore in 1992-93 and it has increased
to Rs. 1107.36 crore in 1993-94 and Rs. 1543 crore in 1994-95.
SEEPZ offers developed plots to the industrial units come forward to
construct their factory based on their requirements. This zone offers standard
design factory buildings and developed plots io the industrial units at
concessional rent. The developed plots are provided on lease basis also. Four
gems and jewellery complex buildings are available in this zone for the use of
gems and jewellery units. The Videsh Sanchar Nigam Ltd. and Maharashtra
Telephone Nigam Ltd. have established data transmission facilities in this zone.
This facility helps to the computer software units to transmit software through
satellites.

Water supply, uninterrupted power supply, warehousing and forwarding 4

facilities, customs clearance facilities, naming ana postai facilities,

telecommunication facilities and other infrastructural facilities are made
available in this zone. The zone extensively utilizes the technically qualified
professionals brought out by the reputed educational institutions in Bombay.
Skilled, semi-skilled and unskilled labourers are readily made available in
Bombay at low wages.
VISAKHAPATNAM EXPORT PROCESSING ZONE(VEPZ)
The VEPZ is situated in an area of 370 acres and this zone is located a
place 25 km away from the Viskhapatnam city. The zone is ideally located
adjacent to the Duvvada Railway Station on the Chennai-Calcutta broad-gauge
line and this zone is connected the National highways also. The zone is placed

192
15 km from the Airport and 24 km from the seaport. The VEPZ offers developed
plots and standard design factories to the industrial units at concessional rent.
Developed plots are offered on lease basics also to the entrepreneurs. The gems
and jewellery complex is also available in this zone.
Power supply, water supply, telecommunication facilities, transport
facilities, banking and postal facilities, warehousing and customs clearance
facilities and other infrastructural facilities are available in this zone for the
benefit of the industrial units. Visakhapatnam port is the added advantage to the
units placed in this zone. Modem facilities are available for berthing of vessels,
handling of cargo and storage of cargo are available in this port. All international
shipping lines are received by this port. Regular feeder service in container
traffic is done in this port to all major countries of Europe, USA, Africa and Far
East Countries. Labour availability is not a problem in Visakhapatnam.
Technically qualified personnel and skilled, semi-skilled and unskilled labourers
available in plenty in Visakhapatnam could be utilised by the units situated in
this zone. Andhrapradesh is becoming hi-tech state in India. The facilities for
information technology offered by the State Government could be effectively
used by this zone.
SURAT EXPORT PROCESSING ZONE
Surat export processing zone is the Maiden private sector export
processing zone in India. The Kandia free trade zone serves as a licensing
committee for this zone. The central government has permitted the Kandia free
trade zone to exercise the nowers of the licensinii committee for the Surate
Export processing zone. 1 he Uentral Uovemment has permitted the private
sector to develop export processing zones in India. In the private export
processing zone, Indian individuals and companies, NRIs and foreign companies
can invest and set up their industrial units. The export processing zones can be
established and managed either privately or jointly by the Government and a
private agency. Export processing zones can be developed exclusively by the
State Governments. The Directorate General of Trade has issued notification
(No.42 (RE) 1992-97) regarding setting of Export processing zone in the
private/joint sector.
The units functioning in the export processing zone are expected to
following strictly the rules and regulations of the customs while dealing the
following transactions:

193
 • Clearance of rejects
❖ Clearance of wastes and scrap
• Clearance of rags/trimmings and tailor cuttings
• Disposal of obsolete machinery
• Samples to be sent outside the zone
• Sale of goods to another unit in the zone
• Clearance of imported containers etc fit for reuse.
The Development commissioner of the concerned export processing zone
is the incharge of the overall administration of the zone. The officials from the
customs houses nearest to the EPZ are deputed to the zone for executing the
customs formalities and requirements. The customs officials commissioner. For
any clarifications regarding the provisions of customs law, rate of duty to be
levied, exemptions etc. the customs officials working in the export processing
zone can directly contact with their higher officials of customs (jurisdictional
commissioner of customs). Customs officials placed in the export processing
zone monitor the procedure for the import of duty free materials, their clearances
and transit, generation of waste and their disposal, production of exportable
commodities and their exports, sales in the domestic tariff area and the
procedure for export.
Rejects, wastes and scrap can be cleared by the units functioning in the
export processing zone in the domestic tariff area on payment of appropriate
duty leviable. Rejects upto 5% of production is permissible for clearances to
domestic Tariff Area. The units should invoice the wastes and invoices should
be only stamped while clearing wastes in the domestic area. If the units have
cleared wastes/rejects more than the specified percentage prescribed by the
customs regulations, have to pay duty leviable on the mother material out of
which the waste/reject has arisen. The handbook of procedure (1992-97) issued
by the commerce Ministry, Government of India shows the permissible
percentage of wastes/scrap to the industrial units functioning in the export
processing zones.
The industrial units functioning in the export processing zones ,are
permitted duty free import of capital goods and other materials. The imported
capital goods and other materials should be used by the units within the period
prescribed by the customs department. Otherwise, duty will be levied. The
imported capital goods or materials should be used for the production of packing
194
of goods for exports. The imported capital goods must be installed in the factory
within one year from the date of import; the imported materials should be used
within one year from the date of import for production/packaging of goods for
exports or promotion of exports. If the imported materials are destroyed or
damaged not due to any willful act, no duty will be levied.
The units functioning in one EPZ can transfer their output to the units in
the other EPZ without attracting any duty liability. Specific customs exemption
notifications has been issued »by the customs department for the transfer of
output from one EPZ to another EPZ.
The commission of customs is empowered to allow. to dispose the capital
goods outside the zone is Domestic Tariff Area on payment of an amount equal
to the import duty leviable on such capital goods on their depreciated value at
the time of disposal at the prevalent rate of duty. If the unit is not able to achieve
the export obligations, value addition or other requirements, with the permission
of the Board of Approval, their unit may withdraw from the zone.
The units are permitted to test their samples of production outside the
zone after satisfying the commissioner of Customs that such samples are taken
outside the zone for testing purposes of the samples are consumed or destroyed
while testing, duty liability on duty free materials contained in samples is waived
by the commissioner of customs.
Inter unit sales in the EPZ is permitted without attracting any duty for
transfer of goods. The goods transferred from one unit to another unit in the
same EPZ should be used only for the production/packaging of goods for
exports or promotion of such export of goods.
Some goods may be imported in durable, containers and such containers
can be used for reuse. For example, textile yam may be imported on cone or
bobbins; the cones or bobbins may be of repeated use. The customs exemption
notification reveals that the empty ones, bobbins, container or any other items
used for packing which are suitable for reuse may be allowed for clearance from
the zone in the domestic tariff area, provided import duty equal to that leviable
on such goods at the time of import in India is paid.

195
6.6 INCENTIVES TO THE EXPORT PROCESSING ZONES
❖ Duty free import of all types of raw materials, components and capital
goods (Items mentioned in the negative list of imports are not permitted
to import) S283
❖ Units in the EPZ enjoy tax holiday for the period often years.
❖ Units in the EPZ are exempted from the minimum alternate tax.
❖ Units in the EPZ can import second hand capital goods duty free.
❖ Units in the EPZ, can purchase capital goods from the domestic industries
and such industries can import capital goods duty free and supply to the
units of the EPZ,
Developed plots and standard design factory buildings are provided to the
units at the concessional sent,
100 percent foreign equity is permitted in the EPZ: no restriction on
foreign holding.
• Units functioning in the EPZ can add the foreign exchange earnings by
their DTA industrial houses with their foreign exchange earnings for
obtaining the export houses status.
Units are exempted for excise duty on specified materials used for export
production
❖ Units are exempted from import license.
Units are exempted from stamp duty, registration charges, etc.
❖ Units in the EPZ are exempted from sales tax.
❖ Automatic approval for the medium projects to be set up in EPZ is given
by the development commissioner within two weeks.
❖ Units are given State investment subsidy rarrb iug from 5% to 15% of
fixed assets.
Deemed export benefits are given to the DTA suppliers of the units of the
EPZ.
❖ Units in the EPZ are eligible for 100% convertibility of their export
earnings.
Single window is in practice for the clearance of proposals.

196
 ❖ Units in the EPZ can sell 25 percent of their production in the Domestic
Tariff Area.
❖ Full and free repatriation of profit and dividend is allowed-to overseas
investors invested in the EPZ.
The concerned State Government provide a lot of incentives and
concessions to the unit functioning in the EPZs for the purpose of encouraging
exports. Electricity subsidy. capital investment subsidy, captive power
generation subsidy, seed capital assistance, subsidy of 75% of cost of
preparation of feasibility studs for an approved project subject to a maximum
limit ofRs.50,000 concession to promoters contribution for commencing new
projects etc. are the incentives offered by the State Governments to the industrial
units of the EPZs.
Commercial banks, state financial corporations and- other development
bans provide financial assistance (term loans per shipment and post shipment
credit and working capital assistance) to units functioning in the EPZs. The
Export-Import Bank offers re-financing facility on concessional terms to the
commercial ba ,ks for the term loans extended to the units in the EPZs. The
export credit and Government corporation insures the export proceeds and
provides guarantees for getting financial assistance from banks.
ADMINISTRATION
COMPOSITION OF THE BOARDS OF FREE TRADE ZONES AND EXPORT
Processing Zones
For Kandia Trade Zone Board
Chairman
1. Additional Secretary, Ministry of Commerce.
Members
2. Joint Secretary (FTZ), Ministry of Commerce.
3. Joint Secretary, Department of Economical Affairs.
4. 4. Joint Secretary, Department of Industrial lle‘ el..: •
5. Director(Commerce Division), Ministry of I'inaiicc. Depart!
IP Expenditure.
6. Chairman, Kandia Port Trust.

197
7. Collector of Customs and Central Excise Ahmedabad (as representative of
Department of Revenue and Insurance.
8. Director General, DGTD, or his nominee.
9. Joint Secretary, Department of Industrial Development,
10.Joint Secretary, Department of Heavy Industry.
•
11. 11.. Industries Commissioner, Department of Industries, Government
ofGujarat.
12. Economic Adviser, Ministry of Industry & Civil Supplies.
13. Development Commissioner, Kandia Free Trade Zone, Gandhidham (Kutch).
Member Secretary
14.Deputy Secretary, Kandia Free Trade Zone, Ministry of Commerce.
The Kandia Free Trade Zone shall exercise the powers of the Licensing
Committing in relation to Industrial undertaking in the Free Trade Zone Kandia.
6.13 SPECIAL ECONOMIC ZONES IN INDIA
A policy was introduced in the Exim Policy effective from 1.4.2000 for
setting up of Special Economic Zones in the country with a view to provide an
internationally competitive and hassle free environment for exports. Units may
he set un in SEZ for manufacture, of goods and rendering of services. All tht__
import/export operations of the SEG units will be on sell-certification basis. The
units in the zone have to be a net foreign exchange earner but they shall not be
subjected to any pre-determined value addition or minimum export performance
requirements. Sales in the Domestic Tariff Area by SEZ units shall be subject to
payment of full Custom Duty and Import Policy in force.
The policy provides for setting up of SEZs in the public, private joint
sector or by State Governments. It was also envisaged that some of the existing
export processing zones would be converted into Special Economic Zones.
Accordingly, the Government has converted Export Processing zones located at
Kandla and Surat (Gujara), Cochin (Kerala), Santa Cruz (Mumbai-Maharashtra),
Falta (West Bengal). Madras (Tamilnadu), Visakhapatnam (Andhra Pradesh)
and Noida (Uttar Pradesh) into a special r.conoinic /. ones.
SALIENT FEATURES
• A designated duty free enclave and to be treated as foreign territory for trade
operations and duties and tariffs.

198
• No licence required for import.
• Manufacturing, trading or service activity allowed.
• SEZ unit to be positive net foreign exchange earner within three years.
• Performance of the units to be monitored by a committee headed by
Development Commissioner and consisting of customs.
• No fixed wastage norms.
• Full freedom for subcontracting including subcontracting abroad.
• Duty free goods to be utilised in 5 years.
• Job work on behalf of domestic exporters for direct exports allowed.
• Contract farming allowed agriculture/horticulture units.
• No routine examination by customs of export and import cargo.
• No separate documentation required for customs and exim policy.
• In house customs clearance.
• Support services like banking, post office, clearing agents etc. provided in
zone complex.
• Developed plots and ready to use built up space.

POLICY FOR DEVELOPMENT OF SPECIAL ECONOMIC ZONE

With a view to augmenting infrastructure facilities for export production
it has been decided to permit the setting up of Special Economic Zones (SEZs)
in th.. public, private, joint sector or by the State Governments. The minimum
size of the Special Economic Zone shall not be less than 1000 hectares.
Minimum area requirement shall, however, not be applicable to product-specific
and port/air-port based SEZs. This measure is expected to promote self-
contained areas supported by world-class infrastructure oriented towards export
production.
WHO CAN SET UP?
Any private/public/joint sector or state government or its agencies can set
up Special Economic Zone (SEZ).

199
HOW TO APPLY?
15 copies of application, indicating name and address of the applicant,
status of the promoter along with a project report covering the following
particulars may be submitted to the Chief Secretary of the state:
• Location of the proposed zone with details of existing infrastructure and that
proposed te•be established.
• Its area, distance from the nearest sea port/airport/rail/road head etc.
• Financial details, including investing proposed, mode of financing and
viability of the project.
• Details of foreign equity and repatriation of dividends etc., if any
• Whether the zone will allow only certain specific industries or will be a
multiple-product zone.
■ The state government shall, forward it along with their
commitment to the following to the Department of
Commerce, Government of India:
• That area incorporated in the proposed Special Economic Zone is free from
environmental restrictions.
• That water, electricity and other services would be provided as required.
• That the units wouid be given full exemption in electricity duty and tax on
sale of electricity for self generated and purchased power.
• To allow generation, transmission and distribution of power within SEZ.
• To exempt from state sales tax, octroi, mandi tax, turnover tax and any other
duty/cess or levies on the supply of goods from Domestic Tariff area to SEZ
units.
• That for units inside the zone, the powers under the Industrial Disputes Act
and other related labour Acts would be delegated to the Development
Commissioner and that the units will be declared as a Public Utility Service
under Industrial Disputes Act.
• The single Point clearances system and minimum inspections requirements
under state law / rules would be provided. The proposal incorporating the
commitments of the state government will be considered by an inter-
Ministerial Committee in the Department of Commerce. On acceptance of
the proposal, a letter of permission will be issued to the applicant.
200
ARE THERE ANY TERMS AND CONDITIONS?
• Only units approved under SEZ scheme would be permitted to be located in
SEZ.
• The SEZ units shall abide by local laws. rules, regulations or bye-laws in
regard to area planning. sewerage disposal, pollution control and the like.
They shall also compl ith industrial and labour laws as may be locally
applicable.
• Such SEZ shall make security arrangement to fulfill all the requirements of
the laws, rules and procedures applicable to such SEZ.
• The SEZ should have a minimum area of 1000 hectares and at least 25% of
the area is to be earmarked for developing industrial area for setting up of
units.
• Minimum area of 1000 hectares will not be applicable to product specific
and air-port based SEZs.
• Wherever the SEZs are landlocked, an inland container depot (ICD) will be
an integral part of SEZs.
FACILITIES TO SEZ DEVELOPER
• 100% FDI allowed for; (a) townships with residential educational and
recreational facilities on a case to case basis, (b) franchise for basic
telephone service in SEZ.
• Income tax benefit under (80 1A) to developers for any block of 10 years in
15 years.
• Duty free import/domestic procurement of goods for development, operation
and maintenance of SEZs.
• Exemption from service tax.
• Income of infrastructure capital fund/company from investment in SEZ
exempt from investment in SEZ exempt from income tax.
• Investment made by individuals etc. in a SEZ company also eligible for
exemption u/s 88 of IT Act.
• Developer permitted to transfer infrastructure facility liar operation and
maintenance.

201
• Generation, transmission and distribution of power in SEZs allowed full
freedom in allocation of space and built up area to approved SEZ units on
commercial basis.
• Authorized to provide and maintain service like water, electricity, security,
restaurants and recreation centres on commercial lines.
HOW TO SET UP A UNIT IN SEZ?
For setting up a manufacturing, trading or service units in SEZ, 3 copies
of project proposal in the format prescribed at Appendix 14-1A of the Handbook
of Procedures, vol.1 to be submitted to the Development Commissioner of the
SEZ.
WHAT IS THE APPROVAL MECHANISM?
All approval to be given by the unit approval committee headed by the
Development Commissioner, Clearance from the Department of Policy and
Promotion / Board of Approvals, wherever required will be obtained by the
Development Commissioner, before the Letter of intent is issued.
WHAT IS THE OBLIGATION OF THE UNIT UNDER THE SCHEME?
• SEZ units have to achieve positive net foreign exchange earning as per the
formula eiven in nsvigraph appendix 14-11 (para 12.1) of Handbook of
procedures, voi.i. ror tnis purpose. a legal undertaking is required to he
executed by the unit with the Development Commissioner.
•. The, units have to provide periodic reports to the Development
Commissioner and zone customs as provided in Appendix 14-1F of the
handbook of procedures, vol.1.
• The units are also to execute a bond with the zone customs for their
operation in the SEZ.
FACILITEIS TO SEZ ENTERPRISES
CUSTOMS AND EXCISE
'

• SEZ units may import or procure from the domestic sources, duty free, all
their requirements of capital goods, raw materials, consumables, spares,
packing materials, office equipment, DG sets etc. for implementation of
their project in the zone without any licnese or specific approval.

202
 • Duty free import/domestic procurement of goods for development, operation
and maintenance of SEZ units.
• Goods imported/procured locally duty free could be utilized over the
approval period of 5 years.
• Domestic sales by SEZ units will now, he exempt from SAD.
INCOME TAX
• 100% income-tax exemption ( I OA) tiff first 5 years and 50% for 2 years
thereafter.
FOREIGN DIRECT INVESTMENT
• 100% foreign direct investment is freely allowed in manufacturing sector in
SEZ units under automatic route, except arms and ammunition, explosive.
atomic substance, narcotics and hazardous chemicals, distillation and
brewing of alcoholic drinks and cigarettes, cigars and manufactured tobacco
substitutes.
• No cap on foreign investments for SSI reserved items.

OFF-SHORE BANKING (OBUs).

• Setting up of off-shore banking units allowed in SEZs.
• OBUs entitled for 100% income-tax exemption for 3 years & 50% for next 2
years.
BANKING / EXTERNAL COMMERCIAL BORROWINGS
• External commercial borrowings by units up to $ 500 million a year allowed
without any maturity restrictions.
• Freedom to bring in export proceeds without any time limit.
• Flexibility to keep 100% of export proceeds in EEFC account. Freedom to
make overseas investment from it.
• Commodity hedging permitted.
• Exemption from interest rate surcharge on import finance.
• SEZ units allowed to 'write-off' unrealized export bills.
• Exemption from interest rate surcharge on import finance.

203
 GENERAL SALES TAX ACT
• Exemption to sales made from Domestic Tariff Area to SEZ units.
SERVICE TAX
• Exemption from service tax to SEZ units.
ENVIRONMENT
• SEZs permitted to have non-polluting industries in IT, and recreational
facilities like golf courses, desalination plants, hotels and non-polluting
service industries in the coastal regulation zone area.
• Exemption from public hearing under environment impact assessment
notification.
COMPANIES ACT
• Enhanced limit of Rs.2.4 crore per annum allowed for managerial
remuneration.
• Regional office of Register of Companies in SEZs
• Exemption from requirement of domicile in India for 12 months prior to
appointment as Director.
DRUGS AND COSMETICS
• Exemption from port restriction under Drugs & Cosmetics Rules.
SUB-CONTRACTING / CONTRACT FRAMING
• SEZ units may sub-contract part of production or production process
through units in the Domestic Tariff Area or through other EOU/SEZ units.
• SEZ units may also sub-contract part of their production process abroad.
• Agriculture/Horticulture processing SEZ units allowed to provide inputs and
equipments to contract farmers in DTA to promote production of goods as
per the requirement of importing countries.
ARE THERE ANY RELAXATION IN LABOUR LAWS FOR SEZ UNITS?
The labour laws of the land will apply to all units inside the zone.
However, the respective state governments may declare units within the SEZ as
public utilities and may delegate the powers of the labour commissioner to the
Development Commissioner of the SEZ.

204
FACILITIES FOR DOMESTIC SUPPLIERS TO SPECIAL ECONOMIC ZONE
• Supplies from Domestic Tariff Area (DTA) to ;FZ to be treated as physical
export. DTA supplier would be entitled to:
• Drawback/DEPB
• CST Exemption
• Exemption from state levies
• Discharge of EP if any on the suppliers
• Income-tax exemptiontder section 80-HHC
WHAT IS THE POLICY F AME FOR SEZs?
The policy frame work of SEZ units and SEZ developer is contained in
the following:
• Chapter 7 of Export and Import policy
• Appendix 14-II of Handbook of Procedures, vol. 1
• All relevant notifications and information is available at website
www.sezindia.nic.in
LIST OF FUNCTIONAL SPECIAL ECONOMIC ZONE
S.No. Location Address
1 SEEPZ (Mumbai) Development Commissioner,
SEEPZ Special Economic Zone,
Andheri (East) Mumbai — 400 096.
Tel: 91-22-28290046, 28292147, 28292144
Fax: 91-22-28291385, 2829175
E-mail: dcseepz@vsnl.com
Website: www.seepz.com
2 Kandla (Gujarat) Development Commissioner,
Kandla Special Economic Zone,
Gandhidham — Kachchh,
Tel: 91-2836-252194, 252475, 253300,
252281
Fax: 91-2836-252250
E-mail: ksez@sancharnet.in
Website: www.kandlasez.com

205
 Cochin (Kerala) Development Commissioner,
Cochin Special Economic Zone,
Kakkanmad, Cochin — 682 030.
Tel: 91-484-2413111, 2413234
Fax: 91-484-2413074
E-mail: mail@cepz.com
Website: www.csez.com
i Madras (Chennai) Development Commissioner,
Madras Special Economic Zone,
National Highways 45, Tambaram,
Chennai — 600 045.
MEPZ CHENNAI, Fax: 91-44-2628218
E-mail: mepz@vsnl.com
mepz@md5-vsnl.net.in
\ vs.ii,11.11,,iiii,iiii 1)e% elopment Commissioner,
(Andhra Pradesh) Visakhapatnam Special Economic Zone,
Duvvada, Visakhapatnam — 530 046.
Tel: 91-891-2587555, 2587352
Fax: 91-891-2587352
E-mail: dc@vepz.com
6. Falta (West Bengal) Development Commissioner,
Falta Special Economic Zone,
M.S.O.Building 4th Floor, Nizam Palace,
Koltaka — 700 020.
Tel: 91-33-22472263, 22477923, 22404092
Fax: 91-33-22477923
E-mail: fepz@wb.nic.in
7. Noida (Uttar Pradesh) Development Commissioner,
Noida Export Processing Zone,
Noida Dadri Road.'
Phase-II, Noida District
Gautam Budh Nagar — 201305 (U.P)
Tel: From Delhi: 91-120-2567270-73
From outside delhi: 9 1-1 20-2567270-3
Fax: 91-120-2562314.91-2567276
E-mail: dcnepz@nda.vsnl.net.in
206
8. Surat (Gujarat) Surat Special Economic Zone, i
Diamond Park, Sachin
Surat — 394 230
Tel: 91-261-2372733, 2372734
E-mail: maria@bom3.vsnl.net.in
9. Indore SEZ Indore Special Economic Zone,
(Madhya Pradesh) 3/54. Press Complex,
Free Press Home, H.BAZoad,
I ndorc — 452 008.
I d: 91-731-257229
I -mail: md a sezindore.com
\\ cHite: ‘‘ \\ \\.sezindore corn

LIST OF APPRM I I) st:i

Name of the Nana, a Promoter Telephone 00(.0

SEZ
Navi Mumbai Voice Chairman and Managing
SEZ Director, City & Industrial
(Maharashtra) Development Corporation of
Maharashtra Ltd., ' ,
Nirmal, Nariman Point,
Mumbai — 400 021.
Positra SEZ Gujarat Postra Port
(Gujarat) Infrastructure Ltd. Pipavav
House, 209 Bank St., Cross
Lane, Off Shahid Bhagat Singh
Road, Fort. Mumbai — 400 023.
Nanguneri SEZ ,I Chairman cum Managing
(Tamil Nadu) Director, Tamil Nadu &
Industrial Development
Corporation, Lakshimipathy
Road, Chennai — 600 008.
Bhadohi SEZ Managing Director, UP State
Kanpur SEZ Industrial Development
Moredabad Corporation Ltd., UPSIDC
91-22-2026665
91-22-2021155
Fax: 91-22-2757-1066
1 E-mail:
cidsys@giasbm01.vsnl.net.in
91-22-2270 3031
Fax: 91-22-2269 6021
91-44-28554421
Fax: 044-8553729
91-512-2582851-53
Fax: 91-512-2380797
E-mail:

207
 SEZ Complex, A-1/4, Lakhanpur, feedback@upsidcltd.com
(Uttar Pradesh) Kanpur — 208 024.
Greater Noida Greater Noida Development
.P) Authority, Greater Noida, UP
Visakhapatanum A.P. Industrial Infrastructure 91-40-23233596
SEZ Corporation Ltd., 91-40-23230234
(Andhra Parisrama Bhavanam 6th Floor, Fax: 91-40-232340205
Pradesh) 5-8-58/B, Fateh MaiaUrr Road,
Hyderabad — 500 004.
Kakinada SEZ Kakinada Sea Port Ltd., 91-884-2365089, 2365889
(Andhra 2nd Floor, Post Administrative Fax: 91-884-2365989
Pradesh) Building Beach Road, E-mail:
kakinada — 533 007. Icakinadaport@vsnl.net
Paradeep SEZ Managing Director, Industrial 91-674-2542784, 2540820
Gopalpur SEZ Development Corporation of Fax: 91-674-2542956
(Orissa) Orissa (IDCO), IDCO Tower, E-mail: md@idcoindia.com
Janpath, Bhuvaneshwar,
Bhuvaneshwar — 751 001.
Sah Lake SEZ West Bengal Industrial 91-33-22486583, 22101536/
Kulpi SEZ Development Corporation Ld., 62/63/64/65
(West Bengal) 5, Council House Street, Fax: 91-33-2248-3737
Kolkata — 700 001. E-mail: mdbidc vsnl.com
Sitapura SEZ Managing Director, 91-141-2380751, 2413201
Jaipur Rajasthan State Industrial, Fax: 91-141-2404804
(Rajasthan) Development & Investment, ,@riico.com
Corporation Ltd. (RIICO)
Udyaog Bhawan, Tilak Marg,
Jaipur — 302 005.
Maha Mumbai Gujarat Posita Port 91-22-2270-30311
SEZ Infrastructure Ltd., Pipavav Fax: 91-22-2269-6021
(Maharashtra) House, 209 Bank Streets Cross
lane, off Shahid Bhagat
E-mail: riico@riico.com
Singh Road, Fort,
Mumbai — 400 023.

208
 Vallarpadam/ Cochin Port Trust Willington 91-484-2669200, 2668566
Puthuvypeen Island, Cochin Ltd., Fax: 91-484-2668163
(Kerala) Pipavav House. 209.Bank St.,
' Cross Lane. oft. Shahid Bhagat
I E-mail: riico a riico.com
Singh Road. Fort.
Muinbai - 400 023.
Hassan SEZ Principal Secretary. 91-80-22280605, 22092397
(Karnataka) Infrastructure I kvelopment Fax: 91-80-22280605
Department. E-mail:psecinfra@
Government of Karnataka, secretariat2.kar.nic.in
5th Stage, M.S. Building,
Dr.Ambedkar Veedi,
Bangalore - 560 001.
Source: Special Economic Zones in India, Investor's Guide, Ministry of
Commerce and Industry, Department of Commerce, Government of India.

ARE SPECIAL ECONOMIC ZONES TOO COSTLY?

The logic of creating a special economic zone is to offer infrastructure
and other facilities that cannot be provided quite so easily across the country as a
whole. The objective is to create islands of world-class infrastfucture to reduce
the cost of doing business and make industry globally competitive. This would
mean assured electricity availability at competitive rates, availability of capital at
internationally benchmarked rates, good transport links to reduce shipment time
and delays, and flexible labour laws. In India, SEZs are being developed by the
private sector or public sector or through private-public partnership. Since SEZs
require massive investments and have relatively longer gestation period, proper
mix of stable SEZ policy coupled with fiscal benefits need to be extended to the
zones.
The fiscal concessions has made it possible for private players to look at
SEZs as a profitable and new business opportunity. This has also helped provide _
infrastructure and other facilities to units in SI:ls at substantially lower cost.
Laying a kilometre of road costs Rs. 5 crore in our country, of which 30% goes
to taxes. The exemption given to developer will ultimately percolate to units. In
many states, industry pays as high as Rs 7 for a unit of power where as all the
209

L
 large SEZs in the world provide electricity at Rs 2. The removal of electricity
duty will help in providing electricity at internationally benchmarked rates.
Banks in SEZs are exempted from SLR and CRR requirements and also enjoy
income tax concession. Thus the capital cost is lower for these banks which they
will pass on to their customers.
4
A narrow view is being taken by interpreting SEZs as a loss making
venture from revenue point of view as it may lead to revenue loss of about Rs
90,000 crore over a period of time. This fear is base-less as SEZs can be a pivot
for attracting FDI both in manufacturing and retail trade. It can provide
flexibility to global major players to tap the Asean and Gulf markets. It may be
emphasised that no government should provide primacy to revenue
considerations over employment, exports and infrastructure development.
(Source: The Economic Times, 14th April, 2006).
SEZs may become a burden on taxpayers
By offering privileged trading terms for export-oriented units, SEZs are
expected to attract investment and foreign exchange, spur employment and
boost the development of improved technologies and infrastructure. These zones
are designated duty-free enclaves, and are deemed foreign territories for the
purpose of trade operations, duties and tariffs. Indian SEZs have more than 800
units, employing 1 lakh people with export growth of 32% in 2004-05 (around
Rs 18,000 crore) covering sectors like gems and jewellery, textiles, software,
leather and chemicals.
Despite their appeal, many economists feel that SEZs attract investment
only by offering distortionary incentives rather than building underlying
competitive conditions. It is difficult to achieve 'comparative advantage' only by
setting up SEZs. The success of any SEZ depends on conditions such as proper
location, right kind of incentives, product specific policies, linkage between
domestic sector and SEZ, financing issues and availability of sufficient trained
human capital, etc. Along with the supply side conditions, identification of
markets, multi-market strategy, brand development and so on are equally
important for which strategies are quite independent of location of firms (inside
or outside of SEZs).
Many critics feel that SEZs could be the victim of `allocative
inefficiency'. As the policy inside the zone is quite attractive in terms of
facilities and fiscal incentives, many investors may blindly relocate their
210
operations inside the zone without giving due consideration to investment
decisions in other areas. Hence, the incentives to firms may create a fiscal
burden on the taxpayer and sometimes hurt environmental and labour standards.
In addition, the direct and indirect costs of maintaining zone privileges lead to
enclaves of prosperity and does not benefit the economy in the true sense. The
success of SEZs depends on government's strategy to promote private sector-led
growth. Active linkage programmes, adequate social and environmental
safeguards, and private sector involvement in zone development and operation
can go a long %%ay in ensuring that the benefits of SEZs are maximised.
(Source: The Economic Times. I -1th April, 2006).

SELF-ASSESSMENT QUESTIONS
1. What are the functions of export promotion councils?
2. What are the functions of commodity boards?
3. What are the services provided by directorate of commercial intelligence and
statistics to exporters?
4. Explain the salient features of special economic zones.

REFERENCES
1) Varsheney and Bhattacharya, 'International Marketing Management'. Sultan
Chand and Sons, New Delhi.
2) M.J.Mathew, 'Management of Export Marketing'. RBSA Publishers. Jaipur
3) Annual Report, Ministry of Commerce
4) The Economic Times

* * *

211
 MODEL QUESTION PAPER
EXPORT MANAGEMENT AND DOCUMENTATION
Time : 3 Hrs Max. Marks: 100
SECTION - A (5 x 8 = 40 marks)
Answer any Five questions
All questions carry equal marks
1. What are commercial documents?
2. What is pre-shipment credit? Give the procedure to avail it.
3. What is multimodal transportation?
4. What is duty drawback?
5. What are the various types of marine insurance policies?
6. What is small exporter; policy issued by ECGC?
7. What are the functions of export promotion councils?
8. What are the services provided by Indian Institute of Foreign trade for the
benefit of exporters?

SECTION - B (4 x 15 = 60 marks)
Answer any Four questions
All questions carry equal marks
9. What are the export documents? Explain them.
10.What the various types of letter of credit? Explain them.
11.Explain the procedure for shipment of export cargo by sea.
12.What are export incentives? Explain them.
13.Explain exchange fluctuation cover provided by ECGC.
14.Explain the procedure for marine insurance claims.
15.Describe the salient features of special economic zones and their scope in
India.
C)

212
 Elevate
Empower
Educate e)7

Alagappa University formed in 1985 has emerged from the galaxy of

institutions initially founded by the munificent and multifaceted
personality, Dr. RM Alagappa Chettiar in his home town at Karaikudi.
Groomed to prominence as yet another academic constellation in Tamil
Nadu, it is located in a sprawling and ideally suited expanse of about 420
acres in Karaikudi.

Alagappa University was established in 1985 under an Act of the State

Legislature. The University is recognised under Sec. 2(f) and Sec.12(B)
of the University Grants Commission. It is a member of the Association
of Commonwealth Universities and the Association of Indian
Universities. The University is accredited with 'A' Grade by NAAC.

The Directorate of Distance Education offers various innovative, job-

oriented and socially relevant academic programmes in the field of Arts,
Science, IT, Education and Management at the graduate and post-
graduate levels. It has an excellent network of Study Centres
throughout the country for providing effective service to the student
community.

The distance education programmes are also offered in South-East

Asian countries such as Singapore and Malaysia; in Middle-East
countries, viz., Bahrain, Qatar, Dubai; and also at Nepal and Sri Lanka.
The programmes are well received in India and abroad.

ALAGAPPA UNIVERSITY
(Accredited with 'A' Grade by NAAC)
Karaikudi 630 003

DIRECTORATE OF DISTANCE EDUCATION

(Recognized by Distance Education Council, (DEC) New DAlt)