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

GANATRA & CO.

Submitted by

ANAND L. THAKKAR

5th SEMESTER SEAT NO. 2928

Under the guidance of

Mrs. Parvati Venkatesh

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

VIDYAVIHAR, MUMBAI - 400077

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ACKNOWLEDGEMENT

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

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

I would also like to thank Mr. Sameer Ganatra C.E.O. of K.M.Ganatra and Co for

sparing time for me to help me gain proper information about the exports

I would like to thank both of them for their kind co-operation, support & guidance to

me, without which my project would have been very difficult.

I wish to express my thanks with regards and affection.

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INDEX

Export Credit

Pre shipment Credit

Export Credit in SEZ

Negotiation/Purchase/Discount of Export Bills.

Export Credit in Foreign Currency

Pre shipment credit in Foreign Currency

Deemed Exports

Export Guarantees

Export Procedure

K.M. Ganatra Company Profile

Export Promotion

Export Incentives

Risks covered by ECGC

Terms of Payment

Export Documentation

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Introduction

The composition of foreign trade of any country implies the composition of exports and

imports. An examination of the composition of foreign trade enables us to analyse the

progress report of that country and the rate and speed of structural changes operating in

it. The speed with which such a country changes its pattern of trade (leading to a

percentage decline in imports of manufactured products and percentage increase in

exports of such products) is taken by economists as an indication of the pace of

development in the country.

Before the advent of planning in India, main exports were primary goods like jute, tea,

cotton, hides and skins, manganese ore, mica etc.

Composition of Exports

Composition of India’s exports is presented in the table below. A clear trend has been a

decline in importance of manufactured products. For instance, share of agriculture and

allied products in exports declined considerably from 44.2 percent in 1960-61 to 14.0

percent in 2001-02.

1. The most important export item in 1960-61 was jute manufactured products and it

contributed 21% of total export earnings.

2. The second most important export item in 1960-61 was tea and it contributed

19.3% of total export earnings.

3. The most spectacular increase has been recorded by handicrafts. From 96$ million

in 1970-71 the exports of handicrafts rose to 8230$ million in 2001-02.

4. The exports of engineering goods rose from 46$ million in 1960-61 to 261$ million

in 1970-71.

5. Export of readymade garments has emerged as an important foreign exchange

earner in recent years.

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

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India’s exports can be broadly classified into two categories i.e. traditional products

and non-traditional products. Spices are included in the category of traditional products.

This table shows estimated export of spices from India during April-July 2005

Item Quantity

(Tonnes)

Value

(US $ MIL)

Pepper 4710 9.61

Cardamom (small) 150 1.17

Cardamom (large) 410 0.87

Chilli 42,000 33.11

Ginger 1,550 2.50

Turmeric 19,000 13.96

Coriander 8,750 5.46

Cumin 2,750 5.00

Celery 1,000 0.79

Fennel 1,850 1.86

Fenugreek 6,200 2.52

Other seeds (1) 3,700 2.00

Garlic 7,300 2.02

Nutmeg & Mace 500 2.24

Vanila 8.95 0.55

Other spices (2) 6,950 5.63

Curry powder 2,550 4.85

Mint Products(3) 2,500 27.92

Spice oleoresin and other

oils

1,975 37.36

Total 113,854 159.44

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

The performance of merchandise exports and its broad components into exports of

agricultural and allied products, during the period 1980-2000 as per the data is shown

in the following table. (Growth of Exports)

Growth rates (Annual Average)

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

3.3 8.1

Percentage Share

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

24.2 18.3

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

39 111 239 1202 1410 1633 1702

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Export Credit

Exports for a developing country like India play a very important role as foreign

exchange earner for the country. Government of India offers many incentives to

exporters and entire Government's policy is geared towards export promotion.

Commercial banks are called upon to play an important role in export promotion by

granting various credit facilities at very liberal terms. Present exchange regulations i.e.

FEM (Export of Goods and Services) Regulations, 2000 framed under FEM A, 1999

require association of a bank at every stage by an exporter and export proceeds have to

be settled through the medium of a bank authorized to deal in foreign exchange.

Selection of a bank or brunch of a bank, therefore, assumes importance for the exporter

for smooth conduct of his business. The following points are to be kept in mind while

selecting the bank/branch for transacting export business:

• Exports can be handled by a bank who is authorized to deal in foreign exchange. State

Bank of India, its associates, all nationalized banks and important scheduled banks have

been granted foreign exchange licence by Reserve Bank of India. There may, however,

still be a few small banks which do not have FEX license and may not be able to handle

export documents directly.

• All the branches of a bank authorized to deal in foreign exchange may not be directly

handling export documents. The branches of banks are divided m three categories as

under for this purpose :

(i) Category 'A' branches which maintain position and nostro accounts (foreign

currency accounts with foreign banks) and can directly handle all types of foreign

exchange business.

(ii) Category 'B' branches which do not maintain position or nostro accounts but are

authorized to handle foreign exchange business directly. The realization of export

documents are received by such branches through foreign currency accounts of

category 'A' branches, (iii) Category 'C' branches which cannot undertake foreign

exchange business on their own and have to route it either through category 'A'

branches or through category 'B' branches.

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As per the general policy of banks there are very few branches in category 'A' and these

are located in major metropolitan cities. Category 'B' branches are located in major

cities and towns. If a bank has a large number of branches in a city, one or two of its

branches in that city may only be in category 'B'. Preference should be given to

category 'A' branch followed by category 'B' branch. Dealing with category 'C' branch

may create difficulties and realization of export bill may be delayed as a long

processing route will be involved in such cases.

• A lengthy exchange control procedure is involved in all export transactions.

International trade also requires intimate knowledge of rules/regulations as applicable to

export/import business besides fast and efficient means of communication. All the major

banks have now opened 'overseas branches' which specialise in providing banking

services for international trade. If no overseas branch is operating in an area, the

branch which is having a full-fledged foreign exchange department equipped with

necessary infrastructure should be selected.

• Export trade may involve invoicing in foreign currency which will be converted to

Indian rupees by the banks after applying the relevant exchange rate. Banks are free to

quote exchange rates for various currencies based upon the prevailing market

conditions and a lot of competition exists in the matter. It will, therefore, be advisable

to study the exchange rate quotations of a few banks and ' the transaction be put through

at the best available rate for maximum advantage,

Another important factor which needs attention is that many banks are dealing only in

a few selected foreign currencies. The export bills drawn in a currency in which a bank

is not dealing will be realised by converting the foreign currency amount of the bill in

other foreign currency in which the bank is dealing. In such transaction the

exporter will be put to unnecessary exchange risk for such conversion. It is, therefore,

advisable that export bill is routed through that bank only which is directly dealing in

the currency of invoice.

As stated earlier, association of a bank at every stage of export transaction is essential

and it is; the obligation of the bank handling export transaction to ensure that all

export policy and exchange control requirements are met.

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PRESHIPMENT CREDIT

All credit facilities sanctioned to exporters for procuring/manufacturing/

processing/packing/warehousing/shipping the goods meant for exports arc termed as 'Pre-

shipment Credit'. This facility is also referred to as 'packing credit'. Packing credit may be

taken as equivalent to 'cash credit' in domestic business except that cash credit facility

is sanctioned as a continuous/running facility whereas packing credit advance is

disbursed for a specific purpose to enable the exporter to meet a specific export obligation.

Every pre-shipment advance is, therefore, considered as a separate loan account different from a

domestic advance or inter se.

The credit limits for pre-shipment advance are considered simultaneously along with other

facilities and it is generally made a sub-limit within the overall cash credit limit sanctioned to the

borrower. However, for those borrowers who are exclusively engaged in export, separate packing

credit limits are sanctioned by the banks. The procedure and techniques adopted by the bank are the

same as in case of other advances. However, the assessment of working capital requirement may be

based upon the export orders in hand with the exporter besides his capacity to meet that

commitment. A very flexible approach in this regard is taken by the banks and adequate finance

is available for every viable export proposal. A few important points that need to be kept in mind

while putting up an application to the bank for sanctioning of credit limits for exports are given

below:

• Export from India is allowed either against an export L/C or against an export order. The bank

may also sanction packing credit which may be disbursed either against an L/C or against an order.

Correct position in this regard must be explained to the bank to avoid any difficulty later. It may be

noted that if the limit by the bank is sanctioned against L/C, disbursement against an order may not be

allowed by the bank.

• Even in case of exports under L/C, the exporter may receive the L/C at a ve«y late stage and

may be required to procure/manufacture the goods much before the L/C is received. In this situation

also some difficulty may be faced in getting the packing credit released from the bank. It

would, therefore, be necessary to discuss all these matters with the bank at the time of sanctioning

of limits.

• All pre-shipment advances are to be liquidated from the proceeds of export bills. Application

for sanctioning of suitable post-shipment facilities shall, therefore, be simultaneously made.

Exporter may also be entitled for duty drawback etc. and credit limits against claims of such

incentives shall also be obtained at that time.

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• Exporters may also require back to back L/C or L/C facilities for purchase of raw material etc.

which are generally sanctioned by banks as a sub-limit of overall packing credit limit. The

position in this regard be also ascertained and suitable limits obtained for this purpose.

The purpose of the above discussion is to emphasize the need to apply for total credit

requirements at one time with all the relevant details made available to the bank in the

beginning itself so that suitable limits are sanctioned avoiding any request for adhoc facilities

at a later date. The general terms and conditions of granting packing credit advances by

banks are given below:

Importer Exporter Code Number

No commercial export from India is permitted on behalf of a person/firm/ company who has

not been allotted an 'Importer Exporter Code Number'.

A few firms may be completing exports through registered Export/Trading Houses and are

eligible to avail packing credit limits from the banks. Such firms may not be required to

obtain the code number.

Submission of Export Order/L/C

The exporter has to produce a confirmed export order or L/C as per the terms of sanction at the

time of disbursement of packing credit. In the absence of an export order/L/C, the bank may

accept some other communication from the overseas buyer provided it contains minimum

details giving the name of the buyer, the value of the order, quantity and particulars of the goods

to be exported date of shipment and terms of payment. Even in such cases final sales contract/

L/C will be required to be submitted to the bank at a later stage.

Sometimes an export order is received by an export house/trading house or a merchant

exporter who may pass on this order to a sub-supplier who is not directly exporting. Such

sub-supplier may also avail packing credit facility from the bank. The packing credit in

such cases can be granted after getting a letter from the export house/trading house giving

details of the order and also confirming that he (export house/trading house) has not

availed any packing credit against that order.

The repayment of such advance should be from the proceeds of bills drawn under

inland L/C (back to back L/C) opened by the export house/merchant exporter in favour of

the sub-supplier. Where such an L/C is not opened, the sub-supplier may draw a bill on the

export house. If 'Bill of Lading' is not enclosed with the documents by the sub-supplier,

then a certificate from the export house/ merchant exporter would be necessary to the effect

that the goods have actually been exported.

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Disbursement of Packing Credit

Normally, Banks treat each packing credit as separate account to monitor period of sanction

and end-use of fund.

Banks may release the packing credit in one lump sum or in different stages as per the

requirement for executing the orders/LC.

Sometimes Banks also maintain different accounts at various stages of manufacturing,

processing etc. and ensure that the outstanding balance in accounts are adjusted by

transfer from one account to the other and finally by proceeds of relative export documents

on purchase, discount etc.

Banks should keep a close watch on the end-use of the funds and ensure that credit at lower

rates of interest is used for genuine requirements of exports. Banks should also monitor the

progress made by the exporters in timely fulfilment of export orders.

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

The requirement of prior lodgement of letters of credit or firm orders has been waived

by Reserve Bank of India and banks have been permitted to grant pre-shipment advances for

exports of any commodity without insisting on prior lodgement of letters of credit/firm

export orders depending on the bunk's judgement regarding the need to extend such a

facility. Granting of such facility may be subject to the following general conditions:

(i) The facility will be allowed to only those exporters, whose track record has been good as

also EOU, units in Free Trade Zone, EPZs and SEZs. New exporters may not for obvious

reasons be allowed this facility, (ii) The exporters to whom this facility is allowed will be

required to produce letters of credit/firm export orders within a reasonable period of time.

(iii) The banks shall mark off individual export bills, as and when they arc received for

negotiation/purchase/collection, against the earlier outstanding pre-shipment credit on

'First in First Out' (FIFO) basis. (iv) The banks can also mark-off the packing credit

with proceeds of export documents against which no packing credit has been drawn by the

exporter, (v) The facility will not be allowed for inventory build up and only need

based limits will be allowed.

(vi) The benefit of concessional rate of interest will be permitted upto the period of sanction

or 360 days from the date of advance, whichever is earlier.

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(vii) If any exporter is found abusing the facility or does not comply with the above terms

and conditions, the facility of running account v/ill be withdrawn.

(viii) Running account facility are not granted to sub-suppliers. (ix) In cases where

exporters have not complied with the terms and conditions, the advance will attract

commercial lending rate ab initio.

Repayment

The repayment of packing credit advance can be only from the proceeds of the bills drawn

under the export order/L/C against which the pre-shipment advance was granted to the

exporter by the bank. No repayment of pre-shipment advance can be effected from local

funds in which case the advance will not be treated as 'pre-shipment advance' and no benefit

of concessional rate will be available to such an advance from the date of original advance.

'Subject to mutual agreement between the exporter and the banker the packing

credit/preshipment credit can also be repaid/prepaid out of balances in Exchange Earners

Foreign Currency A/c as also from rupee resources of the exporter to the extent exports have

actually taken place.

Furthermore every packing credit advance will be treated as a separate loan and no

running account facility will be permitted except to the extent stated in earlier paragraph.

The repayment of packing credit account will also be required to be done on separate loan

account basis.

Repayment of Packing Credit in excess of Export Value

In case there is a shortfall because of wastage involved in the processing of agro-

products like raw cashew nuts, etc. banks may allow exporters to pay off by

export bills drawn in respect of byproduct like cashew shell oil. etc.

In respect of export of agro-based products like tobacco, pepper, cardamom,

cashew nuts etc. the exporter has to purchase a larger quantity of raw

agricultural produce for grading it into exportable and non-exportable varieties.

Banks are required to charge commercial rate of interest applicable to the

domestic advance, on the packing credit covering such non-exportable portion,

from the date of advance of packing credit.

For exports of HPS groundnuts and de-oiled and defatted cakes, packing credit

can be granted upto the cost of raw material required even though the value of

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advance exceeds the value of export order. The advance in excess of export

order must be adjusted either in cash or by selling residual groundnuts or by-

product oil as soon as possible but within 30 days from the date of advance.

Relaxations granted in the area of Export Packing Credit

Reserve Bank has announced a few relaxations in operational aspects of export packing

credit as under:

(i) Banks may allow repayment of a packing credit with export documents relating to

any other order covering the same or any other commodity exported by the exporter,

(ii) The banks shall allow substitution of contract only when the substitution is

commercially necessary and unavoidable. . (iii) In case packing credit is availed of

from a consortium of banks, the substitution of the contract shall be allowed only with

the approval of the members of consortium, (iv) The relaxations are available both

under packing credit availed in rupees or in foreign currency, (v) The relaxation is

however, not extended to transactions of sister/ associate/group concerns.

(vi) The existing packing credit may also be marked off with export proceeds of

documents against which no packing credit has been drawn by the exporter.

Period of Advance

The period of packing credit advance is decided by the banks keeping in view the

various relevant factors of individual case like time required for procuring,

manufacturing or processing and shipping the relative goods.

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Security for Packing Credit Advances

The goods meant for expert form the primary security for the bank granting packing

credit advance. The form of charge may, however, change at different stages depending

upon the nature of exports. The packing credit may initially be clean at the time of

disbursement: may be covered by hypothecation charge over the raw material, semi-

finished and finished goods later: hypothecation charge be converted to pledge of

finished goods meant for exports or may even be covered by document of title to goods

(LR/RR) if the goods are sent for shipment to a port city. This aspect of security must

be discussed in detail with the bank in the initial stages itself so that operations in the

account are convenient.

Concept of Margin

The concept of margin in case of packing credit is actually linked with the value of

order/L/C and/or with value of security and different banks have their own standards in

this regard. The most accepted concept of margin in these accounts is as under:

Margin on export order/UC. This margin is applied on the value of

export order/letter of credit at the time of initial disbursement when

the packing credit may not be backed by security of goods. Usually

a high margin is stipulated in such cases.

A few banks sanction a sub-limit for such drawings by the exporters within the

overall packing credit limit sanctioned in their favour to restrict their

exposure towards unsecured advances.

Margin on security. This is usual margin as applicable to other advances backed

by security of goods such as cash credit accounts etc.

ECGC Guarantee

Most of the banks cover their packing credit advances under 'Packing Credit Guarantee'

of Export Credit Guarantee Corporation of India Ltd. (ECGC). ECGC issues packing

credit guarantees on each exporter individually and also has the system of issuing a

guarantee in favour of the bank on whole turnover basis.

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Premium on the guarantee is generally recovered from the exporter. The rates of

premium on individual guarantees are higher in comparison to rates on 'Whole

Turnover Packing Credit Guarantee' issued to banks. It is necessary to obtain this

information from the bank as cost of additional premium for individual guarantee may

sometimes be quite heavy depending upon the turnover in the account. Guarantees

issued by ECGC are in addition to various policies issued by ECGC in favour of

exporters to cover the risk of non-payment or other political risk involved in export

trade. Full details of these policies may be obtained from any office of ECGC.

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

Under this programme, short-term foreign currency finance is available to eligible

exporters for financing inputs for export production such as raw materials, components

and consumables. The finance is repayable in foreign currency from proceeds of the

relative exports.

FCPC programme represents another funding source to the exporter for expanding

export volumes, particularly of manufactured and value added goods. It eliminates two-

way exchange conversion costs and exchange risk, thus enhancing export

competitiveness. FCPC can be a cost effective funding source as compared to rupee

export credit as well as overseas supplier's credit depending on market conditions for

loans under FCPC. As far as commercial banks are concerned, loans availed of from

Exim Bank are exempt from Cash Reserve Ratio, Statutory Liquidity Ratio and

Incremental Credit-Deposit Ratio requirements.

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Export Credit for Supplies to Units in Special Economic Zone (SEZ)

As per EXIM Policy announced on 31.3.2003. goods and services being supplied to

SEZ from Domestic Tariff Area (DTA) shall be treated as exports and accordingly

supply to SEZ from DTA would be eligible for export credit facilities.

Export Credit against Advance Payments in the form of Cheques, Drafts etc.

(a) Banks may grant export credit at concessive interest rate to exporters of good track

record against cheques, drafts etc. which have been received by the exports as direct

remittances from abroad, in payment for exports. Such export credit may be granted till

the realisation of proceeds of the cheque, draft etc. Banks, however, must satisfy

themselves that the receipt of cheque, draft etc. is against an export order, as per the

trade practice and is an approved method of realisation of export proceeds as per extant

rules.

(b) If an exporter has been granted accommodation at normal interest rate, bank may

give effect to concessive export credit rate retrospectively once the aforesaid conditions

have been complied with and refund the difference to the exporter.

Rupee Preshipment Credit to Specific Sectors/Segments .

Export Packing credit may be granted by the Banks to manufacturer suppliers who do

not have export orders/letter of credit in their own name and goods are exported

through STC/MMTC or other export houses, agencies etc.

Banks are eligible for refinance for such advances if the following additional

requirements are complied with:

(a) A letter from expert house with details of export order and the portion to be

executed by the supplier.

(b) Certificate of the export house that no packing credit will be obtained by them with

respect to the above portion.

(c) Banks should apportion period of packing credit between the Export House and

supplier.

(d) Export House should open an inland L/C in favour of the supplier or the supplier

should draw bill on the export house.

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(e) Bank should also obtain an undertaking from the supplier that the advance

payment, if any, received from the export house against the export order would be

credited to the packing credit account.

Pre-shipment Credit to Construction Contractors

Salient features of this scheme are as under:

(i) Packing credit advances are granted to construction contractors to meet the initial

working capital requirement for execution of

contracts abroad.

(ii) An undertaking is obtained from the contractor that the finance is required by them

for incurring preliminary expenses e.g.. for transporting the necessary technical staff

and purchase of consumable articles etc.

(iii) Packing credit advances are made in separate accounts.

(iv) The advances should be adjusted within 180 days by negotiation of bills relating to

the contract or by remittances received from abroad in respect of contract executed

abroad. Banks may charge normal rate of interest on such unadjusted advances.

Pre-shipment Credit for Export of Consultancy Services

Consultancy firms engaged in export of consultancy services may avail suitable pre-

shipment credit facilities from the Banks. The other requirements in this regard are :

(i) Credits are granted to meet the expenses of the technical and other

staff employed for the project and purchase of any materials

required for the purpose and for export of computer software. (ii) Advance payments

received against the contract are taken into

account while deciding the pre-shipment facilities. (iii) Banks also issue suitable

guarantees to exporters of high value

consultancy services with large advance payments. (iv) All other usual conditions of

packing credit scheme are applicable.

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Pre-shipment credit to Floriculture, Grapes and other Agro-based Products

Normally, in the case of floriculture pre-shipment credits are allowed by banks for

purchase of cut-flowers, etc. and all post harvest expenses for making shipment.

In the case of floriculture, grapes and other agro-based products, banks now extend

concessional credit for working capital purposes in respect of export related activities

of all agro-based products including purchase of fertilizers, pesticides and other inputs

for growing of flowers, grapes etc. subject to the following conditions :

(i) The activities are necessarily export-related to the satisfaction of the bank;

(ii) Activities are not covered by direct/indirect finance schemes of NABARD or any

other agency.

(iii) All other normal terms and conditions relating to packing credit such as period,

quantum, liquidation etc. shall apply.

(iv) Export credit should not be granted for investments or any other item which cannot

be regarded as working capital.

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Export Credit to Processors/Exporters-Agri-Export Zones

'Agri Export Oriented Units (processing)' set up in 'Agri Export Zones' are provided

packing credit under the existing guidelines for procuring and supplying inputs to the

farmers. The other directions of RB1 in this regard are : (i) Banks may sanction the

lines of credit/export credit to processors/ exporters on the basis of inputs supplied by

them to farmers as raw material, (ii) Exporters must make required arrangements with

the farmers and

overseas buyers to the satisfaction of banks.

(iii) Banks have to monitor the end-use of funds and have to ensure that the final

products are exported by the processor/exporters as per terms/conditions of the

sanction.

It has been clarified that the above credit facilities are available to exporters of

Agricultural Products/Agri-Export Oriented Units (Processing) located outside the

Agri-Export Zones also under the extent export-credit guidelines.

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Negotiation/Purchase/Discount of Export Bills

It has already been emphasized that limits for the above facility must be got sanctioned

along with the packing credit limit to have smooth operations with the bank. Important

points which require attention of the exporters in this regard are discussed hereunder:

Q The export bills may be drawn either under an export letter of credit received in

favour of the exporter or against a confirmed export order. Bills drawn under L/C are

considered comparatively safer by banks as the guarantee of the foreign bank is

available and a few banks do not place any restrictions for such negotiations as long as

the documents do not contain any discrepancy. A few banks, however, sanction

separate limits for such negotiation also. The position in this regard will require

clarification at the time of making application for sanctioning of credit limits.

Sanctioning of proper limits for purchase/ discount of export bills drawn against export

order is a must in all the banks. Limit sanctioned for L/C bills will not normally be

allowed to be availed for non-L/C bills and proper assessment of limits in this regard

shall be made to avoid any difficulty at a later stage. Q The export bills may be drawn

either on D/P basis or on D/A basis. The documents under D/A bills are delivered

against acceptance and banks are not left with any security. The bills may similarly be

drawn either payable on demand or payable after a usance period. The realisation in

respect of demand bills will be quicker than for usance bills. The approach of the bank

while sanctioning facilities against usance D/A bills will be different as it would

amount to clean exposure V for the bank for a long time. Furthermore higher limits

will be required if the bills are drawn on usance basis. Banks will also not accept

usance bills for limits sanctioned against D/P demand bills. All these points must,

therefore, be kept in mind and application for the required limits must be made to the

bank after careful planning. Important terms and conditions on which these facilities

are generally granted are given here under:

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Operational Aspects of Negotiation/Purchase/Discount of Export Bills

Important operational aspects of (he above facility are given below :

• Enough care need to be given while preparing documents of export bill particularly if

the same is drawn under an L/C. The rights and obligations of the beneficiary under a

letter of credit are discussed in a separate chapter. It is necessary that all the documents

are drawn strictly in conformity with the terms of credit. If the export is not backed by

an L/C. the documents shall be drawn in conformity with the underlying sale contract

and it should be ensured that all exchange control regulations are fully complied with.

• After completion of shipment and preparation of necessary documents, the export bill

must be presented to the bank for negotiation/purchase/discount as the case may be.

The bill is to be presented to the bank within a maximum period of 21 days from the

date of shipment.

• The bank will convert the foreign currency amount of the bill at the lime of

negotiation/purchase at the relevant exchange rate and simultaneously recover interest

up to the notional due date as already explained. The proceeds of the bill will be first

utilized for adjustment of packing credit, if any. and the balance amount will be payable

to the exporter.

• The exporter must arrange fast processing of the bill at bank and ensure that the

documents are despatched to the foreign bank as soon as possible. The bank selected by

the exporter must have a very large network of foreign correspondents for expeditious

processing and realisation of export bills.

• The bill will be realised by the bank through its foreign currency account maintained

at a foreign centre and the exporter must pay interest to the bank only upto the day the

foreign currency amount is credited in that account. The realisation advice by the

branch which handled the export bill may be received late but it shall indicate the 'value

date' on which the foreign currency was realised by the bank.

If the 'value date' is earlier than the notional due date bank should allow refund of

interest already charged in excess. If the 'value date' is after the notional date, the bank

will recover interest for additional period as per rules already stated.

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• If the bill is not realised within 30 days counted from (he notional due date, the bank

will convert the rupee amount back into foreign currency and shall transfer the advance

to a separate head i.e. 'Overdue Export-Bills Realisation A/c.' The exchange risk will

now be open against exporter and the conversion as above will also be normally against

the exporter. It is, therefore, necessary that the exporter must ensure prompt realisation

of export bills negotiated with banks. This system is termed as 'Crystallisation' of

export bills.

Delay in realisation of export bills may not only result into charging of higher interest

but may also result in exchange loss at the time of crystallisation. Delay may normally

occur in case of DP shipments where documents reach earlier than the actual cargo,

particularly for shipments from inland containers depot. As per the normal trade

practice, the buyer makes the payment only after the goods have reached the destination

and the actual journey period may be more than the normal transit period as fixed by

FEDAI. In such circumstances the bills become overdue calling for penal interest and

crystallisation. In such circumstances exporter may draw usance bills under DP terms

so that the bills are paid by the buyer within the notional due date as per the terms and

tenor of the bill. In such an eventuality, the bank will charge interest rates as applicable

to usance bills and incidence of overdues and consequent penal interest/ crystallisation

may be minimised and DP terms will also be retained.

23

Normal Transit Period : Foreign Exchange Dealers Association of India with

the approval of Reserve Bank of India has fixed transit period for export bills

drawn in foreign currencies as well as Indian rupees known as Normal Transit

1'eriod (NTP). This transit period comprises the average period normally

involved from the date of negotiation/purchase/discount till the receipt of bill

proceeds in the Nostro account of the bank.

Notional Due Date : To determine the due date of an export bill we have to

consider the following components : (i) Normal transit period as fixed by

FEDAI. (ii) Usance period of the bill.

The notional due date of an export bill may thus be calculated after adding both the

above components.

The concessional rate of interest is chargeable upto the notional due date subject to a

maximum of 90 days. Let us consider the following two examples to illustrate this

point.

(i) US $ bill payable on demand on USA.

For this bill

Normal Transit Period 25 days

Usance Period Nil

Total 25 days

The notional due date will fall after 25 days and interest at the prescribed rate of the

bank concerned will also be charged up to a maximum period of 25 days.

(ii) 90 days US $ bill on Japan For this bill

Normal Transit Period 25 days

Usance period 90 days

Total 115 days

The notional due date in this case will fall after 115 days and interest at the prescribed

rate of the bank concerned shall be charged for first 90 days and higher rate as

prescribed shall be charged from 91st to 115 days.

Fixed Due Date : In case of export usance bills where due dates are reckoned from date

of shipment or date of bill of exchange etc. no Normal Transit Period shall be

applicable since the actual due date is known.

24

The post shipment advance granted by the banks should be realised only from the

proceeds of export bills/claims under duty drawback as the case may be. If local funds

are utilised for adjustment, the advance will not be considered as an export credit from

the date of advance itself and will be subject to normal interest rate applicable to

commercial credit plus penal interest.

As per the present procedure, no separate claim of duty drawback is to be filed by the

exporter. A copy of the shipping bill presented by the exporter at the time of making

shipment of goods serves the purpose of claim of duly drawback as well. This claim is

provisionally accepted by the customs al the time of shipment and the shipping bill is

duly verified. The claim is settled by customs office later.

As a further incentive to exporters Customs Houses al Mumbai. Kolkata. Chennai.

Chandigarh. Hyderabad have evolved a simplified procedure under which claims of

duty drawback arc settled immediately after shipment and no funds of exporter are

blocked. However, where settlement is not possible under the simplified procedure

exporters may obtain advances against claims of duly drawback as provisionally

certified by customs.

Banks grant post-shipment advances to exporters against their duty drawback

entitlements on the following basis:

(i) against provisionally certified amounts of entitlements by Customs Authorities

pending final sanction or

(ii) against export promotion copy of the shipping bill containing the EGM number

issued by the Customs Department.

These advances are eligible for concessional rate of interest up to a maximum period of

90 days.

EXPORT CREDIT IN FOREIGN CURRENCY

25

Discounting/Rediscounting of Bills Abroad

With the introduction of scheme of discounting/re-discounting of export bills abroad a

new window has been opened for allowing post-shipment credit to exporters at

internationally competitive interest rates. The method of extending post-shipment credit

under all other existing schemes will continue

this scheme. The salient features of this scheme are as under :(i) The scheme mainly

covers export bills with usance period upto 180 days from the date of shipment

(inclusive of normal transit period and grace period if any). Demand bills can also be

included if overseas institutions providing discounting/rediscounting facilities have no

objections to it. Rediscounting of bills having payment terms beyond 180 days will

require prior approval from RBI.

(ii) The facility under the scheme is available in all convertible currencies.

(iii)Banks may arrange rediscounting facilities with foreign banks/other institutions and

have been permitted to arrange necessary lines of credit (EBR).

(iv) The discounting/rediscounting facility is permitted "with recourse"

or "without recourse" as per the arrangement.

(v)Banks are also permitted to hold export bills in their own portfolio without

rediscounting or may utilize the foreign exchange resources available with them in

EEFC accounts/RFC accounts/FCNRB accounts for discounting usance bills or may

discount them in local market/under 'Bankers Acceptance Facility (BAF).

(vi) In the case of demand bills hanks may even grunt foreign exchange loans to the

exporters from out of the foreign currency balances available with them.

(vii) The lending rate to the exporter should not exceed 0.75% over LIBOR/EURO

LIBOR/EUROIBOR.

(viii) The proceeds of the bill in foreign currency may be utilised to adjust PCFC or

rupee value of the discounted bill may be utilised to liquidate the outstanding

packing credit.

(ix) There will be no change in the method of crystallisation in case of overdue

26

bills. Interest at 2% above the rate of discounting shall be charged from the due

date till the date of crystallization.

(x) Interest rate as per RBl's interest rate directive for post-shipment

credit in rupees will be applicable from the date of crystallization.

(xi) There will be no change in the existing system of coverage provided

by ECGC.

(xii) The exporters, on their own, can arrange for themselves a line of credit with

an overseas bank or any other agency (including a factoring agency) for

discounting their export bills direct subject to the following terms and conditions:

(a) Direct discounting of export bills will only be permitted through the designated

branch of an authorised dealer.

(b) Discoursing of export bills will be routed through designated bank/authorised

dealer from whom the packing credit facility has been availed of. In case, these are

routed through any other bank, that bank will have to first arrange to adjust the amount

of packing credit outstanding with the concerned bank.

(c) The rate of remuneration to the bank handling export bills is to

be decided between bank and the exporter.

(xiii) Banks may also extend export Bills Rediscounting facility for exports 10 ACU

countries.

PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY (PCFC)

27

With a view to provide pre-shipment credit to Indian exporters at internationally

competitive rates of interest Reserve Bank of India has permitted Banks in India to

provide Pre-shipment Credit in Foreign Currency (PCFC). -The PCFC scheme will be

in addition to normal packing credit schemes in Indian rupees presently available to

Indian exporters. [The exporter will now have the following options for availing export

finance :

(a) to avail of pre-shipment credit in rupees and then the post-shipment credit either in

rupees or discounting/rediscounting of export bills under EBR Scheme.

(b) to avail of pre-shipment credit in foreign currency and discount/ rediscounting of

the export bills in foreign currency under EBR scheme.

c) 10 avail of pre-shipment credit in foreign currency and then repay/ pit-pay it out of

balances in EEFC A/c or rupees resources.

d) to avail of pre-shipment credit in rupees and then convert drawals into PCFC at the

discretion of the banks.]

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Deemed Exports

PCFC can also be extended for 'deemed exports' for supplies to projects financed by

multilateral/bilateral agencies/funds. This should be liquidated by grant of foreign

currency loan at post-supply stage, for a maximum period of 30 days or up to the date

of payment by the project authorities, whichever is earlier.

Sharing of Export Credit under PCFC Scheme

PCFC can now be availed by the manufacturer on the basis of disclaimer from the

export order holder in the same way as permitted under rupee credit scheme. PCFC

granted to the manufacturer will be adjusted by transferring foreign currency from the

export order holder.

PCFC for Supplies from one EOU/EPZ/SEZ Unit to another EOU/EPZ/SEZ Unit

Supplies made to EOUs/EPZ/SEZ Units are treated as Deemed Exports and Reserve

Bank of India has permitted granting PCFC both to the supplier EOU/ EPZ/SEZ unit

and the receiver EOU/EPZ/SEZ unit. PCFC for supplier EOU/ EPZ/SEZ unit will be

for supply of raw material/components for goods which will be further processed and

finally exported by receiver EOU/EPZ/SEZ unit. The PCFC extended to a supplier

EOU/EPZ/SEZ unit will have to be liquidated by receipt of foreign exchange form the

receiver EOU/EPZ/SEZ unit, for which purpose, the receiver EOU/EPZ/SEZ Unit can

avail of PCFC. The stipulation regarding liquidation of PCFC by payment in foreign

exchange will be met in such cases not by negotiation of export documents but by

transfer of foreign exchange from the banker of the receiver EOU/EPZ/SEZ unit to the

banker of supplier EOU/EPZ/SEZ unit.

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

export bills as per general procedure in this regard. Furthermore such transaction will

be treated as exports for the supplier unit and import for the receiving unit.

Simplification of Procedure for Delivery of Export Credit

29

The Reserve Bank of India has issued from time to time, various instructions and

guidelines relating to customer service, simplification of procedures for delivery of

export credit. These instructions have been updated vide Master Circular No. IECD

6/04.02.02/2002-03 dated 30.7.2002. Salient features of the same are given below.

A. Simplification of Procedures

(i) Banks should simplify the Application Form and reduce data requirements from

exporters for assessment of their credit needs, so that exporters do not have to seek

outside professional help to fill in the Application Form or to furnish data required by

the bank, (ii) Banks should adopt any of the methods, viz. Projected Balance Sheet

method, Turnover method or Cash Budget method, for assessment of working capital

requirements of their exporter-customers, whichever is most suitable and appropriate to

their business operations, (iii) In the case of Consortium Finance, once the consortium

has approved the assessment, member banks should simultaneously initiate their

respective sanction processes.

B. 'On Line' Credit to Exporters

(i) Banks provide 'Line of Credit' normally for one year which is re vie wed annually.

In case of delay in renewal, the sanctioned limits should be allowed to continue

uninterrupted and urgent requirements of exporters should be met on ad hoc basis.

(ii) In case of established exporters having satisfactory track record, bunks should

consider sanctioning a 'Line of Credit' for a longer period, say 3 years, with iri-built

flexibility to step-up/step-down the quantum of limits within the overall outer limits

assessed. The step-up limits will become operative on attainment of pre-determined

performance parameters by the exporters. Banks should obtain security documents

covering the outer limit sanctioned to the exporters for such longer period.

(iii) In case of export of seasonal commodities, agro-based products etc., banks should

sanction Peak/Non-peak credit facilities to exporters.

(iv) Banks should permit interchangeability of pre-shipment and post-shipment credit

limits.

(v) Term Loan requirements for expansion of capacity, modernization of machinery

and up gradation of technology should also be met by banks at their normal rate of

interest.

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(vi) Assessment of export credit limits should be 'need based' and not directly linked to

the availability of collateral security. As long as the requirement of credit limit is

justified on the basis of the exporter's performance and track record, the credit should

not be denied merely on the grounds of non-availability of collateral security.

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

(i) Banks should not insist on submission of export order or L/C for every disbursement

of pro-shipment credit, from exporters with consistently good track record. Instead, a

system of periodical submission of a Statement of L/Cs or export orders in hand, should

be introduced.

(ii) In respect of exporters with good track record, banks may follow the system of

obtaining periodical statement of outstanding orders/LCs on hand and waive the

requirement of submission of order/LC. This should be brought to the notice of ECGC

and should be incorporated in the sanction proposals and sanction letters. If such

waivers are permitted after sanction of export credit limits, the same may be

incorporated in the terms of sanction by way of amendments and communicated to

ECGC.

D. Handling of Export Documents

Banks are required to obtain, among others, original sale contract/ confirmed

order/proforma invoice countersigned by overseas buyer/indent from authorized agent

of overseas buyer for handling the export documents as per Exchange Control

regulations. Submission of such documents need not be insisted upon at the time of

handling the export documents, since the goods have already been valued and cleared

by the Customs authorities, except in the case of transactions with Letter of Credit

(L/C) where the terms of L/C require submission of the sale contract/other alternative

documents.

E. Fast Track Clearance of Export Credit

(i) At specialized branches and branches having sizeable export business, a facilitation

mechanism for assisting exporter-customers should be put in place for quick initial

scrutiny of credit application and for discussions for seeking additional information or

clarifications,

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(ii) Banks should streamline their internal systems and procedures to comply with the

stipulated time limits for disposal of export credit proposals and also endeavour to

dispose of export credit proposals ahead of the prescribed time schedule. A flow chart

indicating chronological movement of Credit Application from the date of receipt till

the date of sanction, should also accompany credit proposals,

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

for export credit.

(iv) Banks should consider reducing at least some of the intervening layers in the

sanctioning process. It would be desirable to ensure that the total number of layers

involved in decision-making in regard to export finance does not exceed three.

(v) Banks should introduce a system of 'Joint Appraisal' by officials at

branches and administrative offices, to facilitiate quicker processing of

Export Credit proposals.

(vi)Where feasible, banks should set up a Credit Committee'at specialized

branches and at administrative offices, for sanctioning working capital

facilities to exporters. The 'Credit Committee' should have sufficiently higher

sanctioning powers.

F. Publicity and Training

Generally, export credit at internationally competitive rates is made available in foreign

currency at select branches of banks. In order to make the Scheme more popular, wide

publicity should be given by banks and more number of branches should be designated

for making available export credit in foreign currency. Officers at operating level

should be provided with adequate training.

G. Time Limit for Sanction

The sanction of fresh/enhanced export credit limits should be made within 45 days

from the date of receipt of credit limit application with the required details and

supported by the requisite statements. In case of renewal of limits and sanction of ad

hoc credit facilities, the time taken by banks should not exceed 30 days and 15 days

respectively.

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H. Ad hoc Limits

(i) Banks should respond to a situation promptly when exporters require ad hoc limits

to take care of large export orders which were not foreseen earlier. Banks should also

adopt a flexible approach in respect of exporters, who for genuine reasons could not

bring in corresponding additional contribution in respect of higher credit limits sought

for specific orders. No additional interest is to be charged in respect of such ad hoc

limits.

(ii) Banks are advised to adopt a flexible approach in negotiating the bills drawn

against L/Cs in case of exporters who have fully utilized the export credit limits. In

such cases banks should delegate discretionary/higher sanctioning powers to branch

managers to meet the credit requirement of exporters. Branches should also be

authorised to disburse a certain percentage of the enhanced/ad hoc limits, pending

sanction by the higher authorities/board/committee who had originally accorded

sanctions.

FORWARD EXCHANGE CONTRACTS

(i) Banks are permitted to allow an exporter to book forward contract on

the basis of confirmed export order prior to availing of PCFC and

cancel the contract (for portion of drawal used for imported inputs) at

prevailing market rates on availing of PCFC.

(ii) Banks also allow customers to seek cover in any permitted currency

of their choice which is actively traded in the market, subject to

ensuring that the customer is exposed to exchange risk in a permitted

currency in the underlying transaction.

(iii) Forward contracts can be allowed only on compliance of exchange control

requirement.

33

EXPORT GUARANTEES

Bid Bonds and Performance Bonds or Guarantees for Exports

(i) Exchange Control Stipulations

In terms of Notification No. FEMA/8/2000-RB, dated 3rd May 2000, authorized

dealers have the permission to give performance bond or guarantee in favour of

overseas buyers on account of bonafide exports from India.

Prior approval of RBI should be obtained by the authorized dealers for issue of

performance bonds/guarantees in respect of caution listed exporters.

Before issuing any such guarantees, they should satisfy themselves with the bona fides

of the applicant and his capacity to perform the contract and also that the value of the

bid/guarantee as a percentage of the value of the contract/lender is reasonable and

according to the normal practice in international trade and that the terms of the contract

are in accordance with the Exchange Control Regulations.

Authorized dealers, may also, subject to what has been stated above, issue counter-

guarantees in favour of their branches/correspondents abroad in cover of guarantees

required to be issued by the latter on behalf of Indian exporters in cases where

guarantees of only resident banks are acceptable to overseas buyers in accordance with

local laws/regulations.

If and when the bond/guarantee is invoked authorized dealers may make payments due

there under to non-resident beneficiaries but a report should be sent to RBI where the

amount of the remittance exceeds US $ 5,000 or its equivalent.

(ii) Other Stipulations

With a view to boost exports, banks should adopt a flexible approach in the matter of

obtaining cover and earmarking of assets/credit limits, drawing power, while issuing

bid bonds and performance guarantees for export purposes. Banks may, however,

safeguard their interests by obtaining an Export Performance Guarantee of ECGC,

wherever considered necessary.

34

Export Credit & Guarantee Corporation (ECGC) would provide 90 per cent cover for

bid bonds, provided the banks give an undertaking not to insist on cash margins.

The banks may not, therefore, ask for any cash margin in respect of bid bonds and

guarantees which are counter-guaranteed by ECGC.

In other cases, where such counter-guarantees of ECGC are not available, for whatever

reasons, the banks may stipulate a reasonable cash margin only where it is considered

absolutely necessary, as they satisfy themselves generally about the capacity and

financial position of the exporter while issuing such bid bonds/guarantees.

Banks may consider sanctioning separate limits for issue of bid bonds. Within the

limits so sanctioned, bid bonds against individual contracts may be issued, subject to

usual considerations.

As per FEDAI Rules, the banks may refund 50 per cent of the commission received by

them on the bid bonds which are cancelled due to non-acceptance of tender.

35

K.M. Ganatra Company Profile

Executives:

Mr. Sameer Ganatra (CEO)

Mr. Lalit Ganatra (Senior Partner)

Ms. Rashmi Ganatra (Partner)

Ms. Lata Ganatra (Partner)

Ms. Aditee Ganatra (Chief Executive)

Mr. Amit Ganatra (Chief Executive)

Mr. B. K. Ganatra (Chief Executive)

Activities:

Exporter & Importer of Agro Products like Spices & Seeds (Whole & Ground), Sesame

Seeds (Hulled, White, Black, Yellow and Crushing), Edible Nuts (Peanuts, Cashew and

Walnuts), Processed Pulses (Beans, Lentils and Peas), Cereals and Grains, Medicinal &

Botanical Herbs, Roots, Bark and Crude Drugs.

Export countries: Worldwide

Import regions: Asia, America

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

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

Banks: State Bank of Bikaner & Jaipur

No.of Employees: 22

36

No.of Employees in the Company: 22

Year Established 1952

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

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

Nuts, Pulses, Beans & Cereals and Dehydrates since 1952. We serve a large range

of industry within our product mix, which allows us to maintain leadership position

and keeps us technically ahead enabling us retain the trust of our business partners.

The true testimony of our business is sustained growth in every major market. We have

truly attained the tagline of “Reliable Contract Shippers” by our customers. Today we

serve customers in as diverse markets across the continents.

The “Sourcing” network along with “Processing Expertise” ensures the customers

that every shipment meets the “Regulatory” and their “Internal Quality

Requirements” competitively. Our consolidated volumes through the whole supply

chain give us the “Bargaining” capability giving us the “Competitive Price

Advantage”. We have the resources to fulfill the needs of most discerning customers.

Our “Value Niche” is transparent and informed communications – enabling you to

make the right decisions and our contracts Guarantees 100% Performance. Our

business approach is “Simple and Modest, Ethical and Honest.”

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Products offered by us are “Well Cleaned, Sifted, Color Sorted, Hand-picked and

Ground” meeting your specific needs. Technical information can be provided on

request.

Spices Seed-

Spices

Seeds & Nuts Pulses & Cereals Dehydrates

Chilies Celery Sesame Hulled Lentils Onion Kibbled

Turmeric Coriander Sesame

Natural

Chick Peas Onion Chopped

Nutmeg Cumin Sesame

Crushing

Split Peas / Beans Onion Minced

Curry Powder Dill Peanuts Nyjer / Niger Onion Granules

Ginger Fennel Cashew Nuts Safflower Onion Ground

Cardamom Fenugreek Walnuts Millets & Sorghum Garlic Ground

We sincerely believe we can make difference in your procurement

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Export Procedure.

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

important to the exporter and importer, but it is also of concern to their

respective countries, since it affects the balance of payments position of both

the countries. The exporter is required to produce copies of export order to

various government departments/financial institutions e.g. obtaining export

licenses when the product is covered under the restricted items for exports.

3. Order Acceptance – Under this the exporter commits the shipment of goods

covered at the agreed price during a specified time. The order acceptance

normally covers the name and address of the indentor, name and address of the

consignee, port of shipment, country of final destination, the description of

goods, quantity, price each and total amount of the order, terms of delivery ,

details of freight and insurance mode of transport etc.

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

goods consigned, consignor’s name, consignee’s name, name of the steamer,

number and date of bill of lading, date of sailing, order acceptance or contract

number and date, country of origin, marks and number of packages, quantity

shipped selling price to the buyer for each unit.

5. Goods to contract at docs - Goods which are ordered as per the contract

between the buyer and seller are then taken to the docs for completing the legal

formalities.

6. Custom Examination – Once the goods have entered the docs they have to

pass through customs examination where it is verified whether the goods which

are to be sailed match with the goods described in the invoice.

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

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

sailed.

39

8. Mate’s Receipt – After the goods are loaded on the ship, the captain of the ship

issues mate’s receipt i.e. clarifying that goods are in proper condition.

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

acknowledging the receipt of goods mentioned in bill for shipment on board the

vessel and undertaking to deliver the goods to the consignee.

10. Document Negotiation – After the goods are shipped from exporters place, the

exporter sends all the necessary documents to his bank, so that he gets the

payment for the goods exported.

40

EXPORT PROMOTION

EXPORT DEVELOPMENT SCHEMES

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

Introduction

This scheme proposes to assist exporters to print promotional brochures/folders on

spices/spice products for distribution in the overseas markets. Assistance is limited to

manufacturer-exporters whose products have been awarded with Spices Board Logo

and/or Spice House Certificate or organic certificate holders.

Scale of Assistance

Assistance is granted to the tune of 50% of the cost of printing of promotional

brochures subject to a maximum of Rs. 2 Lakhs for the plan period.

Guidelines for availing assistance under the scheme – “Reimbursement of

Freight/Courier Charges for sending samples of spices abroad”

Introduction

Sending business samples abroad is inevitable for developing export business. Hence as

a part of export promotion, spices exporters having adequate processing facilities to

supply quality spices/products are assisted for sending samples to overseas buyers.

Under the scheme reimbursement of courier charges for sending business samples of

spices/spice products for business promotion abroad, is provided. Assistance is limited

to manufacturer - exporters whose products have been awarded with Spices Board

Logo and/or the Spice House Certificate holders and also to certified growers of

organic spices, who hold certificate of registration as exporter of spices.

Scale of Assistance

Assistance is granted in the form of reimbursement of the cost of airfreight /courier

charges for sending samples of spices to the buyers abroad, to the extent of 50% of the

total cost subject to a maximum of Rs. 50,000/- per year per exporter.

41

Guidelines for availing Stall Rent Assistance for Participation in International

Food / Trade Fairs

The objective of the scheme is intended to provide financial assistance to the exporters

of spices for meeting the cost of the stall rent during their participation in International

Food/Trade Fairs.

Eligibility:

All the registered exporters with the Board are eligible to avail the scheme. The

exporters who intend to avail of the assistance should get prior approval of the Board

by applying in the prescribed form along with details about the fair, proposed to

participate. The exporters can participate in the fair during the 10th plan period, subject

to the ceiling of financial assistance stipulated per year.

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

Introduction

Scientific packaging with aesthetic appeal is essential for building product image and

better preservation of the product. Good packaging adds value to the product and

attracts the consumers. This scheme aims to support exporters to develop innovative

package for consumer packed spices/spice products and adoption of Bar-code on

consumer packs of spices/spice products.

Scale of assistance

For developing innovative package for spice products and cost of adoption on bar-code

on consumer packs of spices/spice products, a grant-in-aid to the tune of 50% of the

cost of developing new package and 50% of the cost of bar-code registration and cost

of bar-code adoption for the consumer packs of spices/spice products subject to a

ceiling of Rs.1 lakh per exporter during the plan period is provided under the scheme.

The cost component would include consultancy charges, design and artwork charges,

cost of photography and Bar-code registration fee, bar-coding cost etc.

42

Guidelines for grant-in-aid for “Undertaking Export Promotion Tours in

Identified Markets Abroad”

The objective of the scheme is to encourage the Indian exporters to develop personal

rapport with the overseas buyers and to build business relationship with the importers

besides convincing them about the product capabilities achieved in the areas of spice

processing/value addition in terms of quality in India.

Eligibility

The exporters of spices who have obtained Indian Spices Logo and/or Spice House

Certificate issued by the Board and those exporters whose brand name has/have been

registered with the Board are eligible to avail assistance under this scheme. The

exporters can undertake the tour for one or more purposes mentioned in a year during

the Xth plan period subject to the ceiling of financial assistance stipulated.

Nature of Assistance:

Assistance in the form of reimbursement of travel expenses and stall rent etc. in Indian

currency for undertaking the export promotion tour abroad. The financial assistance

will be limited to 50% of the economy class airfare or Rs.1.50 lakh whichever is less in

the case of Spices Logo/Spice House Certificate holders and Rs.40,000/-in the case of

exporters whose brand/s is/are registered with the Board.

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Adoption of High-Tech Processes

The programme is intended to:

Improve the share of higher-end value addition and to ensure increased

export values even with stagnant or marginally increasing exports in bulk

form

Protect the level of export volume achieved so far, from severe

international competition, by offering better quality bulk products

Provide necessary linkages to production development programmes

Support creation of infrastructure in processing units to monitor quality

parameters and to have the processes certified by appropriate agencies

Provide necessary linkages to other critical programmes viz. Indian Spice

Brand Promotion, and

Provide special support to spice processing in the highly promising but

underdeveloped, North Eastern and Hill States.

44

Quality Upgradation

Under this sub-component, projects for setting up/up gradation of in-house quality

laboratories and accreditation of quality certifications under ISO, HACCP, SQF 2000

etc. would be eligible for assistance.

Assistance will be to the tune of 33% of the cost subject to a maximum of Rs.75.00

lakhs per unit for the various components of the scheme during the plan period. In the

case of units in North East/Hill Areas/Organization of organic farmers, the rate of

subsidy is 50% subject to a maximum of Rs.150.00 lakhs.

Participation in International Meetings/Seminars, Trade Fairs

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

relating to the spice industry. Spices Board regularly participates in annual

conventions/meetings of organizations such as American Spice Trade Association

(ASTA), European Spice Association (ESA), International Pepper Community (IPC)

and International Organization of Spice Trade Association (IOSTA).

Spices Board directly participates in 8-10 international food fairs every year to show

case Indian spices and spice products. Exporters who are willing to participate in such

fairs through Board’s stall also encouraged to do so on payment of a fee of U.S.$.200.

Spices Board also organizes cooking demonstrations in major buying countries in

collaboration with leading restaurants, super bazaars and food chains and participate in

food festivals to promote Indian cuisine. Special campaigns are also proposed to

promote use of spices for its medicinal/ nutritional values.

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Export Oriented Processing of Spices in North East/Special Areas

North East and Hill States have the potential to become major spice exporting centres if

adequate processing facilities are set up in these areas. The programme involves

assistance for setting up spice processing units including processing of organic spices,

up gradation of existing units if any, setting up/ up gradation of quality control labs in

these units, logo certification of the units, setting up of packaging facilities &

packaging development for the branded spice products and market promotion measures

for branded organic products.

33% of the project cost (plant and machinery) with a ceiling of Rs.25.00 lakhs during

plan period will be available to spice growers’ co-operatives, farmers’ association,

NGOs representing spice growers and individual entrepreneurs in North Eastern and

special areas. The assistance will be increased to 50% with a ceiling of Rs.35.00 lakhs

in the case of farmers’ group including organic spice growers with minimum of 50

members.

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EXPORT INCENTIVES

1.)Advance Licence

An Advance Licence is issued under Duty Exemption Scheme to allow import of inputs

which are physically incorporated in the export product (making normal allowance for

wastage). In addition, fuel, oil, energy, catalysts etc. which are consumed in the course

of their use to obtain the export product, may also be allowed under the scheme.

Advance

Licence can be issued for:-

a. Physical exports

b. Intermediate supplies

c. Deemed exports.

Duty Remission Scheme consists of

a. Duty Free Replenishment Certificate and

b. Duty Entitlement Passbook Scheme.

The scheme allows drawback of import charges on inputs used in the export

product (making normal allowance for the wastage).

In general units primarily engaged in production of domestic market can also get

required inputs free of duty for executing an export order under the duty exemption

scheme for which they are required to execute a bond with customs authorities and

are required to fulfill the export obligation.

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2.) Duty Entitlement Passbook Scheme

For exporters not desirous of going through the licensing route, an optional facility is

given under DEPB. The objective of Duty Entitlement Passbook Scheme is to

neutralize the incidence of Customs duty on the import content of the export product.

The neutralisation shall be provided by way of grant of duty credit against the export

product.

Under the Duty Entitlement Passbook Scheme (DEPB), an exporter may apply for

credit, as a specified percentage of FOB value of exports, made in freely convertible

currency. The credit shall be available against such export products and at such rates as

may be specified by the Director General of Foreign Trade by way of public notice

issued in this behalf, for import of raw materials, intermediates, components, parts,

packaging material etc.

The holder of Duty Entitlement Passbook Scheme (DEPB) shall have the option to pay

additional customs duty, if any, in cash as well.

Under the scheme Exporters are granted duty credits on the basis of pre notified

entitlement rates which will allow them to import input duty free

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

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3.) MARKET ACCESS INITIATIVE (MAI) SCHEME

Scheme

Market Access Initiative (MAI) Scheme is an Export Promotion Scheme envisaged to

act as a catalyst to promote India's exports on a sustained basis, during the 10th five

year Plan. The scheme is formulated on focus product- focus country approach to

evolve specific strategy for specific market and specific product through market

studies/survey. Assistance would be provide to Export Promotion Organizations/ Trade

Promotion Organizations / Exporters etc. for enhancement of export through accessing

new markets or through increasing the share in the existing markets. Under the Scheme

the level of assistance for each eligible activities has been fixed.

Details of approved purposes for the scheme and level of assistance

Market Study

Assistance would be provided for undertaking a market study of a particular market(s)

for a particular product to have in depth analysis and to evolve a proper marketing

strategy for greater market access as per the needs of that particular market.

Professional consultants will be employed to undertake marketing studies and Indian

Diplomatic Missions in the target countries would be associated with such studies.

Such studies could be approved as a first step of a marketing project and the findings/

recommendations would be the basis for further activities to be taken for greater market

access. The Eligible Agencies will ensure the involvement of consultant appointed for

surveys/studies during the execution of the project also for smooth implementation.

Level of assistance: For market studies grant assistance of

75% of the total cost would be provided under the Scheme and the rest i.e. 25% would

be borne by the Eligible Agencies. However, for studies assigned by the

D/Commerce for the cause of export promotion, 100% assistance would be provided.

The assistance for studies would be subject to a ceiling of Rs.75.00 lakh/each study.

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4.) MARKET DEVELOPMENT ASSISTANCE (MDA)

Assistance to individual exporters for export promotion activities abroad.

(i) All exporters for bonafide overseas marketing promotion activities to explore

new markets for export of their specific product(s) and commodities from India

in the initial phase are eligible for assistance under MDA scheme in undertaking

following activities abroad:

 

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

2)      Participation in trade fair/exhibition

3)      Publicity through printed material

 

(ii) Maximum number of permissible sale cum study tours and/or participation in

fairs/exhibitions are two in a financial year. One additional activity, either sale

cum study tour or participation in trade fair/exhibition in the Latin American

Countries would also be permissible in a financial year.

 

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

through Federation of Indian Export Organizations (FIEO) and other exporters

would be provided assistance through concerned EPCs, Commodity Boards,

APEDA & MPEDA.

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ECGC (Export Credit Guarantee Corporation)

Export Credit Guarantee Corporation of India Limited was established in the year 1957

by the Government of India to strengthen the export promotion drive by covering the

risk of exporting on credit.

Being essentially an export promotion organisation, it functions under the

administrative control of the Ministry of Commerce, Government of India. It is

managed by a Board of Directors comprising representatives of the Government,

Reserve Bank of India, banking, insurance and exporting community. ECGC is the fifth

largest credit insurer of the world in terms of coverage of national exports. The present

paid-up capital of the company is Rs.500 crores and authorised capital Rs. 1000 crores.

The paid-up capital is expected to be enhanced to Rs.800 crores.

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

export of goods and services

It offers guarantees to banks and financial institutions to enable exporters obtain

better facilities from them

It provides Overseas Investment Insurance to Indian companies investing in

joint ventures abroad in the form of equity or loan.

ECGC helps Exporters in following ways.

offers insurance protection to exporters against payment risks

provides guidance in export-related activities

makes available information on different countries with its own credit ratings

makes it easy to obtain export finance from banks/financial institutions

assists exporters in recovering bad debts

information on credit-worthiness of overseas buyers

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Different types of policies offered by ECGC

1.) Standard Policy

Under the Standard Policy, ECGC covers, from the date of shipment, the following

risks:

a. Commercial risks

Insolvency of the buyer

Failure of the buyer to make the payment due within a specified period,

normally four months from the due date.

Buyer's failure to accept the goods, subject to certain conditions

 

b. Political risks

Imposition of restriction by the Government of the buyer's country or any

Government action, which may block or delay the transfer of payment made by

the buyer.

War, civil war, revolution or civil disturbances in the buyer's country.

New import restrictions or cancellation of a valid import license in the buyer's

country.

Interruption or diversion of voyage outside India resulting in payment of

additional freight or insurance charges which can not be recovered from the

buyer.

Any other cause of loss occurring outside India not normally insured by general

insurers, and beyond the control of both the exporter and the buyer.

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2.) Small Exporter’s Policy

The Small Exporter's Policy is basically the Standard Policy, incorporating certain

improvements in terms of cover, in order to encourage small exporters to obtain and

operate the policy. It is issued to exporters whose anticipated export turnover for the

period of one year does not exceed Rs.50 lac.

3.) Specific Shipment Policy

Specific Shipment Policies - Short Term (SSP-ST) provide cover to Indian exporters

against commercial and political risks involved in export of goods on short-term credit

not exceeding 180 days. Exporters can take cover under these policies for either a

shipment or a few shipments to a buyer under a contract. These policies can be availed

of by (i) exporters who do not hold SCR Policy and (ii) by exporters having SCR

Policy, in respect of shipments permitted to be excluded from the purview of the SCR

Policy.

Various Types.

(a) Specific Shipments (commercial and political risks) Policy - short-term

(b) Specific Shipments (political risks) Policy - short-term

(c) Specific Shipments (insolvency & default of L/C opening bank and political risks)

Policy-short-term.

4.) Buyer wise Policies

Buyer wise Policies - Short Term (BP-ST) provide cover to Indian exporters against

commercial and political risks involved in export of goods on short-term credit to a

particular buyer. All shipments to the buyer in respect of whom the policy is issued will

have to be covered (with a provision to permit exclusion of shipments under LC).

These policies can be availed of by (i) exporters who do not hold SCR Policy and (ii)

by exporters having SCR Policy, in case all the shipments to the buyer in question have

been permitted to be excluded from the purview of the SCR Policy.

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Common methods of payment include:

1.) Clean payment

This is the most common method and is used when both parties know each other well.

The process is fast and reliable, depending on the credit worthiness of the importer. The

bank carries out the transactions through a swift electronic data system and the transfer

costs are not very high.

2.) Documents against payment (D/P)

Also known as cash against documents (CAD). The buyer takes possession of the

goods only after payment. Although this method is not very popular, it is very safe and

the costs about one pro mille. One can also make use of documents against acceptance

of a bill of exchange, but this bill of exchange is not commonly used in the EU and it

does not guarantee that the bill will be paid. It is therefore less secure than the D/P.

3.) Letter of credit (LC)

The irrevocable LC is very often used at the beginning of a business relationship when

the importer and exporter do not yet know each other very well. The LC is irrevocable

and will always be paid.

The costs, namely five pro mille, are higher than the D/P method. This method is

widely used in the European Union when dealing with exporters from outside

Europe.

4.) Bank guarantee

The buyer’s bank will present a bank guarantee for the amount of the invoice.

Cheques Bank guaranteed cheques are generally no problem, though cashing them may

take some time, and in some cases up to six weeks. Not all personal cheques are

accepted.

5.) Payment on consignment basis

Payment on consignment basis is often used in the trade of perishable products.

The products are sold at a predetermined price after a mutually appointed arbitrary

person (General Super Intendance Company (GSC)) has controlled the quantity, quality

and other aspects of the sold products at the moment of acceptance/sale.

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If the products do not meet the conditions as described in the contract, the contract is

not valid and, depending on the conditions of the contract, prices are generally

adjusted. An open contract is used to make the payment after 14 days from

acceptance/sale.

In the spices and herbs trade, LC and CAD are the most frequently used methods of

payment. However, methods of payment vary from company to company. Once trading

relationships are established, clean payments are often used.

For every (new) supplier the importer considers very carefully which method of

payment that should be agreed upon. The same applies to delivery terms.

Common delivery terms include:

1.) FOB (Free on Board): the buyer arranges for transportation and insurance.

FOB must specify the port of departure.

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

insurance.

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

Once the offer has been accepted by the buyer and reconfirmed by the exporter, a sales

contract will be prepared. When handling the contract, you should consider the terms

and the fulfilment.

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Terms of payment

There are various methods of receiving payment for your exports. The most commonly

used terms in the food ingredients are documents against payments (D/P) and payments

in advance.

1.) Documents against payments

Also known as cash against documents (CAD). The buyer takes possession of the

goods only after payment. Although this method is not very popular, it is very safe and

the costs amount to one pro mille. One can also make use of documents against

acceptance of a bill of exchange. However, the bill of exchange is not commonly used

in the European Union and it does not guarantee that the bill will be paid; it is less

secure than the D/P.

2.) Payment in advance

This method is the most desirable from the seller's standpoint, because all risk is

eliminated. While cash in advance may seem most advantageous to you, insisting on

these terms may cost you sales. Just like domestic buyers, foreign buyers prefer greater

security and better cash utilisation. Some buyers may also find this requirement

insulting, especially if they are considered credit worthy in the eyes of the rest of the

world. Advance (partial) payments and progressive payments may be more acceptable

to a buyer, but even these terms can result in a loss of sales in a highly competitive

market.

Most export shipments are partly pre-paid before the ingredients are shipped. Because

collections from customers are more difficult overseas, it is recommended to get a

minimum of 50 percent in advance. Once on-going business and trust is established,

exporters should grant their foreign customers standard payment terms. Because of the

possible complications and costs, letters of credit are often avoided in the plant trade.

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Terms of sale

Export terms of sale determine what costs are covered in the price of the cargo. They

also indicate at what point ownership transfers to the buyer and at what point

responsibility for the cargo is transferred. International commercial terms (Incoterms)

provide "the international rules for the interpretation of trade terms

The most commonly used trade term is:

FOB (Free on Board)

Under this term, the seller quotes a price for goods that includes the cost of loading at

the port of departure. The buyer arranges for transportation and insurance.

Other trade terms are:

1.) DDP (Delivered Duty Paid)

DDP deliveries are arrival contracts: the exporter is fully responsible for the goods until

they arrive at the warehouse of the trade partner anywhere in the EU.

2.) CFR (Cost and Freight)

For shipments to designated overseas port of import, the seller quotes a price for the

goods that includes the cost of transportation to the named point of debarkation. The

buyer is responsible for the cost of insurance. This is referred to as C&F in the old

Incoterms. The seller pays for the cost of unloading cargo at the port of destination, to

the extent that they are included in the freight charges. If the charges are separate, they

fall to the account of the buyer.

3.) CIF (Cost, Insurance, Freight)

Under this term, for shipments to designated overseas port of import, the seller quotes a

price for the goods, including insurance costs and all transportation and miscellaneous

charges, to the point of debarkation from the vessel or aircraft. The seller pays for the

cost of unloading cargo at the port of destination, to the extent that they are included in

the freight charges. If the charges are separate, they fall to the account of the buyer.

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Food-processing companies often demand Delivered Duty paid (DDP) delivery, while

importers usually require Free on Board (FOB) or Cost, Insurance, Freight (CIF)

deliveries. There is a large difference in DDP on the one hand and FOB and CIF

deliveries on the other. As already mentioned, DDP deliveries are arrival contracts,

while FOB and CIF are departure contracts. In the cases of FOB and CIF deliveries, the

responsibility for the goods transfers from exporter to importer at the moment the

goods pass the ship rail at the port of departure.

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Export Documentation

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

containing an unconditional order, signed by the maker directing a

certain person to pay certain a certain sum of money only to the order or

the bearer of person. In the documents attached, K.M. Ganatra and Co is

the drawer, Jandira Comercio De Produtos is the drawee and Saraswat

Co-operative bank is the bearer.

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

importer’s bank in favour of the exporter giving him the authority to

draw bills up to a particular amount covering a specified shipment of

goods and assuring him of payment against the delivery of shipping

documents.

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

and purchase. It should be strictly in accordance with the contract of sale

and should be on the paper of seller and must be signed by the exporter.

In the documents attached the container number, kind of packaging,

description of goods, quantity, rate and amount are specified properly.

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

that the goods of the stated specifications, quantity and condition in a

certain ship received in the custody of the ship owner for the purpose of

shipment. In the document attached Hamburg Sud has issued Bill of

Lading stating where the goods are to be shipped to the consignee.

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

particular container has been loaded on a particular vessel. In the

document attached container is loaded on P&O Ned Lloyd Cobra and

sailed Nhava Sheva.

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

made between buyer and seller. It also signifies commodity and

quantity, packing, price, mode of payment, shipments etc.

7.) Credit Limit Approval – This is a document which is issued by ECGC

stating credit limit on the buyer in favour of exporter subject to the terms

and conditions. In the document attached 50 lakhs is the maximum limit

approved by ECGC.

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

product has been disinfected with a particular chemical. In the

documents attached the chemical used is Aluminium Phosphide and it

has been fumigated at Mundra.

9.) Mate’s Receipt – It is issued by the chief of vessel after the cargo is

loaded and it contains the name of shipping line, vessel, port of loading,

port of discharge etc. In the documents attached it clearly shows the

container no., Description of goods, weight, size, seal etc.

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

the goods are of Indian origin. In the documents attached “The Memon

Chamber of Commerce has issued certificate of origin stating that goods

are of Indian Origin.

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

exporter stating that he is the seller or consignor of the goods. This

document also states that the exporter is a resident in India and he has a

place of business in India.

12.) Certificate of Inspection – This is a document issued by inspection

agency stating that the consignment has been inspected as per

requirements under Exports Act 1963. In the documents attached Cargo

Inspectors and Superintendence Co. Pvt. Ltd. is the inspection agency

stating that the container has been cleaned in their presence. It also states

the quality of the goods in the consignment.

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

dispatched to the buyers place, the exporter will send necessary

documents, like Bill of Lading, Mate’s Receipt, Certificate of origin etc,

to the bank for clearing purpose. In documents attached the exporter has

mentioned the necessary documents which he has sent to the bank for

completing the formalities and receiving the payment from the bank.

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Bibliography

How to borrow from Banking and Financial Institutions – Nabhi Publications.

A guide on Export Policy and Procedure – M.I. Mahajan.

Webliography

www.ecgcindia.com

www.indianspices.com

www.fieo.com

http://commerce.nic.in/mai_guide.pdf

www.eximkey.com

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