India’s Foreign Trade, i.e. Exports and Imports are regulated under the Foreign Trade Policy, as notified by the Central Government, in the exercise of powers conferred by section 5 of Foreign Trade (Development and Regulation) Act 1992. The Foreign Trade Policy 2015-20 is effective from April 2015. As per the FTD&R Act, export is defined as an act of taking out of India, any goods by land, sea or air and with a proper transaction of money.
Export in itself is a multi-party practice and a lot of preparations are required by an entity before starting an export business. The initial steps required to be undertaken before starting an export business, are detailed under sub-section “How to Start” above.
Once the initial steps are completed, the following steps may be followed:
All items are freely exportable except a few items appearing in the prohibited/restricted list. After studying the trends of export of different products from India, proper selection of the product(s) to be exported may be made.
An overseas market should be selected after adequate research, covering market size, competition, quality requirements, payment terms, etc. Exporters can also evaluate the markets based on the export benefits available for selected countries under the Foreign Trade Policy, and/or covered under the bilateral and multilateral trade agreements. Export promotion agencies, industry bodies/associations, professional consultants, Indian Missions abroad, colleagues, friends, and relatives might be helpful in gathering information.
Participation in trade fairs, buyer-seller meets, exhibitions, B2B portals, web browsing is an effective platform to connect with buyers. EPC’s, Indian Missions abroad, overseas chambers of commerce can also be helpful. Creating a multilingual website with product catalog, price, payment terms, and other related information will also help.
Providing customized samples, as per the demands of foreign buyers, helps in getting export orders. As per FTP 2015-2020, exports of bonafide trade and technical samples of freely exportable items shall be allowed without any limit.
Product pricing is crucial in getting buyers’ attention and promoting sales in view of international competition. The price should be worked out taking into consideration all expenses, from sampling to realization of export proceeds on the basis of terms of sale i.e. Free on Board (FOB) Cost, Insurance & Freight (CIF), Cost & Freight (C&F), duties, subsidies/incentives, etc. The goal of establishing export costing should be to sell maximum quantity at a competitive price with a maximum profit margin. Preparing an export costing sheet for every export product is advisable.
After determining the buyer’s interest in the product, future prospects and continuity in business, demand for offering reasonable allowances/ discounts in price may be considered.
International trade involves payment risks due to buyer/country insolvency. These risks can be covered by an appropriate policy from Export Credit Guarantee Corporation Ltd (ECGC). Where the buyer is placing an order without making an advance payment or opening a Letter of Credit, it is advisable to procure a credit limit on the foreign buyer from ECGC to protect against the risk of non-payment. (To know more about ECGC, Click here).
On receiving an export order, it should be examined carefully with respect to items, specifications, payment conditions, packaging, delivery schedule, etc. and then the order should be confirmed. Accordingly, the exporter may enter into a formal contract with the overseas buyer.
After confirmation of the export order, immediate steps may be taken for the procurement/manufacture of the goods meant for export. It should be remembered that the order has been obtained with much effort and competition, so the procurement should adhere strictly to the buyer’s requirement.
In today’s competitive environment, it is important to be quality conscious. Some products like food and agricultural produce, fishery products, certain chemicals, etc. are subject to compulsory pre-shipment inspection. Foreign buyers may also lay down their own standards/specifications and insist upon inspection by their own nominated agencies. Maintaining high quality is necessary to sustain an export business.
Exporters are eligible to obtain pre-shipment and post-shipment finance from Commercial Banks at concessional interest rates to complete the export transaction. Packing Credit advance in the pre-shipment stage is granted to new exporters, against lodgement of L/C or confirmed order, for 180 days to meet working capital requirements for purchase of raw material/finished goods, labour expenses, packing, transportation, etc. Normally, banks give a 75 per cent to 90 per cent advance on the value of the order, keeping the balance as margin. Banks adjust the packing credit advance from the proceeds of export bills negotiated, purchased or discounted. Post shipment finance is given to exporters normally up to 90 per cent of the invoice value, for a normal transit period. In cases of usance export bills, post-shipment finance is provided up to the notional due date. The maximum period for post-shipment advances is 180 days from the date of shipment. Advances granted by banks are adjusted against the realisation of sale proceeds of the export bills. In case the export bill becomes overdue Banks will charge interest at commercial lending rates.
The export goods should be labeled, packaged, and packed strictly as per the buyer’s specific instructions. Good packaging delivers and presents the goods in top condition, and in an attractive way. Similarly, good packing helps easy handling, maximum loading, reducing shipping costs, and ensures the safety of the cargo. Markings such as an address, package number, port and place of destination, weight, handling instructions, etc. provide identification and information of cargo packed.
The marine insurance policy covers risks of loss or damage to the goods while the goods are in transit. Generally, in the CIF contract, the exporters arrange the insurance whereas, for C&F and FOB contracts, the buyers obtain insurance policies.
It is an important feature of export operation and the exporter must adhere to the delivery schedule. Adequate planning should be put in place by an exporter to ensure fast and efficient delivery.
It is necessary to obtain PAN based Business Identification Number (BIN) from the Customs prior to the filing of the shipping bill for clearance of export. Exporters must open a current account in the designated bank for crediting any drawback amount and the same has to be registered on the system. In the case of Non-EDI, the shipping bills or bills of export are required to be filled in the format as prescribed in the Shipping Bill and Bill of Export (Form) regulations, 1991. An exporter needs to fill different forms – shipping bill/ bill of export for export of duty-free goods, the export of dutiable goods and export under drawback, etc. Under EDI System, declarations in the prescribed format are to be filed through the Service Centers of Customs. A checklist is generated for verification of data by the exporter/CHA. After verification, the data is submitted to the system by the Service Center operator and the system generates a Shipping Bill Number, which is endorsed on the printed checklist and returned to the exporter/CHA. In most cases, a Shipping Bill is processed by the system on the basis of declarations made by the exporters without any human intervention. Where the Appraiser Dock (export) orders for samples to be drawn and tested, the Customs Officer may proceed to draw two samples from the consignment and enter the particulars thereof along with details of the testing agency in the ICES/E system. Any correction/amendments in the checklist generated after the filing of the declaration can be made at the service center if the documents have not yet been submitted in the system and the shipping bill number has not been generated. In situations, where corrections are required to be made after the generation of the shipping bill number or after the goods have been brought into the Export Dock, amendments are carried out in the following manner.
In both cases, after the permission for amendments has been granted, the Assistant Commissioner / Deputy Commissioner (Export) may approve the amendments on the system on behalf of the Additional / Joint Commissioner. Where the print out of the Shipping Bill has already been generated, the exporter may first surrender all copies of the shipping bill to the Dock Appraiser for cancellation before the amendment is approved on the system. To calculate your customs duty visit the Central Board of Excise and Customs, Department of Revenue, Ministry of Finance, Government of India. Importer & Exporter can avail facilities of self E-Filing of documentations, E-Payments, and Real-Time Tracking and Query Status. All public inquiries are available here.
Exporters may avail services of Customs House Agents licensed by the Commissioner of Customs. They are professionals and facilitate work connected with the clearance of cargo from Customs.
FTP 2015-2020 describes the following mandatory documents for import and export.
(Other documents such as the certificate of origin, inspection certificate may be required as per the case.)
After shipment, it is obligatory to present the documents to the bank within 21 days for onward dispatch to the foreign bank for arranging payment. Documents should be drawn under Collection / Purchase / Negotiation under L/C as the case may be, along with the following documents:
As per FTP 2015-2020, all export contracts and invoices shall be denominated either in the freely convertible currency of Indian rupees, but export proceeds should be realized in freely convertible currency, except for export to Iran. Export proceeds should be realized within 9 months. For more information see India Trade Portal.