India’s Foreign Trade

Prepared By:Ashish MahendraAvinash KumarKonica BiswasImran Ahmad

SiddiquiNikhil TripathiShweta Singh

INTRODUCTION

Foreign trade is the exchange of capital , goods and services across international borders or territories.

This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events.

Foreign trade transactions are classified under two categories:Import Trade Export Trade

Advantages Maximum utilization of resources Benefit to consumer (more choice & reasonable cost) Utilization of Surplus produce Provides employment.

FOREIGN TRADE POLICY

Long term objective of the FTP is to promote exports and increase India’s competitiveness globally, leading to employment generation particularly in the labor-intensive sectors

Objective common to both the old and new policies is to double India’s exports within 5 years

Foreign Trade Policy 2009-14

Short Term Objectives: arrest and reverse the declining trend of exports. provide support to those sectors which have been hit badly by recession.

Medium term Policy Objectives : achieve an Annual Export growth of 15% by March 2013.

achieve Annual Export growth of around 25% by 2014.

Targets of Trade Policy

Export Target : $ 350 Billion for 2012-13

Export Growth Target: 15 % for next two year and 25 % thereafter.

Import/Export Controls

IMPORTS: Around 5% Tariff Lines are under Import Controls.

11600 Tariff Lines are free for import.

Presently: Prohibited items - 53 Lines Restricted items - 485 Lines State Trading Items - 33 Lines.

Import/Export Controls

EXPORTS: Controls primarily on account of security, public health, morals, exhaustible resources and environment grounds.

Prohibited items - 59 Restricted items - 155 State Trading Items - 12

Restrictions fall under two Categories:- Special provision for these items under Weapons of Mass Destruction Act, 2005.

Export Facilitation Committee looks into applications for license for these items.

{Special chemical ,organisms, materials, equip. & tech.}

Highlights Q1 of 2012-13, exports stood at US$ 75.2 bn and showed a

decline of 1.7 per cent as against an increase of 36.4 per cent

during Q1 of 2011-12.

Q1 of 2012-13, imports declined by 6.1 percent over the

corresponding quarter of 2011-12 and stood at US$ 115.3

billion.

Lower growth in POL imports at 5.5 percent during Q1 of

2012-13 as compared with 52.5 percent during Q1 of 2011-12.

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WHAT IS RISK?

Risk is defined as the chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment.

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TYPES OF RISKS

Buyer’s Insolvency/Credit Risk

Buyer’s Acceptance Risk Knowledge Inadequacy Economic Risk

Cultural Risk Legal Risk Foreign Exchange Risk

Buyer’s Insolvency/Credit Risk Buyer’s insolvency or credit risk refers to the inability of the buyer to honour full payment

for goods or services rendered on due date. This is a risk on seller associated with selling or supplying a product or service without collecting full payment or experienced late payment.

Buyer’s Acceptance Risk Buyer’s acceptance risk refers to the buyer’s non-acceptance of goods delivered or services

rendered. Unaccepted goods or services may create difficulty for the seller to dispose the goods to another buyer or encounter working capital problem.

Knowledge Inadequacy A buyer or seller who intends to expand his business into another

product/service/industry/country may not have adequate knowledge on the risk of the new product/service, local market situation or goods’ fashion. The lack of knowledge increases the chances of business failure.

Economic RiskEconomic risk refers to unfavourable economic conditions in buyer or seller’s country which may affect both parties in fulfilling their obligations. On the buyer side, economic risk may result in buyer’s insolvency or inability to accept the goods or services.

Cultural RiskDifferent countries have their unique language and culture. The inability to appreciate/accept cultural differences and/or language barrier may result in conflicts and non-completion of the sales contract.

Legal RiskLegal risk is the potential for financial loss arising from uncertainty of legal proceeding or change in legislation, such as a foreign exchange control policy. A sales contract could be frustrated due to changes in laws and regulations.

Foreign Exchange RiskA buyer or seller may deal with foreign currencies in their daily course of business. This implies that they are exposed to fluctuations in foreign exchange market which may result in paying more (by the buyer) or receiving less (from the buyer) in terms of the local currency.

Export Procedure

The Term “export” Consists of several commercial & regulatory formalities. Formalities are very complex & time consuming

It should be ensured that all the formalities are done & documentations are prepared & filed with appropriate authority.

Overview of export procedure Stage

1- Registration procedures Stage 2- Pre shipment procedure Stage 3- Shipment procedures Stage 4- Realizing Export incentives Stage 5- Post-shipment procedure

Stage 1-

Registration procedures Exporter is required to register his organization with number of institution & authorities. The registarion stage includes---

Registration with various authorities Registration of the organization- --The form of organization selected by exporter must be registered under the appropriate act of the Country.

Opening Bank account Registration with export promotion council- --It is

obligatory for exporter & he has to obtain the ‘Registration-cum-Membership Certificate’ (RCMC).

Obtaining membership of chamber of commerce---useful for securing certificate of origin

Obtaining PAN--- Registration for the code number from DGFT---The code

number is known as IEC number. This is granted by Director General of Foreign Trade

PRE-SHIPMENT STAGE

APPROACHING FOREIGN BUYERS INQUIRY AND OFFER : CONFIRMATION OF ORDER : OPENING OF LETTER OF CREDIT : ARRANGEMENT OF PRE-SHIPMENT FINANCE: PRODUCTION OR PROCUREMENT OF GOODS: PACKING AND MARKING : PRE-SHIPMENT INSPECTION : CENTRAL EXCISE CLEARANCE : The exporters are totally exempted

from the payment of central excise duty. However, the exemption should be claimed in one of the following ways:-

a)Export under Rebate. b)Export under Bond.

OBTAINING INSURANCE COVER : The exporter must take appropriate policies in order to insure risks :-

a)ECGE policy in order to cover credit risks. b)Marine policy, if the price quotation agreed upon is CIF .

APPOINTMENT OF Carry & Forwarding AGENT:

Shipment procedure

Reservation of space in the ship: the exporter has to contact the shipping company well in advance for booking the required space in the vessel for shipment of his consignment through his C&F agent .

2) Arrangement of internal transport from factory/warehouse to the port of shipment: transporting goods by road or rail from his own place to shipment.

3) Preparation and processing of shipping documents: When goods reach the port of shipment, the exporter hands over the complete set of documents to the forwarding agent; which are submitted to the customs appraiser at the customer house.

Shipping bill(five copies) Commercial invoice(in duplicate) Letter of credit together with the export contract. Certificate of origin Packing list or packing note. Excise invoice.etc Custom Clearance

Realizing Export incentives

The Government of India has framed following Facilities to Indian Exporters

Marketing Development Assistance (MDA) Market Access Initiative (MAI) Free Trade Zones (FTZ) Export Financing Exim Bank Finance Advance Licence / Duty

Exemption Entitlement Scheme (DEEC) & Duty Drawback Manufacture under Bond Registration with Export Credit Guarantee Corporation of India

(ECGC)--- Registration with Excise Authorities---They get exemption,&

they have two options either deposit excise duty at time of clearance from factory & later claim return or open Bond Account with Maritime Collector of Central Excise

Post Shipment Stage

Stage Submission of documents by the agent to the exporter

Presentation of documents to the bank for the purpose of negotiation

Dispatch of Documents Documentary Bill of Exchange Letter of Indemnity Realization of export Proceeds Processing GR1 Form.

• Export House is defined as a registered exporter holding a valid Export House Certificate issued by the Director general of Foreign Trade in India.

Export House in India

• Origin – 1958 , for the development of specialized agencies for the promotion of non traditional items

• The initiative was necessary to help the small scale sector in the export of their products

Objective Of Export HouseTo make available supplies of essential

commodities to consumers at reasonable prices on a regular basis.

To ensure a fair price of the produce to the farmers so that there may be an adequate incentive to increase production.

To minimize violent price fluctuations occurring as a result of seasonal variations in supply and demand.

To arrange for supply of fertilizers and insecticides.

To undertake the procurement and maintenance of buffer stock and their distribution whenever and wherever necessary.

To arrange for storage, transportation, packaging and processing.

Validity period  

Export House/ Trading House/ Star Trading House/ Super Star Trading House Certificate shall be valid for a period of 3 years starting from 1st April of the licensing year ,unless otherwise specified.

On the expiry of such certificate, application for renewal of status certificate shall be required to be made within a period of six months.

During the said period, the status holders shall be eligible to claim the usual facilities and benefits..

The Export Promotion Council is a premier institution in the development and promotion of export trade in the country. it’s primary objective is to address bottlenecks that were facing exporters and producers of export goods and services with a view to increasing the performance of the export sector. The Council was therefore established for the purpose of giving an outward orientation to an economy that was therto inward looking.Sectors of promotion are: Horticulture and other Agriculturals Textiles and Clothing Commercial Crafts and SMEs (Small and Medium Size

Enterprises) Fish and Livestock products Other manufactures Services other than tourism

Promotion

Agencies

Conclusion to export House

Export houses better take care of the buyers specifications and provide them good quality products.

Exporters should invest in technological tools, and come at par to compete with their foreign competitors.

Export trading houses export large volumes of products from many sources of lower unit costs through established networks of overseas offices.

India’s Trade Agreements

India Japan CEPA

(comprehensive economic trade agreement)

The objectives of this Agreement are to: (a) increase investment opportunities and strengthen protection for

investments and investment activities in the Parties; (b) ensure protection of intellectual property and promote cooperation

in the

field thereof; (c) promote cooperation for the effective enforcement of competition

laws in

each Party; (d) improve business environment in each Party; (e) establish a framework to enhance closer cooperation in the fields

agreed

in this Agreement; and (f) create effective procedures for the implementation and application

of this

agreement and for the resolution of disputes.

India : Korea

GENERAL PROVISIONS AND DEFINITIONS ARTICLE 1.1: OBJECTIVES The objectives of this Agreement, as elaborated more

specifically through its principles and rules are to: (a) liberalise and facilitate trade in goods and services and

expand investment between the Parties;

(b) establish a cooperative framework for strengthening and enhancing the economic relations between the Parties;

(c) establish a framework of transparent rules to govern trade and investment between the Parties;

Cont.

(d) explore new areas of economic cooperation and develop appropriate measures for closer economic partnership between the Parties

(e); improve the efficiency and competitiveness of their manufacturing and services sectors and expand trade and investment between the Parties; and

 Department of Commerce:the 15 largest trading partners of India represent 62.1% of Indian imports, and 58.1% of Indian exports as of December 2010

Import-Export of India under Different agreements

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0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Doha India-EU FTA India-U.S. FTA India-China FTA

Imports

Exports

Change in Billion Dollars

Recent Trends in India’s Foreign Trade

Composition Of India’s Export

Composition of Exports

Share of Top Principal Commodities in India’s Export 2011-12 (April-October)

Composition of Imports

Share of Top Principal Commodities in India’s Imports 2011-12 

Conclusion Composition of India’s Foreign Trade has undergone a positive

change. It is a remarkable achievement that India has transformed itself from a predominantly primary goods exporting country into non primary goods exporting country. Under Imports also India’s dependence on food grains and capital goods has declined.