EXPORT FINANCE

PRESENTATION BY
S.CLEMENT
 Export Finance - Why
 Present export level USD 168 bn (2009)
 Present share in the world trade @ 1%
 Foreign Trade Policy target @ 1% to
2%
 Impact of WTO
 RBI target is 12 % of net bank credit
 Increased level of globalization – cross
border trade flows
 CONCERNED MINISTRIES

Ministry of Commerce & Industry

 Inflow and outflow of goods & Services
Ministry of Finance
 Inflow and outflow of F/C
Ministry of I.T
 Accreditation of software units
 FTP – 2009 -2014
 The Foreign Trade Policy 2 009-2014 (FTP),
incorporating provisions relating to export and
import of goods and services, shall come into force
with effect from 2 7th August, 2 009 and shall
remain in force up to 31st March,2014 unless
otherwise specified.
 All exports and imports up to 2 6th August 2 009
shall be accordingly governed by the FTP 2004-
2009.
 Journey so far in Exports
 In the last five years our exports witnessed robust growth to
reach a level of US$ 168 billion in 2008-09 from US$ 63 billion
in 2003-04.
 Our share of global merchandise trade was 0.83% in 2003; it
rose to 1.45% in 2008 as per WTO estimates. Our share of
global commercial services export was 1.4% in 2003; it rose to
2.8% in 2008. India’s total share in goods and services trade
was 0.92% in 2003; it increased to 1.64% in 2008.
 On the employment front, studies have suggested that nearly 14
million jobs were created directly or indirectly as a result of
augmented exports in the last five years.
 DGFT
 Foreign Trade POLICY- 2009 -2014
 WTO compatible/ Export biased
 Demand driven approach
 Market intelligence/Studies
 Thrust areas
 Market assistance & initiative
 Segmentation of market
 CAG @ 16%
 DGFT
 I.E.C. NO.

 Trade barrier countries eg. Iraq

 Policy amendments
 ECGC
 Credit Guarantee cover – Banks &
exporters
 Risks covered
 commercial,
 political and
 Exchange
 Types of exports
 Cash exports – goods & services
 Deferred exports
 Project, exports --

Engg.goods/Turnkey projects/Civil
construction contracts
 Deemed exports
 Deemed Exports

 Goods supplied do not leave the country

 Supplies earn or save foreign exchange for
the country.
 Effective July 5,1997 banks can extend
pre-shipment credit and post supply credit
 Period - 30 days or date of payment by
receiver of goods whichever is earlier
 Deemed Exports

Supplies to
Supplies to Marine
Supplies to
Authorisation Freight
EOUS/ Supplies to Supplies to
Holder Containers by
EHTPs/ Projects Fertilizer
[Adv. Autho./ 100% EOUs
STPs/ Plant
AAA/DFIA/ (Domestic
BTPs
EPCG] Freight
Containers
Manufacturers)
 Project exports
 Engineering. goods on deferred terms – E.g.
export of industrial turbines/Boilers by
BHEL & Earth movers by L & T.
 Turnkey projects – E.g. Aditiya Birla group
is awarded to construct sugar factory on turn
key basis in Malaysia.
 Civil construction contracts – Indian Railway
construction company (IRCON) is laying
railway lines in a Nigeria.
 Types of exporters
 Manufacturer
 Sub suppliers
 Merchant
 Service providers – Software, consultancy etc
 Project exporters
 100 % EOU
 Status Holders – Those who achieve minimum
amount of export turnover.
 Status holder exporter scheme
 This scheme provides for recognition of exporters as
export house, star export house, trading house, star
trading house and premier trading house on the basis
of their export performance in the current year plus
previous 3 years.
Category Export performance ( in Rupees)
Export house 20 Crore
Star export house 100 crore
Trading house 500 Crore
Star trading house 2500 crore
Premier Trading house 10,000 Crore
 Export Oriented Units [EOUs]
 Units undertaking to export their entire production of goods and services
except permissible sales in Domestic Tariff Area (DTA) are known as
Export Oriented Units (EOUs).

 Electronic Hardware Technology Parks (EHTPs), Software Technology

Parks (STPs) or Bio-Technology Parks (BTPs) are also covered under EOU
scheme. These are product specific units availing the same benefits as
EOUs.

 EOUs/EHTPs/STPs/BTPs are allowed to manufacture goods including

repair, re-making, reconditioning, re-engineering, and rendering of services
wherever applicable.

 Trading activity is however, not permitted under EOU scheme.

 Investment Criteria: Only project having a minimum investment of Rs.1

crore and above in plant and machinery shall be considered for
establishment under EOU scheme.
 Benefits of EOUs
 Duty free import / local procurement of goods
(including capital goods) required for its activities.

 Second hand capital goods can be imported/

procured without any age limit.

 Units may sell goods upto 50% of FOB value of

exports, subject to fulfillment of NFE on payment of
concessional duties.

 Reimbursement of Central Sales Tax paid on goods

locally procured.
 Facilities- Preshipment
 Rupee Packing credit

 Packing in foreign currency

 Export finance - Process
 Agreement between exporter in India and
Importer in a foreign country for supply of
goods/ services
 Placement of order or LC
 Preshipment advance against Order/Lc with in
the sanctioned limits
 Export of goods
 Submission documents
 Post shipment advance
 Payment by Importer/Importer's bank
 Preshiment in Rupee
( packing credit)
 Shot term working capital advance
 Given up to preshipment level
 For procuring RM, processing &
manufacturing
 Against LC or Order
 Period – up to the date of shipment
 Value not to exceed FOB ( Free on board )
 Running a/c PC (packing credit)
 Running a/c PC (packing credit)

 Effective 14 March 1992 - banks can grant pre-

shipment advances for exports,without prior
lodgement of L/C,export orders under Running
Account.
 Conditions for Running Account
 Need-based facility
 Exporters with good track record
 L/Cs firm orders can be produced within
reasonable time
 Exporters in EOUs,EPZs and SEZs also eligible
 No such facility for sub-suppliers
 Quantum of Finance
 No fixed formula for calculating quantum
 Normally not to exceed the FOB value of goods/ domestic
market value of goods, whichever is lower-(exception:
exporters of groundnuts, deoiled and defatted cakes
against.security of oilseeds)
 For CIF (Cost Insurance Freight) contracts, FOB value to be
arrived by deducting freight and insurance. Profit margin as
declared also to be deducted for arriving at bank finance.
 Excess advance covered against duty receivables /
incentives at pre-shipment stage to be liquidated by
proceeds of cash incentives,duty drawback etc
 Period of Finance
 Depends on circumstances of individual case
 Primarily for banks to decide the period for which
packing credit advance may be given having
regard to various relevant factors
 Normally granted for a period up to 180 days
 Initially itself banks can grant packing credit upto
360 days for goods having longer production cycle
 Refinance only for a period not exceeding 180
days
 Preshiment in Rupee
( PC – disbursement)
 XYZ received an order worth USD 10,000
for export of leathher goods to ABC co ltd
in USA.
 Order value 10,000* 45.00 Rs 4.50 lacs
 Less insurance & freight 15% 0.68
 Less margin @ 20% 0.77
 FOB value 3.08
 PC eligible amount 3.08
 PCFC (Packing credit in foreign
currency)
 Working capital loan in FC for financing of
inventory up to preshipment stage for exporters.
 To fund FX requirements such as import of raw
material etc and also rupee requirements.
 LIBOR related rates
 No exchange risk due to natural hedge.
 Normally availed in major 4 FC –USD,GBP,
EURO and JPY.
 Cross currency drawls also available. Exchange
risk to be borne by the customers.
 Not available for sub suppliers
 Post Shipment finance
 Could be supplier’s or buyer’s credit
 Could be short or long term
 Finance against evidence of shipping
document
 Credit given after date of shipment
 Finance mostly fund-based
 Concessive rate of interest .
 Post shipment( disbursement)
 Short term advance to take care of export
receivables
 PC to be adjusted
 Documents – BL/Air way bill,Invoice,Certificate
of Origin ,Packing list,Bill of exchange GR etc
 Period – DP (documents against payment / DA
( documents against acceptance)
 Documents sent abroad
 Credit to Nostro a/c
 Over dues – extension from Bank/RBI
 Post shipment
 Export bills purchased
 Advance against collection
 Adv.against Consignment
 Advance against un drawn balance
 A.A. Duty draw back – reimbursement of
Central excise and customs duty paid on
export consignments after export is made.
 Post shipment
 Bill value USD 10000* 45.30 Rs 4.50lacs
 Less PC given Rs 3.08
 Bal. Cr. To exp.a/c Rs 1.42
 Exchange Earners’ Foreign
Currency a/c
 Resident in India can open non interest
bearing EEFC a/c
 Limits of eligible credit – Status holders –
100%
 EOU/EPZ/STP/HTP – 70%
 Others – 50%
 Security
 Primary -
 Preshipment – charge on the stock
 Post shipment – Charge on the receivables
 Collateral – Machinery, land &
building,personal guarantees of promoters
etc
EXPORT INCENTIVES
 Export incentives move by GOI
 Government of India gives various incentives
to exporters in order to improve their
competitiveness in the foreign markets.

 These incentives and facilities relate to export

performance, promotion of exports, fiscal
incentives, schemes aimed at facilitation of
imports for exports and various subsidies.
 Duty drawback
 Duty entitlement pass book scheme
 Export Promotion capital goods scheme
 Market access initiative
 Market development assistance
 Served from India scheme
 Vishesh Krishi Upaj Yojana (special agricultural
produce scheme)
 Period of realization
 Interest rate concession by RBI

 Status holder exporter scheme

 Privileges of status holders
 A Status Holder shall be eligible for privileges as under:
 (i) Authorization and Customs Clearances for both
imports and exports on self-declaration basis;
 (ii) Fixation of Input-Output norms on priority within 60
days;
 (iii) Exemption from compulsory negotiation of
documents through banks. Remittance / Receipts,
however, would be received through banking channels;
 (iv) 100% retention of foreign exchange in EEFC
account;
 Privileges of status holders
 (v) Exemption from furnishing of BG in Schemes under
 FTP
 (vi) SEHs and above shall be permitted to establish Export
Warehouses subject to government norms.
 (vii) As an option, for Premier Trading House (PTH), the average
level of exports under EPCG Scheme shall be the arithmetic mean of
export performance in last5 years, instead of 3 years.
 (ix) Status Holders of specified sectors shall be eligible for Status
Holder Incentive Scrip under Para 3 .16 of FTP.
 (x)Status Holders of Agri. Sector (Chapter 1 to 24 ) shall be eligible
for Agri. Infrastructure Incentive Scrip under VKGUY - Para 3.13.4
of FTP.
 Export Promotion Capital Goods Schemes [EPCG]
 This scheme allows import of capital goods and spares
at concessional rate of duty [@3% of Customs Duty]
coupled with export obligation equivalent to 8 times the
duty saved amount to be completed in 8 years.

 In case CVD is paid in cash on imports under EPCG,

incidence of CVD would not be taken for computation
of net duty saved provided the same is not Cenvated.

 In case of agro units, and units in cottage or tiny sector,

import of capital goods at 3% Customs duty shall be
allowed subject to fulfillment of export obligation
equivalent to 6 times of duty saved on capital goods
imported, in 12 years from Authorisation issue date.
 Export Promotion Capital Goods
Schemes [EPCG]
 Imports under EPCG:
– The capital goods, including
» spares (including refurbished/reconditioned spares),
» tools,
» jigs,
» fixtures,
» dies and moulds.
– Second hand capital goods without any
restriction on age may also be imported under the
EPCG scheme.
 Rate of interest

 Banks have to charge concessive interest as laid

down by RBI from time to time
 Concession only if actual export takes place within
reasonable period of availment of advance
 Reasonable period fixed as 360 days by RBI
 If no export within 360 days from date of availment
of packing credit, commercial rate of interest.
 Duty Drawback

 Meaning & Scope

“Duty Drawback” in relation to the export of indigenously manufactured
goods, means refund of duties paid on :-
– Raw materials,
– Component parts, and
– Packing materials.
consumed in the production and export thereof and now also on goods
processed or on which any operation has been carried out in India. These
duties may be duties of Customs paid on imported materials and / or
duties of Central Excise paid on indigenous materials.

Drawback is not admissible in respect of duty paid on goods exported

under claim of rebate of duty in terms of Rule 18 of Central Excise Rules,
2002.
 Duty Draw Back
 Filing Duty Drawback: The processing of drawback
is done by customs authorities after the required
documents are filled

 Time for Claiming Drawback Claim: Within 3

months from the date of LET EXPORT ORDER.

 Payment of duty drawback: within a period of one

month from the date of receipt of the claim.
 Duty entitlement pass book scheme
 The objective of the DEPB is to neutralize the
incidence of Customs duty on the import content
of the export product.

 Under the DEPB scheme, an exporter may apply

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

 The Credit is granted against such export

products and at such rates as may be specified by
the Director General of Foreign Trade.
• Under the post-export DEPB, which is issued
after exports, the exporter is given a duty
entitlement Pass Book at a pre-determined
credit on the FOB value.

• The claim for the import duty credit is

admissible only after the realisation of the
export proceeds.

• The exporter can use this credit to pay for the

import duty on the imports of inputs whether
required for the manufacture of the export
product or not.
 DEPB is valid for a period of 24 months from the
date of its issuance.

 Application should be within 180 days from the

date of exports or within 90 days from the date of
realization, whichever is later.

 The DEPB and/or the items imported against it

are freely transferable.

 It should be noted that the imports under DEPC

should be made from the same port from where
the exports have been made
 MARKETING DEVELOPMENT
ASSISTANCE

• The main thrust is to provide for development of

marketing of Indian products and commodities
in foreign markets by providing grants in aid for
the eligible marketing activities to the eligible
exporters.

• The eligible exporters can participate in these

schemes either directly or through export
promotion councils, India trade promotion
Organisation etc.
• Eligibility of exporters:
The exporter should have an annual export turnover
of upto Rs 5 crores

• The grant under MDA is in the form of non-

refundable financial assistance given to the exporters
by way of reimbursement of the actual expenditure
incurred by them subject to the scale of grants laid
down under the scheme

• The application for the grant of MPA should be

made to the concerned Export promotion council
within 3 months of the activity
 Marketing Activities and the scale of
Assistance
Sales cum Study Tour Abroad:
 Maximum 90% of the Actual Fare for SME exporters and
75% for other than SSI exporters subject to a limit of Rs
60,000/- for travel in economy class for all class of
exporters.

Participation in fairs/Exhibitions abroad:

 Maximum 90% of the total expenditure incurred on items of
expenditure viz., air travel in economy class, space rent,
decoration, electricity, interpreters, etc. in case of SSI
Exporters and 75% of total expenditure in the case of non-
SSI exporters subjected to the maximum of Rs. 90,000/- in
all the cases.
 Publications/Publicity (for bringing out publications for use abroad
and insertion of advertisement in the foreign media to promote brand
publicity:
Maximum of Rs. 50,000/- in financial year or 25% of the actual cost,
whichever is less.

 Research and Product Development:

50% of expenditure approved for this activity by the Office of the
Dy. Director (EAC), Ministry of Commerce, Udyog Bhawan, New
Delhi
.
 Opening of Foreign Office:
For the first year, 25% of the salary of the staff (One senior and one
junior) and 20% of the office rent.

 Opening of warehouse: Grant at the rate of 25% for three years.

 Served from India Scheme
• This scheme is aimed at promoting services exports from
India by providing incentives exclusively for the exporters
of services.

• All Service providers who have a total foreign exchange

earning of at least Rs.10 lakhs in the preceding or current
financial year shall be eligible to qualify for a duty credit
entitlement.

• For individuals who are service providers, the total foreign

exchange earned criteria would be Rs.5 lakhs in the
preceding financial year.

• The duty credit entitlement is 5% in the case of hotels, 20%

in the case of stand alone restaurants and 10% incase of
service providers in the healthcare, education & other
sectors.
• Duty credit entitlement may be used for import of any
capital goods including spares, office equipment and
professional equipment, office furniture and
consumables, provided it is part of their main line of
business.

• In the case of hotels and stand-alone restaurants, the

duty credit entitlement may also be used for the import
of food items and alcoholic beverages.

• The entitlement and the goods imported shall be non-

transferable.
 Vishesh Krishi Upaj Yojana
• This is an initiative for the promotion of export of
agricultural products.

• The objective of the scheme is to promote export of fruits,

vegetables, flowers, minor forest produce, and their value
added products, by incentivising exporters of such
products.

• Exporters of such products shall be entitled for duty credit

scrip equivalent to 5% of the FOB value of exports.

• The scrip and the items imported against it would be

freely transferable.
 Tax benefits
• VAT paid on raw material used in manufacture of 
goods for export would be refunded by the State
Government in cash adjustment. 

• The exports would become more competitive in

the world market as there would be no tax
henceforth on raw material used for manufacture
of goods for export. 

• Tax holiday is provided for 10 years for newly

established undertakings in SEZs, 100% EOUs
etc.
 FTP 2009-2014
 In one of the many innovative steps, the Government
decided to set up a Directorate of Trade Remedy Measures
to support industry and exporters, especially from the
small and medium enterprises sector, in availing
themselves of their rights through trade remedy
instruments such as anti-dumping, safeguard and
countervailing (anti-subsidy) duties.
 These include incentives to capture 26 new markets in
Africa and Latin America, duty-free import of capital
goods for technological upgradation, dollar-denominated
credit and doing away with application fees for grant of
incentives under various export schemes
 Current Issues
 Over dependence on US market
 Transaction cost
 Competitive edge – price & quality
 Heavy dependence on traditional items such
as textiles,leather, etc
 Increased competition
 WTO impact – tax, interest etc
 Global recession
Thought for the Day…

“Not to know is bad,

not to wish to know is
worse.”
- Nigerian Proverb