THEORY

PROCEDURE OF EXPORT TRADE:

An Indian exporter has to follow following procedure at the time of exporting the goods:

1.

TRADE ENQUIRY:

The trader who wants to export, he has to contact with export commission agent, export agent or export broker. With their help, he can find out that where his product is being demanded. After establishing contact with the importer, he explains him about the specification of his product and terms of payment. Many a times, exporters directly receive the inquiry from importers. The things which are inquired by the importer are the price of the product, type, packing, time taken in delivery, terms of payment etc. These are answered by the exporter.

2.

RECEIPT OF INDENT:

After trade enquiry, importer sends indent to exporter. In indent, name of product, price, type, quantity, packing method, time of sending goods, insurance instructions, payment

methods etc, are mentioned. If everything has been explained properly in indent means that exporter will have to follow the importers guidelines regarding exporting of goods. It is known as closed indent. If indent is incomplete, i.e., things have not been mentioned completely, then it is called as open indent, in this condition exporter takes many decisions as per his own discretion.

3.

CREDIT ENQUIRY:

Before proceeding further, exporter wants to satisfy himself regarding payment of goods. For this, he demands letter of credit from importer. This letter of credit is issued by importers bank in favour of exporter. Through this letter of credit, bank gives assurance to exporter of accepting bill of exchange of certain amount. If required, exporters ask for advance payment also from importer.

4.

OBTAINING EXPORT LICENCE:

After satisfying himself from payment side, exporter has to get export licence. For receiving export licence, he has to apply to office of controller of imports and exports. Along with the application, he has to deposit certain fee also. Controller of imports and exports check the application thoroughly and after satisfaction, issues an export licence to the exporter. Export licence is usually valid up to three months.

5.

DECLARATION REGARDING FOREIGN

EXCHANGE:
As per the Foreign Exchange Regulation Act, 1947, exporter had to declare that after receiving foreign exchange from importer, he will deposit it in Reserve Bank of India within a prescribed time limit. But now-a-days this provision does not apply. In 1991, when liberalisation policy of government came into force, a foreign exchange market was established in India. An independent sale and purchase of foreign currency takes place in this market. It means that if exporter receives foreign currency, either he can sell it in open market or he can keep it with himself. But he can keep foreign currency with him up to a certain limit.

6.

FIXATION OF EXCHANGE RATE:

Exchange rate is the rate at which currency of one country is exchanged by the currency of another country. This rate keeps on changing with the change in demand of currencies in foreign exchange market. Usually there is time lag between sending the goods and receiving of payment of goods. It is possible that rate of exchange changes within this time period. With the change, in exchange rate, importer can make profit as well as incur loss. For instance, an exporter exports goods worth $ 1000. The rate of $ today is Rs. 40. If, today exporter receives money from importer in rupee term, he will receive Rs. 40,000. Let us presume that payment is received after one month. It is possible that exchange rate either moves to Rs. 42 or to Rs. 38. If rate is Rs. 42, exporter will make extra profit because now he can receive Rs. 42,000 in exchange of $ 1000 in place of Rs. 40,000. But if rate is Rs. 38, exporter will incur a loss because now he will receive Rs. 38,000 only instead of Rs. 40,000. If exporter wants, he can either bear the risk of fluctuation of exchange rate or an agreement can be signed with bank also for bearing the risk for which bank can be paid some

commission. This means that whatever the exchange rate is, exporter will receive Rs. 40,000. The profit or loss arising out of change in exchange rate will be borne by bank.

7.

COLLECTION OF GOODS:

After receiving the order of goods and finalization of all other terms and conditions, exporter collects the goods. If goods are in his stock, it is assorted and duly packed and if not in stock, then it is purchased from other suppliers.

8.

PACKING AND MARKING OF GOODS:

After collection of goods, exporter packs and marks the goods as per the instruction of importer. If no clear instructions have been given by importer then practices already prevailing in trade are followed. While packing, it should be done in such a manner that goods reach to destination safely. Main objective of marking the goods is to save from inconvenience caused in recognizing them. Hence, marking signs should be clear.

9.

APPOINTMENT OF FORWARDING

AGENT:

When goods are ready for dispatching, then forwarding agents is appointed. Forwarding agent takes care of the procedures which start from taking the delivery of goods either from road transport or railway transport and loading it on ship. He charges commission from exporter for his work.

10.

FORWARDING OF GOODS TO THE

PORT:
After packing the goods and appointment of forwarding agent, the exporter transport the goods to the port. Goods are usually sent by railway. Exporter sends Railway Receipt (R/R) to forwarding agent, with which he takes delivery of goods.

11.

FUNCTIONS OF FORWARDING AGENT

AT PORT:
A forwarding agent has to perform following functions at port:

Obtaining the Shipping Order: After reaching the goods at port, forwarding Agent talks to a shipping company so that shipping company reserve some place for goods. After this agreement, shipping company issues

shipping order. In the shipping order, captain of ship is instructed to load the goods on ship mentioned in shipping order. If quantity of exported goods is very much, then full ship can be taken on freight. This agreement is called as Charter Party. Preparing Shipping Bill: For paying export duty, forwarding agent prepares the shipping bill in triplicate. In this shipping bill, quantity of goods, price of goods, address of exporter, address of importer, number of ship, number of items etc. are mentioned. On the basis of details furnished in shipping bill, export duty is determined. After payment of export duty custom official keep one copy of shipping bill with themselves and handover remaining two copies to the forwarding agent. Payment of Dock Dues: Permission of Dock authorities is required to carry the goods to port to load them on ship. Dock officers give this permission only after the payment of dock dues. For paying dock dues, dock challan is prepared in duplicate. After paying the dock dues, one copy is returned to agent as receipt. Now the port officers arrange for loading the goods on ship. This time, a copy

each of shipping order and shipping bill is handed over to them. This makes them clear about name of ship on which goods are to be loaded and that the export duty has been paid.

Obtaining Mates Receipt: When goods have been loaded on ship then captain of ship gives a receipt of receiving goods on ship which is called as Mates Receipt. This receipt is of two types-If goods loaded on ship were in good condition and packing was good and captain of ship is fully satisfied with that clean receipt is issued. Contrary to this, if pack of goods was unsatisfactory then foul receipt is issued. Bill of Lading: Forwarding agent along with the Mates Receipt, goes to office of shipping company. There, he fills the form of bill of lading and deposit it along with the Mates receipt in the office of shipping company. The officer in-charge keeps the mates receipt with him and returns the bill of lading to forwarding agent after signing it. If the freight of ship is to be paid in advance, then signed bill of lading I received only after the

payment of freight. Details of goods are mentioned in bill of lading as already mentioned in the mates receipt. Insurance of Goods: Forwarding agent inquires the various insurance companies and after a thorough check, most suitable company is instructed to issue marine insurance policy.

Advice to the Exporter: After finishing his work completely, forwarding agent informs the exporter through an advice letter. Along with the advice letter, all required documents, details of expenses and

commission is also sent.

12.

PREPARING INVOICE:

After receiving information from forwarding agent about loading of goods, exporter prepares the invoice. The invoice is prepared on the basis of terms and conditions decided upon between exporter and importer. For instance, if freight of the ship or insurance expenses is borne by exporter then these will

not be added in invoice. In invoice, the details like quantity of goods, value of goods, type of goods indent number, name of ship, packing etc. are given

13.

OBTAINING INVOICE CERTIFIED BY

CONSULAR:
Some countries recognise the certified invoice not the invoice only. Such invoices are issued by trade consular of importer country situated in exported country. If the certified invoice is available, custom authorities are required to open the whole cargo to check whether the prices are as per the specifications mentioned in invoice. In absence of certified invoice, they can open the whole cargo to check the goods.

14.

CERTIFICATE OF ORIGIN:

Many times some countries exempt their importers from import duty, if they import goods from some specific country. This exemption is available only if certificate of origin of exporter has been attached along with invoice. This certificate is issued

either by secretary of chambers of commerce or by any other officer appointed by government to do so.

15.

PREPARING DOCUMENTS RELATING

TO PAYMENT:
After all this, various documents based on terms and conditions of payment are prepared. Terms and conditions of payment can be various types:

Document Against Payment-D/P: If payment is to be made in cash then exporter writes D/P on bill. This means that after making payment in bank, importer can take the documents related with goods.

Documents Against Acceptance: If bill of exchange of a further date is to be accepted then the exporter writes D/A on bill. This means that importer can take the documents related to goods from bank after accepting bill of exchange.

 Bill on Bank: When importer has sent the letter of credit, then exporter write a bill of exchange on bank issuing letter of credit. The bank to which documents have been sent release the documents only after getting the acceptance from importers bank. Writing the bill on bank is called as documentary credit. Under this method, it is necessary to send the documents related to goods to bank. Documents can not be sent directly to importer.

Advice to Importer: After completing all the formalities, importer is informed about the name of banks where documents have been sent. It is not necessary that documents should be sent to bank only. If there is no problem regarding payment then documents can be sent directly to importer also. Usually exporter deposits the

documents in his bank. This bank sends the documents to its foreign branch or its agent bank abroad. After fulfilling the terms of payment, importer releases the documents.

IMPORTANT DOCUMENTS USED IN EXPORT TRADE:

Various documents are used in Export Trade. Some of them are as follows:

Indent Letter of Credit-L/C Export Licence Railway Receipt-R/R Shipping Order Shipping Bill Dock Challan Mates Receipt Bill of Lading

 Marine Insurance Policy Invoice Invoice Certified By (Consular) Certificate of Origin Advice to Importer

INCENTIVES AVAILABLE FOR EXPORT PROMOTION

The government has not only taken several steps to promote exports, but also it ahs offered many incentives to the businessmen to get linked with export trade. Encouraged by these incentives, the businessmen have started taking interest in the export trade. These incentives can both be financial and non-financial. The financial incentives include various tax concessions and low rate of interest. The non-financial

incentives are in form of awarding merit certificate for outstanding performance in the field of export trade. The incentives given have been detailed below:

 Duty Free Import: The exporters do not have to pay any import duty on the goods purchased abroad and imported in the country. This applies to raw material, capital goods like machinery. Excise Duty Exemption: All those industrial units which produce goods for the purpose of exports are exempted from the excise duty. Concessional Rent: The industrial units established for the purpose of export are given modern plants on cheap rent, especially the constructed factory buildings and sheds. Income tax Exemption: Profits under the export trade are exempted from taxation under the provision of Income Tax Act. Lower Rate of Interest: The exporters are offered financial assistance at low rate of interest. Concessional Freight: The exporters are also given concession in freight in

transporting goods meant for export from one place to another. Awards:

Many awards have been instituted to encourage the exporters to establish their identity in export trade. There are different awards for different categories of exporters. These awards are given on the basis of their participation in export trade.

FINDINGS:

PREPRATION OF AN EXPORT SHIPMENT:

Various documents are prepared in the process of Export Shipment. Details of them are as follows:

INVOICE:
Invoice is s document which contains the name of exporter and importer. It also mentions the items of delivery and terms of payment. Terms of Payment can be i. Documents against Payment:

In this system exporters bank sends the documents to the importers bank. The importer pays to the exporter via bank and takes the delivery of documents. ii. Documents against Acceptance:

In this procedure the buyer collects the documents from the bank, on a condition to pay after a specified time. iii. Letter of Credit-L/C:

It is popularly known as L/C. in this system the buyer sends a L/C to the exporter for the order he has placed. After the shipment the exporter prepares the documents according to

the conditions mentioned in L/C and presents it to the buyers bank for negotiation or collection.

PRICE OF GOODS: The price is negotiated between the buyer and the seller i.e., exporter. It can be of following types: F.O.B: F.O.B stands for free on board. In this condition the exporter pays all the expenses of transportation from his unit to seaport/airport or the terminal handling the transport and other charges, the buyer does not have to pay for all the incurring expenses. C.I.F-Cost, Insurance and Freight: In this case the exporter pays all the charges of transportation from his shipping seaport/airport and the ocean freight up to the buyers country. The insurance is also covered by the exporter (on negotiated terms with buyer) C&F-Cost and Freight: It is similar to CIF. The only difference is that the insurance is not covered by the exporter.

The invoice also contains the packing type of goods, no. of cartons, quantity of goods and price of goods etc.

PACKING LIST:
As the name suggests the packing list contains a detailed description of the packages being sent by an exporter i.e. cartons no.s, their quantity, net weight, gross weight etc. The net weight of various commodities is also used as a reference for claiming the duty drawback from the customs.

FORM SDF and GR FORM:

These forms are used as a declaration by the exporter that he will receive the payment of the shipment in his bank which s mentioned in the forms. The difference between GR form and SDF form is that SDF forms are used in the ports which have computerised system of drawback clearance. The amount of drawback is transferred to the bank account of exporter on that port. GR form on the other hand is the old format form which is used on the ports which have the manual system of clearance.

SHIPPING INSTRUCTIONS:

After the shipment is ready and the exporter prepares the invoice, packing list and appoints the Custom House Agent (CHA) for clearing the shipment from the customs and arrange a suitable shipping line for it. The shipping instruction is issued to the CHA by the exporter. The shipping instruction mentions the details of: Buyer Exporter Description of Goods Bank A/C No. of Exporter on the Port It also contains the measurement in cubic metres of the shipment and other instructions required by the exporter and importer.

GSP Form-Generalized System of Preferences:

It contains the routine information and the origin of the goods. This document is used by some countries to give export encouragement to particular countries and products. It also has to be certified by the exports inspection agency, except USA in which the exporter can certify the same.

SHIPPING BILL:
The shipping bill is issued by the Custom House Agent. In this shipping bill quantity of goods, price of goods, address of exporter, address of importer, number of items etc. are mentioned. This shipping bill is used to calculate the duty drawback as per the latest rates applicable.

BILL OF LADING/ AIRWAY BILL:

Bill of lading is a receipt of cargo by the shipping line. It is issued in three originals i.e. I, II & III original. The shipping line cannot release the merchandise without all the three originals. In case export goods are sent by air, the airline issues an airway bill which has the same purpose and procedure.

 DOCUMENTS TO THE BANK:

After the shipment is made the exporter receives all the documents from the shipping agent. Then the exporter prepares the bill of exchange and attaches all the original documents, forwards it to the buyers bank via his bank in India. The bank then receives the payment and credits the account of exporter.

BRC (Bank Certificate of Export and Realisation):

After the payment is received the exporter files the BRC form and get it certified from his banker. It contains all the details of the shipment like invoice no. , shipping bill no. , invoice amount, freight, insurance, amount of payment realised, payment date etc. It is used as a proof in various government departments that an export shipment has been made and the payment of the same is realised in due course.

PREFACE:

The National Curriculum frame work (N.C.F) 2008 recommends that students life at school must be linked to the professional life outside the school. This principle marks a departure from the urgency of the bookish learning which continues to shape our system and causes a gap between the school, home and community. This project is given by our respective subject teacher to make us aware of real procedures involved in the process of Export Trade and enhancing the knowledge on subject topic,

simultaneously inculcating creative values.

Now a day, to promote economic development and economic growth government is providing various incentives and

exemptions to the exporter in order to increase the exports from country. This project has enabled us to learn the various legal steps involved in exporting from India. This project made our life at school a learning experience in a simple way, rather than a source of stress or boredom.

REMARKS:

ACNOWLEDGEMENT:

We would like to thank respected Sister Rosily, Principal St. Marys Senior Secondary School, Moradabad for giving us the permission to go ahead with our project.

We would like to thank Mrs. Shefali for her unconditional support and guidance provided throughout the project work. Without which this project work would not have shaped so well and might have not completed in time as well.

Great regard and thanks is also channelled to Mr. Faheem Akhtar (Partner) and Mr. Azeem Akhtar (Partner) of

Everesto Exports for providing us all the essential and required information for the project work.

We are also thankful to our families and friends for providing us their support and love throughout the project.

Airish Khan (2) Farha Faheem (7) Syed Deeba (33)

BIBLIOGRAPHY

Year 2006-07

Author R.K. Singla

Book Name Business Studies

Index

Methodology

Theory

Findings

Bibliography

Questionnaire

Remarks

QUESTIONNAIRE

I. Name of the Export Unit II. Name/s of the Owners III. Year of Establishment IV. Form of Business Unit

. . ..... ...............

V. Name of Main Product of Export... VI. Export Procedure EXPORT PROCEDURE

 GOVERNMENT INCENTIVES . . . . . . . . . . .