1.1 Introduction Incense sticks and other incense items form part and parcel of the traditional Hindu practice of

offering prayers in temples and other places of worship, in modern days, perfumed sticks are also

used in houses and in other public places as air-fresheners and/or mosquito repellents. India is

the largest producer of incense sticks in the world.

Besides providing employment to unskilled women and children, in recent years, incense sticks

have increasingly become a significant foreign exchange earner for the country. Under the liberal

economic policies of the Government, the incense sticks industry has potential to expand its

global market and is doing well by the years going on.

The study is about the procedures and documentation involved in an export business.

1.2 Company ProfileMother's Commerce Company (P) Ltd was established in August 1975 in the former French

colony of Pondicherry on the Coromandal Coast of South India in collaboration with American

and Dutch associates. The main objective of company was to produce very fine quality

handmade products designed to meet today's aesthetic tastes. One of the aims was to generate

attractive employment opportunities for young women in the local community.

(A) The main objectives to be pursued by the company on its incorporation are –

1. To carry on business in keeping with Principles of Sri Aurobindo’s yoga

2. To provide support in all possible ways to individuals and organization

working for the ideas of Sri Aurobindo.

3. To buy and sell, import and export any or all of the following items:

a) Essential oils like rose oil, jasmine oil, tuberose oil etc.

b) Wood, wood products and furniture.

c) Industrial linings.

d) Chemicals like alcohol, acetaldehyde furfural etc.

e) Handloom and tapestries, rugs and garments.

f) Incense and perfumes.

g) Hand made paper.

h) Agricultural products.

i) Engineering goods.

The company is a private company within the meaning of section 3 [I] [iii] of the companies Act,

1956. The company started with a capital of 750,000 divided into 5000 equity shares of Rs.100

each and 2500 preference shares of Rs.100 each.

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1.3 Departments – There are four different departments/units under this company situated in various locations of the

Pondicherry city. They are:

Rolling unit – the main work starts here. This unit takes care of mixing of masalas

and perfume oils required to male incense sticks, cones etc. Here labor strength is

35.

Printing Unit – it works as a R&D unit for the company. It prepares different

varieties of packing covers with innovative designs on it. All the printing work

made with environmental friendly items and is 100% hand made. The labor strength

of this unit is 40.

Packing Unit – here all the final touches to the product takes place. Barcodes and all

necessary information will be affixed on the final product. Final products will be

neatly packed and will keep in cartons of different sizes. The carton selection will

be according to buyer preference and all will be set ready to leave to port. Here the

labor strength is 55. 53 of them are women, two managers and one supervisor.

Mira Agarbattis – this unit is exclusively to meet local demand. Here the quality of

the items used for manufacturing will be inferior to export quality.

1.4 Products MCC offer products with a multi range of fragrances which are delightful and permeates the

atmosphere with its rich fragrance. Products appeal to the demanding and discriminating

consumers and appeal to their aesthetic sense. These products will not endanger the health or its

detrimental effects on the environment are minimum, which is a great success for the deep

penetration into the market.

Products are as follows:

Incense

Cones

Perfume oils

Woolen tapestries

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All these products except tapestries are available in 22 different fragrances. Different types of

fragrances and their description are –

Amber

Delightfully soft and sweet. A dreamy fragrance which is calming and pleasant upon your

emotions.

Autumn Leaves

A rich and inspiring fragrance that will make you feel closer to nature.

Cinnamon and Spice

The warm and happy fragrance of cinnamon with a variety of spices. The richness of the

ingredients makes it seem different every time you burn it.

Evening Rose

Clear, strong, warm and a little sweet. The fragrance of tuberose, pleasant and exotic.

Frankincense

A pleasantly sweet and slightly herbal fragrance. Oli banum resin is the basis of this fragrance.

Gardenia

The rich fragrance of the gardenia flower. A special scent with an abundance of interesting

characteristics.

Honeysuckle

An especially sweet scent, a little stronger than our other floral fragrances. Its an active

fragrance.

Jasmine

Soft and mild. This fragrance is a little dry and green. Jasmine is a scent of purity, it is pleasant

and soothing.

Lavender

One of mildest fragrances, dry and fresh with a calming effect. Use lavender to have a restful

sleep.

Lotus

A wonderfully pleasant and sweet fragrance. Lotus is inspiring and makes you feel happy. It is

much valued by people who are ill, as Lotus helps to clear negative thoughts.

Lotus is also much appreciated by children.

Musk

A very fine floral musk with an adventurous note. A happy surprise. This fragrance initiates

activity, which can help you study and work. A personal favorite of many people.

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Myrrh

A very remarkable scent. Active, happy and adventurous. A mild, but unique fragrance which

you will never forget.

Orange Blossom

A special, slightly heavier flower fragrance. A dreamy scent for the evening.

Oriental Rose

A very special rose fragrance with a hint of sandalwood, which inspires creativity. A fragrance

for adventurous people. Oriental Rose is not available as cones.

Passion Flower

A mild, but remarkable fragrance, which will fascinate you and inspires creativity. Very well

suited as a special gift.

Patchouli

The strong and unmistakable fragrance of patchouli leaves, softened with a hint of rose and

enriched with a variety of herbs.

Rose

The fragrance of red roses with a touch of mint. Delightful, clear and friendly.

Roses and Violets

A fragrance with a smile, wonderfully sweet with the presence of violets. Most happy fragrance

and the favorite of children.

Sandalwood

The king of fragrances. One hundred per cent sandalwood enriched with sandalwood oil. Very

well suited for meditation and yoga. Sandalwood has a calming effect, clears the mind and

stimulates the intuition.

Spicewood

Clears the atmosphere and has a disinfecting effect. It also keeps mosquitoes and other insects at

a distance. Spicewood is ideal for outside use and on holidays.

Vanilla

The sweetness of vanilla and heliotrope makes this our sweetest fragrance. Complete, full and

happy.

Wild Flower

The woodiest of our floral fragrances. Warm, rich and relaxing.

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Incense Sticks

Mini Sampler 12 fan gold palette

Shantinaga champa

12 fan pallette 21 fan palette

Perfume Oils

Set of perfumes

Cones

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12 floral cones 18 floral cones

1.5 Product Manufacturing ProcessThe Mother's Fragrances Incense is made using the age old masala method that uses only natural

ingredients and avoids dipping in any hazardous chemicals.

A variety of scented flowers, herbs, leaves, essential oils, resins and wood powders or charcoal

are blended with water to form a dough. Every fragrance has its own mix of ingredients. A tree

resin which has adhesive properties is added to the mixture as a binding agent. The dough is

rolled onto thin slivers of bamboo and allowed to dry in the shade. The result is light and clean

burning incense, with just enough smoke to carry the fragrance, but not cloud the room.

The scents of flowers are generally subtle and delicate. Charcoal, which burns without a scent of

its own is therefore used for the floral fragrances. These sticks are black. The brown sticks

contain a variety of wood powders and herbs and are used to create more woody fragrances like

amber and sandalwood.

In the manufacturing of incense products no toxic materials or processes are involved.

Conventionally, incense sticks are rolled at the rolling unit. They are later dipped in essential

oils, dried and packed in a factory. In this process the essential oils are diluted with cheap

chemicals. The result is dipped incense which is strong and rich in chemicals, with a heavy

fragrance that lingers for a long time and attaches itself to clothes and curtains. Incense is hand

rolled whereby the essential oils are included in the dough from which the sticks are rolled. This

eliminates the need to dilute the essential oils with chemicals, and gives a fragrance which is far

superior to that of dipped incense sticks. It also creates a healthier work environment for the

incense makers.

The above conditions are in stark contrast to the conditions under which millions of people in

developing countries work. The excellent conditions under which products are made and traded

have led accreditation as Fair Trade importers by the British Association for Fair Trade Shops

(BAFTS). These products are also accredited by the Dutch Society of World Shops (Landelijke

Vereniging van Wereldwinkels).

Hand-woven Woolen Tapestries

Company has a special design team for tapestry unit. Design team works with established

graphic artists from the USA and Europe to translate their best designs into original hand-woven

images. Unlike machine-made tapestries, each of designs is created by hand on a traditional

upright loom using the finest quality carpet wool. MCC uses the finest grade of carpet wool from 6

the northern province of Punjab in India. Color palette includes an extensive range of rich and

subtle colors. Most of wool is dyed by hand at the weaving center in Pondicherry using the

highest grade commercial dyes to ensure uniformity, color-fastness and resistance to fading. The

wool is moth-proofed before being spun into yarn for the weaving, and the finished tapestries are

all shipped with moth balls.

The weaving is done by young adult women from the local community who receive special

training in European style tapestry weaving. The weaver sits on a stool in front of the loom to

work on the tapestry. She works from a drawing called a cartoon, which is a black and white

rendition of the tapestry with numbered areas corresponding to the various colors of wool to be

used. The weaving technique used is called split-weave, so called because there are gaps or splits

in the tapestry upon completion of the weaving, generally wherever there are color changes in

the design. This technique allows for the depiction of very fine, life-like detail in the design.

When the weaver is finished, the tapestry is sent to the finishing room, where the splits in the

design are hand-sewn tightly shut and the edges of the tapestry are turned and sewn over. A

sleeve is also sewn on the back where a rod can be slipped through for hanging on the wall.

Cones

The Mother's Fragrance incense cones are hand rolled according to the age-old masala method

(no dipping in chemical solvents) from the finest nature friendly ingredients including

sandalwood and other scented wood powders, fragrant leaves, bark, root and gum resins, floral

and other essential oils. The base of these cones is made from honey and Halmaddi, a paste

derived from Mimusops Elengi L, a species of the Sapotaceae family.

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The main customers of the company are:

M/s. Mira International, The Netherlands.Website: http://www.wierook.nl/

M/s. Mere Cie, USA.Website: http://www.merecie.com/

Greater Goods,UKWebsite: http://www.greatergoods.co.uk/,

M/s. Fritz naturprodukte,Austria.

Percentage of Exports to Different Buyers

In the year 2009 – 10 Mother’s Commerce Company has exported mainly to Netherlands. Export

to different countries and respective buyer are explained below

Netherlands70%

UK10%

USA10%

UAE5%

Others5%

Exports of Mother's commerce

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1.7 Cost StructureThere are two stages involved in the production of incense sticks. One stage involves the

production of non-perfumed (non-masala) incense sticks, and the second entails the production

of perfumed (masala) incense sticks. The costs of production can also be disaggregated by these

two stages as labor costs are significantly different in these two stages.

Non-perfumed incense sticks are generally produced at home through the family contract system

and take up to 80% of the total labor required; its share in the total production cost, however, is

about 10% in preparing raw incense sticks. The addition of perfumes is carried out in factories

and takes about 20% of the total workdays required for the production and, along with

packaging, accounts for about 60% of the production cost. Another 20% of the cost is incurred in

marketing.

Packaging is one major variable. Both the input costs and the value of the output differ from

season to season and from place to place. This is because the materials are mostly purchased as

residues from other industries.

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2 Exports ManagementExport management involves all the activities relating to procedures, formalities and payment

modes of particular export. MCC is a cottage industry and formalities required to cross at the

time of shipment are comparatively less than for other goods. MCC is a small scale industry and

is receiving many tax exemptions and duty draw backs from the government of India. I limited

my study to export documentation and export finance at Mother’s Commerce Company (P) Ltd.

The formalities relating to export and export finance are explained below.

2.1 Export documentationMother’s Commerce Company mainly trades with UK, Netherlands, USA, UAE, Austria and

Israel. As it is maintaining strong relationship with all its buyers, the payment problems have

been ruled out. The method of payment usually used by Mother’s commerce is Advance

payment. Though it used letter of credit earlier, it seemed to be costlier given the scale of export

of the company. The procedures and documentation system followed by the company is studied.

Many of the buyers of the company prefer shipment through sea to air except UAE.

Cash-in-Advance(Pre-Payment)

Cash in Advance is a pre-payment method in which, an importer the payment for the items to be

imported in advance prior to the shipment of goods. The importer must trust that the supplier will

ship the product on time and that the goods will be as advertised. Cash-in-Advance method of

payment creates a lot of risk factors for the importers. However, this method of payment is

inexpensive as it involves direct importer-exporter contact without commercial bank

involvement.

In international trade, Cash in Advance methods of payment is usually done when-

The Importer has not been long established.

The Importer's credit status is doubtful or unsatisfactory.

The country or political risks are very high in the importer’s country.

The product is in heavy demand and the seller does not have to accommodate an

Importer's financing request in order to sell the merchandise.

Documentary Letters of Credit

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A Documentary Letter of Credit (LC) is a written undertaking given by a bank on behalf of an

Importer to pay the Exporter a given sum of money within a specified time, providing that the

Exporter presents documents, which comply with the terms laid down in the Letter of Credit.

Letters of Credit can be for any amount, in any freely traded currency, and, subject to the

presentation of compliant documents, may be payable: at sight, which means as soon as a

compliant set of documents are presented to the paying bank; or, after a specified term, e.g. at

30, 60, 90 or 180 days of sight or Bill of Lading date.

If the documents are not presented exactly as specified in the Letter of Credit, payment will not

be made unless the Importer gives their authority to waive or amend the specified condition.

A fundamental principle of Letters of Credit is that banks deal with documents and not with the

goods to which the documents refer.

For example, if the Importer is not happy with the quality of the goods but the documents

comply with the terms and conditions of the letter of credit, the Importer’s bank is obliged to pay

the Exporter.

Some of the most used and most important documents of exports are as follows:

Bill of Exchange

The Documentary Letter of Credit will stipulate when payment is to be made and the bill of

exchange must be drawn up accordingly. The bill of exchange must conform exactly to the terms

of the Letter of Credit, with the sum specified not exceeding the amount of the LC.

Unless the Documentary Letter of Credit stipulates that Bills of Exchange are required to be in

duplicate, a single Bill of Exchange will be acceptable.

Bill of Exchange forms may be purchased from printers or stationers, or they may be drawn on a

company’s notepaper or even a blank sheet of paper. When being presented for payment, the Bill

of Exchange must be correctly endorsed by the payee.

Certificate of inspection

A document issued by a grading agency that assures the buyer that the shipment of lumber has

been examined by a qualified inspector and that the lumber in the shipment is of the grade

indicated. Often used for selects and timbers where a grade mark would not show, or where one

would affect the use of the piece.

Commercial Invoice

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A commercial invoice is a bill of goods from the seller to the buyer. Commercial invoices are

utilized by customs officials to determine the value of the goods in order to assess customs duties

and taxes.

In general there is no standard form for a commercial invoice although they tend to contain many

of the following features:

Seller’s contact information

Buyer’s contact information

Consignee’s contact information (if it is different from the buyers)

Invoice date

A unique invoice number

Sales terms (usually in incoterm format)

Payment terms

Currency of sale

Full quantities and description of merchandise (Generally this includes unit price and

total price. Product descriptions should be consistent with the buyer’s purchase

order. Including the Harmonized System commodity codes can be helpful, especially

in countries that are WTO members.)

Certification that the invoice is correct (Standard language is “We certify that this

invoice is true and correct.”

Packing List

A Packing List gives details of the contents of all the packages making up the consignments and

is required by Custom’s authorities if the packing information is not shown on the invoice. The

Packing List is usually attached to the invoice. Par Value the official fixed exchange rate

between two currencies or between a currency and a specific weight of gold or a basket of

currencies.

Certificate of origin

A certificate, which identifies the country of origin, is typically required for international

shipments. Certain countries may entirely bar shipments from certain other countries. In select

countries, a notarized certificate of the country of origin may significantly lower the taxes levied.

Certificate of inspection

A document issued by a grading agency that assures the buyer that the shipment has been

examined by a qualified inspector, and that the goods in the shipment are of the grade indicated. 12

Often used for selects and timbers where a grade mark would not show, or where one would

affect the use of the piece.

Pro forma invoice

An invoice received before a sale is consummated, information the buyer of the terms of sale.

Pro forma invoices are often used in foreign trade as the buyer’s proof of future sale when

applying for import licenses and foreign exchange through government agencies.

Certificate of insurance

A certificate issued by an insurance company or its agent. It verifies that a certain insurance

policy is in effect for stated amounts and coverage and names those insured.

Bill of Lading

A Bill of Lading is a receipt given by the shipping company upon shipment of the goods and is

evidence of a contract of carriage. It is a document of title to the goods, and as such is required to

enable them to clear the goods at the port of destination. Two or three signed sets of the original

copies of the Bill of Lading are usually made out. These are known as ‘negotiable copies’, any

one of which can give title to the goods. Unsigned, non-negotiable copies also exist, which are

not documents of title, but are used for record purposes.

The goods will only be released to Consignee. Normally Bills of Lading are made out to order,

unless the documents are made out to the Importer as the Consignee of the goods.

Types of Bills of Lading:

‘Shipped’ or ‘shipped on board’. (Indicates that the goods have been received on ship).

‘Received for shipment’, (Signifies that the ship owner has taken delivery of the goods,

but they have not been placed on board the vessel).

‘Combined Transport’. (Issued to cover all stages of the journey if both ocean and

overland transport is used).

Insurance:

The Letter of Credit will indicate what insurance cover is required, and will state whether an

insurance policy or a certificate is needed. An insurance policy may only be issued by the insurer

and is usually in standard form covering the customary risks for any method of transport

(Lloyd’s MAR policy is normally used). Regular Exporters can organize an open policy to cover

all exports during a specific period. Individual insurance certificates are issued for each 13

shipment by either the insurers and/or the Exporter. This certificate must contain the same details

as the policy, with a shortened version of the provisions of the policy under which it is issued.

Invoice:

An invoice gives details of the goods involved in the transaction between the Importer and the

Exporter. Several copies of the document are produced as are required by customs, excise

authorities overseas etc. All details in the invoice need to be exactly the same as specified in the

LC or in other documents.

FREIGHT FORWARDERS

An international freight forwarder is an agent for the exporter in moving cargo to an overseas

destination. These agents are familiar with the import rules and regulations of foreign countries,

the methods of shipping, and the documents related to foreign trade. Export freight forwarders

are licensed by the International Air Transport Association (IATA) to handle air freight and the

Federal Maritime Commission to handle ocean freight.

Freight forwarders assist exporters in preparing price quotations by advising on freight costs,

port charges, consular fees, costs of special documentation, insurance costs, and their handling

fees. They recommend the packing methods that will protect the merchandise during transit or

can arrange to have the merchandise packed at the port or containerized. If the exporter prefers,

freight forwarders can reserve the necessary space on a vessel, aircraft, train, or truck.

Once the order is ready for shipment, freight forwarders should be reviewing all documents to

ensure that everything is in order. They may also prepare the bill of lading and any special

required documentation. After shipment, they can route the documents to the seller, the buyer, or

to a paying bank. Freight forwarders can also make arrangements with customs brokers overseas

to ensure that the goods comply with customs export documentation regulations. A customs

broker is an individual or company that is licensed to transact customs business on behalf of

others.

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Incoterms 2010 – International Commercial Terms

These are the terms seller and buyer negotiate for cost, insurance, freight etc. these terms decides

who have to bear the risk or whom to transfer the risk.

The term used by Mothers commerce is FOB Chennai.

Rules for Sea and Inland Waterway Transport:

FAS - Free Alongside Ship: Risk passes to buyer, including payment of all transportation and

insurance costs, once delivered alongside the ship (realistically at named port terminal) by the seller.

The export clearance obligation rests with the seller.

FOB - Free On Board: Risk passes to buyer, including payment of all transportation and insurance

costs, once delivered on board the ship by the seller. A step further than FAS.

CFR - Cost and Freight: Seller delivers goods and risk passes to buyer when on board the vessel.

Seller arranges and pays cost and freight to the named destination port. A step further than FOB.

CIF - Cost, Insurance and Freight: Risk passes to buyer when delivered on board the ship. Seller

arranges and pays cost, freight and insurance to destination port. Adds insurance costs to CFR.

Rules for Any Mode or Modes of Transportation:

EXW - Ex Works: Seller delivers (without loading) the goods at disposal of buyer at seller’s

premises. Long held as the most preferable term for those new-to-exports because it represents the

minimum liability to the seller. On these routed transactions, the buyer has limited obligation to

provide export information to the seller.

FCA - Free Carrier: Seller delivers the goods to the carrier and may be responsible for clearing the

goods for export (filing the EEI). More realistic than EXW because it includes loading at pick-up,

which is commonly expected, and sellers are more concerned about export violations.

CPT - Carriage Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the

buyer, but seller must pay cost of carriage to the named place of destination.

CIP - Carriage and Insurance Paid To: Seller delivers goods to the carrier at an agreed place, shifting

risk to the buyer, but seller pays carriage and insurance to the named place of destination.

DAT - Delivered at Terminal: Seller bears cost, risk and responsibility until goods are unloaded

(delivered) at named quay, warehouse, yard, or terminal at destination. Demurrage or detention

charges may apply to seller. Seller clears goods for export, not import. DAT replaces DEQ, DES.

DAP - Delivered at Place: Seller bears cost, risk and responsibility for goods until made available to

buyer at named place of destination. Seller clears goods for export, not import. DAP replaces DAF,

DDU.

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DDP - Delivered Duty Paid: Seller bears cost, risk and responsibility for cleared goods at named

place of destination at buyer’s disposal. Buyer is responsible for unloading. Seller is responsible for

import clearance, duties and taxes so buyer is not “importer of record”

Duty Drawback Formalities

If the exporter intends to claim duty drawback on his exports, he has to follow prescribed

procedures and submit necessary papers. He has to make endorsement of shipping bill that claim

for duty drawback is being made. If he fails to do so due to genuine reasons, Commissioner of

Customs can grant exemption from this provision. [Proviso to rule 12(1) (a) of Duty Drawback

Rules].

2.2 Export FinanceFinancial assistance to the exporters is generally provided by Commercial Banks, before

shipment as well as after shipment of the said goods. The assistance provided before shipment of

goods is known as pre-shipment finance or packing credit and that provided after the shipment of

goods is known as post-shipment finance. Pre-shipment finance is given for working capital for

purchase of raw-material, processing, packing, transportation, ware-housing etc. of the goods

meant for export. Post-shipment finance is provided for bridging the gap between the shipment

of goods and realization of export proceeds. The later is done by the Banks by purchasing or

negotiating the export documents or by extending advance against export bills accepted on

collection basis. While doing so, the Banks adjust the pre-shipment advance, if any, already

granted to the exporter. MCC prefers largely Post shipment credit and so I learnt the procedure

and mechanism of it. Explanation for post and pre – shipment finances are given below -

The following diagram depicts the export business cycle:

Financing at two stages – initially, to process the order and then to bridge the gap between the

time you ship the goods to the time you actually receive the payment. Export financing has been

designed to take care of these needs.

Export finance can be broadly classified into two categories, depending upon the stage of ‘export

activity’ at which the finance is availed. The two types of export financing are:

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Pre-Shipment Finance.

Post-Shipment Finance.

I. Post Shipment Finance

Post-shipment finance is the finance provided against shipping documents. It is also provided

against duty drawback claims. It is provided in the following forms:

Purchase of Export Documents drawn under Export Order

Purchase or discount facilities in respect of export bills drawn under confirmed export order are

generally granted to the customers who are enjoying Bill Purchase/Discounting limits from the

Bank. As in case of purchase or discounting of export documents drawn under export order, the

security offered under L/C by way of substitution of credit-worthiness of the buyer by the issuing

bank is not available, the bank financing is totally dependent upon the credit worthiness of the

buyer, i.e. the importer, as well as that of the exporter or the beneficiary. The documents dawn

on DP basis are parted with through foreign correspondent only when payment is received while

in case of DA bills documents (including that of title to the goods) are passed on to the overseas

importer against the acceptance of the draft to make payment on maturity. DA bills are thus

unsecured. The bank financing against export bills is open to the risk of non-payment. Banks, in

order to enhance security, generally opt for ECGC policies and guarantees which are issued in

favor of the exporter/banks to protect their interest on percentage basis in case of non-payment or

delayed payment which is not on account of mischief, mistake or negligence on the part of

exporter. Within the total limit of policy issued to the customer, drawee-wise limits are generally

fixed for individual customers. At the time of purchasing the bill bank has to ascertain that this

drawee limit is not exceeded so as to make the bank ineligible for claim in case of non-payment.

Advances against Export Bills Sent on Collection

It may sometimes be possible to avail advance against export bills sent on collection. In such

cases the export bills are sent by the bank on collection basis as against their

purchase/discounting by the bank. Advance against such bills is granted by way of a 'separate

loan' usually termed as 'post-shipment loan'. This facility is, in fact, another form of post-

shipment advance and is sanctioned by the bank on the same terms and conditions as applicable

to the facility of Negotiation/Purchase/Discount of export bills. A margin of 10 to 25% is,

however, stipulated in such cases. The rates of interest etc., chargeable on this facility are also

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governed by the same rules. This type of facility is, however, not very popular and most of the

advances against export bills are made by the bank by way of negotiation/purchase/discount.

Advance against Goods Sent on Consignment Basis

When the goods are exported on consignment basis at the risk of the exporter for sale and

eventual remittance of sale proceeds to him by the agent/consignee, bank may finance against

such transaction subject to the customer enjoying specific limit to that effect. However, the bank

should ensure while forwarding shipping documents to its overseas branch/correspondent to

instruct the latter to deliver the document only against Trust Receipt/Undertaking to deliver the

sale proceeds by specified date, which should be within the prescribed date even if according to

the practice in certain trades a bill for part of the estimated value is drawn in advance against the

exports.

Advance against Undrawn Balance

In certain lines of export it is the trade practice that bills are not to be drawn for the full invoice

value of the goods but to leave small part undrawn for payment after adjustment due to

difference in rates, weight, quality etc. to be ascertained after approval and inspection of the

goods. Banks do finance against the undrawn balance if undrawn balance is in conformity with

the normal level of balance left undrawn in the particular line of export subject to a maximum of

10% of the value of export and an undertaking is obtained from the exporter that he will, within

6 months from due date of payment or the date of shipment of the goods, whichever is earlier

surrender balance proceeds of the shipment. Against the specific prior approval from Reserve

Bank of India the percentage of undrawn balance can be enhanced by the exporter and the

finance can be made available accordingly at higher rate. Since the actual amount to be realized

out of the undrawn balance, may be less than the undrawn balance, it is necessary to keep a

margin on such advance.

Advance against Retention Money

Banks also grant advances against retention money, which is payable within one year from the

date of shipment, at a concessional rate of interest up to 90 days. If such advances extend beyond

one year, they are treated as deferred payment advances which are also eligible for concessional

rate of interest.

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Advances against Claims of Duty Drawback

Duty Drawback is permitted against exports of different categories of goods under the 'Customs

and Central Excise Duty Drawback Rules, 1995'. Drawback in relation to goods manufactured in

India and exported means a rebate of duties chargeable on any imported materials or excisable

materials used in manufacture of such goods in India or rebate on excise duty chargeable under

Central Excises Act, 1944 on certain specified goods. The Duty Drawback Scheme is

administered by Directorate of Duty Drawback in the Ministry of Finance. The claims of duty

drawback are settled by Custom House at the rates determined and notified by the Directorate.

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 duty drawback as well. This claim is provisionally accepted by the

customs at 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 at Delhi, Mumbai,

Calcutta, Chennai, Chandigarh, and Hyderabad have evolved a simplified procedure under which

claims of duty drawback are 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 duty drawback as provisionally certified by customs.

Rates of Interest –

The rate of interest depends on the nature of the Bills, i.e., whether it is a demand bill or usance

bill. Like pre-shipment, post-shipment finance is also available at concessional rate of interest.

Present Rates of interest are as under:

Demand Bills for transit period Not exceeding (as specified by FEDAI) 10% p.a.

Usance Bills (for total period comprising usance period of ex-port bills, transit period as

specified by FEDAI and grace period, wherever applicable:

a. Up to 90 days 10% p.a.

b. Beyond 90 days and up to six 12% p.a.months from the date of shipment.

c. Beyond six months from the 20% date of Shipment (Minimum)

Against duty drawback etc., receivable- Not receivable from Government covered by adding

10%ECGC guarantees (up to 90 days) p.a. , Against undrawn balance (up to 90 days) and

Against retention money payable within one year from the date of shipment (upto90 days)

Normal Transit Period

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Foreign Exchange Dealers Association of India (FEDAI) has fixed transit period for export bills

drawn on different countries in the world. The concept of this transit period is that an export bill

should normally be realized within that period. The transit period so fixed by FEDAI is known as

'Normal Transit Period' and mainly depends on geographical location of a particular country.

Direct and Indirect Bill

If the currency of the bill is the same as the currency of the country on which it is drawn, it is

termed as direct bill, e.g. an export bill in US $ drawn on a place in U.S.A. However, if the

currency of the bill in which it is drawn is different than the currency of the country on which it

is drawn, it is termed as indirect bill, e.g. an export bill in US $ drawn on a place in Japan. The

normal transit period fixed for indirect bill is on higher side as compared to transit period fixed

for direct bills.

Notional Due Date

To determine the due date of an export bill we have to consider the following 3 components: (1)

Normal transit period as fixed by FEDAI (2) Usance period of the bill (3) Grace period if

applicable in the country on which the bill is drawn. Grace period is applicable only in the case

of usance bills. The notional due date of an export bill may thus be calculated after adding all the

above 3 components. The concessional rate of interest is chargeable up to the notional due date

subject to a maximum of 90 days.

II. Pre-Shipment Finance

An application for pre-shipment advance should be made by exporter to his banker along with

the following documents:

Confirmed export order/contract or L/C etc. in original. Where it is not available, an undertaking

to the effect that the same will be produced to the bank within a reasonable time for verification

and endorsement should be given. An undertaking that the advance will be utilized for the

specific purpose of procuring/manufacturing/shipping etc., of the goods meant for export only, as

stated in the relative confirmed export order or the L/C. If you are a sub-supplier and want to

supply the goods to the Export/Trading/Star Trading House or Merchant Exporter, an

undertaking from the Merchant Exporter or Export/Trading/Star Trading House stating that they

have not/will not avail themselves of packing credit facility against the same transaction for the

same purpose till the original packing credit is liquidated. Copies of Income Tax/Wealth Tax

assessment Order for the last 2-3 years in the case of sole proprietary and partnership firm. Copy 20

of Exporter's Code Number (CNX), Copy of a valid RCMC (Registration-cum-Membership

Certificate) held by you and/or the Export/Trading/Star Trading House Certificate. Appropriate

policy/guarantee of the ECGC.

Any other document required by the Bank. For encouraging exports, R.B.I. has instructed the

banks to grant pre-shipment advance at a concessional rate of interest. The present rate of

interest is 10% p.a. for pre-shipment advance upto an initial period of 180 days. Pre-shipment

advance for a further period of 90 days is given at the concessional rate of 13% p.a. Banks are

free to determine the interest rate for advances beyond 270 days and upto 360 days.

III. EXIM Bank Finance

Besides commercial banks, export finance is also made available by the EXIM bank. The EXIM

bank provides financial assistance to promote Indian exports through direct financial assistance,

overseas investment finance, term finance for export production and export development, pre-

shipment credit, lines of credit, re-lending facility, export bills re-discounting, refinance to

commercial banks, finance for computer software exports, finance for export marketing and bulk

import finance to commercial banks. The EXIM Bank also extends non-funded facility to Indian

exports in the form of guarantees. The diversified lending programme of the EXIM Bank now

covers various stages of exports, i.e. from the development export markets to expansion of

production capacity for exports, production for export and post shipment financing. The EXIM

Bank's focus is on export of manufactured goods, project exports, exports of technology, services

and export of computer software.

IV. SIDBI Finance

The Small Industries Development Bank of India (established under Small Industries Development

Bank of India Act, 1989 (39 of 1989)) is offering the International Finance schemes whose main

objective is to enable small-scale industries to raise finance at internationally competitive rates to

fulfill their export commitments.

The financial assistance is being offered in USD and Euro currencies. Assistance in Rupees is

also considered, independent of foreign currency limits.

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3.1 Conclusion After the study on export procedures and export finance at Mother’s Commerce Company (P)

Ltd, I can advise some feasible solutions and ideas for the problems facing by the company and

for its future developments. The ideas given are not only confined to finance but also some

aspects of other functional areas.

Development of basic infrastructure

Government should ensure essential infrastructural facilities to small-scale industries. One

example which can be cited is the provision of workshop sheds to facilitate drying of sticks,

especially during rainy seasons. Also, tax concessions could help in transportation.

Marketing

In India, agarbathi, despite recent increases in exports, is still an industry that caters

predominantly to the domestic market, however, because of its ‘green’ label, non-polluting

method of processing and, above all, the use of indigenous technology, the incense sticks can be

promoted to gain international markets. The current international incense sticks market is valued

at US$ l billion per annum, Gaining an increased share of this fairly large market is possible for

the Indian agarbathi industry if proper production and export strategies are adopted. Trade

promotion agencies of the government could help the industry in this regard. Also, a systematic

market survey by the agarbathi industry would help identify consumer tastes and preferences.

Company also has to implement promotional measures for better access to new customers and to

increase confidence in quality for existing customers. For this central and state governments has

to help to SSIs who are in need of awareness on global markets. For this Government of India is

offering courses exclusively for SSIs at a reasonable prices the. GOI is also helping the states

with special packages under different plans to develop infrastructure. Some of the development

programmes offered by GOI are listed below –

Promotional Measures

Assistance to states for infrastructure development of export (ASIDE)

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The state government shall be encouraged to participate in promoting export from the respective

state. For this purpose, the department of commerce has formulated a scheme called ASIDE.

The state shall utilize this amount for developing infrastructure such as roads, connecting

production centers with the port, setting up of inland container depots and container freight

stations, creation of new state level export promotion. Industrial parks/zones, stabilizing power

supply and any other activity as may be notified by department of commerce from time to time.

Market Access Initiative (MAI)

The market access initiative (MAI) scheme is intended to provide financial assistance for

medium term export promotion efforts promotion efforts with a sharp focus on a country and a

product.

The financial assistance is available for export promotion councils, industry and trade

association, agencies of state government, Indian commercial mission abroad and other eligible

entities as may be notified from time to time.

A whole range of activities can be funded under the MAI scheme. These include market studies,

setting up of showroom/warehouse, sales promotion campaigns, international departmental

stores, publicity campaigns, participation in international trade fair, brand promotion, registration

charges for pharmaceuticals. Testing charges for engineering products etc.

Each of these export promotion activities can receive financial assistance from the government

ranging from 25% to 100% of the total cost depending up on the activity and the implementing

agency.

Marketing Development Assistance (MDA)

The Marketing Development Assistance (MDA) scheme is intended to provide financial

assistance for a range of export promotion activities implemented by export promotion councils,

industry and trade association on a regular basis every year. As per the revised MDA guidelines

with effect from 1st April 2004, assistance under MDA is available for exporters with annual

export turnover up to Rs.5 Crores.

These include participation in trade fairs and buyer-seller meets abroad or in India, exports

promotion seminars etc,

Further assistance for participation in trade fairs abroad and travel grant is available to such

exporters if they travel to countries in one of the four focus areas, such as Latin America, CIS

region, ASEAN countries, Australia and New Zealand.

Brand promotion and Quality23

The central government aims to encourage manufacturers and exporters to attain internationally

accepted standards of quality for the product. The central government will extend support and

assistance to trade and industry to launch a nation wide program on quality awareness and to

trade and industry to launch a nation wide program on quality awareness and to promote the

concept of total quality management.

Labor

Due to a shift in the socio cultural setup in Pondicherry, attracting and retaining workers has

been a major issue for the mother’s commerce company. Being a manufacturer of handmade

incense and related products, it is a highly labor intensive firm. Procuring required manpower

has been a problem rather than marketing its products.

Even if the company makes use of various schemes by the Government to increase demand for

its product or create new international markets, it has to take some steps to meet the demand.

The company may consider

Expanding by starting new units where unskilled labor is available.

Modernising it’s units.

Revise the compensation increasing the benefits – monetary as well as non-monetary.

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References:

Mastering Imports and Exports Management by Kent N Gourdin

Export management by Khurani

www.mothersfragrances.com

www.eximguru.com

www.abebooks.com

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