Introduction
As per Section 2(e) of the Foreign Trade (Development & Regulation) Act, 1992, the term export is defined as an act of taking out of India any goods by land, sea or air and with proper transaction of money. However, in simple terms, export may be defined as the selling of goods to a foreign country. India’s Foreign Trade i.e. Exports and Imports are regulated by Foreign Trade Policy released by the Ministry of Commerce under FT(D&R) Act, incorporating provisions relating to export and import of goods and services.
STARTING EXPORTS
Export in itself is a very wide concept and lot of preparations is required by an exporter before starting an export business. To start export business, the following steps may be followed:
1) Establishing an Organisation
To start the export business, first a sole Proprietary concern or a Partnership firm or a Company has to be set up. While a sole Proprietary business or a Partnership firm can be set up easily without much expenses and much legal formalities, a Private Limited Company or a Public Limited Company are required to have the minimum prescribed members as share holders and such Companies are required to be registered with the Registrar of Companies.
2) Name & Style of the Business
After finalizing the business organization (Proprietorship, Partnership, etc.), it is essential to give a name to the business. A simple and attractive name with a good logo is advisable.
3) Opening a Bank Account
A current account with a Bank which is authorized to deal in Foreign Exchange should be opened.
4) Obtaining Permanent Account Number (PAN)
It is necessary for every exporter and importer to obtain a PAN from the Income Tax Department. (To apply PAN Card Click Here)
5) Obtaining Importer-Exporter Code (IEC) Number
No export or import is allowed to any person without an IEC number. Application for obtaining IEC Number in made online at DGFT website http://dgft.gov.in in the prescribed form ANF 2A. The fee for new IEC or amendment in existing IEC is Rs. 500/. The prescribed documents in case of proprietorship firm are digital photograph, PAN Card, Copy of Passport (first & last page)/ Voter’s I-Card/ Driving Licence/ UID (Aadhar Card), Address Proof (Sale deed in case business premise is self owned; or Rental/ lease Agreement, in case office is rented/ leased; or latest electricity/ telephone bill and Bank Certificate as per ANF 2A(I)/ Cancelled Cheque bearing pre-printed name of applicant and a/c no. Applicants with digital signatures would sign the application with their digital signature and submit the same online. In case the applicant does not possess digital signature, then he would be required to take a print out of the filled up application (without attachments), sign the same and submit it to the concerned RA, either by Post or at the counter. (To apply for IEC Code Click Here)
6) Selection of product
Barring a few items like live exotic birds, product of animal origin, pulses, etc.,all products are now freely exportable. After studying the trends of export of different products from India proper selection of the product(s) to be exported may be made. A key success factor in starting any export Company is clear understanding and detail knowledge of products to be exported. There would be little competition and higher demand for a unique product.
7) Selection of Markets
An overseas market should be selected after careful research of it taking into consideration all aspects political situation, market penetration by competitive countries and products, quality requirement and payment methods, price affordability, demand stability, etc. Growing markets are usually better targets for exports. Export promotion agencies, Indian Missions abroad, colleagues, friends, and relatives might be helpful in collection of data leading to informative knowledge of the markets.
8) Finding Buyers
In today’s Internet Age browsing internet is the effective tool to find out buyers. Visiting/participating in International Trade Fairs, Buyer-Seller Meets, Exhibitions in India and abroad, collecting addresses/enquiries from publications/journals/overseas Missions in India and making effective correspondence would lead to find out prospective buyers. Besides, Export Promotion Agencies, Indian Missions abroad, Overseas Chambers of Commerce friends & relatives residing in foreign countries may be helpful. Creating own Website showing product catalogue, price, payment terms and other related information would also help.
9) Sampling
Foreign buyers often ask for samples of the product in physical form. Sending attractive and informative samples made of good quality material and having retention value would help to procure export order.
10) Pricing/Costing
Product pricing is crucial in getting buyers’ attention, promoting sales and facing international competition. The price should be worked out taking into consideration all expenses from sampling to realization of export proceeds on the basis of terms of sale i.e. Free on Board (FOB), Cost, Insurance & Freight (CIF), Cost & Freight(C&F), etc. Goal of establishing export costing should be to sell maximum quantity at competitive price with maximum profit margin. Preparing an export costing sheet for every export product is advisable.
11) Negotiation with Buyers
After determining the buyer’s interest in the product, future prospects and continuity in business, demand for giving reasonable allowance/discount in price may be considered. This may be compensated by minimizing costly errors/expenses, generating repeated business and available export benefits.
12) Covering Risks through ECGC
In international trade risks like credit, country etc. are involved. These risks can be covered by an appropriate Policy from Export Credit Guarantee Corporation Ltd (ECGC). Where the buyer is placing order without making advance payment or opening letter of Credit, it is advisable to procure credit limit on the foreign buyer from ECGC to protect against risk of non-payment.(To know more about ECGC Click Here)
Processing an Export Order
i. Confirmation of order
On receiving an export order, it should be examined carefully in respect of items, specification, payment conditions, packaging, delivery schedule, etc. and then the order should be confirmed. Accordingly, the exporter may enter into a formal contract with the overseas buyer.
ii. Procurement of Goods
After confirmation of the export order, immediate steps may be taken for procurement/manufacture of the goods meant for export. It should be remembered that the order has been obtained with much efforts and competition so the procurement should also be strictly as per buyer’s requirement.
iii. Quality Control
In today’s competitive era it is important to be strict quality conscious about the export goods. Some products like food and agriculture, fishery, certain chemicals, etc. are subject to compulsory pre-shipment inspection. Foreign buyers may also lay down their own standards/specifications and insist upon inspection by their own nominated agencies. Maintaining high quality is necessary to sustain in export business.
iv. Finance
Exporters are eligible to obtain pre-shipment and post-shipment finance from Commercial Banks at concessional interest rates to complete the export transaction. Packing Credit advance in pre-shipment stage is granted to new exporters against lodgment of L/C or confirmed order for 180 days to meet working capital requirements for purchase of raw material/finished goods, labour expenses, packing, transporting, etc. Normally Banks give 75% to 90% advances of the value of the order keeping the balance as margin. Banks adjust the packing credit advance from the proceeds of export bills negotiated, purchased or discounted.
Post Shipment finance is given to exporters normally upto 90% of the Invoice value for normal transit period and in cases of usance export bills upto notional due date. The maximum period for post-shipment advances is 180 days from the date of shipment. Advances granted by Banks are adjusted by realization of the sale proceeds of the export bills. In case export bill becomes overdue Banks will charge commercial lending rate of interest.
v. Labeling, Packaging, Packing and Marking
The export goods should be labeled, packaged and packed strictly as per the buyer’s specific instructions. Good packaging delivers and presents the goods in top condition and in attractive way. Similarly, good packing helps easy handling, maximum loading, reducing shipping costs and to ensuring safety and standard of the cargo. Marking such as address, package number, port and place of destination, weight, handling instructions, etc. provides identification and information of cargo packed.
vi. Insurance
Marine insurance policy covers risks of loss or damage to the goods during the while the goods are in transit. Generally in CIF contract the exporters arrange the insurance whereas for C&F and FOB contract the buyers obtain insurance policy.
vii. Delivery
It is important feature of export and the exporter must adhere the delivery schedule. Planning should be there to let nothing stand in the way of fast and efficient delivery.
viii. Customs Procedures
It is necessary to obtain PAN based Business Identification Number (BIN) from the Customs prior to filing of shipping bill for clearance of export good and open a current account in the designated bank for crediting of any drawback amount and the same has to be registered on the system.
In case of Non-EDI, the shipping bills or bills of export are required to be filled in the format as prescribed in the Shipping Bill and Bill of Export (Form) regulations, 1991. An exporter need to apply different forms of shipping bill/ bill of export for export of duty free goods, export of dutiable goods and export under drawback etc.
In case of Non-EDI, the shipping bills or bills of export are required to be filled in the format as prescribed in the Shipping Bill and Bill of Export (Form) regulations, 1991. An exporter need to apply different forms of shipping bill/ bill of export for export of duty free goods, export of dutiable goods and export under drawback etc.
Under EDI System, declarations in prescribed format are to be filed through the Service Centers of Customs. A checklist is generated for verification of data by the exporter/CHA. After verification, the data is submitted to the System by the Service Center operator and the System generates a Shipping Bill Number, which is endorsed on the printed checklist and returned to the exporter/CHA. In most of the cases, a Shipping Bill is processed by the system on the basis of declarations made by the exporters without any human intervention. Where the Appraiser Dock (export) orders for samples to be drawn and tested, the Customs Officer may proceed to draw two samples from the consignment and enter the particulars thereof along with details of the testing agency in the ICES/E system.
Any correction/amendments in the check list generated after filing of declaration can be made at the service center, if the documents have not yet been submitted in the system and the shipping bill number has not been generated. In situations, where corrections are required to be made after the generation of the shipping bill number or after the goods have been brought into the Export Dock, amendments is carried out in the following manners.
1. The goods have not yet been allowed "let export" amendments may be permitted by the Assistant Commissioner (Exports).
2. Where the "Let Export" order has already been given, amendments may be permitted only by the Additional/Joint Commissioner, Custom House, in charge of export section.
In both the cases, after the permission for amendments has been granted, the Assistant Commissioner / Deputy Commissioner (Export) may approve the amendments on the system on behalf of the Additional /Joint Commissioner. Where the print out of the Shipping Bill has already been generated, the exporter may first surrender all copies of the shipping bill to the Dock Appraiser for cancellation before amendment is approved on the system.
ix. Customs House Agents
Exporters may avail services of Customs House Agents licensed by the Commissioner of Customs. They are professionals and facilitate work connected with clearance of cargo from Customs.
x. Documentation
Normally, documents required for Customs Clearance are Invoice, Packing List, Shipping Bill, Declaration under Foreign Exchange Regulations, buyer’s Order/LC and instructions form for the CHA. Other documents such as specified declarations/certificates for specific products by the concerned Government Authorities/Agencies Certificate of Origin/GSP Certificate, etc. may also be required.
x. Transportation Documents
- Airway Bill for Air shipment
- Bill of Lading for Sea shipment
- Postal Receipt for By Post shipment
xi. Submission of documents to Bank
After shipment, it is obligatory to present the documents to the Bank within 21 days for onward dispatch to the foreign Bank for arranging payment. Documents should be drawn under Collection/Purchase/Negotiation under L/C as the case may be, along with the following documents
- Bill of Exchange
- Letter of Credit (if shipment is under L/C)
- Invoice
- Packing List
- Airway Bill/Bill of Lading
- Declaration under Foreign Exchange
- Certificate of Origin/GSP
- Inspection Certificate, wherever necessary
-Any other document as required in the L/C or by the buyer or statutorily.
Registration with EPCs/Organizations/Authorities/Commodity Boards
There are 37 Export Promotion Councils/Organizations/Authorities/Commodity Boards for the promotion of various goods exported from India in international market. EPC works in close association with the Ministry of Commerce and Industry, Government of India and act as a platform for interaction between the exporting community and the government. Similarly, Commodity Board is registered agency designated by the Ministry of Commerce, Government of India for purposes of export-promotion and has offices in India and abroad. So, it becomes important for an exporter to obtain a registration cum membership certificate (RCMC) from the EPC/Commodity Board. An application for registration should be accompanied by a self certified copy of the IEC number. Membership fee should be paid in the form of cheque or draft after ascertaining the amount from the concerned EPC/Commodity Board. The RCMC certificate is valid from 1st April of the licensing year in which it was issued and shall be valid for five years ending 31st March of the licensing year, unless otherwise specified.
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