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International trade finance and promotion

A presentation on finance and trade related to International business

International trade finance and promotion

  1. 1. INTERNATIONAL TRADE FINANCE AND PROMOTION Presented by: Rishab Goyal (143) Shri Jain(170) Rikhabh Das (171) Neeru Meena (172) Muthumeenal (175) Aishwarya Dhawan (177)
  2. 2. . .WHAT IS INTERNATIONAL TRADE PAYMENT?
  3. 3. MODES OF PAYMENT • Cash in advance • Letter of credit • Documentary collection • Open account terms
  4. 4. CASH IN ADVANCE • Before or on the arrival of shipment • Desired in the following circumstances – Credit standing of buyer is uncertain – Home Country of the buyer – Huge capital investment required for the product • Not preferred by buyers • Popular for custom made goods • Example furniture from Italy
  5. 5. LETTER OF CREDIT (L/C) • Most commonly used method • Document of commitment made by the bank on behalf of its customer(importer) • Letter addressed to the seller with specific conditions • Advantages to the exporter – Eliminates credit risk – Stabilize production – Safe and assured
  6. 6. . • Advantages for an importer – Requires the importer to have an account in the issuing bank – Any discrepancy in documents are banks responsibility – Increases the bargaining power of the importer – Helps in free flowing of funds
  7. 7. .
  8. 8. TYPES OF L/C • Documentary L/C • Clean L/C • Revocable L/C • Irrevocable L/C • Confirmed L/C • Unconfirmed L/C • Transferable L/C • Back-to-back L/C • Revolving L/C
  9. 9. DOCUMENTARY COLLECTION • Exporter retains the ownership of the goods until the payment is received • Bank acting as exporter’s agent regulates the timing and sequence of the exchange of goods by holding the title of documents until the importer does the payment • Two important principles used are: – Draft – Bill of landing
  10. 10. OPEN ACCOUNT • Shipped first and then billed later • Used only for reliable customers • Firms like Mercedes Benz use this • Increased in the recent past – Due to increase in international trade – Greater familiarity with exporting
  11. 11. . TERMS OF TRADE
  12. 12. FREE ON BOARD • Seller covers all the costs and risks up to the point whereby the goods are delivered on board the ship in a designated shipment (export) port. • Buyer is responsible for the insurance and freight expenses in transporting goods from the shipment port to the destination port.
  13. 13. FREE ALONGSIDESHIP • The costs and risks for the sellers and buyers are as same as free onboard. • The costs for loading of goods is borne by the buyer.
  14. 14. COST INSURANCE AND FREIGHT • A price quotation in which seller covers cost of the goods, insurance and all transportation and miscellaneous charges to the final destination port In a foreign country.
  15. 15. COST AND FREIGHT • The price quotation is same as cost, insurance and freight except that the buyer purchases and bears the insurance.
  16. 16. . INTERNATIONAL TRADE FINANCE
  17. 17. 1. Private Sources – Bank Finance, Factoring, Forfaiting, Bankers 2. Government Sources – Export Import Financing, Foreign Credit Insurance
  18. 18. PRIVATE SOURCES
  19. 19. FACTORING • It is a process in which a company buys a debt or invoice from another company • In this purchase, accounts receivable are discounted in order to allow the buyer to make a profit upon the settlement of the debt • Essentially factoring transfers the ownership of accounts to another party that then chases up the debt. • It relieves the first party of a debt for less than the total amount providing them with working capital to continue trading • The process enables the exporter to draw up to 80% of the sales invoice’s value at the point of delivery of the goods
  20. 20. FORFAITING • It is a means of financing used by exporters that enables them to receive cash immediately by selling their medium-term receivables at a discount • Eliminates risk by making the sale without recourse, meaning the exporter has no liability regarding possible default by the importer on paying the receivables
  21. 21. BANK FINANCE • Bank Finance refers to the method of financing of trade via banks. It includes the following:  Bank Guarantee o Loan Guarantee o Distraint Guarantee o Bill of Lading  Bank Line of Credit  Buyer Credit
  22. 22. Banker’s Acceptance & Corporate Guarantee • Banker’s acceptance is a method of inter-bank financing in which time draft is drawn on and accepted by one bank on another • Fees charged by the accepting bank depends on the maturity of draft and creditworthiness of borrower • Mainly used for export trade in raw materials, components and general commodity financing • Corporate Guarantee is a method in which one company undertakes to pay the principal debts of another corporate house • A larger company(often a parent company) makes the guarantee on behalf of the smaller company who may not be well known and still has not established its creditworthiness
  23. 23. GOVERNMENT SOURCES
  24. 24. TRADE CREDIT INSURANCE • Protects businesses from commercial and political risks that are beyond their control • Minimizes the risk of sudden an unexpected customer insolvency • It is usually for short term accounts receivable i.e. those due within 12 months
  25. 25. EXPORT-IMPORT FINANCING • Export–Import Bank of India is the premier export finance institution in India, established in 1982 under Export-Import Bank of India Act 1981 • Since its inception, Exim Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment • EXIM Bank extends Lines of Credit (LOCs) to overseas financial institutions, regional development banks, sovereign governments and other entities overseas, to enable buyers in those countries to import developmental and infrastructure projects, equipments, goods and services from India, on deferred credit terms • EXIM Bank has laid strong emphasis on enhancing project exports throught the introduction of the Buyer's Credit-National Export Insurance Account (BC-NEIA) program
  26. 26. TRADE PROMOTIONS IN INDIA
  27. 27. India’s foreign trade policy is divided into 5 phases FIRST PHASE(1947-1948) • Saw restrictions on both exports and imports. •Continuation of wartime control on trade. •Adverse BoP led to devaluation of the rupee SECOND PHASE(1952-1957) •Liberalization of foreign trade as a goal of trade policy. •Exports and imports were encouraged •Foreign exchange reserves declined sharply and policy had to be reversed. THIRD PHASE(1957-1965) •Trade policy was re-oriented to meet the requirements of planned economic development. •Import policy was very restrictive and a vigorous export promotion drive was launched. •Focused on traditional items of trade and establishing import substitution industries
  28. 28. FOURTH PHASE(1966-1985) • Devaluation of rupee on account of adverse BoP POSITION • Balance of Payments continued to decline despite measures to improve it by government. • Continued with the policy of import liberalisation and export promotion in the period1975-76 • Followed up with a revised trade policy in 1985 based on the recommendations of the Abid Husain Committee. FIFTH PHASE(1991-PRESENT) • Adoption of an overhauled trade policy in the wake of programme of economic reform and liberalisation in 1991 • Based on the rationale of reduced control and licenses to be replaced by decontrol and opening up. • Change in nature and volume of exports and imports • Major changes in industrialisation and foreign investment policy
  29. 29. ORGANISATION FOR EXPORT PROMOTION In order to help the exports, the Government established a number of organisations to provide different types of assistance to exporters. At the helm of affairs is Ministry of Commerce, which looks into various aspects of trade promotion and regulation. The various autonomous body for export promotion are : •Export Inspection Council- A statutory body responsible for quality control and compulsory pre-shipment inspection of various exportable commodities. •Indian Institute of Foreign Trade- Engaged in activities like training of personnel in modern techniques of international trade, organization of marketing research, area surveys, commodity surveys and dissemination of information arsing from its activities relating to research and market studies. •Indian Institute of Packing- Undertakes research on raw materials and organises training programme for the packaging industry. •Export Promotion Council- works for advisory and executive functions under the Ministry of Commerce.
  30. 30. • Commodity Boards- set up for the promotion, development and export of commodities. • Export Development Authority- looks into the development of various other commodities not under the earlier boards such as Marine product export development authority and Agricultural and Processed Food Products Export Development Authority. • Federation of Indian Export Organization- An apex body for various export promotion organizations and institutions. It also functions as a primary service agency to provide integrated assistance to government recognised export houses. • Indian Council of Arbitration- promotes arbitration as a means of settling commercial disputes and popularises arbitration among traders particularly those engaged in international trade.
  31. 31. EXPORT INCENTIVES • Duty exemption/Drawback scheme- it aims to compensate the exporter for the increase in cost borne by him on account of customs and excise duties. They are exempted from payment of duty while procuring inputs or in case duty is paid on inputs, the duty is refunded. • Cash Compensatory Support-A cash subsidy scheme deigned to compensate exporters for the un-rebated taxes an to provide resources for product/market development. The CCS enabled the exporters to increase the profit or to reduce the price to the extent of the subsidy without incurring a loss. • Import Replenishment (REP) Licenses-REP is a facility that enabled the exporters to import inputs where the domestic substitutes were not adequate in terms of price, quality or delivery rates. Under new trade policy 1991, it was renamed as Exim scrip scheme. It was abolished with the introduction of partial convertibility or rupee since Aril 1992 • International Price Reimbursement Scheme(IPRS)- IT was designed to make available specified inputs to exporters at international prices. The IPRS was replaced by the engineering products exports scheme.
  32. 32. MARKETING ASSISTANCE A NUMBER OF STPES HAVE BEEN TAKEN TO ASSIST EXPORTERS IN THEIR MARKETING EFFORT.SOME OF THE MEASURES ARE: • Conducting, sponsoring or otherwise assisting market surveys and research • Collection, storage and dissemination of marketing information • Organizing and facilitating participation in international trade fair and exhibitions. • Credit and insurance facilities • Release of foreign exchange for export marketing activities • Assistance in export procedures • Quality and pre-shipment inspection • Identifying market product with export potential • Helping buyer-seller interactions
  33. 33. MARKET DEVELOPMENT ASSISTANCE An important export promotion measure taken by the government is the institution of Market Development Assistance(MDA). Assistance under the MDA is available for: • Market and commodity researchers • Trade delegations and study teams • Participation in trade fairs and exhibitions • Establishment of offices and branches in foreign countries • Grant-in-aids to Export Promotion Council for export promoions • Subsidy to approved cooperative banks Most of the MDA expenditure in the past was absorbed by the CCS. The CCS helped the exporters to increase the price competitiveness of Indian products in foreign markets.
  34. 34. MARKET ACCESS INITIATIVE Market Access Initiative was initiated in 2001 by the Government for: • Initiative undertaken for marketing promotion efforts abroad on a country product focus approach basis. • The Exim policy, 2002-07, was established for further broadening of the scope to include necessary activities for further market promotions efforts
  35. 35. FOREIGN EXCHANGE Foreign exchange is released for undertaking various market development activities like: •Participations in trade fairs and exhibition •Foreign travel for export promotion •Advertisement abroad •Market research •Procurement of samples •Technical information from abroad
  36. 36. TRADE FAIRS AND EXHIBITIONS Trade fairs and exhibitions are effective media for product promotions. Facilities are provided encouraging participation of Indian exporters in such events: • Used as an effective medium for promotion • ITPO undertakes crucial role in organising trade fairs and exhibitions • Foreign exchange is released • Cost of participation is subsidized
  37. 37. EXPORT RISK INSURANCE International Business is prone to various types of risks so measures have been taken to insure such risks • Export credit guarantee cooperation covers different political and commercial risks associated with export marketing, overseas investment and exchange rate fluctuations • It extends export credit risks to cover commercial banks • Marine insurance is provided by the General Insurance Corporations and its subsidiaries
  38. 38. PRODUCTION ASSISTANCE/FACILITIES Measures taken by government to improve production efficiency: • Availability of raw material and other inputs required at reasonable prices. • Import of capital intensive technology. • Provision of infrastructure for the growth of export oriented industries.
  39. 39. SPECIAL ECONOMIC ZONES(SEZs) Geographical region with special economic and other laws aimed at promotion of exports of foreign investments. The Categories of SEZ are: •Export Processing Zone •Free Trade Zone •Export-oriented Unit •Export Houses
  40. 40. What is a SEZ? A Special Economic Zone is an area in which business and trade laws are different from rest of the country. SEZs are located within a country's national borders and their aims include: •Increased trade •Increased investment •Job creation •Effective administration The term SEZ may include the following: •Foreign Trade Zones •Export Processing Zones •Free Zones •Industrial Estates •Export Oriented Units •Export Houses •Free Ports •Urban Enterprise Zones
  41. 41. India was one of the first in Asia to recognize the effectiveness of Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ setup in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones policy was announced in April 2000. To instill confidence in investors and signal government's commitment to a stable SEZ policy regime, a comprehensive draft SEZ Bill was prepared after extensive discussion with stakeholders. A number of meetings were held in different parts of the country. The Special Economic Zones Act, 2005, was passed in Parliament in May 2005 which received Presidential assent on 23rd June 2005. The SEZ rules were put on website asking for suggestions. After extensive consultations the SEZ Act 2005, supported by SEZ rules came into effect on 10th February 2006. The main objectives of SEZ Act are: •Generation of additional economic activity •Promotion of exports of goods and services •Promotion of investment from domestic and foreign sources •Creation of employment opportunities •Development of infrastructure facilities
  42. 42. The Incentives and facilities offered to units for attracting investments into SEZs •Duty- free import/domestic procurement of goods for development, operation and maintenance of SEZ units •Hundred per cent income tax exemption on export income for SEZ units under Section 10AA of Income Tax Act for the first five years, 50 per cent for the next five years and 50 per cent of the ploughed back export profit for the next five years •Exemption from minimum alternate tax under Section 115JB of the Income Tax Act •External commercial borrowing by SEZ units up to USD 500 million in a year without any maturity restriction through recognized banking channels •Exemption from certain sales tax and service tax •Single window clearance for central and state level approvals •Exemption from the state sales tax and other levies as extended by the respective state governments
  43. 43. The major incentives and facilities available to SEZ developers •Exemption from customs/excise duties for development of SEZs for authorized operations approved by the Board of Approval •Income tax exemption on export income for a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act •Exemption from minimum alternate tax under Section 115JB of the Income Tax Act •Exemption from dividend distribution tax under Section 115O of the Income Tax Act •Exemption from central sales tax •Exemption from service tax
  44. 44. Benefits of SEZs SEZs carry multiple benefits, such as: •Employment generation •Boosting investment •Augmenting exports •Building infrastructure of international standards Some of the operational SEZs are the gem and jewellery SEZ in Hyderabad, the textile SEZ of the Mahindras in Chennai and the Rajiv Gandhi Technology Park SEZ in Chandigarh
  45. 45. Approval Mechanism and Administrative set up of SEZs Approval mechanism The developer submits the proposal for establishment of SEZ to the concerned State Government which then has to submit the proposal with its recommendations within 45 days to the Board of Approval. The applicant, however, also has the option to submit the proposal directly to the Board of Approval. The Board of Approval has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act. All the decisions are taken in the Board on consensus basis. Administrative set up The functioning of the SEZs is governed by a three tier administrative set up. The Board of Approval is the apex body and is headed by the Secretary, Department of Commerce. The approval committee at the zone levels deals with approvals and other related issues. Each zone is headed by a Development Commissioner, who is ex-officio Chairperson of the Approval Committee.
  46. 46. • Once a SEZ has been approved by the Board of Approval and the Central Government has notified the area, units are allowed to be set up in the SEZ. All the proposals of setting up of units are approved at zone level by the Approval Committee consisting of Development Commissioner, Customs Authorities and representatives of State Government. All post approval clearances including grant of importer-exporter code number, change in the name of the company, etc are given at the zone level by Department Commissioner. The performance of the units are periodically monitored by the Approval Committee and the units are liable for penal action under the provision of Foreign Trade Act, in case of violation of the conditions of the approval.
  47. 47. . THANK YOU

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