As outlined by the Directorate General of Foreign Trade, exporting entails the lawful transfer of goods from India, whether by land, sea, or air, involving legitimate financial transactions. India’s foreign trade regulations are governed by the Foreign Trade Policy 2015-20, enacted on April 1, 2015.
The notion of exportation encompasses a broad spectrum of activities, necessitating prospective exporters to undergo numerous steps and formalities before establishing themselves as legitimate participants in the trade.
To initiate an export enterprise, the following steps are essential:
Establishing an Organization:
To commence an export venture, whether it be a sole proprietorship, partnership firm, or company, it is imperative to adhere to the procedural requirements and establish the entity with an appealing name and logo.
Initiating Bank Account Setup:
The next crucial step involves opening a current account with a bank authorized to engage in foreign exchange transactions.
Securing Permanent Account Number (PAN):
Every exporter is obligated to procure a PAN number from the Income Tax Department to facilitate the commencement of export-import operations.
Acquiring Importer-Exporter Code Number (IEC Number):
With the CNX number being replaced by the IEC number issued by the Directorate General of Foreign Trade, obtaining this code entails completing the requisite application form along with a fee of INR 1000.
Obtaining Registration cum Membership Certificate (RCMC):
Prior to obtaining authorization for import/export or any other benefits under the FTP 2015-20, exporters must acquire RCMCs from the relevant Export Promotion Councils, FIEOs, Commodity Boards, or Authorities.
Product Selection:
Selecting the appropriate product is crucial for an exporter, taking into account trends in India’s exports and excluding restricted/prohibited items.
Market Analysis:
Conducting comprehensive research encompassing competition, market size, payment terms, and export-related benefits and quality requirements is essential. Utilizing resources such as friends, colleagues, relatives, export promotion agencies, and Indian missions abroad aids in gathering pertinent information.
Identifying Prospective Buyers:
To discover potential buyers, exporters should actively participate in trade fairs, exhibitions, B2B portals, and buyer-seller meetings. Additionally, creating a multilingual website featuring product catalogs, payment terms, pricing, and other relevant information facilitates reaching prospective buyers. Overseas chambers of commerce, Export Promotion Councils, and Indian Missions abroad also offer valuable leads in this regard.
Sampling:
Securing export orders often entails providing tailored samples that meet the specific requirements of foreign buyers. Per the FTP 2015-2020, the export of genuine goods and technical samples of freely exportable items is permitted without limitations.
Product Pricing:
Determining the price of products is paramount for the successful operation of an export business. The final price should be calculated considering expenses incurred from sampling to the realization of export proceeds, based on sales terms such as Cost and Freight (C&F), Cost, Freight, and Insurance (CIF), Free on Board (FOB), etc. Setting export prices should aim to maximize sales volume at a competitive price while maximizing profit margins. It is advisable to create a comprehensive costing sheet for each export product.
Agreements with Buyers:
Before offering reasonable discounts or allowances in price, exporters consider the buyer’s interest, future prospects for the product, and the continuity of business.
Risk Mitigation with ECGC:
How to Manage an Export Order:
Order Confirmation:
Before confirming an export order, it’s crucial to meticulously review details such as items, specifications, packaging, payment terms, and delivery schedule. Subsequently, a formal agreement with the buyer can be established.
Product Procurement:
Upon confirmation of the export order, efforts should be directed towards procuring or manufacturing goods as per the buyer’s requirements. This process, acquired after significant effort and competition, necessitates alignment with the buyer’s specifications.
Quality Assurance:
Ensuring the procurement or manufacturing of products that meet international standards is paramount. Pre-shipment inspection is mandatory for certain products like chemicals, food, fishery, and agriculture items. Additionally, foreign buyers may specify their own standards, necessitating inspection by designated agencies.
Financing:
Exporters typically have access to pre and post-shipment finance from commercial banks. Pre-shipment, Packing Credit advances are granted against a Letter of Credit or confirmed order for 180 days to cover working capital needs. Post-shipment finance, granted up to 90% of the invoice value for a maximum period of 180 days from the shipment date, incurs a commercial rate of interest for overdue export bills.
Labeling, Marking, and Packaging: Goods should be packaged and labeled according to the buyer’s requirements to facilitate handling, loading, and reduce shipping costs. Attention to detail is crucial, including mentioning addresses, handling instructions, and delivery destinations.
Product Insurance: Marine insurance covers the risks of loss or damage to goods during transit. While a CIF contract is arranged by the exporter, a C&F or FOB contract is managed by the buyer.
Product Delivery: Efficient planning is essential for timely and effective delivery. Adherence to delivery schedules ensures customer satisfaction.
Customs Procedures: Acquiring a PAN-based Business Identification Number (BIN) from Customs is essential for goods clearance. Documentation submission follows prescribed formats, varying based on the type of goods exported.
Customs House Agent: Customs house agents, licensed by the Commissioner of Customs, offer assistance with cargo clearance from customs offices.
Export Documentation: Essential export documents include the bill of landing/airway bill and commercial invoice. Additional documents such as inspection certificates and certificates of origin may be necessary depending on the circumstances.
Document Submission to the Bank: Post-shipment, documents must be presented to the bank within 21 days for onward delivery to the foreign bank to arrange payment. Documents drawn under Letters of Credit (L/C) should include invoices, bills of exchange, letters of credit, bill of landing/airway bill, certificates of origin, packing lists, inspection certificates, and any other relevant dispatch documents.
Completion of Export Proceeds: As per FTP 2015-2020 regulations, export orders and invoices must be denominated in freely convertible currency or Indian rupees, with export proceeds realized in freely convertible currency within a 9-month period, except for exports to Iran.
