Trading forex
The statutory basis for regulation of exports is the foreign trade. The goods may be classified under any of the following categories:
a. Free items which can be exported without any restriction.
b. Restricted items which can be exported only under a license or permission.
c. State trading items export of which can be done only through the specified state trading enterprise.
d. Prohibited items which cannot be exported.
Most items fall under the category of free goods.
Role of commercial banks
All the financial requirements of an exporter from the time he enters into a sale contract and starts working on it and till he receives final payment from the importer, are met by commercial banks. The facilities available from banks are generally divided into two broad heads:
i. Pre-shipment finance or packing credit is the advance granted to the exporter to procure process, manufacture, and pack and prepare the goods for export. In other words it is the facility extended to the exporter before and till the goods are shipped for export.
ii. Post shipment finance refers to the credit facilities extended to the exporter from the time goods are shipped and till the export proceeds are realized. Post shipment finance may take any of the following forms:
a. Negotiation of a bill drawn under a letter of credit.
b. Purchase of a bill not drawn under a letter of credit.
c. Advance against bill sent for collection
d. Advance against duty drawback.
PACKING CREDIT ADVANCES
A pre-shipment credit or packing credit is any loan or advance granted to an exporter for financing the purchase, processing, manufacturing or packing goods meant for export.
The pre-shipment credit can be granted to bona fide exporters generally on the strength of letter of credit established by banks of standing abroad in favor of the exporter. If no letter of credit has been established, the credit can be granted on the strength of a firm order. The bank should ensure that the letter of credit or the firm order is lodged with it. In case the exporter is not able to lodge the letter of credit or firm order immediately, the packing credit may be granted on the strength of cables, letters exchanged between the exporter and the importer. In such cases, it should be ensured that the exporter lodges the letter of credit or firm under within a reasonable period of time.
Normally packing credit will be extended in the form of a loan account, a separate account being maintained for each export order. The request from the party should be supported by lodgments of letter of credit or firm order as mentioned under eligibility above. However, depending upon the merits of the case, banks may extend packing credit as a running account and also waive the condition of prior lodgment of letter of credit or firm order, provided the following conditions are fulfilled.
i. The need for running account facility has been established by the exporter to the satisfaction of the bank.
ii. The exporter?s track record continues to be good.
iii. The letter of credit or firm order should be produced within a reasonable time.
iv. The packing credit account should be maintained separately and not mixed with normal current account or cash credit account of the customer.
The period for which a packing credit may be granted depends upon the circumstances of the individual case, such as the time required for procuring, manufacturing or processing and shipping the related goods.
Normally the amount advanced as pre-shipment finance should not exceed the domestic cost of production whichever is lesser. Margin may also be stipulated depending upon the party?s worth and the commodity to be exported.
The packing credit account should be repaid out of the proceeds of foreign bills of exchange drawn under the export contract. It may also be repaid out of export incentives like duty drawback.
FINANCING IMPORTS
Imports continue to exceed exports causing balance of credit deficit. However, the current emphasis is not on import restriction rather, it is on encourage export oriented imports.
Director General of foreign trade is authority vested with the duty of advising the central government on the formulation of export import policy and administering the policy.
Every importer and exporter is required to obtain importer-exporter code number by applying to the regional licensing authority concerned. The importer should quote his code number on the relevant bill of entry. The customs authorities will not allow import unless the above condition is fulfilled. In the case of a company firm having branches, code number obtained for the head office should be used by all its branches also.
Licenses are now required for import under certain special schemes like advances licenses. Licenses are issued by the joint or deputy or assistant director general of foreign trade of the region concerned.
Salient features of a license are:
1. Issued in duplicate
2. Period of validity
3. Actual user condition
4. Value, description and quantity
5. Export obligation
The schemes under the Exim policy are aimed at either encouraging exports or facilitating exports by making available the imported capital goods and raw materials at concessional duty or completely duty fee.
Duty exemption scheme enables duty free import of inputs required for export production. Under this scheme an advance license is issued to allow import of inputs which are physically incorporated in the export product free of customs duty. The license is subject to actual user condition which means the license or the material imported there under is not transferable even after completion of the export obligation. The export obligation is that there should be a positive value addition within a period of 18 months.
Duty remission scheme enables post export replenishment or remission of customs duty paid on inputs in the export product. The beneficiary can obtain either:
a. Duty free replenishment certificate is issued to an exporter for the import of inputs used in the manufacture of goods without payment of customs duty within 6 months from the realization of export proceeds, the exporter should apply to the licensing authority for grant of duty free replenishment certificate.
b. Duty exemption pass book is issued with the objective of neutralizing the incidence of customs duty on the import content of export product.
Export promotion capital goods scheme allows import of new capital goods as well as computer software systems at 5% customs duty object to an export obligation equivalent to five times the value of capital goods imported to be fulfilled over a period of eight years.
EXCHANGE CONTROL REGULATIONS
The exchange control regulations relating to imports mainly cover:
a. payment against import
b. evidence for imports
c. opening of letters of credit
d. handling of import bills
e. Booking of forward contracts for importers.
IMPORT TRUST RECEIPT
The importer has other facilities with the bank like key cash credit or open cash credit. When a bill received covering import of raw materials or other items, is released by payment by the importer out of the own sources or by debit to the cash credit account. The imported goods thus stand as security for the cash credit account. If the goods are to be charged as security for key cash credit facility, it is essential that the goods are in the possession of the bank and not delivered to the importer. If the goods are delivered to the importer, the essential of pledge is lost and the bank loses its right over the goods. But unless the importer is allowed to take delivery of the goods from the port and place those in the go down pledge cannot be created.
The difficulty is obviated by taking a trust receipt from the importer and allowing taking delivery of the goods and placing them in the go down. In the trust receipt the importer specifies the goods and agrees that he is holding the goods not as their owner but as an agent for the bank. Thus the bank continues to have the rights of the pledge.
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