UNIT 4

Export Promotion
Export promotion has been defined as “those public policy
measures which actually or potentially enhance exporting activity
at the company, industry, or national level”. Although many
forces determine the international flow of goods and services,
export promotion is one of the principal opportunities that
governments have to influence the volume and types of goods and
services exported from their areas of jurisdiction.

Government of India, like in almost all other nations, has been

endeavouring to develop exports. Export development is
important to the firm and to the economy as a whole. Government
measures aim, normally, at an over all improvement of the export
performance of the nation for the general benefit of the economy.
Such measures help exporting firms in several ways.

Export Promotion strategy promotes only the industries that have

potential for developing and competing with foreign rivals. Since
the goal is to trade abroad, there becomes competition, which in
turn remedies the returns to scale. The main goal of the export
promotion is to prepare the “potential” industries for competition
with the foreign rivals. So the industries at their childhood must
be protected for a while.

Exporters, facing the increasing competition, have to improve

their technologies, their quality continuously in order to compete
with their rivals. They have to make research and development
studies.

Comparative advantage theory implies that a country must

specialize in the production that uses the mostly possessed factors
of production. By this way the structure of the overall industry is
in harmony with the country structure. If the country has
advantage in human capital then the EP strategy may be a remedy
to the unemployment problem.

The indirect effect of the EP strategy appears in the export values

of the countries. The increase in exports raises the foreign
exchange inflow. However, there may be an increase in import
expenditures due to the increasing income of the country, which
in turn worsens the country’s trade balance.
Export Promotion Measures in India
A number of institutions have been set up by the government of India to promote exports.
The export and import functions are looked after by the Ministry of Commerce. The
Government formulates the export-import policies and programmes that give direction
to the exports.
Export Promotion Council
The Director of Commercial Intelligence is concerned with
commercial publicity through various media, monthly
publications, directories of foreign importers of Indian products,
country-wise.
There are 22 export promotion councils for different products,
offering services of export promotion such as price, quality,
packing, marketing, transport etc. They conduct market surveys,
publish reports on foreign trade, administer various export
promotion schemes, develop trade contacts, quality control, joint
participation in trade fairs and exhibitions.
Trade reps
There are Trade Representatives abroad who conduct market
surveys, furnish information on exports-imports, settle trade
disputes and pass on information about the rules and regulations
for imports.
Indian Institute of Foreign Trade
The Indian Institute of Foreign Trade (IIFT) was set up by the
Government in co-operation with trade, industry, universities,
educational and research institutions. It is an autonomous body,
set up to train people in international trade, conduct research,
survey and organize training programmes.
SEZ is an area in which the business and trade laws are different
from rest of the country. SEZs are located within a country’s
national borders and their aim includes: increased trade, increased
investment, job creation and effective administration.

IMPORTANT SEZs
 Karnataka Biotechnology and information technology
service
 Wipro infotech
 HP India software operation Pvt. Ltd
 Divyasree infrastructure
 Falta food processing unit (West Bengal)
ADVANTAGE OF EXPORT PROMOTION
1. Increase in domestic employment
2. Reducing dependence on labour non-intensive industries such as raw
resource extraction and export
3. Resilience in the face of a global economic shock ( such as recessions
and depressions)
4. Less long-distance transportation of goods ( and concomitant fuel
consumption and greenhouse gas and other emissions)
Disadvantages:
1. The industries it creates are inefficient and obsolete as they aren't
exposed to internationally competitive industries which constitute their
rivals and that the focus on industrial development impoverishes local
commodity producers who are primarily rural.
2. Increase in unemployment internationally as world GDP decreases
through the promotion of inefficiency.

EXPORT FINANCING

In order to be competitive in markets, exporters are often

expected to offer attractive credit terms to their overseas buyers.
Extending such credits to foreign buyers put considerable strain
on the liquidity of the exporting firms. Therefore, it is extremely
important to make adequate trade finances available to the
exporters from external sources at competitive terms during the
post-shipment stage.

Unless competitive trade finance is available to the exporters,

they often resort to quote lower prices to compensate their
inability to offer competitive credit terms. As a part of export
promotion strategy, national governments around the world offer
export credit, often at concessional rates to facilitate exports.
Export finance helps organisations release working capital from
cross border trade transactions, that could otherwise be tied up in
invoices or purchase orders for up to 180 days. Export finance is
specialist finance that can help grow a company and increase
trade with large corporates.
Export financing includes:
 Documentary credits
 Bills of exchange

 Letters of Credit

 Forfaiting (purchasing the receivables or traded goods from an

exporter)
 Export credits (to reduce risks to funders when providing trade

or supply chain finance)

 Foreign exchange

Why is export financing important?

Generally speaking, sellers of goods or services want to get paid
as soon as possible, even before they trade, and buyers want to
delay payment for as long as possible, to maintain good cashflow
and give them time to sell on to their end customers. This
inherently means third parties can offer some form of financial
guarantee, bridging the finance gap, and ensuring trust between
the buyer and the seller.
Much trade is done cross border, increasing risk when importing
or exporting goods.
Exporting goods to another country or domestically to a new
buyer is inherently risky. Therefore a growing company will want
to mitigate some of these risks and also structure their finance in
such a way as to allow sustainable growth.
Export Credit
Pre-shipment credit:
Pre-shipment credit means any loan or advance granted by a bank
to an exporter for financing the purchase, processing,
manufacturing, or packing of goods prior to shipment. It is also
known as packing credit. As the ultimate payment is made by the
importer, his/her creditworthiness is important to the bank.

Banks often insist upon the L/C or a confirmed order before

granting export credit. The banks reduce the risk of non-payment
by the importer by collateral or supporting guarantee.

Post-shipment credit:
Post-shipment credit means any loan or advance granted or any
other credit provided by a bank to an exporter of goods from the
date of extending credit after shipment of goods to the date of
realization of export proceeds. It includes any loan or advance
granted to an exporter, in consideration of any duty drawback
allowed by the government from time to time.

Thus, the post-shipment advance can mainly take the form of:
i. Export bills purchased, discounted, or negotiated

ii. Advances against bills for collection

iii. Advances against duty drawback receivable from government

Post-shipment finance can be categorized as:

i. Advances against undrawn balances on export bills

ii. Advances against retention money

iii. Exports on consignment basis

iv. Exports of goods for exhibition and sale

v. Post-shipment credit on deferred payment terms

Post-shipment credit is to be liquidated by the proceeds of export

bills received from abroad in respect of goods exported.

Period of post-shipment credit:

In the case of demand bills, the period of advance is the normal
transit period (NTP) as specified by the FEDAI. Normal transit
period means the average period normally involved from the date
of negotiation, purchase, or discount till the receipt of bill
proceeds in the Nostro account of the bank concerned, as
prescribed by the FEDAI from time to time.

It is not to be confused with the time taken for the arrival of goods
at overseas destination.

The demand bill is not paid before the expiry of the normal transit
period whereas the usance bill is paid after the due date and is also
termed as an overdue bill. In case of usance bills, credit can be
granted for a maximum duration of 365 days from date of
shipment inclusive of NTP and grace period, if any.

However, banks closely monitor the need for extending post-

shipment credit up to the permissible period of 365 days and they
also influence the exporters to realize the export proceeds within
a shorter period.

TRENDS IN INDIA’s FOREIGN TRADE

I. MERCHANDISE TRADE
EXPORTS (including re-exports)
In consonance with the revival exhibited by exports in the last
four months, during January,2017 exports continue to show a
positive growth of 4.32 per cent in dollar terms (valued at US$
22115.03 million) and 5.61 per cent in Rupee terms (valued at Rs.
150559.98 crore) as compared to US$ 21199.02 million (Rs.
142568.31 crore) during January,2016.
Cumulative value of exports for the period April-January 2016-
17 was US$ 220922.78 million (Rs. 1484473.55 crore) as against
US$ 218532.64 million (Rs. 1420572.68 crore) registering a
positive growth of 1.09 per cent in Dollar terms and positive
growth of 4.50 per cent in Rupee terms over the same period last
year.
Non-petroleum exports in January 2017 were valued at US$
19422.86 million against US$ 19111.38 million in January 2016,
an increase of 1.6 %. Non-petroleum exports during April -
January 2016-17 were valued at US$ 196254.10 million as
compared to US$ 192071.50 million for the corresponding period
in 2016, an increase of 2.2%.
The growth in exports is positive for USA (2.63%),EU(5.47%)
and Japan(13.43%) but China has exhibited negative growth of (-
1.51%) for November 2016 over the corresponding period of
previous year as per latest WTO statistics.
IMPORTS
Imports during January 2017 were valued at US$ 31955.94
million (Rs. 217557.32 crore) which was 10.70 per cent higher in
Dollar terms and 12.07 per cent higher in Rupee terms over the
level of imports valued at US$ 28866.53 million (Rs. 194134.02
crore) in January, 2016. Cumulative value of imports for the
period April-January 2016-17 was US$ 307311.86 million (Rs.
2065656.42 crore) as against US$ 326277.38 million (Rs.
2120158.57 crore) registering a negative growth of 5.81 per cent
in Dollar terms and 2.57 per cent in Rupee terms over the same
period last year.
CRUDE OIL AND NON-OIL IMPORTS:
Oil imports during January, 2017 were valued at US$ 8140.83
million which was 61.07 percent higher than oil imports valued
at US$ 5054.29 million in January 2016. Oil imports during
April-January, 2016-17 were valued at US$ 69062.66 million
which was 5.81 per cent lower than the oil imports of US$
73321.66 million in the corresponding period last year.
Non-oil imports during January, 2017 were estimated at US$
23815.11 million which was 0.01 per cent higher than non-oil
imports of US$ 23812.24 million in January, 2016. Non-oil
imports during April-January 2016-17 were valued at US$
238249.20 million which was 5.81 per cent lower than the level
of such imports valued at US$ 252955.72 million in April-
January, 2015-16.
II. TRADE IN SERVICES (for December, 2016, as per the
RBI Press Release dated 15th February 2017)
EXPORTS (Receipts)
Exports during December 2016 were valued at US$ 13804
Million (Rs. 93729.71 Crore) registering a positive growth of 3.49
per cent in dollar terms as compared to positive growth of 1.72
per cent during November 2016 (as per RBI’s Press Release for
the respective months).
IMPORTS (Payments)
Imports during December 2016 were valued at US$ 8294 Million
(Rs. 56316.59 Crore) registering a negative growth of 0.35 per
cent in dollar terms as compared to positive growth of 8.37 per
cent during November 2016 (as per RBI’s Press Release for the
respective months).
III.TRADE BALANCE
MERCHANDISE: The trade deficit for April-January, 2016-17
was estimated at US$ 86389.08 million which was 19.82% lower
than the deficit of US$ 107744.74 million during April-January,
2015-16.
SERVICES: As per RBI’s Press Release dated 15th February
2017, the trade balance in Services (i.e. net export of Services) for
December, 2016 was estimated at US$ 5510 million. The net
export of services for April- December, 2016-17 was estimated at
US$ 48316 million which is lower than net export of services of
US$ 53557 million during April- December, 2015-16. (The data
for April-December 2015-16 and 2016-17 has been derived by
adding April-December month wise QE data of RBI Press
Release).
OVERALL TRADE BALANCE: Overall the trade balance has
improved. Taking merchandise and services together, overall
trade deficit for April- January 2016-17 is estimated at US$
38073.08 million which is 29.7 percent lower in Dollar terms than
the level of US$ 54187.74 million during April-January 2015-16.
(Services data pertains to April-December 2016-17 as December
2016 is the latest data available as per RBI’s Press Release dated
15th February 2017)