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Export finance: as a tool for promotion of exports in india by P. SAI PRATHYUSHA ( PONDICHERRY UNIVERSITY)
EXPORT FINANCE: AS A TOOL FOR PROMOTION OF EXPORTS IN INDIA
P. SAI PRATHYUSHA
M.COM (BUSINESS FINANCE) SECTION B
The fund required for export financial assistance extended by banks and other financial institutions to
business for shipping of products to outside a country or region.
There is outflow of goods and services to the international market and inflow of foreign exchange.
Exporter needs financial assistance because he needs to manufacture the goods that needs to be
exported, he needs to buy raw materials, processing of the product, labelling, packaging, etc.
Export finance aims at meeting the working capital of the exporter.
The main objective of export finance is to cover all kinds of commercial, non-commercial and political
The measures taken to promote exports can be two and they are as follows:
• Establishment of institutions which will promote exports
• Export promotion schemes
ESTABLISHMENT OF INSTITUTIONS WHICH WILL PROMOTE EXPORTS:
Directorate of export promotion:
This institution was set up in 1957 and the functions performed by this institution were
1. Providing information to exporters
2. Necessary assistance and guidance to the exporters
3. Implementing the suggestions of board of trade
Export promotion advisory board:
The function of this board is to review the EXIM policy of the government after review the policy
the institution will provide measures or advices the government about the measures to be
adopted for export promotion. When the exporter is going to export, he has to undertake with
the RBI saying that whatever amount (i.e., foreign currency) I receive, I will surrender it to you
(RBI) within 3 months. And at that time, the RBI used to fix a low rate of Indian currency.
In order to encourage the export in 1991, the partial convertibility of Rupee was introduced.
According to this, 40% he could keep with him and the remaining 60% he has to surrender to
the RBI. The 40% can be sold in the open market at a high rate. It did not work for a while and
it was then replaced by fully convertibility of Rupee.
According to this, the export could keep all the amount (foreign exchange) with him and sell in
the open market when he needed other foreign exchange at a high rate which could enable
him to import goods from foreign country and hence it was not necessary for him to approach
the RBI for foreign currency.
Export promotion council (Institution):
These are autonomous institutions in which these are representatives of industries, trade,
government working in this institution and the main objective of this council is the promotion of
that product for which the council is set up.
These boards are set up in order to increase the exports of specific items. Thereby, for every
product there will be one board like coffee board, tea board, central silk board, all India
handloom board, all India handicraft board, coir board.
Indian institute of foreign trade:
This institution conducts market survey and research publicity of Indian goods abroad. In
addition, it also identifies the problems of foreign trade and gives suggestions for solving these
Indian investment centre:
This centre is opened to help 60th
Indian and foreign investor. If Indian investor wants to set up
his business abroad either individually or joint venture this institution helps similarly if a foreigner
wants to set up in India and he also likes to have joint venture.
Export credit and corporation guarantee corporation of India:
Example- Indian exporter is exporting to America where exporter exports goods to the importer.
1. Exporter should be sure of the payment from the importer
2. Exporter when he is in need of money, banks give two types of credit (i.e.: pre-shipment
credit and post shipment credit)
Pre shipment credit is the credit where an exporter is provided finance even for the
purchase of raw materials and processing them into finished products but this finance
can be provided only when the exporter has firm order from the importer and the
importer has also given an anticipatory Letter of Credit from his bank. So, against the
export order received from the importer, the exporter is given finance by his bank which
is called pre-shipment export finance.
Post Shipment credit is the credit given to the exporter after dispatching the goods to
the importer, the exporter draws a bill, against which the importer will make payment.
But this may take a minimum period of 3 to 6 months and this time gap will affect the
exporter in his continuation of production. For this purpose, after exporting, the export
bill will be presented by the exporter to his bank. The bank will prefer to purchase the
bill or collect the bill or even discount the bill, which depend on the economic status of
the importing country.
Indian trade export organisation:
It was set up in 1992 by Marji- trade development authority and trade fare authority of India. It
promotes the exports and imports organising trade fare abroad, publicity, product development
organising export promotion programmes, etc. The trade development authorities work as to
find out the market where the product could be sold. Before the exporters had to follow 23
procedures and 19 documents and therefore, the exporter restricted himself to domestic
product and to the domestic market.
EXIM bank of India:
It was set up in 1982. It is an apex bank for providing finance to exporters and imports at
competitive terms and conditions. It provides long term and medium-term finance to the
exporters. Competitive terms and conditions are very important. Every exporter will not be
getting the finance unless and until the bank has the guarantee and faith that the exporter will
repay. RBI, nowadays says that every exporter should get financial help from the EXIM bank.
These are the various institutions that are set up to promote the exports in India.
EXPORT PROMOTION SCHEMES:
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.
Exim policies aim at export assistance such as export credit, cash assistance, import replenishment,
licensing, free trade zones, development of ports, quality control and pre-shipment inspection, and
guidance to Indian entrepreneurs to set up ventures abroad.
1. International Presence
The Director of Exhibitions makes arrangements for participation in international exhibitions, holds
Indian exhibitions abroad, runs show rooms in foreign countries and, sets up Trade centres outside
2. 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.
3. Setting up of Commodity boards to promote exports
Commodity Boards are set up to help export of the traditional items. There are seven Commodity
Boards apart from All India Handloom and Handicraft Board under the Commerce ministry. They advise
the government on its policies, signing trade agreements, fixing quota, etc.
4. 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.
5. 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.
To promote, organize and participate in the international trade fairs, Government set up Trade Fair
Authority of India in 1977. It sets up showrooms and shops in India and abroad. It assists in development
of new items for diversification and expansion of India’s exports. They publish journals namely, Journal
of Industry & Trade, Udyog Vyapar Patrika, Indian Export Service Bulletin and Economic and
7. Trade development Authority
In addition to the above, we have Trade Development Authority to collect information, conduct research
and render export finance and help in securing and implementing export orders.
8. Financing for export
The Export Credit Guarantee Corporation (ECGC) covers both commercial and political risks on export
credit transactions. Its head office is in Mumbai and branches are in Delhi, Calcutta and Chennai. In
1982, the Government set up EXIM Bank with head office in Mumbai, branch offices in other major
cities in India and abroad.
EXIM Bank finances exports and imports of machinery, finances joint ventures, provides loan,
undertakes merchant banking functions such as underwriting stocks, shares and bonds or debentures,
develops and finance export-oriented industries, undertakes techno marketing studies and, promotes
9. Advisory Councils
Some of the State Governments have set up specialized Export Trade Corporations which undertake
export promotion. They are established in Andhra Pradesh, Bihar, Karnataka, Uttar Pradesh, Madhya
Pradesh, Himachal Pradesh. There are also Advisory Councils like Board of Trade, Export-Import
Advisory Council, etc.
10. Technical assistance and Training
The Small Industries Development Organization (SIDO) with 26 small industries service institutions,
provide techno-managerial assistance like motivating entrepreneurs to export, provide information on
export-import and offer consultancy services with respect to export procedure, documentation and
It also provides training programmes to educate entrepreneurs on exports, conduct seminars, meetings,
holds discussions with export promotion agencies and publish small industry export bulletin.