UNIT04

Institutional Support for India’s Foreign Trade

India’s foreign trade is supported by various government bodies and institutions that regulate,
promote, and facilitate trade. The major institutions and their roles include:

1. Ministry of Commerce and Industry:

o This ministry plays a central role in formulating and implementing policies
related to foreign trade and exports in India.
o The Directorate General of Foreign Trade (DGFT) operates under this ministry to
implement the Foreign Trade Policy (FTP).
2. DGFT (Directorate General of Foreign Trade):
o The DGFT is the chief agency responsible for formulating and administering
India's foreign trade policy, issuing licenses for imports and exports, and
overseeing various trade-related issues.
o It also provides guidelines for export-import procedures, allocates import/export
quotas, and promotes trade initiatives through schemes such as Merchandise
Exports from India Scheme (MEIS).
3. Export Promotion Councils (EPCs):
o These bodies are responsible for promoting specific sectors of exports. For
example, the Federation of Indian Export Organisations (FIEO) is involved in
representing Indian exporters and addressing issues related to foreign trade.
4. Commodity Boards:
o The government has established various commodity boards such as the Tea
Board, Coffee Board, and Spices Board, which promote the export of specific
agricultural products.
5. Indian Trade Promotion Organisation (ITPO):
o ITPO organizes trade fairs, exhibitions, and buyer-seller meetings to encourage
international trade and partnerships.

DGFT (Directorate General of Foreign Trade)

Role and Functions:

 Formulation of Foreign Trade Policy: DGFT drafts and implements the policy for
promoting India's foreign trade.
 Issuance of Import-Export Licenses: DGFT issues licenses for the import and export of
goods and services.
 Regulation of Foreign Trade: It enforces legal provisions related to foreign trade,
including the Foreign Trade (Development and Regulation) Act, 1992.
 Exports and Imports Control: DGFT manages and monitors export and import
procedures, quotas, and licensing.
Key Schemes under DGFT:

1. Merchandise Exports from India Scheme (MEIS): A financial incentive scheme aimed
at promoting exports of specified goods from India.
2. Services Exports from India Scheme (SEIS): Provides incentives to export services
from India.
3. Duty Drawback: Offers refunds on customs duties paid on imported goods used for
export production.

Export Incentives (Financial & Non-Financial Incentives)

Financial Incentives:

1. Export Credit: Export credit schemes provide short-term and medium-term financing for
exporters, helping them manage cash flow issues.
2. Duty Drawback: Exporters can receive a refund of excise duties and customs duties paid
on raw materials and other inputs used in manufacturing export products.
3. Subsidies and Grants: The government offers financial assistance in the form of
subsidies for certain categories of exports, such as agriculture or handicrafts.

Non-Financial Incentives:

1. Export Promotion Councils: These councils help exporters by providing market access,
organizing exhibitions, and facilitating foreign trade.
2. Trade Agreements: Bilateral and multilateral trade agreements promote exports by
reducing trade barriers.
3. Market Development Assistance (MDA): Government support for trade fairs and
promotional events abroad to help Indian exporters reach international markets.

Schemes for Import of Capital Goods

The import of capital goods, including both new and second-hand machinery, is regulated to
facilitate the growth of industry in India. The key schemes include:

1. Export Oriented Units (EOU):

o EOUs are allowed to import capital goods at concessional rates of duty for setting
up export-based production.
o The import of capital goods is allowed duty-free, provided the unit meets certain
export obligations.
 2. Advance Authorization Scheme:
o This scheme allows the import of capital goods for producing export goods at a
concessional rate of duty.
o Exporters must fulfill export obligations within a specified time frame to qualify
for duty exemptions.
3. Duty-Free Import Scheme (DFIS):
o Under DFIS, certain capital goods required for the manufacturing of export
products can be imported without customs duties.

Procedures and Documentation for New / Second-Hand Capital Goods

New Capital Goods:

 Import License: An Importer Exporter Code (IEC) must be obtained from DGFT for
importing capital goods.
 Customs Duty Payment: Importers must pay the applicable customs duty, though it may
be reduced or exempted under specific schemes like Advance Authorization or EOUs.
 Clearance Documentation: Required documents include the commercial invoice, bill of
lading, certificate of origin, and any licenses or certificates from the DGFT or other
relevant agencies.

Second-Hand Capital Goods:

 Eligibility: The import of second-hand capital goods is allowed under specific

conditions, such as when they are for use in export-oriented industries or under the EOU
scheme.
 Inspection: The goods may need to be inspected by the Directorate General of Foreign
Trade (DGFT) or other authorized agencies to ensure they meet necessary technical
standards.
 Documentation: Similar to new goods, but additional certifications may be required
regarding the age and condition of the goods, as well as compliance with environmental
regulations.

Export / Trading / Star Trading / Superstar Trading Houses: Objective Criteria

and Benefits

Export House:

 Objective: A trading company engaged primarily in exporting products, which can avail
of various incentives and support from the government.
  Benefits: These houses can avail of benefits such as enhanced duty drawbacks,
exemption from certain taxes, and access to special export schemes.
 Criteria: The exporter must meet minimum export performance criteria based on the
value or volume of exports.

Star Trading House:

 Objective: A trading house that meets higher export performance standards than a
regular export house.
 Benefits: Star trading houses enjoy additional incentives, such as quicker customs
clearances, tax benefits, and increased credit limits.
 Criteria: Typically, a minimum level of export revenue is required to qualify for star
status.

Superstar Trading House:

 Objective: The highest category of export house, designed for large exporters who
significantly contribute to India’s foreign trade.
 Benefits: Additional benefits include faster government approvals, expanded access to
export credit, and higher duty-free import quotas.
 Criteria: To become a superstar trading house, a company must meet a very high export
turnover threshold.

Procedures & Documentation:

 Application: Exporters must submit an application to DGFT for recognition as an export

house or a star/superstar trading house.
 Supporting Documents: The application should include proof of export turnover,
business activity details, and compliance with relevant regulations.

Policy for EOU / FTZ / EPZ Units: Objectives, Criteria, and Benefits

EOU (Export Oriented Unit):

 Objective: EOUs are units set up with the aim of exporting goods, and they are granted
various exemptions from customs duties and other taxes.
 Criteria: EOUs must meet export obligations within a specific time frame (typically
100% of production).
 Benefits: Duty-free import of raw materials, capital goods, and intermediate goods;
exemptions from taxes; and enhanced export incentives.

FTZ (Free Trade Zone):

  Objective: FTZs are designated areas where goods can be imported, stored, and re-
exported without being subject to customs duties.
 Criteria: Units in FTZs must operate primarily for export purposes and follow the FTZ
regulations.
 Benefits: Full exemption from customs duties and taxes, simplified customs procedures,
and duty-free import of raw materials.

EPZ (Export Processing Zone):

 Objective: EPZs are areas established to boost exports by offering incentives and
infrastructure to businesses.
 Criteria: Companies must be export-oriented and fulfill specific export obligations.
 Benefits: Exemption from import duties on capital goods and raw materials, along with
income tax holidays and simplified customs procedures.

International Logistics

Definition:

 International logistics refers to the management of the flow of goods and services across
borders. This involves the transportation, storage, and distribution of goods
internationally, including customs clearance, international shipping, and documentation.

Key Components:

1. Transportation: The physical movement of goods via air, sea, road, or rail across
international borders.
2. Customs Clearance: Goods must clear customs at both the exporting and importing
country’s ports, which involves compliance with local laws and regulations.
3. Warehousing and Distribution: Storing goods in bonded warehouses and ensuring
timely distribution across international markets.
4. Documentation: Required documents include bills of lading, invoices, certificates of
origin, and export declarations, which must comply with the regulatory requirements of
both the exporting and importing countries.
5. International Freight Forwarders: Companies that manage the logistics of international
shipping, ensuring timely delivery, competitive rates, and compliance with regulations.

Significance:

 Efficient international logistics reduces costs, improves supply chain efficiency, and
helps businesses expand their reach in global markets.

Challenges:
 Customs Regulations: Different countries have different regulations that must be
adhered to for smooth transit and clearance.
 Transportation Costs: High costs of international shipping and handling can impact the
price competitiveness of goods.
 Supply Chain Disruptions: Political instability, natural disasters, and strikes can disrupt
logistics operations.