A PROJECT REPORT ON

EXPORT & IMPORT

DOCUMENTATION PROCEDURE
ORIENT CRAFT LIMITED

SUBMITTED IN PARTIAL FULFILLMENT FOR

THE AWARD OF DEGREE OF
MASTERS OF INTERNATIONAL BUSINESS (MIB)
UNDER THE GUIDANCE OF

DR. N. U. K. SHERWANI
SUBMITTED BY:

KHALID MAHBOOB
ROLL NO. 07-MIB-17

ENROLMENT NO. 04-1585

MIB: SEM. III (2007-2009)

DEPARTMENT OF COMMERCE & BUSINESS STUDIES

JAMIA MILLIA ISLAMIA, NEW DELHI 110 025

ACKNOWLEDGEMENT

First of my sincere thanks goes to all people helped me in making the

practical any way how, directly or indirectly.
I express my deep sense of gratitude to my project coordinator DR. N.U.K.
SHERWANI whose experience and guidance helped me a lot in preparing the
project report entitled Export & Import Documentation Procedure
I express my special thanks to those who supported me during the analysis
phase also to those people of management who have helped me during the
queries about software requirements, hardware requirements and network
specification.
I would be failing in my duty if I dont offer special thanks to my parents and
god almighty for his showers of blessing and pray that he may continue to
bless my endeavors.

KHALID MAHBOOB
ROLL NO. 07-MIB-17
MIB: SEM. III

DECLARATION

I, KHALID MAHBOOB, hereby declare that the project entitled Export

Import Documentation Procedure is prepared and written by me under the
noble guidance of Dr. N.U.K. Sherwani, in partial fulfillment of degree of
Master of International Business (2007-2009), at Jamia Millia Islamia,
Department of Business and Commerce Studies, New Delhi 110 025.

The recommendations and suggestions are only applicable to the company

concerned and the institute for academic purpose.

KHALID MAHBOOB
ROLL NO. 07-MIB-17
MIB: SEM. III

TABLE OF CONTENTS

1. Executive Summary

2. Introduction

3. Objective of the Study

10

4. Company Profile of Orient Craft Ltd.

11

5. Industry Overview

17

6. Research Design and Methodology

38

7. Critical Review of Literature

39

8. Export Process in Orient Craft Ltd

47

9. Export Incentives availed by Orient Craft

62

10. Conclusion

75

11. Recommendations

76

12. Bibliography

79

EXECUTIVE SUMMARY

The report is an Experience-based, which contains the in-depth study of all

the departments involved in the business of foreign trade.
The report gives us the information about the various Export Process of
Orient Craft Ltd. It involves Procurement of the Export order, its
securitization, execution, preparation of the logistics, shipment and the
negotiation of the bill. This also helps to understand the link between the
various departments involved.
This report also contains the importance of various documents involved at
the time of the shipment and the Negotiation of the bill.
It contains the role of Clearing and Forwarding Agent in the process of
export.
It also contains the various Export Incentives availed by the Orient Craft Ltd.
It has complete analyses of it along with the copy of the documents in the
Annexure
Last but not the least, the report highlights the Indian Apparel Industry along
with its strength, weaknesses and its scenario after Jan, 2005.

INTRODUCTION
The garment sector plays as extremely significant role in India in terms
especially of share in value added, foreign exchange earnings, and
employment. With the impending dismantling of quotas in 2004 under
mandate from the Agreement in Textile and Clothing (ATC) of the WTO, the
focus has clearly shifted to the future of the Indian clothing exports. Together
with textiles the industry constitutes 20 per cent of industrial production, 9 per
cent of excise collections, 30 per cent of export revenue and 18 per cent of
employment in industrial sector. On a relative basis, the industry is globally
more competitive than other industries in the country. In additional, the
industry has a high potential to grow, as it is labour intensive where India has
natural advantage. The most important destination for Indias garments
exports have been the USA and the European Union capturing 32% and 36%
of total exports respectively. With the removal of quotas in 2005 India faces
new challenges with respect to exporting textile particularly garments. This
study is therefore conducted to assess the possible threats and opportunities
the Indian garment industry faces. It also attempts to find out weather on the
whole the Indian garment industry is competitive or not. However, despite the
various

advantages,

industry performance

has been

sub-optimal

in

comparison to other countries. Indias share in re-location of world trade has

been extremely low in comparison to countries like China and even Sri Lanka
and Bangladesh. In additional, domestic per capita consumption of textile
products at 2.5 kilograms (USA-30 kilograms, World average at 7.5 kilograms)
is among the lowest in the world.
The post ATC era is likely to witness growing competition mainly for the major
consumption markets of USA and Europe. The developing countries like India
and many other Asian countries, which earn valuable foreign exchange by
exporting apparel, will have to open up their domestic market to international
players. The competitiveness of the industry shall, therefore, become critically
important. Indian apparel industry will need to improve its performance on
quality, productivity and technology front.

Clothing as the Engine of Growth

The global textile trade in clothing is increasing at a fast rate of 7-8 per cent.
The world trade in clothing is expected to increase from 200 billion Dollars to
400 billion by 2010. Indias participation in the global trade in clothing is
extremely limited. The resurgence of Indian clothing industry hinges critically
on clothing becoming the engine of growth in the textile industry. However, the
current scenario is not favorable for the growth of clothing industry on account
of: Small size units, Outdated technology, High level of outsourcing, Limited
range, Basic products, and Unfavourable labour laws.
There is need to formulate special set of policies for the clothing industry.
Labour reforms for the clothing industry as a special case is immediately
called for. I have attempted some of these issues in some details
1.3 What is Multi Fibre Arrangement (MFA) and Agreement on Textile and
Clothing (ATC)?
The MFA governed trade in the trade and clothing industry and consisted of a
framework of bilateral agreements or unilateral actions that established
quotas limiting the amount of imports to countries whose domestic industries
were facing serious damage from rapidly increasing imports.
The MFA, intended only to be a temporary arrangement, has been in
existence for twenty-one years. The MFA provided for the application of
selective quantitative restrictions when surges in imports of particular goods
are caused or threatened to cause damage to the industry of the importing
country.
On January 1 1995, WTO replaced the MFA with the Agreement on Textiles
and Clothing (ATC).

The ATC is a transitional tool that will be used in place of the MFA until
January 1, 2005. The ATC has a number of defining features. Some of these
are:
A. The product coverage, encompassing yarns, fabrics, made-up textile
products and clothing;
B. A program for the progressive integration of these textile and clothing
products into GATT 1994 rules;
C. The liberalization process to progressively enlarge existing quotas
(until they are completely removed) by increasing the annual growth
rate at each stage and;
D. Establishment of the Textiles Monitoring Body (TMB) to supervise the
implementation of the other provisions.
The TMB consists of a chairperson and ten members acting in their personal
capacity. It monitors actions taken under the agreement to ensure they are
consistent and it in turn reports to the Council on Trade in Goods, which
reviews the operation of the agreement before the implementation of each
new step in the process. The TMB also deals with disputes arising from the
ATC. If these remain unresolved they are forwarded to the WTOs Dispute
Settlement Body.
The ten members are appointed by WTO members according to an agreed
grouping of WTO member into constituencies. In January 1995 the General
Council decided upon the format of the TMB for the first stage of the quota
phase out. At the end of 1997, the second stage (1998-2001) with TMB
members from the following constituencies: ASEASN member countries;
Canada and Norway; Pakistan and China; The EU; Korea and Hong Kong
(China); India and Egypt/Morocco/Tunisia; Japan; Latin America and
Caribbean; The US; Turkey, Switzerland and Bulgaria/ Czech Republic/
Hungary/ Poland/ Romania/ Slovak Republic/ Slovenia.

There are also two non-participating observers from members not already
represented, one from Africa and one from Asia. Members of the TMB are
expected not to act as representatives or lobbyists for their respective
governments.
The abolition of the MFA/ATC is presently underway and is taking place in
four (4) steps. Full phase out of existing quotas is scheduled to occur on 1 st
January2005.

OBJECTIVE OF THE STUDY

The study is undertaken to fulfill the following objectives:

PRIMARY OBJECTIVES

To understand in brief the procedure of Export at Orient Craft Limited

To learn and analyze the various incentives availed by the firm

To know the documents required in the functioning of Export and

negotiation process.

SECONDARY OBJECTIVES

To learn about Indian apparel industry

To Understand the Multi Fibre Agreement (MFA) and Agreement on

Textiles and clothing (ATC)

To understand the role of Clearing and forwarding agent involved in the

export process.

10

PROFILE OF ORIENT CRAFT LTD.

Orient Craft Ltd. a government recognize trading house was promoted by

shree Sudhir Dhingra, who has been the managing director of the
company since inception. 1978.The Company was renamed in 1992 as
orient craft ltd. on becoming a deemed public company.
The company initially worked in a European market however, in the late
eighties; it started exploring the American market, which offers possibility
of large lots of single style of production.

The company started from

single style of production and manufacturing unit and has moved on to

multiple locations with the passage of time. From a modest manufacturing
space of less than 6000 sq. ft. in 1987, the company now commands
more than 800000 sq. ft. covered area to manufacturing. To meet the
continuous growing demand of the international market the company
developed a project at Gurgoan in 1992 to manufacturing high fashion
ladies garments. The unit is located at the highly developed Maruti
industrial complex on two acre plot. It has also setup three 100% export
oriented unit to produce garments using imported raw materials. In the
process , the company has further built a new factory over 325000 sq. ft.,
which is Indias single largest multi product manufacturing plant for
producing various diverse products under one roof like cut and sew knits,
woven sports, silk apparel and ladies formal suits and coordinates.
Orient Craft imports latest generation production and finishing equipment to
compete with the best production standards in the world. The Company has
accordingly imported sewing machines fusing presses, steam presses,
stitching machines, Cutting Machines and embroidering equipment from
Japan and Germany, washing and dry cleaning equipment from U.K. and
laser beam systems from Italy. In 1992-93 Orient Craft was awarded the
"Design

and

Process

Quality

Award"

by

the

International

Quality

Management, U.K. The award recognizes product and process developments

11

which benefit the environment, is commercially successful, and of exceptional

quality.
DIRECTORS
The Company is a board managed Company.

The following are on the

board:1.

Mr.Sudhir Dhingra

Managing Director

2.

Mr.K.K.Kohli

Director

3.

Mr.Ravi Dhingra

Director

4.

Mr.Anoop Thatai

Director

5.

Mr. S.P Sood

Director

Mr.K.K.Kohli is a Director since the inception of the Company. He has an

accounting background with deep insight into handling documentation and
quota dealings.

He looks after all matters relating to Apparel Export

Promotion Council, which allocates quota, all labor relations and allied
matters. He is also looking after the day-to-day functioning and control of the
unit located at Okhla.
Mr.Ravi Dhingra, age 50 years, was inducted into the Board on 23 rd
November, 93.

He has a degree in Law and is a graduate in Business

Management. He has spent considerable time in U.S.A. He joined the group

in 1989 and is a partner in one of the sister concerns of Orient Craft Limited
Viz. M/s.Fashion Express Company, which has a large number of imported
production and finishing equipment. He is also the Managing Director of
another associate Company M/s.Orient Clothing Co. (P) Limited.
Mr.Anoop Thatai, age 40 years has been with the Company since 1987. He
was earlier a partner in M/s.Fashion Express Company. Under his
supervision, the Company made the first break into knitwears and has now
created a knitwear division. In the restructuring of the Company, he now
holds 20% of the equity of the Company.
12

PRODUCTS
The Company started as a manufacturer of women garments made out of
woven fabric only. From 1994, Orient Craft started executing orders in a small
way for men's shirts. In early 1995, knitwear division was added and the
Company started manufacturing men's and women wear made out of hosiery
material.
Orient Craft today manufactures women dresses, skirts, blouses, tops,
pants and men's shirts and sportswear and does items of home
furnishing. Knitted garments today account for 38% of the Company's
turnover, woven 56% and the balance is made out of home furnishing
products.
The company has opened up his new unit of home furnishing recently
CUSTOMERS
Till 1986, the Company was exporting to the European market. In 1987, it
decided to shift its profile and explore the possibility of executing large orders
of one style. Orient Craft prides itself in making quality products for the
following customers
1. Liz Claiborne Inc.
2. Tommy Hilfiger Inc.
3. The Gap Inc.
4. Banana Republic
5. Limited Express Stores
6. Susan Bristol
7. Dillard Department Stores Inc.

13

8. Ann Taylor.
9. Ralph Lauren
10. Roca wear
11. May Department stores.
12. Marc Jacob
13. D.K.N.Y
STRATEGIES AND PLANS 2005-2006 ONWARDS
During the year under review, the company has taken certain far-reaching
steps to face the onslaught of competition, which would emanate from some
of the neighboring countries after the dismantling of the quota regime.
Orient Craft has broadened the product range and have now acquired ability
to manufacture suits also. The company now has complete range of products
from men and women and caters to all age groups from infants to the aged.
Orient Craft has invested consistently in upgrading the skills of its bluecollared workers and has brought renowned technicians of international
standing from across the globe. These people have been assigned the
responsibility took upgrade the stitching standards, reengineer the product
and lay out the factory to be in tune with the latest practices being followed by
some of the most efficient garment manufacturers in the world. This has
helped in attaining higher quality standards while reducing the process
wastages.
Orient Craft has taken up strong capital expenditure programmed to stay in
line with the latest needs to face competition. During 2002-03, they have
spent approximately Rs. 32.00 crores on creating new capacities. They intend
to spend another Rs. 16.00 crores towards this end, during 2005-2006. This
would enable them to attain an export target of approximately Rs. 600.00
Crores during 2005-2006.

14

Orient Craft has also decided to setup a marketing office in New York. This
office would help us tap customers who procure only from their domestic
market. Orders will be picked up from the domestic customers and
manufacturing will be done at various factories of Orient Craft, in India.Orient
Craft intends to set up a Joint Venture with one of the leading companies
specializing in creating special effects on garments through washes. This
venture would enable to manufacture products for the very niche market.
Orient Craft will be climbing the value chain as also be able to ward off the
immense competition when the quotas are dismantled in 2005.
Orient Craft will invest approximately Rs. 2.50 Crores in the equity of this Joint
Venture. The day-to-day management will rest with the overseas partner while
OCL will provide support through management of local affairs and the
supporting needs for smooth functioning of the company.
The year ended on 31st March 2003 has been a landmark year. Orient Craft
has sown great resilience to combat both, a very soft market leading to sharp
down turn in gross margin and onslaught of rupee appreciation leading to
lower realizations. It had to sacrifice about 12-15% of our margins in
comparison to lat year prices. However, they have been able to overcome this
difficult period through various cost cutting measures and adopting techniques
for improving efficiencies.
The company has also been doing exceedingly well in both its woven
garments division and in the knits segment of business. But for the quota
constraints, it would have crossed our turnover Rs. 500.00 crore during the
current year. However, the company believes that investing in quotas in the
current year when the quota regime is being phase out, would be an unwise
step and Instead, they are planning to set up additional manufacturing
facilities using these funds, which would have been spent otherwise on quota
acquisition from the market.
ORIENT CRAFT'S RESPONSE TO GATT
With the signing of the GATT Agreement, the Textile Sector in India has got a
great boost. India has been a very strong player in textiles and garment
15

exports.

U.S.A. and Western Europe had been protecting their domestic

market from the South East Asian and South Asian Countries through
quantitative restrictions called Quotas as was stipulated in the Multi - Fibre
Arrangement (MFA).

Now, after the Uruguay Round of talks it has been

decided to dismantle the quota regime. In the first phase, 16% of the items on
which quotas apply, have been done away with.
While GATT brings in great opportunities for the garment trade, it also poses
major challenges.

The opportunity comes mainly in the shape of bigger

market access and therefore chance for higher volumes of exports. As we are
all aware, textile is a traditional industry and both the Indian entrepreneur and
the labor have acquired great skills in the industry. Moreover, garment
industry being labor intensive in nature, India has tremendous cost
advantage, as its labor is very cheap.

In addition, the country is now

producing world standard yarn flowing out of the large investment made in the
yarn industry during the last few years.
Due to improvement in quality of inputs and cheap prices, India has out priced
its competitors from countries like Hong Kong, Taiwan, Korea and Japan and
today many more U.S. and European customers are looking closely at the
Indian market for sourcing their products. However, countries like China,
Malaysia,
Indonesia, Thailand, Sri Lanka, Bangladesh and Pakistan are emerging as
strong competitors to India and are investing in modern plant and machinery
for producing quality garments.

While all these countries also have the

advantage of cheap labor, barring Pakistan and China these countries do not
have the raw material for producing fabric and have to look for imports, which
ultimately make their product more expensive.
However, after the melting down in their currency, many of the South East
Asian tigers have been able to price their goods cheaper and as such become
a major concern for exports out of India.
This is borne by the fact that in 2002-2003, Indian products were priced
cheaper by about 12% in spite of the cost of production having gone up. This
16

resulted in the capacity utilization coming down in the industry and the smaller
players folding up.

INDUSTRY OVERVIEW
EXPORT DOCUMENTS
Pre-shipment documents:

Commercial documents
The commercial documents are those which, by customs of trade, are
required for effecting physical transfer of goods and their title from the
exporter to the importer and the realization of export sale proceeds.
14 out of 16 commercial documents have been standardized and aligned to
one another. Shipping order and bill of exchange could not be brought within
the fold of the aligned documentation system because of their very different
data elements and having a very little in common with other commercial
documents.
The commercial documents may be classified into principal documents and
auxiliary documents.
Principal documents
Out of the 16 commercial documents mentioned above, the exporter is
required to send the following eight documents to the importer. These are
known as the principal export documents.
1. Commercial invoice
2. Packing list
3. Bill of lading
4. Combined transport documents
5. Certificate of inspection/quality control
6. Insurance certificate/policy
17

7. Certificate of origin
8. Bills of exchange and shipment advice
Auxiliary documents
The remaining eight commercial documents are known as auxiliary
documents.
1. Proforma invoice
2. Intimation for inspection
3. Shipping instructions
4. Insurance declaration
5. Shipping order
6. Mate receipt
7. Application for certificate of origin
8. Letter to the bank for collection/negotiation of documents

Regulatory documents
Regulatory pre-shipment export documents are those which have been
prescribed by different government departments/bodies in compliance of the
requirements of various rules and regulations under relevant laws governing
export trade such as export inspection, foreign exchange regulations, export
trade control, customs etc.
There are 9 regulatory documents associated with the pre-shipment stage of
an export transaction and are as follows:
1. Gate pass-I/Gate pass-II (prescribed by central excise authorities)
2. AR4/AR4A form (prescribed by central excise authorities )
3. Shipping bill/bill of export (prescribed by central excise authorities )
For export of goods
For export of duty free goods

18

 For export of dutiable goods

For export of goods under claim for duty drawback
4.export application (prescribed by port trust)
5.receipt for payment of port charges
6.vehicle ticket
7.exchange control declaration prescribed by RBI GR/PP forms
8.freight payment certificate
9.insurance premium payment certificate
The different commercial regulatory documents may be classified into
documents related to shipments, documents related to payment; documents
related to inspection, documents related to excisable goods and documents
related to foreign exchange regulations.
Documents related to goods:
(i) Invoice
CUSTOMS INVOICE
The customs invoice is used in lieu of the commercial invoice in a few
importing countries for customs purposes, but the importer often needs a
commercial invoice too. The customs invoice can be in a form called the
certificate of value. The invoices vary in format but they contain essentially the
same data as in the commercial invoice and packing list. The invoice is selfcertified by the exporter. The blank customs invoice is available from the
customs broker or forwarder and specialized printer. Certain importing
countries may require their importers, not the exporters in the exporting
country, to provide the completed customs invoice for customs clearance.

19

CONSULAR INVOICE
As the name implies, the consular invoice is a specific invoice issued by the
Consul of the importing country. Many importing countries, mainly less
developed countries, have already phased out this invoice. It is used for
customs clearance and other purposes, as such any errors or omissions on
the invoice may cause problems and fines at the customs in the importing
country. The consular invoice is a form of non-tariff barrier. The format of the
consular invoice form varies greatly, but it contains essentially the same data
as in the commercial invoice and packing list. The invoice form is either in the
language of the importing country (e.g. Spanish usually) or bilingual, that is, a
combination of English and Spanish usually. The exporter's declaration
normally is included in a consular invoice. The consular legalization and
payment of a consular fee is required. The consular fee can be a percentage
of the FOB invoice value.

(ii) Packing list:

The packing list is the detailed list of contents of the shipment, including
quantities, items, model numbers, dimensions and net and gross weights. A
packing list should specify per carton or crate the number and type of units of
material inside. The shipper gets the packing list ready at the time the goods
are being is prepared for shipping. There is no standard format for packing
lists.
Although it is not a required customs document, the packing list is often used
by the customs broker to obtain additional information about the shipment.
(ii) Certificate of origin:
The Certificate of Origin is only required by some countries. In many cases, a
statement of origin printed on company letterhead will suffice. Special
certificates are needed for countries with which the United States has special

20

trade agreements, such as Mexico, Canada and Israel. More information

about filling out these special certificates is available from the

21

Certificates related to shipment:

(i) Mate receipt: mate receipt is a receipt issued by the commanding office
of the ship when the cargo is loaded on the ship, and contains information
about the name of the vessel, berth, date of shipment, description of
packages, marks and numbers, condition of the cargo at the time of
receipt on board the ship etc.
(ii) SHIPPING BILL: -Shipping bill is the main document for obtaining custom
permission for shipping goods. This document is of four types: Free shipping bills
Drawback shipping bills
Ex-bond shipping bills
Dutiable shipping bills is filled up where the consignment is subject to export
duty and where duty drawback is to be claimed. Whereas free shipping bills
is filled up when the consignment is subject to export duty and no duty
drawback is tobe claimed. Ex-bond shipping bills is needed in case of
shipment from the customer bounded warehouse.
(iii) Airway bills: - Airfreight shipments are handled by air waybills, which can
never be made in negotiable form.
(iv) Bill of lading: - is a contract between the owner of the goods and the
carrier (as with domestic shipments). For vessels, there are two types: a
straight bill of lading which is non-negotiable and a negotiable or shipper's
order bill of lading. The latter can be bought, sold, or traded while the goods
are in transit. The customer usually needs an original as proof of ownership to
take possession of the goods
DOCUMENTATION: Generally documentation is perceived to be the most complex, difficult and
critical activity of export marketing particularly in India.

22

Successful

consummation of an export order needs innovative skills and meticulous

planning including proper compliance and subsequent documentary provision.
REGULATORY CONTROL IN INDIA
After becoming an exporter company it is required to obtain a (RCMC) from
the relevant export promotion council, commodity board or any other
designated body. This certificate is needed for getting some more export
incentives given by the govt.of India. Next step in becoming an exporting unit
is to obtain importer-exporter code number from director general of foreign
trade.
a) GR FORM / PP FORM: GR FORM / PP FORM in duplicate is required for every consignment for
obtaining customs clearance. This form is needed as a legal requirement
under the Foreign Exchange Regulation Act of India. GR FORM is needed for
all consignments other than ones being shipped by post, while PP FORM is
needed for goods going by post.
b)
DOCUMENTATION: Various documents originated during export marketing activities of Orient
Craft are defined below: SALE ORDER / CONTRACT: It is a premiere document that has to be generated in any transaction. It is an
agreement between buyer and seller, in which seller has agreed to buy them,
at an agreed price with specified delivery terms. Delivery terms may be F.A.S,
F.O.B, and C&F etc.
F.A.S (Free Along Side)

23

In this seller has the obligation to deliver the goods alongside the vessel on
the quay. The buyer has to bear all the cost and risk of loss or damage to the
goods.
Dutiable shipping bills
F.O.B (Free On Board): When the delivery condition is F.O.B, the seller has the liability to load the
goods / materials on the vessel specified by the buyer. The transportation,
insurance and other agreements are to be made by the buyer.
C & F (Cost and Freight): The seller must pay the costs and freight necessary to bring goods to the
named port of designation but the risk of loss and damage to the goods is
transferred from the seller to the buyer.
In case of International Trade the buyer and seller separated by distant
boundaries. Hence it becomes less viable for the parties to come together to
form a contract. Thus it so happens the buyer or seller initiates the formation
of contract by sending purchase order or sale order respectively. Sometimes
the buyer intimates the seller by sending the purchase order, or if seller finds
the initiative lucrative, he sends his sale order to the buyer. Thus in this way
the parties enter into a contract with each other. Such type of contract is
known as Constructed Contract.
Various contents of sale order are listed below:a. Price of the product
b. Quantity and quality of the product
c. Period of delivery
d.Port of delivery
e. Standard terms and condition

24

f. Types of financial arrangements

g. Payment terms
Documents related to payment

(i) LETTER OF CREDIT: L /C is the most popular method of payment / receipt in foreign trade
transaction as well as it the mother document which give rise to all other
documents. Under L/C the buyer promise to pay the seller on due date. In
this type of credit, the buyers liable to pay. It is thus also known as bankers
commercial or documentary credit.
It is commonly referred as commercial L/C as it a means to opening a credit in
favour of someone, under which payment will be made provided that certain
conditions are fulfilled within given time.

PARTIES INVOLVED IN L/C: 1.Buyer or importer

2. I) Issuing or opening Bank
II) Reimbursing Bank
3. Seller or exporter or beneficiary
4. I) Advising / confirming Bank
II) Paying Bank
III) Negotiating Bank
Based on security, L/C can be classified into 3 types: -

25

1.Revocable or irrevocable: A revocable L/C can be cancelled or modified, by the buyer at any time
without any notice to the seller. But an irrevocable L/C cannot be cancelled
without prior notice to the seller of exporter.
2.Confirmed or Unconfirmed: When the bank authorized by opening bank confirms an irrevocable L/C, it
becomes confirmed. Otherwise the L/C is unconfirmed.

3.Recourse or without recourse: If the advising bank pays the seller but does not get reimbursing from the
opening bank, then this bank can recover the whole money with interest from
the seller.
But in case of without recourse, the liability of the exporter ends after he has
deposited the required documents and received payments.
(ii) BILLS OF EXCHANGE: It is a document for the goods exported. It is the means of collecting money
through banking channels and also a method of payment by credit. A bill of
exchange is also referred as Draft. It is a legal document. In India, Section
5 of Negotiable Act, 1881, defines bill of exchange as:An instrument in writing containing an unconditional order, signed by the
maker, directing the person to pay certain amount .
It has the following characteristics:a. It is an instrument in writing
b. It is an unconditional order signed by Maker (Drawer)
c. It is a direction given to a specific person (Drawee)

26

d. It is a direction to make payment of specific or fixed amount.

A bill of exchange performs the following functions: i. Means for collecting payment
ii. Means for demanding payments
iii. Means for extending credit
iv. It is a promise of payment
v. It is a receipt of payment
Various documents are required for custom clearance. Exporter or his
agent submits the following documents to the custom department so as
to get custom clearance for export.

(iii) BANK CERTIFICATE OF PAYMENT

It is a certificate issued by the negotiating bank of the exporter, certifying that
the bill covering particular consignments has been negotiated and that the
proceeds received in accordance with exchange control regulation in the
approved manner.

DISPATCH INSTRUCTION: Dispatch instruction is almost like sale order. It is an instruction or order given
by the companys marketing department to the plant to dispatch specified
goods to the port of any other designations.
Contents of dispatch instruction are given below:a. Specification and quantity of materials to be transported
b. Port of dispatch

27

c. Shipment schedule
d. Place and port of schedule
e. Name of the buyer

A.R.4 FORM: It is an application, by the company to the central excise department of

custom, for excise relief.
In India exportable goods are exempted from duty. Hence if the company
exports goods to foreign countries, to gain foreign exchange, it applies to
central excise department to get exemption, from excise duty, by giving
application in a prescribed format under rules 158, 185, 1730.
application is known as the A.R.4 FORM.

The contents of A.R.4 FORM are listed below:a) Name and address of range officer
b) Name of the company
c) Port of loading
d) Country of loading
e) Central excise regd. No.
f) Number and description of goods
g) Gross weight / net weight
h) Value of goods
i) Weight and quantity of goods

28

This

j) Duty rate and amount

k) Amount of rebate claimed
l) Remarks
m) Declaration of the company
DELIVERY INVOICE: The plant prepares it at the time of removal of goods from the plant. It is
meant for excise purpose. It contains the following: a. Quantity of goods dispatched
b. Price of goods
c. Mode of dispatch
d. Port of dispatch
e. Buyers details
f. A.R.4 reference
PROFORMA INVOICE: It is basically a form of quotation by the seller to the buyer. It is a sort of
invitation to the buyer from the seller to place a firm order to him.

It is

deposited with the custom clearance for estimation of excise duty. It helps in
getting custom clearance.
A Proforma invoice contains:a. Exporters name
b. Consignees name
c. Notifys name
d. Buyers name

29

e. Countrys of origin
f. Designation
TEST CERTIFICATE: It is a verification certificate that shows that the goods shipped have the
required cast no. And percentage composition.
INSPECTION CERTIFICATE: It is a document which certifies that the goods have been inspected (prior to
shipment). This certificate is generally desired by the importer so that he can
be sure that right types of goods ordered are being send by the exporter. In
India certain goods are subjected to quality control.

For this purpose an

agency called (EIC) was created.

G.R FORM: It is one of the most important documents in international business. This form
is obtained from R.B.I. This form is filled by the exporter and is endorsed by
the customs. This form is one kind of guarantee given by exporter to R.B.I.
The exporter gives guarantee that within six months of transaction the
foreign currency involved will be realized.
G.R FORM contains: a. Exporters name and address
b. Invoice no. And date
c. Consignees name and address

d) Port of loading and discharge

e) Country of designation

30

f) Exchange rate
g) Currency of invoice
h) Net & gross weight, particulars, description

SHIPPING BILL: It is the main document on which custom permission for export is given. It is
custom document. It is a document, which is necessary for loading the cargo
on ship.
It contains the following: a. Exporters name and address
b. Invoice no. And date
c. Port of loading
d. Port of designation
e. Details of packages and goods
f. Analysis of export value; currency; amount
MATE RECEIPT: When the cargo is loaded on the ship, the commanding officer / captain of the
ship will issue the receipt called the mate receipt for goods loaded.
It contains the following information:-

a. Name of the vessel

b. Berth
31

c. Date of shipment
d. Description of packages etc
BILL OF LADING: It is a document which is issued by the shipping company acknowledging the
receipt of goods mentioned there / in and undertaking that the goods are in
condition and will be delivered to the consignee, provided that the freight
specified therein is duly paid.
It serves the following 3 purposes: It is a document of title of goods shipped,
It is a receipt for goods, received by the steamship company,
It contains the terms of the contract between the shipper and shipping
company
MARINE INSURANCE: When the goods are transported from one place to another there is always
risk involved. Hence to avoid such transit losses, marine insurance is taken
up.

In India there are various insurance companies, such as General

Insurance Company. Insurance Policy is normally done through agents.

Marine insurance contains the following:a. Name and address of the subsidiary of insurance company
b. Claim payable
c. Name of the insured
d. Vessel no.

e. Place of dispatch

32

f. Port of loading and dispatch

g. Destination
h. Insured value
i. Terms of insurance
j. Particulars and description of goods

33

100% E.O.U. Export Oriented Units means an industrial unit offering for its entire
production, excluding rejects and items otherwise specifically permitted to be
supplied to the domestic Tariff Area (DTA). Such units may be set up under
the Export Oriented Unit (EOU) scheme or Export Processing Zone (EPZ),
Electronic Hardware Technology Park (EHTP). Such units may be engaged in
manufacture/production or trading of any goods, like Hardware.Units engaged
in service activities may also be considered on merits.
The scheme of 100% Export Oriented Units (EOUs) was introduced in the
year 1980 with the objective of generating of production capacity for exports
by providing an appropriate policy frame work, flexibility of operations and
incentives. Inorder to enable them to operate successfully in the international
markets, such units are allowed to import machinery, raw materials and
components and consumables free of customs duties, and

if procured

indigenously, full exemption of excise duty is available. These units have to

operate under customs bond and are expected to achieve the levels of net
foreign exchange earnings fixed by the Board of Approval as a percentage of
their exports.
EOUs are governed by the following basic terms and conditions:

It may be established anywhere in India subject to locational criteria, local

zoning laws and environmental regulations.

The unit will undertake to manufacture in bonded area and to export its
entire period ordinarily of five years.

If a unit approved under this scheme is unable for any reason, to fulfill its
export obligations, the Board of Approval will review the case and
recommend the future course of action to be taken in regard to that unit.

Once a 100% EOU is de-bonded, it would have to pay the following duties.

34

Customs duty on capital goods on the depreciated value but at the rate
prevailing at time of import.

Customs duty on unused raw materials, components, consumables and

spares of value at the time of import at rates in force at the time of
clearance.

In respect of excisable goods, excised duty without any depreciation and

at rates applicable at the time of clearance.

EOUs established any where in India and export 100% its products except
certain fixed percentage of sales in the domestic Tariff Area as may be
permissible under the policy.

IMPORT DOCUMENTATION
Documentary Requirements:
Customs documents are the set of documents required by a customs
authority to accurately and completely identify goods which are being
imported. Every country has its own specific rules and regulations governing
information and documentary requirements.
The minimum documentation required to be submitted with customs import
entries or Informal Clearance Documents includes:

Air way-bill or bill of lading

Invoices

Any other papers (including packing lists, insurance documents, etc)

relating to the shipment.

The Customs Act 1901 requires importers to retain commercial documents

relating to a transaction for five years from the date of entry. These documents

35

may be required for Customs audit purposes. Failure to meet the requirement
may attract a penalty of $2000.
Airway Bill:
Any airway bill, also called, an air consignment note, is a receipt issued by an
airline for the carriage of goods. As each shipping company has its own bill of
lading, each airline has its own airway bill.
Bill of lading
The bill of lading is a document, issued to a consignee, by a carrier, that
describes the goods to be shipped, acknowledges their receipt and states the
terms of the contract for their carriage. The shipper is responsible for
completing the bill of lading and providing the completed document to the
carrier at the time the shipment is sent.
The carrier provides a copy of the bill of lading to the exporter before
departure, as evidence of the transfer of goods from the exporter to the
carrier. A copy of the bill of lading is also forwarded to the importer, to arrange
for the pick-up of the goods, and a third copy is kept for the carriers records.
Original bill of lading:
-

The original bill of lading always stipulates the contract of carriage.

Possession of the original bill of lading at destination entitles the bearer to

the goods.

The original bill of lading is sometimes sent to a financial institution that

represents the shipper. The financial institution remits the original bill of
lading to the importer once all financing and other obligations are met.

Manifest:
A manifest is an itemized list of the contents of the shipment, to be shown to
officials for customs clearance. Another name for the manifest is cargo control
document (CCD). The most commonly used manifest is a Form A8A.

36

The carrier prepares the manifest based on the information provided by the
shipper. The carrier must provide the customs broker with a manifest in order
for the broker to obtain a release from Customs.
A manifest or CCN has its own identifier, called the cargo control number.
Once submitted and accepted by Customs, the manifest and cargo control
number are monitored by Customs to ensure the proper clearance and
closure of the shipment.
Packing list:
The packing list is the detailed list of contents of the shipment, including
quantities, items, model numbers, dimensions and net and gross weights. A
packing list should specify per carton or crate the number and type of units of
material inside. The shipper gets the packing list ready at the time the goods
are being is prepared for shipping. There is no standard format for packing
lists.
Although it is not a required customs document, the packing list is often used
by the customs broker to obtain additional information about the shipment.
Commercial Invoice:
A commercial invoice is the basic document from which the buyer or importer
pays the vendor or exporter.
On import shipments, the commercial invoice generally serves a dual
purpose: to enable the exporter to collect his/her money and to assist the
importer in clearing the goods through Customs.
The commercial invoice does not need to conform to a rigid format. The
exporter or manufacturer is free to set out the information in any manner they
choose, provided that the prescribed data elements found on the invoice are
included. Specifically, the following information must be included and be clear,
accurate and precise:
-

Exporter name and address

37

Consignee name and address

Description of the goods

Net and gross weights

Unit price

Extended price

Currency of settlement

Terms of delivery and terms of payment

Date

Reference numbers

Import licenses

Freight included or excluded

Import permits and special certificates:

The goods subject to government department requirements need special
permits, certificates or other paperwork, in addition to the standard customs
documentation. In some cases, shipments may require examination by
customs officers to verify marking or proper labeling. In others, qualified
inspectors, working on behalf of the OGD in question, must review the
documentation and/or examine the goods prior to release.
Often the data needed to satisfy OGD requirements is not normally provided
with the shipment. It must then be supplied by the importer to the customs
broker at the time of customs entry.
OGDs are becoming more stringent with regard to imports. Whats more, new,
additional OGD requirements are being implemented all the time. It is crucial
that your customs broker be aware of these regulations to ensure correct
processing and compliance of your shipments subject to OGD requirements.

38

Orient Craft prepares all appropriate certificates and import permits on a duty
free-per-permit basis as it is a 100% E.O.U. and present these to the OGDs
and Customs, in order to secure the release of the shipment.
Import documentation procedure is as follows:
The papers and documents required before starting the steps and procedures
of clearing goods imported for companies and establishments or others in
general

Copy of the commercial register and a form of the business activity issued
by the Ministry of Commerce and Industry

Certificate of membership with the Chamber of Commerce and Industry

Certificate of origin for imported goods certified by the competent

authorities in the exporting or producing country

Original invoice of purchase certified by the competent authorities in the

exporting or producing country

Bill of Lading for goods imported by sea or air

Manifest papers of goods imported by sea or air

Delivery order by the shipping agent of goods imported by sea or air

Letter of Authority certified party concerned with custom clearance in case

of inability to appear in person.

39

RESEARCH DESIGN AND METHODOLOGY

SOURCES OF DATA
PRIMARY DATA
Direct Interview of Executives working in the concerned departments
SECONDARY DATA
Concerned documents of the company, various apparel magazines,
companys handbooks on concerned topics

SAMPLING SIZE AND DESIGN

Convenience sampling was followed by selecting the most appropriate 25
elements from the organization that were related to my study, and then they
were interviewed as to gather every possible detail about the process under
study.
METHODOLOGY OF RESEARCH
Primary descriptive research method has been used for the completion
of this project.
Methodology followed during the study was to assist the executives of various
departments related in day to day working and interviewing personals from
other concerned departments to gain a detailed knowledge about the export
process and the incentives availed by Orient Craft Ltd.
The departments involved are:
1. The Top and Middle Level Management of the Documentation
department
2. The Top and Middle Level Management of the Banking department
3. Executives involved in the Logistics department
4. Executives involved in the Merchandise department of the firm
40

CRITICAL REVIEW OF LITERATURE

The Indian textile sector has its roots going back several thousand years.
After the industrial revolution in Europe, this sector in India also saw growth of
an industrial complex. However, over the last 50 years the textile industry in
India has shown a chequered performance.
The apparel industry is the largest source of foreign exchange flow into the
country with the garments exports accounting for almost 16% of the total
exports of the country. The industry is very vast with over 30,000 readymade
garments manufacturing units and employs nearly three million people. Indian
garments export business has made great strides in the past few years and
today many of the leading fashion labels, from all over the world, are known to
source their products from India.
The garment manufacturers, exporters, suppliers, stock lists and wholesalers
make for a very venturesome clothing and apparel industry in India. There is
great demand for Indian readymade garments the world over. They are
renowned in the international market for their durability, high quality and
exquisite work. The ready availability of highly skilled cheap labor is one of the
primary reasons for Indian garments being so economically priced. Apart from
this, there are other factors in favor of the Indian garments industry like the
cost effectiveness in manufacturing, raw materials and quick adjustment to
what will sell, offering high quality at competitive prices, shorter lead times
and a virtual monopoly in embellishments. These are the reasons that attract
leading international brand and fashion chain to visit India to choose from its
extensive range of fabric available in a multitude of colors and designs,
unparalleled by any in the world. Embellishments include elaborated hand
embroidery, which is in great vogue abroad and of variety a accessories like
buttons, zippers, laces etc.
Indian garment manufacturers and exporters have for long been living in a
regime of subsidies and incentives. This has resulted in compliancy in building
up larger capacities and increasing earnings through higher production levels
instead of living on subsidies.

41

The export promotion package compares favorably with incentives offered

elsewhere in the world. It makes a special effort to attract foreign investors to
set up export-oriented units in India. The government provides a number of
incentives and facilities for exporters. Since July 1991, there have been
dramatic changes in the trade policy regime in India. The objective of these
reforms has been to enhance export performance by improving export
incentives and eliminating discretionary controls.
The accompanying diagram clearly shows that most of the Garment
Manufacturers and exporters fall into the category of up to 2 crores. The fact
that the number of companies having a turnover of over 100 crores is only 15
(as per figure from AEPC) speaks volumes about the fragmented and how
divided the Indian scenario has been.
EXPORTS
India has seen a steady increase in the export of readymade garments in the
past few months. India's export of readymade garments, to restricted
countries, during January-July 2002 amounted to 714.5 million pieces which
are valued at $2,497.7 million (Rs.12,175.00 crore), a clear increase of 7.31
percent in quantity and 3.11 percent in terms of value (U$$), as compared to
the same period in the previous year. Thus apart from being one of the largest
exporters of tea, jute and tobacco, India is rapidly emerging as one of the
biggest players in the international fashion arena, in fabric souring for fashion
wear. Most of the leading names in fashion, like next and top shop of UK.
Federated Stores, R.M.Macy's, Target, Maryn's, to name a few features
among the list of buyers.
FIBRES
Cotton-India is the 3rd largest producer of cotton in the world. In the past,
price of cotton would vary, depending upon the success or failure of the crop.
In the year 2000-01, the production of cotton yarn is 3160 million kg and
filament yarn 920 million kg.

42

India Yarn Dyed Cotton need no introduction as it has already captured the
world markets for years. Slowly but surely weavers are understanding the
need to replace the traditional power looms with Auto looms, and the
importance of cone dyeing as replacement for bucket dyeing, so that
uniformity in color is achieved. In moving away from cotton - the Government
is encouraging the promotion of denim and various types of woolen fabrics
and polyester staple fabric etc. which have already been shifted to the open
general license list. Some washed shirts, embroidered jumpers, dresses in
denim are being exported in plenty. Arvind Mills, Ahmedabad is the third
largest producer of denim in the world! Other mills of repute are K.G Denin
and Ashima.
Rayon Blends like poly/rayon rayon/linen; rayon/cotton/linen are now popular.
The cost conscious market is turning to polyester for reasons of price,
durability, comfort and drape, linen and linen blends continue to be directional.
Besides wovens, Indian has emerged as a viable option, for the manufacture
of fine knits and sweaters. The potential centre for knitwear in the millennium
are Ludhiana (for sweaters and fine knits) and Tirupur.
MAJOR CUSTOMERS
Gap has emerged as one of the strongest customer in India. Other key US
customers in the market are
Ann Taylor, Avenues, Blair Corporation, Dillards, Federation Stores, J.C
Penny, K-Mart, Kohls Lane Bryant Liz Claiborne, May Department Stores,
Mervyns, Polo Sport, Sag Harbourm Sears, Target Tommy Hilfiger and WalMart.
THE MAJOR CHALLENGES OF THE INDUSTRY
A major gap in Indian industry is its fragmented industry structure with a
dominance of small scale. One of the greatest implications is that since most
of the companies are small, there are very few clear examples of industry
leadership and reference points that can be inspirational for the rest of the
industry.

43

Small scale also brings with it the problem of productivity. Smaller

companies often do not have the resources to invest in appropriate
technology or retraining, or in the re-engineering of processes. While skilled
Indian labor is inexpensive in absolute terms, due to lower productivity levels,
much of this advantage is lost by small firms.
The fragmentation of supply base also creates barriers in achieving true
integration between the various links in the supply chain. This creates issues
of lack of control and lack of consistent or reliable performance.
The government has, in the past, also kept foreign investment out of textile
and apparel manufacturing, which restricted its growth.
Labor laws are still seen to be relatively unfriendly to business, with
companies having less than ideal flexibility to follow a "hire and fire" policy. To
avoid any potential trouble with unionization of labor, companies have often
broken their business down into small units, which have, in turn, lost the
efficiencies of scale.
It has a global logistics disadvantage due to its geographic location. Unlike
Mexico (for the US), and China (for Japan and the US West Coast), India is
distant from all the major markets. The cost of shipping is high and time adds
to disadvantage.
India also lacks any serious trade pact memberships, and therefore does
not receive preferential access to the major markets. This leads to quota and
duty disadvantages.
STILL IT COUNTS ON THESE FOLLOWING STRENGTHS
1. India is the third largest producer of cotton in the world, with the second
largest spinning capacity in the world it had 17% share in EU during 2000
after Turkey, Indian price was EURO 4.34/kg against Euro 3.49 average for
EU as a whole.

44

2. Diverse textile base - Availability of an unmatched variety of fabrics - a

quality conscious mill sector, economic power loom sector and a creative
handloom sector. India had a share of 7.3% during 2000 after Pakistan,
Turkey, Indonesia. The average price of fabric synthetic stable fibre was Euro
3.54/kg (Euro 4.90/kg)
3. Capabilities in hand and machine embroideries, bead work, appliqus,
eyelets, patch work, etc.
4. Flexible infrastructure to produce low minimum or meet high maximum
quantities makes India an accommodating market to work in.
5. India is emerging among the 'Bid 4' economies of 2020 - it has large work
force talent in this industry e.g. designers. Marketing Experts, Merchandisers
and Technologist, India is coming to be seen as an expanding market that is
more stable than many East Asian Countries.
6. Competition in prices vis--vis the Pacific Rim Countries due to the
comparatively low cost of skilled and semi-skilled labor.
7. Import duties have been brought down for industrial supplies, and are
likely to come down even further. For example, while a few years ago the
import duty on manufacturing equipment was 25%, this has been reduced to
5%.fabrics can be imported free of duty if they are made up into garments and
re-exported. .
8. Opportunities also exist for tertiary suppliers for support products such as
labels, software, hardware (e.g. bar code scanning, testing and inspection
equipment etc.), with the growing need for improving standardization and
quality levels.
9. Services are another area for growth. The immediate opportunities for
service providers (logistics, technical, consulting, legal and finance) are
arising out of the growing need for improvement of standards, productivity,
compliance etc. and an increasing willingness among Indian factories to
invest in services.

45

10. Foreign Direct Investment in the apparel and textile industry has been
recently opened up, as liberalization has gathered steam. Manufacturing is a
thrust area for the Indian government, as Indian industry and the government
see foreign companies more as partners in building domestic manufacturing
capabilities rather than a threat.
Other than sourcing liaison offices, a number of companies are already
present in India through joint ventures, strategic alliances and other forms of
relationship.
11. Indian industry has consistently remained flexible in terms of production
quantity and lead-time. India presents the possibility of producing quantities
as low as to a few hundred pieces. This capability is especially critical in an
unpredictable market where retailers and brands are looking to source smaller
quantities, closer to the season.
12. 1990s have seen growth of "fashion management" studies, including
marketing and merchandising, garment manufacturing technology,
design

management,

fashion

communications

management

etc.

Simultaneous growth of the organized branded market within India, as well as

the entry of larger companies sourcing from India, has given fashion
management graduates the playing field on which to further hone their skills.
POST 2005 SCENARIO
With January 2005, WTO provisions will come into force, and there will be no
quota restrictions in any of the 137 exporting countries. A free-for-all regime
will emerge. Then, only garment exporters, who are able to provide the best
quality at the cheapest price will succeed.
Keeping the above in mind, and the order to be competitive in a world
scenario, the Indian export industry has started emphasizing on the import of
textiles, rather that only working with domestic goods. Taiwan has emerged as
the leading suppliers ($60 million). South Korea a close second ($ 45 million)
and China at position No.3 (3 35 million). The Indian garment manufacturers

46

are using most competitive fabric in export, thus could be domestic or

indigenous.
By starting this trend, exporters are hoping that they will be perceived by the
West as another production base - not restricted or limited to Indian industry.
For example:
Setting up of apparel and design centers, facilities for upgrading technology
and ready

access for all necessary and better inputs e.g. machinery, raw

material, trimmings and embellishments to get higher unit value realization.

Greater focus on eco-friendly chemicals and azo free dyes.

The removal of special fabrics and all types of knitting and sewing
machines to the free import list, to enlarge the export supply base.

Setting up of private bonded warehouses to facilitate bulk exports for large

departmental stores.

Cheaper pre-shipment credit setting up of Special Economic Zones

(SEZ's) for garments.

After China, India is being perceived as the next country with the biggest
'Growth Potential' due to it's manpower and natural resources. The first
decade of the 21st century should see us a major player in the apparel
business - partly because more industrialized countries like Korea, Taiwan,
etc. have moved into other industries and partly because the Indian
Government believes in, and wants to grow the apparel export business,
since it is a major earner of foreign exchange.
Indian apparel exporters tend to specialize in women's blouses, dresses and
skirts; men's trousers and shirts. By tapping export markets, the clothing
sector's growth has far exceeded that of the textile industry. Average growth in
exports has been around 15% per year, mainly because of the expansion in
union woven apparel.

47

Indian firms' labor productivity levels are considered as low as a quarter of

those prevailing in the NICs. Which does to an extent erode the advantage of
cheap labor. Moreover, the apparel industry has been characterized by a low
capital intensity, as investments in machinery tend to be limited.
The competitiveness of the small-scale sector has attracted a number of
international clothing manufacturers including Levis, Benetton, Lactose and
Pierre Cardin. Cheap, temporary labor provides the flexibility to produce small
lots of tailor-made garments. The recent change in policy to allow large scale
units to enter the garment industry provided they undertake an obligation to
export 50% of their production, is helping the industry diversify its product mix.
Quotas restrict exports nearly 80% of Indian clothing exports go to the US and
EU where they face quota restrictions. A similar percentage of total clothing
exports are subject to quotas. In some categories the quotas have not been
filled. This tends to be the case for products for which there is limited or no
demand in quota markets, or those that India does not specialize in such as
manmade fibres.
The US argues that quotas do not hurt India, as a number of quotas are
grossly under-utilized. However, for products that India does specialize in, the
quotas have begun to bite. Take the case of cotton. The bilateral agreements
under the Multifibre Arrangement discriminated strongly against cotton
products. In addition, these were taxed by 20% more than other fibres in the
countries that imposed quotas.
The developed importing countries have not yet removed quotas on cotton
imports. "Consequently, the most intensive items like shirts and women's
outerwear, in which India has an advantage, will not have their quotas
removed until 2005", quota allocations are in huge demand among Indian
exporters who specialize in these products.
Moreover, firms exporting to quota markets registered a smaller increase in
fabric price of Rs. 4.85 per meter as compared to Rs. 5.24 per meter for firms
exporting to non-quota markets. This reflects a substantial difference between
returns from quota and non-quota markets.
48

EXPORT PROCESS IN ORIENT CRAFT LTD

Firstly, Orient Craft Ltd. tries to secure an Export order. Export order is a
document communicating decision of the foreign buyer to purchase certain
items from the exporter. It specifies the description of the item, their quantity
and the quality specifications, unit price, delivery terms, shipping marks,
insurance requirements, requirements as regards the labeling packaging and
packing, payment terms, pre-shipment inspection requirements, documents
required and so on.
PROCESS OF SECURING AN EXPORT ORDER
I. Orient craft locates a trade enquiry i.e. it comes across the details of a
foreign buyer who is willing to import the items. It gets its details through:
a) Contact with a buying agent in the foreign or own country. It deals with
agencies like William E. Conner, Le & Fung Ltd., Triburg etc.
established at New Delhi and Gurgaon.
b) Business promotion visit to a foreign country. The CMD and the
Directors pay at least two promotional tours an year to US along with
product samples.
c) Already established buyers like Tommy Hilfiger, Gap inc., Ann Taylor,
d) Contact with overseas marketing agent
e) Orient crafts own subsidiary firm in US
II. On receipt of the trade enquiry, it sends its company profile, product
profile and promotion literature of his product range to know the interest
of the buyer
III. The buyer may like to have the details of a certain product of his own
choice from the firm.
IV. Orient craft sends the quotation in respect of the product of interest to
the buyer. The quotation contains the basic details like the price, mode of

49

payment, sample of the item along with its specification and the likely
delivery time.
V. On receipt of the basic information, the buyer puts forward the
requirements as regards the design, size, finish, color or other
specification of the product. Once the product has been identified, then
the process of negotiation of other terms and conditions begin.
VI. Orient craft send the proforma invoice to the foreign buyer setting out in
detail the terms and conditions negotiated between the two parties. The
proforma invoice represents the offer to sell made to the exporter.
VII. The importer conveys his acceptance of offer of sell to the exporter on
the proforma invoice originally sent by the exporter.

TERMS AND CONDITIONS OF AN EXPORT ORDER

The terms and conditions of an export order would vary from order to order
depending on the nature of product, parties involved and so on, but following
are the standard clauses of an export order
1. Product and its description
The exact size, color, and code of the product are mentioned.
2. Product specification as regard to its quality
Exact quality specification is a vital content of any export order. The goods
should conform to the quality specifications as laid by the buyer. Any variation
in the quality especially with color fastness could lead to a lot of damage to
the company.
3. Price
The terms of delivery i.e. FOB/ CFR/CIF etc. as per INCOTERMS is clearly
mentioned as to avoid any later confrontation.

50

4. Quantity
The detail of the quantity is mentioned in each category of size, color quality
etc.
5. Payment terms
Mode of payment- by open account, advance payment or by D/A, D/P, Letter
of credit advance payment or any other is mentioned.
6. Delivery schedule time period
It mentions weather the goods have to be dispatched partially / completely. If
dispatch is in different lots their date of dispatch are mentioned clearly for
each.
7. Mode shipment
It mentions the weather the goods have to be dispatched through sea, air or
postal.
8. Type of shipment
It mentions weather there has to be a direct/Transshipment of the final goods.
9. Inspection
Many buyers nominate their own inspectors for inspection. They have fixed
schedule for the inspection and its criteria. It is clearly mentioned in the export
order. They also bear the right to reject the goods that do not meet their
quality standards.
10. Labeling, packing and marketing requirement
The export order clearly mentions the terms regarding the labeling, packing
etc. Brands like Tommy Hilfiger, Banana Republic rely heavily labeling. Strict
instructions are also given regarding the packing. Packing is normally done
the house, store wise, size wise or as per the buyers requirement.

51

11. Insurance
The export order mentions weather the insurance charges have to be born by
the importer or Orient Craft. The pricing or the INCOTERM depends upon this
factor.
12. Documents required

If the buyer is in US or Canada then he requires additional documents like

visa certificate and commercial Invoice.

Most of the countries require certificate of origin but they are different.

No. of copies of the packing list

Whether cargo insurance is desired

What kind off bill of lading is desired; is it straight or to order; shipped or

received for shipment direct or through etc.

13. Escalation clause:

Sharing of increase in cost due to uncertainties is decided in advance.
14. Force majeure clause
Clause providing for excuse of non-performance due to acts of god
15. Arbitration clause
Clause for settlement of dispute
Orient craft and buyer hold negotiation with regard to the above points
conclude the business deal.
PLANNING FOR EXECUTION OF THE EXPORT ORDER
Once the buyer places the enquiry, the firm immediately plans for its
execution. It involves the following steps:

52

ACKNOWLEDGEMENT OF THE EXPORT ORDER

First, orient craft sends a letter of thanks to the foreign buyer for placing an
order. The idea is the communication stress is laid on building of long-term
business relationship based on mutual trust.
SCRUTINY OF THE EXPORT ORDER
Before sending the export order, orient craft scrutinizes it that it would be able
to supply the goods to the buyer as per the terms in it. It scrutinizes:
i.

Items (product)

The order has been received for the product for which quotation/offer was
sent and orient craft is still in the position to supply the product. It confirms the
sources of supply of the product if it is other than the source where the buyer
has recommended.
ii.

Sizes and specification

Should be same as per the offer. Even a slight variation especially in size and
the color can create problems for the supply of the product.
iii.

Payment terms are same as stipulated/negotiated

iv.

Special packaging, labeling and marketing requirements is noted for

compliance. In case labels, price tags, poly/pack/skin packing etc.
would be required, then their supply should be assured.

v.

shipment and delivery date is in conformity with the orient crafts

production plan

vi.

Weather insurance is to be done by orient craft or the buyer.

vii.

Documents required by the buyer

It examines weather Orient craft can arrange for the documents required by
the buyer.

QUOTA REQUIREMENT
53

Orient craft should comply with the requirement of the quota before sending
the confirmation of the quota to the foreign order. The exporters of readymade garments under restrained category can send shipment only if they
have the valid quota with them. The Apparel Export Promotion Council
(AEPC) allots the quota for the ready-made garments.

CONFIRMATION OF THE EXPORT ORDER

If orient craft is satisfied with various aspects referred to above, a formal
confirmation of the export order is sent to the buyer. This confirmation of the
order is very significant, as the buyer would like to be sure that he would be
getting the supplies on the time as per terms of the order. Based on this
confirmation, the buyer can draw his own schedule for supply of goods to the
customers as per the plan.
DEVELOPING LOGISTICS FOR THE ORDER
Orient Craft formulates the detail plan of action for the implementation of the
export order. This involves the identification of the minutest possible activities/
jobs need to be performed to ensure the successful execution of the export
order as per its terms and conditions. The team prepares the Activity Profile of
the order.
Its contents are:
i.

Determination of the materials, fabrics/ supplied required

ii.

Making arrangement for the procurement of the materials/ supplies.

Orient craft normally have buyer recommended suppliers from the
countries like China and Korea.

iii.

Arrangement of the fund to execute the shipment i.e. packing credit

from the bank. The banks that Orient Craft deal for PCFC are

Corporation Bank

Bank of Baroda

54

State Bank of Travancore

State Bank of Mysore

ABN Amro Bank

Bank of Nova Scotia

iv.

Labeling, Packaging, Packing, Hangers Cartons and Marking of the

export consignments.

v.

Ensuring the export incentives (i.e. Drawback, DEPB etc.) the firm has
to avail. Various export incentive availed by the firm are explained in
the next chapter.

vi.

Arrangement for pre-shipment inspection of goods for quality control.

Normally the inspectors visit from the buying houses or are the buyers
representatives.

vii.

Managing the risks involved in the export shipment. Orient Craft

insures their entire goods from Trial Sundaram- New India Insurance

viii.

Appointment of the clearing and the forwarding agents. The agents that
Orient Craft deals with are UT Worldwide Pvt. Ltd, Sea link, Freigz,
Maersk Logistics Pvt. Ltd..

ix.

Preparing the pre-shipment documents for obtaining central excise and

customs clearance of the export shipment

x.

Compliance with the exchange control requirement

xi.

Shipment of the goods

xii.

Arranging post shipment finance from the bank

PROCUREMENT OF THE INPUT/SUPPLIES

Once, the export order has been confirmed, Orient Craft plans for
procurement of the input required for the supply of the goods to the buyer.
The firm decides the method of import between Advance License, Under EOU
or against DEPB etc. Its details are discussed in the next chapter.
PRODUCTION OF THE GOODS

55

Once the raw material is procured, its production starts immediately. The
merchandise department passes the production order with its details of size,
quantity, color and lead-time to the department. The production planning is
done in such a manner that there is enough time for the goods to reach the
port of destination. Meanwhile, the merchandise department keeps in touch
with the buyers representative.
The logistic plan is drawn up considering the factors such as one, the
alternative modes of transport and two, which is optimal from the point of view
of total transportation costs. The firm plans the timely dispatch of the goods.
This requires decisions as to which airline or shipping should be selected fir
transport of the goods from the port of shipment to the port of discharge. The
company bears the airfare if the goods are running late or not as per the
schedule.
At least one week in advance of packing of the goods, Orient Craft draws up a
logistic plan for the distribution of the goods to the importer to ensure their
timely delivery. This involves planning for transportation of the goods. The
decision as regard the mode of transport to be used is the essence of the
distribution logistics.
Since the shipments to US and Canada leave only on Sundays, they have to
plan accordingly. The shipping lines that Orient Craft is using are APL logistic,
Maersk Logistics Pvt. Ltd.
PRE-SHIPMENT INSPECTION
Before departure from the factory, the goods are inspected. They are properly
inspected to ensure that the quality is maintained as desired by the buyer.
Goods can be inspected by:

The Orient Craft Itself

Inspection by the buyers representative

Inspection by the buying agent

56

Inspection by private sector agencies

Buyers like Tommy Hilfiger, Gap inc., have their own offices in Bangalore and
Delhi and therefore they occasionally come and inspect their products. While
Ann Taylor and Rocca wear has appointed buying houses for it. Tri Burg, Polo
has appointed Hope n Glory while Le & Fung inspects for Carre Four.
DESPATCH OF GOODS
Once the goods are properly packed and inspected, they are departed to
Bombay by truck. The documents that are sent with the transport are

Invoice copy

ST form

Company Challan

The fair of the transportation is weighed by cubic per meter. Orient craft does
not use rail for local transport since they have limited space and are fixed
scheduled.
GOODS RECEIVED BY CLEARING AND FORWARDING AGENT
The Agent nominated by Orient Craft in Bombay receives goods. The C&F
that Orient Craft is dealing with are Sea Link Frigz.
1. Providing warehouse facility to the exporter for warehousing before their
transportation to the docks
2. Transportation of goods to the docks and arrangement of warehousing at
the port
3. Arrangement of containers required for shipment of the goods.
4. Booking of shipping space
5. Arranging for shipment of goods to be on board

57

6. Arranging for marine/ cargo insurance of the shipment

7. Preparation and processing of shipping documents required for custom
clearance.

THE DOCUMENTS THAT ARE REQUIRED FOR THE SHIPMENT ARE

Commercial Invoice
It is a document showing the value of the goods exported

Packing List
This document describes the various boxes in which the goods have been
exported
Bill of exchange
It is an unconditional written order requesting the buyer to pay a specific sum
of money to a specified person at a specified time. This draft could be sight
Draft or Usance draft. In case of Sight Draft, the buyer has to pay for the draft
at the time of its presentation. It is used for D/P as a mode of payment. If
Orient Craft allows credit period to the importer to make the payment, then the
draft is known as Usance draft. The draft is to be accepted by the buyer
before shipping documents are given to him. It is under D/A as mode of
payment.
Certificate of Inspection
In case the goods are not subject to be inspected by the Export Inspection
Agency, it has to get it done by the private inspection agency and the
certificate has to be submitted
Certificate of Insurance

58

It is prescribed by the insurance companies for the insurance of the goods

Bill of Lading
It is transport document issued by the shipping line indication the following:

Title of the good

Receipt of the goods shipped

An evidence of the contract of affreightment

Mates Receipt
It is a receipt issued by the Mate of the ship acknowledging the loading of the
cargo on the ship. This receipt states the condition in which goods are
received on the ship.
Certificate of Origin
It is a certificate submitted to the Chamber of Commerce for the issue of it. In
most countries, importers are required to submit a certificate of origin in
respect of import consignment for obtaining their custom clearance.
Shipment order
This s a reservation slip issued by the shipping line at the time of reservation
of shipping space.
8. After all the formalities, clearing and forwarding agent forwards one copy of
the documents to the nominated agent of the buyer (as per his requirement)
and the other to the Orient Craft.
COLLECTION/ NEGOTIATION OF DOCUMENT
Having shipped the goods, Orient Craft Ltd. has to take steps to obtain
payment from the importer against the shipment. If the method of
payment decided was under credit mode then it involves
(a) submission of shipping documents to the bank for collection in case of
DP/DA mode of payment and

59

(b) Settlement of payment against shipping documents in the case of Latter of

Credit of payment.

The Documents that are submitted to the bank for exchange are:
I. BILL OF EXCHANGE
Bill of exchange is defined as an unconditional written order prepared by an
exporter (ORIENT CRAFT LTD.) asking the importer to pay a specified person
at a specified time. The specified amount is represented by an amount of the
invoice; the specified person here refers to the banks and the specified time is
a matter of negotiation between the exporter and the importer.
II. COMMERCIAL INVOICE
This document is raised as a bill against the goods that has been shipped to
the buyer. After the invoice is prepared it is sent to the buyer so that he can
get his goods cleared from the respective customs authority. For this reason,
it is also called custom invoice.
It principally contains:
Name and correct address of the exporter
Name and correct address of the consignee
Invoice no. and date
Buyers order no. and date
Country of origin of goods
Country of final destination
Terms of delivery ad payments
Mode of carriage
Vessel/ flight no.
Place of receipt by pre- carrier
Port of loading
Port of discharge
Place of delivery

60

 Marks and no. /container no.

No. and kind of packages
Description of goods
Quantity
Amount and Rate
III. COVERING LETTER
It is a letter to the bank for collection or negotiation of documents .it is a
standard letter given by Orient Craft Limited to the bank which gives all the
details that can possibly be given to the bank at the time of negotiation of the
documents.
IV. SHIPPING BILL
It is the most important document required by the custom authorities for
allowing exports. It contains all the details of the goods shipped. The clearing
and forwarding agent, or the firm itself fills up the shipping bill.
V. EXCHANGE CONTROL DECLARATION FORM
It is form in which Orient Craft Limited declares to the Reserve Bank of India
the full export value of the shipment and also submit an undertaking that the
full export value shall be realized by them within a period of six months or due
date of payment, which ever is earlier.
VI. VISA FROM AEPC
A visa is required from Apparel Export Promotion Council showing grant of
quota.
VII. PACKING LIST
It describes the various boxes in which the goods have been exported .its a
vital document as it informs the buyer regarding the contents of the various
boxes.
VIII. SINGLE/MULTIPLE COUNTRY DECLARATION FORM

61

This document certifies that the finished goods comprise of raw materials
sourced from a single /multiple countries. It also certifies that the raw material
were assembled and processed in the same country or countries leading to
the final shape of finished product.

IX. ORIGIONAL AIRWAY /SHIPPING BILL

IT IS ISSUED BY THE SHIPPING LINE indicating the title of the goods
shipped, receipt for the goods shipped and an admission to the apparent
condition and quality at he time of shipment. it is an evidence of the contract
of afreightment and it is transferable by endorsement and delivery. It is issued
against Mates receipt and in sets of negotiable and non-negotiable copies.
X. CERTIFICATE OF ORIGIN
This is to certify the country to which the goods belong. It is issued by
chamber of commerce or other competent authority /body as required in the
L/C one copy is sent to the advising bank to be finally passed on to the
issuing bank. A copy is sent to the issuing bank and one to the buyer.
MEATHODS OF NEGOTIATION
In case the shipment has been under D/A, D/P mode of payment, Orient Craft
prepares the set of documents as required by buyer in terms of export
order and submit them to his Bank along with the following document

Standardized Letter to the Bank for Collection

SDF Form in duplicate

Orient Crafts bank would check the documents on receipt and forward them
to the buyers bank if these are as per the requirement of the buyer.
Orient Crafts Banker hands over the documents to the foreign buyer in
the following manner:

62

1. When he makes the payment against Sight Draft in case of Document

against payment (D/P): When the buyers bank collects the payment
from him, then the buyers bank would remit proceeds to the exporters
bank for the credit of the account of exporter.
2. When he accepts the Usance Draft, in case of documents against
acceptance (D/A): In case of Usance Draft duly accepted by the buyer,
the payment is realized by the exporter on the expiry of period of credit.
In case of Usance bills, the concessinoal rate of interest up to the nominal due
date.
The nominal due date is calculated by adding the following:
1. Normal transit period

25 days

2. Usance period

as per the bill

3. Grace period

3 days

In case of Sight bills, the post shipment credit at the concessional rates of
interest is extended for a period of nominal transit period. In case for over
due bills, the rate of interest for the overdue period of up to 180 days is
charged at the rate to export credit not otherwise specified. It is as per
the directive of the RBI.

Their current account is credited after the

adjustments in the packing credit taken by the bank.The credit taken in

foreign currency is known as Post Shipment Finance in Foreign Currency.
A payment advice is sent to the orient craft stating that his account has
been credited after making the necessary adjustments.
The export process is complete when the goods reach to the port of
destination and Orient Craft claims his drawback, if the export is made
from non-EOU unit.

63

EXPORT INCENTIVES AVAILED BY ORIENT CRAFT

A. INCENTIVES LINKED TO EXPORT PERFORMANCE

Duty Drawback

Duty Entitlement Pass Book Scheme

B. FISCAL INCENTIVES

Exemptions from Sales Tax

Exemptions from Income Tax

C. IMPORT FACILITATION FOR EXPORTS

Export Promotion Capital Goods Scheme

100% EOU/ EPZ Unit/SEZ/ STP

Advance License

D. EXPORT FINANCING

Pre-shipment finance at confessional rate of interests

Post-shipment finance at confessional rates of interests

E. RECOGNITION OF EXPORTERS

Export house, trading house, star trading house and super star trading
house

64

F. INCENTIVES FOR MARKETING OF EXPORT GOODS

Marketing Development Assistance

A.INCENTIVES LINKED TO EXPORT PERFORMANCE

DUTY DRAWBACK
It is an internationally accepted principle that goods exported out of a country
are relieved of the duties born by them at various stages of their
manufacture so that they become competitive in the world markets. This
is done through the scheme of duty drawback.
The duty drawback refers to the refund in the respect of central Excise and
customs duties pain in respect of the raw materials and other inputs used
in the manufacturer of the product prior to its exports.
Orient Craft Ltd. is entitled to claim the amount of duty drawback as soon as
export of goods takes place.
Drawback of customs and excise duty paid on inputs - Drawback means the
rebate of duty chargeable on any imported materials or excisable materials
used in manufacture or processing of goods, which are manufactured in India
and exported.
Duty Drawback is equal to (a) customs duty paid on imported inputs including
SAD plus (b) excise duty paid on indigenous inputs. Duty paid on packing
material is also eligible. However, if inputs are obtained without payment of
customs/excise duty, no drawback will be paid.
If customs/excise duty is paid on part of inputs or rebate/refund is obtained,
only that part on which duty is paid and on which rebate/refund is not obtained
will be eligible for drawback. No drawback is available on other taxes like
sales tax and Octroi.

65

ORIENT CRAFTS LTD. files the drawback claim within three months from
date relevant for applicability of amount or rate of drawback in terms of subrule (3) of rule 5 i.e. within three months from the date of Let Export Order.

B. FISCAL INCENTIVES
SALES TAX EXEMPTION
Orient Craft Ltd. claims exemption from the levy of sales tax on the supplies
taken by them for manufacture of goods for production of export product or
supplies of goods for export against specific export orders. This facility is
available to the exporters both under the Central Sales Tax Act 1956 and
under the Local Sales Tax Acts of the states.
There are 3 Local sales Tax Forms

Form ST- I

for Declaration

Form ST- 35

for the purchase of point of goods

Form ST- 49

for export

The above forms, while buying goods locally, allows Orient Craft to save a
sales tax of 8%. It is required to give form H to the suppliers of goods from
another state. The 100% export oriented units and the units in export
processing zones, special economic zones are entitled to full reimbursement
of Central Sales Tax paid by them on the purchases made by them from
within state in which they are located, for the purpose of production of goods
meant for exports.
There are 3 inter state forms

Form C

for declaration

Form H

certificate of export
66

Form F

for inter unit/firm transfer

The central rate of interest on sale is 10%. With the above forms Orient Craft
pays only an interest of 4% on inter state purchase.

SPECIAL ECONOMIC ZONES

A manufacturing unit of Orient Craft limited is located at Noida, which comes
under Special Economy Zones.
The units in these Zones shall not be subjected to any pre-determined value
addition, export obligation, input output/wastage norms. They shall be treated
as being outside the Customs territory of the country. Sale in Domestic Tariff
Area by the units in these Zones will be permitted only on payment of full
Customs Duty.
All the export Processing zones have now been converted into special
economic zones w.e.f. 1.1.2003. The most significant feature of the units in
the zones is that these units are allowed to make duty free imports of all type
of goods including capital goods required by the units for the manufacture of
goods.
SEZ is specifically delineated duty free enclave and shall be deemed foreign
territory for the purpose of trade operations and duties and tariffs. At present
there are eight SEZ functioning in the country. They are:
1. Cochin
2. Falta
3. Kandla
4. Madras
5. Noida
6. Seepz

67

7. Surat
8. Visakhapatnam
Its various highlights and benefits offered to the firm are given below:

The unit can import capital goods, raw materials, consumables, packing
material, spares etc. without payment of customs duty. Similarly, these can
be procured indigenously without payment of excise duty.

Second hand capital goods can also be imported.

They have to achieve positive NFE (Net Foreign Exchange Earnings)

There is no limit of minimum investment of Rs 100 lakhs on fixed assets

on commencement.

Fast Track Clearance Scheme (FTCS) for clearances of imported

consignments for EOU. In case of SEZ units, customs clearance for export
and import is obtained within the zone itself.

Generally, all final production should be exported, except rejects upto

prescribed limit.

Sale within India should be on payment of excise duty. The duty which will
be equal to normal customs duty, if imported.

Sub-contracting of production outside on job work basis is permissible

after obtaining necessary permission on annual basis

Job work for exports is permitted

Samples can be sold / given free within prescribed limit

68

Unutilized raw material can be disposed of on payment of applicable

duties

The

unit

can

exit

(de-bond)

with

permission

of

Development

Commissioner, on payment of applicable duties.

In case of SEZ unit; supplier does not have to pay CST.

Prescribed percentage of foreign exchange earnings can be retained in

EEFC account in foreign exchange.

100% foreign equity is permissible, except in a few cases.

Supplies to SEZ are exports and all export benefits are available.

Restrictions under Companies Act on managerial remuneration are not

applicable.

No restrictions on External Commercial Borrowings.

ADVANCE LICENSE
Orient craft Limited enjoys the benefits of an Advance License.
An advance license is granted for the import of inputs without payment of
basic customs duty. Such licenses shall be issued in accordance with the
policy and procedure in force on the date of issue of the license and shall
be subject to the fulfillment of a time-bound export obligation, and value
addition as maybe specified. Advance licenses maybe either value based
or quantity based.
Advance license holder is allowed duty free import of inputs with normal
allowance for wastage. In addition, fuel, oil, energy, catalysts etc. required
can also be allowed. Duty free import of mandatory spares up to 10% of

69

CIF Value of License, which are required to be exported with resultant

products, may also be allowed.

It is not transferable even after

completion of export obligation. There must be positive value addition.

Advance license is valid for 12 months for import and 18 months for export.
Export obligation should be fulfilled within 18 months. It can be revalidated for
6 months if export obligation was fulfilled, on payment of composition fee of
1%. Extension of 6 months can be obtained on payment of 5% of unfulfilled
FOB Value as composition fee.
Advance license will indicate name and description and of items to be
imported and exported/supplied, aggregate CIF value of imports, FOB/FOR
value and quantity of exports/supplies. If quantity cannot be indicated, value
shall be indicated.
D. EXPORT FINANCING
PRE SHIPMENT FINANCE
Orient Craft Ltd. is enjoying a great deal of packing credit benefit. Normally
all consignments are backed by bank finance.
Pre shipment finance is a facility to provide working capital finance to an
exporter for the purpose of exports. The basic purpose of granting this
facility is to enable the exporters to procure raw material, supplies,
process or manufacture or warehouse or ship the goods meant for export.
Orient craft deals only in PCFC (packing credit in foreign currency).It has to
bear less rate of interest as compared to the credit in Indian currency. The
interest rate for credit in Indian currency is approximately 8% while in
foreign currency it is approximately 2.75%. (LIBOR+ basis points)
Packing credit is granted on the basis of confirmed export order or an
irrevocable letter of credit opened by an importer in favor of exporter from
India or any other evidence of an order for export placed by a foreign
buyer with Indian exporter.

70

QUANTUM OF FINANCE

There is no fixed formula for determining the quantum of finance, to be

granted to an exporter, against a specific order/ letter of credit or an
expected order.
Normally, the pre-shipment advance granted to an exporter is restricted to the
FOB value of the goods or domestic cost of production of the goods,
whichever is lower.

CRITERIA

1. Banks grant packing credit on the basis of confirmed export order; or

irrevocable letter of credit opened/ transferred in favor of the exporter.

FORM OF FINANCE

Pre-shipment finance is both the fund-based and non-fund based facility.

Packing credit is a fund-based credit. Banks also provide non-fund based
facilities to the exporters at the pre shipment stage. These facilities relate
to the opening of the letter of credit both domestic as well as import for the
purpose of procurement of raw materials; issue of various types of
guarantee etc.

REPAYMENT OF PACKING CREDIT

All packing credit advances are to be repaid from funds received by the
exporter, from either one or combination of any of the following sources:
a. Process of export bills negotiated, purchased or discounted
b. Proceeds of payments receivables from government of India, i.e. in the
form of duty drawback
c. Proceeds of indrawn balances representing export earnings.
EXIM Bank offers this facility to only specific categories of the exporters. They
are:

71

a. Export House/Trading house with annual export turnover exceeding

Rs. 10 crores
b. Manufacturing units with minimum export orientation 25% of production
or export turnover exceeding Rs. 5 crores, whichever is lower.

BENEFIT TO ORIENT CRAFT

PCFC provides a three-fold benefit to the exporters.

1. It is an additional funding source for expanding export volumes,
particularly, of manufactured and value added goods with some import
content.
2. It eliminates exchange risk, thus enhancing export competitiveness.

3. Depending upon the market conditions, it could prove to be a cost

effective funding window in the context possible constraints in
accessing rupee export credit, as well as overseas credits such as
suppliers credits.

THE BANKS THAT ORIENT CRAFT DEALS ARE:

Corporation Bank

Bank of Baroda

State Bank of Travancore

State Bank of Mysore

ABN Amro Bank

Bank of Nova Scotia

BNP Paribas

Citibank

Hong Kong and Shanghai Banking

Standard Chartered Bank

POST SHIPMENT FINANCE

Post shipment finance is defined as any loan or advance granted or any
other credit provided by an institution to an exporter of goods from India
from the date of extending the credit after shipment of the goods to the

72

date of realization of export proceeds and includes any loan or advance

granted to an exporter, in consideration of, or on the security of, any duty
draw back or any other incentive receivable from Government of India.
FEATURE OF POST SHIPMENT FINANCE

1. This form of finance is available after the shipment of goods as against the
pre-shipment finance, which is given to the exporter for packing the goods
for shipment of goods to the foreign buyer.
2. This facility is extended to the exporters in whose name goods where
shipped or an exporter in whose name export documents are transferred
3. It can short term or long term finance depending upon the nature of the
export
4. It is essentially working capital finance
5. This facility is extended only against the shipping documents which
evidence that the goods have been shipped
6. The concessional rate of interest is charged up to a maximum period of six
months from the date of shipment of goods.
7. Post shipment finance can be extended up to 100% of invoice value of the
goods.
Orient Craft Ltd., negotiates/discounts its bills from the bank after shipment
of the goods to the date of realization of export proceeds. The credit taken
is in foreign currency comply known as Post Shipment Finance in Foreign
Currency.
If the Letter of Credit is at sight bank would charge its necessary commission
(i.e. Rs. 700), courier charges (i.e. 700) and interest of 2.5% p.a. If the LC
is Usance and the bill is drawn for 30 days, then the bank would charge
an interest for 2.5% p.a. for 5 days over and above 25 days.
The entire necessary document is sent to the bank and the beneficiarys
current account is credited after the adjustments in the packing credit
taken by the bank.

73

ANALYSIS
A bill of amount US $ 4257.00 was drawn under irrevocable, at Sight
documentary credit number 100359110 dated: 29/01/2004 of the Bank of
New York U.S.A. for Orient Craft. A Bill Payment Advice was sent to the
Orient Craft after the following adjustments

Bill amount

USD

4,257.00

LESS: Other bank charges

USD

130.00

LESS: Discount amt paid

USD

4,257.00

PLUS: Interest Rebate

USD

3.59

Net Amount

USD

126.41

TOTAL

USD

126.41

The bank confirms that the captioned bill has been paid and the bank has
debited the account of Orient Craft with INR 5,721.55 with exchange rate
of 45.261.

RECOGNITION OF EXPORTERS
Orient Craft is a Government Recognized Golden Trading House.
The export-import Policy: 2002-2007 provides for the recognition of the export
firms to further promote exports from India. Accordingly, an export firm can
seek recognition as follows:

74

1. Export House
2. Trading House
3. Star Trading House
4. Super Star Trading House
Merchant exporters, manufacturer exporters and trading companies having
foreign equity, EOU SEZ & EPZ units engaged in the export of merchandise
can seek recognition as Export House, Trading House, Star Trading House
and Super Star Trading House.
The cut off amounts of eligibility for recognition are given below
Orient Craft, due to its status, enjoys the below benefits:
a) Grant of license/ certificate/ permission and custom clearance for both
import and exports on self-declaration basis
b) Fixation of input-output norms on priority basis

c) Exemption from compulsory negotiation of documents through banks

but the Exchange Control Declaration Form shall be submitted to the
bank with in 21 days from the date of shipment.

It can receive the payment directly through wire transfer/ TT payment.

d) 100% export proceeds in foreign exchange allowed to be retained in
Exchange Earners Foreign Currency Account

e) Enhancement in the period of realization and repatriation of the full

value of export proceeds from normal six months to twelve months
from the date of shipment

f) Priority finance for medium and long-term capital requirements

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g) Duty Free Entitlement

Category

Total FOB/FOR value of export during

the preceding 1/2/3 year in Rs.

Export House

45

Trading House

300 Crores

Star Trading House

1500 Crores

Super Star Trading House

6000 Crores

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Crores

CONCLUSION
After conducting this research I can conclude that backward integration can
shorten the lead-time and can result in consistent quality.
Though after comparing the pro and cons of the same it is feasible only for
large export house to adopt this approach. Proper planning and execution is
required apart from huge investment and financial back up.
Backward integration has helped exporters like SPL, V&S and many others to
shorten the lead-time and produce consistent quality. It has also helped them
to control cost and given them profits. With integration it gives a exporter to
diversify its product range and experiment. Many exporters like V&S have
diversified into home furnishings.
If a company wants to get integrated then they should first look into their
credentials. Its no point for an exporter to integrate if he does not have the
production output. If he thinks that he has the finance and constant demand
and skills to run a fabric and dyeing plan then he can adopt this approach.
Proper time and action plan should be prepared and a company should have
a good management information system, which can result in proper flow of
information. Even if an exporter has all the best people and machines in the
world he can suffer losses if he do not have a proper networking and flow of
information.
Adopting backward integration is the best approach to adopt to face the
challenges that will emerge from the post 2006 period. To be self-reliant
always results in faster turn around. It also help a exporter to plan better as he
can get the real status and know what time should be given to the buyer.

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RECCOMENDATIONS

Delays in the production processes lead to huge losses in the terms of

airfreight born by the Orient Craft. There should be regular communication
and strict follow-ups and merchandise and production department.

Logistic department should be informed well in advance about the goods

ready to dispatch. This would allow the firm to get the best quotation for
local transport and the shipping space.

There should be timely follow up of the inspection certificate with the head
office of the brands like Tommy Hilfiger and Gap. Company has to pay
heavy interest due to delay in sending the delayed documents to the bank.

The company should try to make a better balance between the imports
and the exports, so that selling of DEPB credit to other exporters at under
price could be avoided. This would save a lot of cost to the company.

Since the benefit under 80 HHC has been abolished, in order to save
heavy tax. The company should look for an alternative for its non-EOU
firms.

Since Orient Craft would not enjoying the benefit under section 10 (b) in its
100% EOU firm, it should look for an alternative in order to avoid heavy
tax.

The company should ERP (entrepreneur resource planning) system in the

firm to implement a common channel of communication.

It attempts to integrate all departments and functions across a company onto

a single computer system that can serve all different departments' particular
needs.
Each of those departments typically has its own computer system, each
optimized for the particular ways that the department does its work. But ERP
combines them all together into a single, integrated software program that

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runs off a single database so that the various departments can more easily
share information and communicate with each other.
ERP automates the tasks involved in performing a business processsuch
as order fulfillment, which involves taking an order from a customer, shipping
it and billing for it. With ERP, when a customer service representative takes an
order from a customer, he has all the information to complete the order (the
customer's credit rating and order history, the company's inventory levels and
the shipping dock's trucking schedule). Everyone else in the company sees
the same computer screen and has access to the single database that holds
the customer's new order. When one department finishes with the order, it is
automatically routed via the ERP system to the next department. To find out
where the order is at any point, one need only log into the ERP system and
track it down.

Emphasis on supervision on every stage of the process:

The management of Orient Craft should examine their understanding of the

nature and styles of supervision currently practiced and evaluate its impact
and effectiveness. This will enable a plan to be formulated to identify the goal,
which the firm wishes to achieve in relation to supervision. It would be
essential that consent and shared vision underlie the whole enterprise. Within
this context, the final level is the actual delivery of supervision. This requires
skills and knowledge, which go beyond simply applying professional values
and principles to a colleague relationship.

The firm should have a more influential and effective HR department. In

other words, it should have a greater impact in the organization.

Orient craft should concentrate more on its marketing activities. It should

employ executives exclusively for its marketing activities and tours.

Communication gap should be reduced between the various units of the

company. The gap leads to lot wastage of time and other resources.

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It should shift its customer base mainly from US to other countries. It

should explore new potential market. It has to do so, in order to face the
post quota scenario and survive the competition.

Similar is the case with customers. In order to face the post quota
scenario, Orient Craft should outsource new line of buyers.

Orient Craft should have a more structured organization chart. It should be

well defined to avoid confusion in authority and responsibility:

Organizing the structure of the organization represents an attempt to ensure

that organization members conform in predetermined and predictable ways to
achieve goals desired by management; organizing is therefore closely related
to the other functions of control, planning and leading.
The components can be put together in many ways and the final choices
represent a normative view of the organization by management. Organization
charts, however do not always capture the reality and dynamics of what
happens in organizations and we need to be careful not to overestimate the
capacity of organization design to change behavior - it is, after all, just one
way that control is exercised and contested in organizations.

There should be an up gradation of companys official website. It will allow

the prospective buyers to go through the profile and product range. The
company can also display its new collection of the product from time to
time with minimum cost.

The factories and the offices should be set up much close knit or less wide
spread in order to reduce the communication gap.

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BIBLIOGRAPHY
1. Serials Publications 2003, Regional trading Arrangements and India,
Basavaraja ,M.G, 4th revised edition.
2. Galgotia Publishing Company, Export Management, Khurana P. K.
3. Nabhi Publication, How to Export,
4. Nabhi Publication 2002-2007, New Import- Export Policy & Handbook of
Procedures,
5. Nabhi Publication, Duty Drawback,
6. Nabhi Publication, Duty Entitlement Pass Book Scheme,
7. Bookwell, The role of World Trade Organization in Global Governance,
Edited by Sampson Gary P.

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