Dibrugarh University B.Com 6th Sem: International Business Solved Papers (May' 2019)

2019 (May)
COMMERCE (General)
Course: 602 (International Business)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
1. Answer the following as directed:                                      1x8=8
a)         Write the full form of FOB.                                Free on Board
b)         The operations of the EXIM Bank of India commenced from the year 1982. (Fill in the blank)
c)          Write the full form of MFN.               Most Favoured Nation.
d)         “A foreign trade zone (FTZ) is a free trade agreement among several nations.” (Write True or False)
e)         Write the full form of DGFT.              Directorate General of Foreign Trade.
f)          The major international trade partner of India is
1)         Canada.
2)         China.
3)         Great Britain.
4)         Mexico.              (Choose the correct answer)
g)         Write the full form of GATT.              General Agreement on Tariffs and Trade
h)         Write the full form of STC.                                 State Trading Corporation
2. Write short notes on:                                               4x4=16

a) Export Trading Houses: Export trading house is a business which specialised in executing transactions between home and foreign countries. Export trading houses provides services for business that want international trade experts to receive or deliver goods or services. An export trading house is simply a firm which acts as an intermediary between exporting and importing countries. They offer a variety of services, from serving as agents for the manufacturer in the foreign market to easing the import-export process through connections with local liaisons.
b) Special Economic Zone: Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment.
One of the earliest and the most famous Special Economic Zones were founded by the government of the People's Republic of China under Deng Xiaoping in the early 1980s. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years. Following the Chinese examples, Special Economic Zones have been established in several countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine.
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. 
This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations.
c) Control of Foreign Trade in India:  Also known as Exchange control, Exchange control is one of the important means of achieving certain national objectives like an improvement in the balance of payments position, restriction of inessential imports and conspicuous consumption, facilitation of import of priority items, control of outflow of capital and maintenance of the external value of the currency. Under the exchange control, the whole foreign exchange resources of the nation, including those currently occurring to it, are usually brought directly under the control of the exchange control authority (the Central Bank, treasury or a specially constituted agency). Dealings and transactions in foreign exchange are regulated by the exchange control authority. Exporters have to surrender the foreign exchange earnings in exchange for home currency and the permission of the exchange control authority have to be obtained for making payments in foreign exchange. It is generally necessary to implement the overall regulations with a host of detailed provisions designed to eliminate evasion. The allocation of foreign exchange is made by the exchange control authority, on the basis of national priorities. Though the exchange control is administered by a central authority like the central bank, the day-to-day business of buying and selling foreign exchange ill ordinarily handled by private exchange dealers, largely the exchange department of commercial banks. For example, in India there are authorised dealers and money changers, entitled to conduct foreign exchange business.
Definition: Exchange control is a system in which the government of the country intervenes not only to maintain a rate of exchange which is quite different from what would have prevailed without such control and to require the home buyers and sellers of foreign currencies to dispose of their foreign funds in particular ways.
d) Role of Export-Import Bank of India:
The Export-Import (EXIM) Bank of India is the principal financial institution in India for coordinating the working of institutions engaged in financing export and import trade. It is a statutory corporation wholly owned by the Government of India. It was established on January 1, 1982 for the purpose of financing, facilitating and promoting foreign trade of India. Export-Import Bank of India (Exim Bank) was set up by an Act of the Parliament “THE EXPORT-IMPORT BANK OF INDIA ACT, 1981” for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for co-ordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the country’s international trade and for matters connected therewith or incidental thereto.
1. Lending Programme to Indian Exporters:
Ø  Supplier’s credit: This enables the exporters to extend credit to overseas importers of eligible Indian goods.
Ø  Finance for consultancy and technology services: This enables Indian exporters of consultancy and technology services to extend term credit to overseas importers.
Ø  Pre-shipment credit: This enables Indian exporters to buy raw materials and other inputs for fulfilling export contracts involving cycle time exceeding six months.
2. Finance for deemed exports:
Ø  Finance for EOU and EPZ Units.
Ø  Software Training Institutes.
Ø  Export marketing finance.
Ø  Export-Product Development Finance: these Indian firms to undertake product development, R & D for exports.
3. Services Offered to Indian Exporters:
Ø  Underwriting: This enables the Indian exporters to raise finance from capital markets with the backing of EXIM Bank’s underwriting commitment.
Ø  Forfeiting: This Indian exporters to convert sale to cash on without recourse basis.
Ø  Guarantee Facility: To execute export contracts and imports transactions.
Ø  Business Advisory and Technical assistance.
Ø  Cooperation arrangement with African Management Services.
4. For Commercial Banks:
Ø  Refinance of Export Credit.
Ø  Bulk import finance.
Ø  Guarantee cum Refinance supplier’s credit.
3. (a) Discuss the growth of India’s foreign trade after liberalization.                     14
Ans: Direction of Indian foreign trade since last 10 years or after liberalisation
The international environment is very important from the pint of view of certain categories of business. It is particularly important for industries directly depending on imports or exports and import-competing industries. An international marketer is required to understand, evaluate and work out various parameters before venturing into any country. These Parameters are called environmental factors and they determine the direction and purpose of the international business operation. Many decisions depend upon environmental factors right from selection of the country, location of the plant liaison with the government, and entry of investment from local bodies, product launch, channel management, promotion and opening of outlets. The first challenge for an organization is to navigate from its home country to the host country. Thereafter it has to develop a proper system so that the venture is successful in the host country; learn all about the regulatory bodies both in the host country and home country; understand the customer’s changing tastes and attitude towards foreign goods and finally obtain revenue and make the business effective with right people.
The severity of economic crisis of 1991 provided an opportunity to the Government to make far-reaching changes in macroeconomic policy. There was liberalisation of domestic investment by removing direct controls on private sector and adopted fiscal and monetary policies to promote growth. Besides, the New Economic Policy pursued since 1991 also liberalized foreign trade and investment. The growth strategy was made export-oriented. Not only quantitative restrictions on imports have been removed but also customs duties have been drastically reduced.
Thus efforts have been made to integrate the Indian economy with the global economy. Rupee was devalued in 1991 and from 1993 exchange rate of rupee was made market-determined. It is, therefore, important to know how India’s foreign trade sector has performed in response to these important changes in economic policy framework.
The performance of foreign trade since 1991 is shown in Table 27.6 which reveals that after a transition period of 2 years, merchandise exports grew at about 20 per cent a year in dollar terms for three successive years during 1993-94 to 1995-96. Then due to slowdown in world trade and recession in the USA which is India’s major trade partner, annual growth of exports slowed down from 1996-97 to 1999-2000.

However after 2000 up till 2007-08 with the exception of year 2001 -02 there was more than 20 per cent annual growth of exports on sustained basis for over eight years (2000 to 2008) and in 2007-08 average annual growth rate of our exports was around 29 per cent.
Despite the sluggish performance of exports from 1996-97 to 1998-99 deficit in trade balance remained below 4 per cent of GDP (See Col. IV of Table 27.8) due to the equally subdued growth in imports during this period. During the four-year period, 2004-05 to 2007-08, India’s imports grew at a much higher rate due to robust industrial growth relative to growth in our exports and as a result deficit in our trade balance greatly increased; as a percentage of GDP it was 4.8 per cent in 2004-05, 6.8 per cent in 2006-07, and 7.8 per cent in 2007-08.
Due to global financial crisis and consequent economic slowdown in the US and European countries, the growth rate of our exports fell to 13.6 per cent in 2008-09, whereas imports grew at 26.7 per cent. As a result deficit in our trade balance rose to 12 per cent of GDP.
Bolstered by the measures taken by the government to help exports in the aftermath of the world recession of 2008 and also the low base effect, India’s export growth of 40.5 per cent in 2010-11 reached an all time high since Independence. Though it decelerated in 2011 -12 to 21.3 per cent, it was still above 20 per cent and higher than the compound annual growth rate (CAGR) of 20.3 per cent for the period 2004-05 to 2011-12.
After registering very high growth of 56.5 per cent in July 2011, export growth started decelerating with a sudden fall to single digits in November 2011 as a result of the emerging global situation and then to negative figures from March 2012. Export growth rate in 2012-13 was negative and equal to – 1.8%. For three months in 2012-13, exports declined YOY by double digits with the largest decline recorded in July 2012 at – 15.1 per cent.
Export growth in dollar terms was negative at-1.8 per cent in 2012-13, compared to 21.3 percent growth in 2011-12 (full year). In rupee India’s export growth has almost continuously been above world export growth in the 2000s decade and in 2011. One issue that has been a topic of debate is whether India’s export growth rate is dependent on world growth/trade or exchange rate. There is a strong correspondence between India’s export growth and world export growth.
(b) Discuss the commodity composition and direction of India’s foreign trade.                                                 14
Commodity-wise exports data available upto March 2012, shows that the share of manufacturing sector in total merchandise exports declined marginally from 62.9% in 2010-11 to 61.3% in 2011-12. However, the respective share of petroleum products and primary products increased during the period (Table 2). Within exports of manufacturing sector, the share of engineering goods and textile & textile products declined while that of chemical and related products improved marginally.
Among the major sectors, growth in exports of manufacturing sector seems to have been affected significantly during 2011-12. Within manufacturing sector, growth in exports of engineering goods and textile products was lower as demand conditions in key markets like the US and Europe were sluggish. These two markets account for nearly 60% and 50% of total exports from engineering and textile sector. Within engineering sector, growth in exports of transport equipment, iron & steel, electronic goods and manufactures of metals was significantly hit while that of machinery and instruments moderated marginally. However, growth in exports of leather & manufactures and chemicals & related products witnessed higher growth during 2001-12 as compared with 2010-11.
Table 2: India’s Merchandise Trade
(US$ billion)
April – March
April – June

Oil Exports

Non-Oil Exports


Oil imports

Non-oil imports

Non-oil gold imports

Trial Balance
Oil Trade Balance
Non-Oil Trade Balance


Table 3: India’s Exports of Principal Commodities
(Percentage Share)
Commodity Group
April – March
I. Primary Products
Agriculture and Allied Products.
Ores and Minerals
II. Manufactured Goods
Leather and Manufactures
Chemicals and Related Products
Engineering Goods
Textiles and Textile Products
Gems and Jewellery
III. Petroleum Products
IV. Others
Total Exports
An analysis of the shift in the composition of India’s commodity exports reveals some interesting facts. Before the reforms, India’s exports were significantly driven by exports of primary agricultural commodities and a few manufacturing commodities such as textiles, and gems and jewellery; whole the commodity composition at the global level was shifting to technology-intensive manufacturing commodities such as engineering goods and chemicals. The reforms and favourable trade policy brought a shift in the composition of India’s commodity exports. Technology-intensive exports comprising engineering goods such as metals, machinery and transport equipment, and chemicals, including pharmaceuticals emerged as the leading export sector for the country, signifying rising prominence of exports in India’s GDP growth. Besides a shift towards technology-intensive exports, exports of petroleum products (which showed spectacular growth) emerged as a major contributor to total exports, reflecting the impact of India becoming the sixth largest refinery in the world.

4. (a) Analyze the India’s foreign trade policies during last ten years.                                                     14
Ans: Trade policy: No country is self-sufficient in the world today.  Therefore, every country has to import goods and to pay for imports it has to export goods to other countries.  The ideal situation would be if every country specialized in the production of those goods in which it has a comparative cost advantage.  But in addition to comparative cost several other factors including political considerations have played an important part in determining the pattern of imports and exports. To protect domestic industries, many countries in the past had imposed heavy tariffs to restrict imports. 
India's Foreign Trade Policy also known as Export Import Policy (EXIM) in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position. Foreign Trade Policy is prepared and announced by the Central Government (Ministry of Commerce). Foreign Trade Policy or EXIM Policy is a set of guidelines and instructions established by the DGFT (Directorate General of Foreign Trade) in matters related to the import and export of goods in India.
The foreign trade policy, has offered more incentives to exporters to help them tide over the effects of a likely demand slump in their major markets such as the US and Europe. Foreign trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries.
Salient Features of Foreign Trade Policy 2009-14
1.       $ 200 billion or Rs 98,000 crore is the export target for 2010-11.
2.       100% growth of India’s export of goods and services by 2014.
3.       15% growth target for next two years; 25% thereafter.
4.       3.28% targeted India’s share of global trade by 2020 double from the current 1.64%.
5.       Jaipur, Srinagar Anantnag, Kanpur, Dewas and Ambur identified as towns of export excellence.
6.       26 new markets added to focus market scheme.
7.       Provision for state-run banks to provide dollar credits.
8.       Duty entitlement passbook scheme extended till Dec. 2010.
9.       Tax sops for export-oriented and software export units extended till March 2011.
10.   New directorate of trade remedy measures to be set up.
11.   Plan for diamond bourses.
12.   New facility to allow import of cut and polished diamonds for grading and certification.
13.   Export units allowed to sell 90% of goods in domestic market.
14.   Export oriented instant tea companies can sell up to 50% produce in domestic market.
15.   Single-window scheme for farm exports.
16.   Number of duty-free samples for exporters raised to 50 pieces.
17.   Value limits of personal carriage increased to $5 million (Rs 24.5 core) for participation in overseas exhibitions.
Salient Features of the present  Foreign Trade Policy 2015-2020
1.       Increase exports to $900 billion by 2019-20, from $466 billion in 2013-14
2.       Raise India's share in world exports from 2% to 3.5%.
3.       Merchandise Export from India Scheme (MEIS) and Service Exports from India Scheme (SEIS) launched.
4.       Higher level of rewards under MEIS for export items with High domestic content and value addition.
5.       Chapter-3 incentives extended to units located in SEZs.
6.       Export obligation under EPCG scheme reduced to 75% to Promote domestic capital goods manufacturing.
7.       FTP to be aligned to Make in India, Digital India and Skills India initiatives.
8.       Duty credit scrips made freely transferable and usable For payment of custom duty, excise duty and service tax.
9.       Export promotion mission to take on board state Governments
10.   Unlike annual reviews, FTP will be reviewed after two-and-Half years.
11.   Higher level of support for export of defence, farm Produce and eco-friendly products.
(b) Explain in detail the objectives of the foreign exchange control in India.                      14
Ans: Meaning of Exchange Control
Exchange control is a system in which the government of the country intervenes not only to maintain a rate of exchange which is quite different from what would have prevailed without such control and to require the home buyers and sellers of foreign currencies to dispose of their foreign funds in particular ways.
According to Crowther:
“When the Government of a country intervenes directly or indirectly in international payments and undertakes the authority of purchase and sale of foreign currencies it is called Foreign Exchange Control”.
Simply, Exchange Control means the control of the government in the purchase and sale of foreign currencies in order to restore the balance of payments equilibrium and disregard the market forces in the decision of monetary authority.
Objectives of Exchange Control are outlined below:
1)      To Conserve Foreign Exchange: The main objective of foreign exchange regulation in India, as laid dawn in the Foreign Exchange Regulation Act (FERA), 1973, is the conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interest of the national development. This is one of the important objectives .of foreign exchange regulation of many other countries too.
2)      To Check Capital Flight: Exchange control may be employed to prevent flight of capital from the country and to regulate the normal day-to-day capital movements. If adequately implemented and enforced, exchange control tends to be highly effective in curbing erratic outflows of capital.
3)      To Improve Balance of Payments: Exchange control is one of the measures available to improve the balance of payments position. This can be achieved by restricting imparts by means of exchange control.
4)      To make Possible Essential Imports: Due to the non-availability of or scarcity within the country, the developing countries generally have to import capital goods, know how and certain essential inputs and consumer goods. By giving priority to such imports in the allocation of foreign exchange, exchange control may ensure availability of foreign exchange for these imports.
5)      To Protect Domestic Industries: Exchange control may also be employed as a measure to protect domestic industries from foreign competition.
6)      To Check Recession-induced Exports into the Country: If foreign economies are undergoing recession when 'the domestic economy is free from it, the decline in prices of foreign goods, due to the recession, may encourage their exports into the country not yet affected by recession. Exchange control may be employed to check such recession-induced exports into the country.
7)      To regulate foreign companies: Exchange Control may also seek to regulate the business of foreign companies in the country. For instance, the FERA provided that non-residents, foreign national resident in India, companies (other than banking companies) incorporated abroad and having more than 40 per cent non-resident interest could not carry on in India, or establish a branch/office or other place of business in the country for carrying on any activity of a trading, commercial or industrial revenue, without the permission of the Reserve Bank of India.
8)      To regulate Export and Transfer of Securities: Exchange control may be employed also for the purpose of controlling the export and transfer of securities form the country. The FERA for instance, prohibited the sending or transferring of securities from the country to any place outside India, without the permission of the Reserve Bank of India.
9)      Facilitate Discrimination and Commercial Bargaining: Exchange control offers scope for discrimination between different countries. It would be used to accord exchange concessions, on a reciprocal basis, between different countries.
10)   Enable the Government to Repay Foreign Loans: The system of exchange control empowers the government to acquire foreign exchange from the residents of the country due to which it becomes easy for the government to repay foreign loans.
11)   To Freeze Foreign Investments and Prevent Repatriation of Funds: Exchange control may be used to freeze investments, including bank deposits, of foreigners in the home country and to prevent the repatriation of funds out of the country. This is sometimes done by hostile countries.
12)   To Obtain Revenue: Governments may use exchange control to obtain some revenue. The government agency can make profit out of the foreign exchange business by keeping certain margin between the average purchase price and the average selling price of the foreign exchange.

5. (a) Discuss the various export incentives offered by the Indian Government for promotion of export.  14
Ans: Export Promotion Incentives: Details of various trade promotion measures and schemes available to business firms to facilitate their export and import operations are announced by the government in its export-import (EXIM) policy. Major trade promotion measures (especially those related to exports) are as follows:
(i) Duty drawback scheme: Since goods meant for exports are not consumed domestically, these are not subjected to payment of various excise and customs duties. Any such duties paid on export goods are, therefore, refunded to exporters on production of proof of exports of these goods to the concerned authorities. Such refunds are called duty draw backs. Some major duty draw backs include refund of excise duties paid on goods meant for exports, refund of customs duties paid on raw materials and machines imported for export production. The latter is also called customs drawback.
(ii) Export manufacturing under bond scheme: This facility entitles firms to produce goods without Usance draft: It is a type of bill of exchange wherein the drawer of the bill of exchange instructs the bank to hand over the relevant documents to the importer only against acceptance of the bill of exchange. Import general manifest. Import general manifest is a document that contains the details of the imported good. It is the document on the basis of which unloading of cargo takes place. Dock challan: Dock charges are to be paid when all the formalities of the customs are completed. While paying the dock dues, the importer or his clearing agent specifies the amount of dock dues in a challan or form which is known as dock challan.  The firms desirous of availing such facility have to give an undertaking (i.e., bond) that they are manufacturing goods for export purposes and will export such products on their production.
(iii) Exemption from payment of sales taxes: Goods meant for export purposes are not subject to sales tax. Even for a long time, income derived from export operations had been exempt from payment of income tax. Now this benefit of exemption from income tax is available only to 100 per cent Export Oriented Units (100 per cent EOUs) and units set up in Export Processing Zones (EPZs)/Special Economic Zones (SEZs) for select years.
(iv) Advance licence scheme: It is a scheme under which an exporter is allowed duty free supply of domestic as well as imported inputs required for the manufacture of export goods. As such the exporter is not required to pay customs duty on goods imported for use in the manufacture of export goods. The advance licences are available to both the types of exporters— those who export on a regular basis and also to those who export on an adhoc basis. The regular exporters can avail such licences against their production programmes. The firms exporting intermittently can also obtain these licences against specific export orders.
(v) Export Promotion Capital Goods Scheme (EPCG): The main objective of this scheme is to encourage the import of capital goods for export production. This scheme allows export firms to import capital goods at negligible or lower rates of customs duties subject to actual user condition and fulfillment of specified export obligations. If the said conditions are fulfilled by the manufacturers, then they can import the capital goods either at zero or concessional rate of import duty. Supporting manufacturers and service providers are also eligible to import capital goods under this scheme. This scheme is especially beneficial to the industrial units interested in modernisation and upgradation of their existing plant and machinery. Now service export firms can also avail of this facility for importing items such as computer software systems required for developing softwares for purposes of exports.
(vi) Scheme of recognising export firms as export house, trading house and superstar trading house: With an objective to promote established exporters and assist them in marketing their products in international markets, the government grants the status of Export House, Trading House, Star Trading House to select export firms. This status is granted to a firm on its achieving a prescribed average export of performance in past select years. Besides attaining a minimum of past average export performance, such export firms have to also fulfill other conditions as laid down in the import-export policy.
Various categories of export houses have been recognised with a view to building marketing infrastructure and expertise required for export promotion. These houses are given national recognition for export promotion. They are required to operate as highly professional and dynamic institutions and act as an important instrument of export growth.
(vii) Export of Services: In order to boost the export of services, various categories of service houses have been recognised. These houses are recognised on the basis of the export performance of the service providers. They are referred to as Service Export House, International Service Export House, International Star Service Export House based on their export performance.
(viii) Export finance: Exporters require finance for the manufacture of goods. Finance is also needed after the shipment of the goods because it may take sometime to receive payment from the importers. Therefore, two types of export finances are made available to the exporters by authorised banks. They are termed as pre-shipment finance or packaging credit and post shipment finance. Under the pre-shipment finance, finance is provided to an exporter for financing the purchase, processing, manufacturing or packaging of goods for export purpose. Under the post-shipment finance scheme, finance is provided to the exporter from the date of extending the credit after the shipment of goods to the export country. The finance is available at concessional rates of interest to the exporters.
(ix) Export Processing Zones (EPZs): Export Processing Zones are industrial estates, which form enclaves from the Domestic Tariff Areas (DTA). These are usually situated near seaports or airports. They are intended to provide an internationally competitive duty free environment for export production at low cost. This enables the products of EPZs to be competitive, both quality wise and price-wise, in the international markets. These zones have been set up at various places in India which include: Kandla (Gujarat), Santa Cruz (Mumbai), Falta (West Bengal), Noida (Uttar Pradesh), Cochin (Kerala), Chennai (Tamil Nadu), and Vishakapatnam (Andhra Pradesh). Santa Cruz zone is exclusively meant for electronic goods and gem and jewellery items. All other EPZs deal with multifarious items. Recently the EPZs have been converted to Special Economic Zones (SEZs) which are more advanced form of export processing zones. These SEZs are free from all rules and regulations governing imports and exports units except relating to labour and banking Government has also permitted development of EPZs by private, state or joint sector. The inter-ministerial committee on private EPZs has already cleared proposals for setting up of private EPZs in Mumbai, Surat and Kanchipuram.
(x) 100 per cent Export Oriented Units (100 per cent EOUs): The 100 per cent Export Oriented Units scheme, introduced in early 1981, is complementary to the EPZ scheme. It adopts the same production regime, but offers a wider option in location with reference to factors like source of raw materials, ports, hinterland facilities, availability of technological skills, existence of an industrial base and the need for a larger area of land for the project. EOUs have been established with a view to generating additional production capacity for exports by providing an appropriate policy framework, flexibility of operations and incentives.
(b) What is deferred payment system? Explain the procedures of export under deferred payment system.          4+10=14
Ans: A deferred payment is an arrangement in which a debt does not have to be repaid until sometime in the future. The debt might be created when a person imported a good or service. The use of deferred payment plans is one of the more common sales and marketing tools used by companies. Essentially, the underlying concept is that importer can buy now and pay later. When an importer is unable to pay for the purchase right away but has a reasonable expectation of being able to provide payment in full by a certain date in the future, a deferred payment plan makes sense for both the consumer and the seller. Some companies offer these plans only to preferred customers, but others offer them to everyone.
In case of a foreign trade deferred payment means payment made by a buyer at a specified or determinable future date stipulated in the letter of credit or documentary collection, providing that the documents are found to be in order. An example is 60 days after date of transport document or invoice date. No draft is called for under this type of payment. It is important to remember that a buyer will have credit/collateral/cash tied up until payment is made; and if a deferred payment is made through a letter of credit, it is guaranteed to a seller just as if it were made immediately. The risk increases for a seller if the remitting bank is located in a risky country.
EXPORTS PROCEDURE UNDER DEFERRED PAYMENTS: All export proceeds must be surrendered to an authorised dealer within 180 days from the date of shipment. Exporters are required to obtain permission from the Reserve Bank through authorised dealers in the event of non-realisation of export proceeds within the prescribed period. However, realising the special needs of exports of engineering goods and projects, Reserve Bank has formulated special schemes permitting deferred credit arrangements. This will enable realisation of export proceeds over a period exceeding six months. Hence, contracts for export of goods and services against payment to be secured partly or fully beyond 180 days are treated as deferred payment exports. The Credit Word is termed as deferred payment term credit. For financing under deferred credit system a single point approval mechanism within a three tier system operates.
This system includes:
i) Commercial banks who are authorised dealers in foreign exchange in India, can provide in principle clearance for contracts valued upto Rs.25 crores. They can avail refinance from EXIM bank.
ii) EXIM bank is empowered to give clearances for contracts of value of above Rs.25 crores and upto Rs. 100 crores.
iii) A working group considers proposals of contracts of value beyond Rs. 100 crores. The working group consists of representatives of all the above institutions to provide single window clearance.
Deferred credit facility is normally allowed only for export of engineering goods, turnkey projects involving rendering of services like designing, civil construction and erection and commissioning of plant or factory along with supply of machinery, equipment and materials. Project exports eligible for export finance are as follows:
i) Turnkey Projects: These projects involve supply of equipment along with related services like design, detailed engineering, civil construction, erection and commissioning of plants, etc.
ii) Construction projects involve civil works, steel structural works as well as associated supply of construction materials and equipment.
iii) Technical and consultancy service contracts involve provision of personnel, furnishing of knowhow, skills, operation and maintenance services and management contracts.
These services include:
a) Engineering services contracts involve supply of services such as design, erecting, commissioning or supervision of erector and commissioning.
b) Consultancy services contracts involve preparation of feasibility studies, project reports, preparation of designs and advice to the project authority on specifications for plants and equipments.

6. (a) What do you mean by export processing zone (EPZ)? Describe the benefits provided to the units set up in EPZs in India.    4+10=14
Ans: Export Processing Zones (EPZ): Export Processing Zones in India was set up by the government of India with the aim to initiate infrastructural development and tax holidays in various industrial sectors in the country. EPZ has incessantly accelerated the economic growth of the country by ensuring a flourishing export production. The export processing zones in India came into existence soon after the political independence, when India proclaimed the first Industrial Policy Revolution in the year 1948. It was from then that the actual industrial growth begun in India, which resulted in the constitution of the export processing zones later. Export promotion has always been the chief concern of the government of India and it strictly follows the ISI policy while carrying out all its activities.
The main reasons behind setting up the EPZ in India have been listed as under:
Ø  Ensuring better infrastructural facilities in the industrial units that were set up in the export processing zones in India
Ø  Introducing the privilege of tax holidays
Ø  Establishing 100 percent export-oriented system in the EPZ in India
Ø  EPZ in India are entirely devoid of all kinds of duties, levies, and taxes
Ø  Implementing tax holidays in the importing of goods like capital goods, raw materials, and consumer goods as well.
Ø  The units in export processing zones follow the automatic route set by the government of India which offers 100 percent foreign direct investment in the zone
Ø  The rules set by the government of India are executed and implemented by the development commissioner of the respective export processing zones in India
Ø  Some of the significant features of the Export Processing Zones in India have been enumerated as under:
Ø  The activities that are carried out in the EPZ in India are not liable to be licensed apart from the IT enabled sectors
Ø  The units set up in the export processing zones in India can select their desired locations by following certain parameters as prescribed by the state governments
Ø  The export processing zones in India religiously follows the active export-import policy
Ø  The units in EPZ in India are totally custom bonded
Ø  The proposals for the units in Export processing zones in India are entitled to follow the automatic route for approval as enforced by the state governments
Ø  The proposals which do not fall under the procedure of automatic route system are governed or approved by the FIPB
Ø  The activities in EPZ in India belonging to the Domestic Tariff Area sector are converted into Export oriented units to meet the parameters set for the export production by the government
Ø  100 percent FDI is granted to these zones.
(b) Discuss the role of export-oriented units in the context of India’s export promotion.             14
Ans: Export Oriented Units (EOU)
The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31st December 1980. The purpose of the scheme was basically to boost exports by creating additional production capacity. The EOU scheme is, at present, governed by the provisions of Export and Import (EXIM) Policy, 1997-2002. Under this scheme, the units undertaking to export their entire production of goods are allowed to be set up. The EOUs can export all products except prohibited items of exports in ITC (HS).
Under the EOU scheme, the units are allowed to import or procure locally without payment of duty all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories of equipments including material handling equipments, required for export production or in connection therewith. However, the goods prohibited for import are not permitted. In the case of EOUs engaged in agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granite quarrying, only specified categories of goods mentioned in the relevant notification have been permitted to be imported duty-free.
Role of EOUs
Ø  Units are exempted from payment of Income Tax
Ø  All the imports to units are customs duty free.
Ø  Exemption from Central Excise Duty for the procurement of Capital Goods and Raw Materials from domestic market.
Ø  Units are entitled to sell the product in local market upto 50% of the products exported in value terms.
Ø  100% of foreign equity is permissible.
Ø  Reimbursement of Central Sales Tax pad on domestic purchases.
Ø  Full Freedom for sub-contracting.
Ø  Exemption from the payment of Electricity duty.
Ø  EOU unit can be set up at any of over 300 places all over India
Ø  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.
Ø  They have to achieve positive NFE (Net Foreign Exchange Earnings).
Ø  Minimum investment in plant and machinery and building is Rs 100 lakhs for EOU. This should be before commencement of commercial production.
Ø  Fast Track Clearance Scheme (FTCS) for clearances of imported consignments for EOU.
Ø  Generally, all final production should be exported, except rejects upto prescribed limit.
Ø  Sale within India should be on payment of excise duty. The duty which will be equal to normal customs duty which would be payable on such goods, if imported. However, in certain cases, excise duty payable will be only 50%/30% of normal customs duty payable on such goods if imported into India.
Ø  Sub-contracting of production outside on job work basis is permissible after obtaining necessary permission on annual basis.
Ø  Job work for exports is permitted.
Ø  Samples can be sold / given free within prescribed limit.
Ø  Unutilized raw material can be disposed of on payment of applicable duties.
Ø  The unit can exit (de-bond) with permission of Development Commissioner, on payment of applicable duties.
Ø  Central Sales Tax (CST) paid on purchases is refundable (but not local tax).
Ø  Prescribed percentage of foreign exchange earnings can be retained in EEFC account in foreign exchange.
Ø  100% foreign equity is permissible, except in a few cases.
Ø  Supplies made to EOU by Indian supplier are ‘deemed exports’ and supplier is entitled to benefits of ‘deemed export’.
Ø  Restrictions under Companies Act on managerial remuneration are not applicable.
Ø  No restrictions on External Commercial Borrowings.

Full Marks: 80
Pass Marks: 32
1. Answer the following as directed:                                       1x8=8
a)         Write the full form of SEZ.                                  Special Economic Zone
b)         Mention one role of EXIM Bank.                     Promotion of Export and Import
c)          Write the full form of SAARC.                           South Asian Association for Regional Co-operation.
d)         The country to which India exports largest is
1)         America.
2)         England.
3)         Germany.
4)         Japan.                 (Choose the correct answer)
e)         Write the full form of GDR.                Global Depository Receipt
f)          The apex ministry at the central level to formulate and execute India’s foreign trade policy is the Ministry of Commerce. (Fill in the blank)
g)         Write the full form of DEPB.                              Duty Entitlement Pass Book
h)         Write the full form of EOUs.                              Export Oriented Units
2. Write short notes on:                                                                    4x4=16
a)         EXIM Policy.
b)         Multilateral Agreement.
c)          Foreign Direct Investment.
d)         Export Credit Insurance.
3. (a) Explain the direction of foreign trade of India during last ten years.                       12
(b) Discuss the growth of India’s foreign trade in the context of global foreign trade.                   12
4. (a) What is exchange control? Explain the objectives of exchange control.                 3+8=11
(b) What is deferred payment system? Explain the procedures of export under deferred payment.    3+8=11
5. (a) Describe the objectives and functions of Export-Import Bank of India.       11
(b) Write a brief note on Export-Import Policy of Government of India.             11
6. (a) What do you mean by export processing zone (EPZ)? Describe the benefits and facilities provided to the units set up in such zones.            3+8=11
(b) Explain briefly the different organizations which involved in export promotions in India.     11
7. (a) Discuss the importance of bilateral agreement in promoting foreign trade.             11
(b) Discuss the role of the Indian joint ventures in international business.                 11

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