EXIM BANK

EXPORT-IMPORT BANK OF INDIA ACT 1981

THE EXPORT-IMPORT BANK OF INDIA ACT, 1981 ACT NO. 28 OF 1981 [11th September, 1981.]

An Act to establish a corporation to be known as the ExportImport Bank of India for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating 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 there with or incidental thereto. The Export-Import Bank of India is an Indian government-owned financial institution for the public sector created by and Act of the Parliament of India: the Export-Import Bank of India Act 1981. Exim Bank is managed by a Board of Directors, which has representatives from the Government, Reserve Bank of India, Export Credit Guarantee Corporation of India (ECGC), a financial institution, public sector banks, and the business community.

Exim Bank is managed by a Board of Directors, which has representatives from the Government, Reserve Bank of India, Export

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Credit Guarantee Corporation (ECGC) of India, a financial institution, public sector banks, and the business community.

OBJECTIVES: for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services with a view to promoting the countrys international trade shall act on business principles with due regard to public interest

BUSINESS OPERATIONS
Review of Banks business operations is presented below under the following heads: I. Projects, Products and Services Exports II. Building Export Competitiveness III. Joint Ventures IV. Information and Advisory Services V. Institutional Linkages VI. Research and Analysis VII. Human Resources Management VIII. Representation of Scheduled Castes, Scheduled Tribes and Other Backward Classes. IX. Etc.

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ESTABLISHMENT AND INCORPORATION OF EXPORT-IMPORT BANK OF INDIA

(1) With effect from such date1* as the Central Government may, by notification, appoint, there shall be established for the purposes of this Act a corporation to be known as the Export-Import Bank of India. (2) The Exim Bank shall be a body corporate with the name aforesaid having perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property and to contract, and may, by that name, sue or be sued. Ist January 1982, vide Notification No.S.O. 920 (E), dated 29-12-1981. Gazette 1 of India, Extraordinary, pt.II, sec.3 (ii), page 1593. 163 (3) The head office of the Exim Bank shall be at Bombay or at such other place as the Central Government may, by notification, specify. (4) The Exim Bank may establish offices, branches or agencies at such places in or outside India as it may consider necessary.

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MANAGEMENT OF THE EXIM BANK

Management (1) The general superintendence, direction and management of the affairs and business of the Exim Bank shall vest in the Board, which may exercise all powers and do all acts and things which may be exercised or done by the Exim Bank. (2) Save as otherwise provided in the regulations made under this Act:(a) The chairman, if he is a whole-time director or if he is holding offices both as the chairman and the managing director, or (b) The managing director, if the chairman is not a wholetime director, or, if the chairman being a whole time director, is absent, shall also have powers of general superintendence, direction and management of the affairs and business of the Exim Bank and may also exercise all powers and do all acts and things which may be exercised or done by the Exim Bank. (3) In the discharge of its functions under this Act, the Exim Bank shall be guided by such directions in matters of policy involving public interest as the Central Government may give to it in writing.

CONSTITUTION OF BOARD
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(1) The Board of Directors of the Exim Bank shall consist of the following, namely:-(a) A chairman and a managing director appointed by the Central Government: Provided that the same person may be appointed to function both as chairman and as managing director; 164 (b) One director nominated by the Reserve Bank; (c) One director nominated by the Development Bank; (d) one director nominated by the Export Credit and Guarantee Corporation Limited, being a Government Company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956); (e) Not more than twelve directors nominated by the Central Government of whom:(i) Five directors shall be officials of the Central Government; (ii) Not more than three directors shall be from the scheduled banks; (iii) Not more than four directors shall be persons who have special knowledge of, or professional experience in, export or import or financing thereof.

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(2) The chairman and the managing director shall hold office for such term, not exceeding 1* [five years], as the Central Government may specify in this behalf and any person so appointed shall be eligible for re-appointment. (3) Not with standing anything contained in sub-section:(a) The Central Government shall have the right to terminate the term of office of the chairman or the managing director, as the case may be, at any time before the expiry of the term specified under sub-section (b) By giving him notice of not less than three months in writing or three months' salary and allowances in lieu thereof, and the chairman or the managing director, as the case may be, shall also have the right to relinquish his office at any time before the expiry of the term specified under sub-section (2) by giving to the Central Government notice of not less than three months in writing or three months' salary and allowances in lieu thereof. (4) The chairman and the managing director shall receive such salary and allowances as may be determined by the Central Government.

(5) The Central Government may, at any time, remove the chairman or the managing director, as the case may be, from office: Provided that no person shall be removed from his office under this subsection unless he has been given an opportunity of showing cause against his removal.
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(6) Subject to the provisions contained in sub-section (7), any director nominated under clause (b) or clause (c) or clause (d) or clause (e) of sub-section (1) and not being an official of Government or not being a whole-time director or official of the Reserve Bank or the Development Bank. The said Export Credit and Guarantee Corporation Limited or a scheduled bank, shall hold office for such term, not exceeding three years, as the Central Government or, as the case may be, the authority nominating him, may specify in this behalf and there after until his successor enters upon his office, and shall be eligible for re-nomination. Provided that no such director shall hold office continuously for a period exceeding six years. (7) Any 3 director nominated under this section shall hold office during the pleasure of the authority nominating him :1. Subs. by Act 81 of 1985, s. 16, for "the year" (w.e.f. 1-5-1986). 2. Subs. by Act 66 of 1988, s. 39, for sub-section (6) (w.e.f. 30-12-1988). 3. The word "other" omitted by s. 39, ibid. (w.e.f. 20-12-1986). 165 (8) The Board shall meet at such times and places and shall observe such rules of procedure in regard to the transaction of business at its meetings as may be prescribed. (9) The chairman or, if for any reason he is unable to attend a meeting of the Board, the managing director or, in the event of both the chairman and the managing director being unable to attend a meeting, any other director nominated by the chairman in this behalf and in the absence

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of such nomination any director elected by the directors present from among themselves, shall preside at the meeting. (10) All questions which come up before any meeting of the Board shall be decided by a majority of votes of the directors present and voting, and in the event of an equality of votes, the chairman, or in his absence, the managing director, or in the absence of both the chairman and the managing director, the person presiding, shall have and exercise a second or casting vote. (11) Save as otherwise provided in sub-section (10), every director of the Board shall have one vote.

COMMITTEE
(1) The Board may constitute such Committees whether consisting wholly of directors or wholly of other persons or partly of directors and partly of other persons for such purpose or purposes as it may think fit.

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(2) Any Committee constituted under sub-section (1) shall meet at such times and places and shall observe such rules of procedure in regard to the transaction of business at its meetings as may be prescribed.

RESOURCES OF THE EXIM BANK

LOANS BY CENTRAL GOVERNMENT
The Central Government may, after due appropriation made by Parliament by law in this behalf, advance to the Exim Bank:-

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(a) A loan of twenty crores of rupees at a rate of interest of five and a quarter per cent. Per annum repayable in fifteen equal annual instalments, commencing on the expiry of a period of fifteen years from the date of receipt of the loan; and (b) such further sums of money by way of loan on such terms and conditions as may be agreed upon: Provided that the Central Government may, on a request being made to it by the Exim Bank, increase the number of instalments or alter the amount of any instalment or vary the date on which any instalment is payable under clause (a).

BORROWINGS AND ACCEPTANCE OF DEPOSITS BY EXIM BANK

(1) The Exim Bank may, for the purposes of carrying out its functions under this Act,(a) Issue and sell bonds and debentures with or without the guarantee of the Central Government;
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(b) Borrow money from the Reserve Bank (i) Repayable on demand or on the expiry of fixed periods not exceeding ninety days from the date on which the money is so borrowed against the security of stocks, funds and securities (other than immovable property) in which a trustee is authorised to invest trust money by any law for the time being in force in India; (ii) Against bills of exchange or promissory notes arising out of bona fide commercial or trade transactions and bearing two or more good signatures and maturing within five years from the date of the borrowing; (iii) out of the National Industrial Credit (Long Term Operations) Fund established under section 46C of the Reserve Bank of India Act, 1934 (2 of 1934) for any of the purposes specified in that section; (c) Borrow money from such other authority, organization or institution in India as may generally or specially be approved by the Central Government; (d) Accept deposits repayable after the expiry of a period which shall not be less than twelve months from the date of the making of the deposit on such terms as may generally or specially be approved by the Reserve Bank. 169 (2) The Central Government may, on a request being made to it by the Exim Bank, guarantee the bonds and debentures issued by that Bank

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as to the repayment of principal and the payment of interest at such rate as may be fixed by that Government.

LOANS IN FOREIGN CURRENCY

Not with standing anything contained in the Foreign Exchange Regulation Act, 1973 (46 of 1973) or in any other law for the time being in force relating to foreign exchange, the Exim Bank may, for the purpose of granting loans and advances under this Act, borrow, with the previous consent of the Central Government, foreign currency from

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any foreign State or from any bank or financial institution in any foreign country or otherwise.

AUTHORISED CAPITAL.

(1) The authorised capital of the Exim Bank shall be two hundred crores of rupees: Provided that the Central Government may, by notification, increase the said capital up to five hundred crores of rupees. (2) The issued capital of the Exim Bank shall be wholly subscribed by the Central Government.

BUSINESS OF THE EXIM BANK

Business of Exim Bank: (1) The Exim Bank may grant in or outside India loans and advances by itself or in participation with any bank or financial institution whether in or outside India for the purposes of export or import and shall also function as the principal financial institution for co-coordinating the working of institutions engaged in financing of the export and import in such manner as it may deem appropriate. (2) The Exim Bank may also carry on and transact all or any of the following kinds of business, namely:(a) Granting loans and advances to a scheduled bank or any other bank or financial institution notified in the Official Gazette
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by the Central Government in this behalf by way of refinance of loans and advances granted by it for purposes of export or import; (b) Underwriting the issue of stocks, shares, bonds or debentures of any company engaged in export or import; (c) Issuing bid bonds or guarantees in or outside India by itself or in participation with any government, bank or financial institution in or outside India;

(d) Accepting, collecting, discounting, re-discounting, purchasing, selling or negotiating in or outside India, bills of exchange or promissory notes arising out of transactions relating to export or import and granting of loans and advances in or outside India against such bills or promissory notes; (e) Granting, opening, issuing, confirming or endorsing letters of credit and negotiating or collecting bills and other documents drawn there under ; (f) Undertaking any transaction involving a combination of government to government and commercial credit for purposes of export or import; (g) Granting lines of credit to the government of any foreign State or any financial institution or person outside India for purposes of export or import;

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(h) Granting loans and advances outside India for any Indian joint venture; (i) Granting loans and advances to any person in India in connection with his equity contribution in any joint venture in any country outside India; (j) Financing export or import of machinery and equipment on lease basis. (k) Subscribing to, or investing in, or purchasing of, stocks, shares, bonds or debentures of any development bank or ExportImport Bank of any country outside India. (l) Buying or selling of, or entering into such other dealings in, foreign exchange, as may be necessary for the discharge of its functions; (m) opening of any account in any bank in or outside India or the making of any agency arrangement with, or acting as an agent or correspondent of, any bank or other institution in or outside India; (n) Transferring, for consideration, any instrument relating to loans and advances granted by it; (o) Issuing participation certificates; (p) subscribing to, or investing in, or purchasing of stocks, shares, bonds or debentures to the extent necessary for the enforcement of a lien, pledge or other contractual right;

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(q) Undertaking and financing of research, surveys, technoeconomic or any other study in connection with the promotion and development of international trade; (r) Providing technical, administrative and financial

assistance of any kind for export or import; (s) Planning, promoting, developing and financing exportoriented concerns; (t) Forming or conducting subsidiaries for carrying out its functions;

(u) Acting as agent of the Central Government, any State Government, the Reserve Bank, the Development Bank or any other person as the Central Government may authorise; (v) Collecting, compiling and disseminating market and credit information in respect of international trade; (w) Doing any other kind of business which the Central Government may authorise; (x) Generally doing such other acts and things as may be incidental to, or consequential upon, the exercise of its powers or the discharge of its duties under this Act or any other law for the time being in force, including sale or transfer of any of its assets.

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(3) The Exim Bank may receive in consideration of any of the services mentioned in sub-sections (1) and (2) such commission, brokerage, interest, remuneration or fees as may be agreed upon. (4) The Exim Bank shall not grant any loan or advance or other financial accommodation on the security of its own bonds or debentures.

BUSINESS INITIATIVES

To enhance market diversification, the Bank lays special emphasis on extension of Lines of Credit (LOCs) as an effective market entry mechanism especially for small and medium enterprises. During the year, 17 LOCs were extended aggregating US$ 704 mn to support export of projects, goods and services from India. The Bank now has in place 89 LOCs covering 89 countries in Africa, Asia, CIS, Europe and Latin America with credit commitments
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aggregating US$ 3.0 billion. The Bank is also proactively seeking to expand geographical reach and volumes under the LOC programme The Bank has played a pivotal role in supporting Indias project exports and renewed focus in this direction has seen 147 Indian exporters securing 977 contracts amounting to Rs. 326.8 billion covering 92 countries. This clearly demonstrates the increasing competitiveness and capabilities of Indian consultants, suppliers and contractors to execute diverse range of projects. With Indian companies increasingly venturing overseas to mark their global presence, the Bank has endeavoured to provide a further impetus to the global aspirations of Indian corporate.

Banks focus in this direction is evident in its support to 41 corporates who were sanctioned funded and non-funded assistance during the year for part financing their overseas investments in diverse sectors covering different markets. The Bank has, over the years, supported 223 ventures set up by over 180 companies in 61 countries, both in industrial countries and developing and emerging markets Exim Bank signed an agreement with International Finance Corporation (IFC), Washington, under the Global Trade Finance Program (GTFP). Under this arrangement, Exim Bank will be able to confirm Letters of Credit, guarantees and other trade instruments issued by approved banks in more than forty developing countries.

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Some of the countries have a higher risk profile due to absence of a proper credit enhancement mechanism for carrying out documentary credit trade. The role of Exim Bank as 4 Confirming Bank would enable Indian exporters to access such markets without payment risks. As part of its endeavours in supporting social causes, Exim Bank is supporting the Rugby Team of the Kalinga Institute of Social Sciences (KISS), which won the Under-14 International School Rugby Championship held in London, UK, in September 2007. KISS provides education for more than 5000 tribal children of Orissa training facilities with associated infrastructure, participation in select domestic/ international tournaments. Towards facilitating inclusive globalization with focus on formal and livelihood education and scope for all-round development. Exim Banks support would encompass, and in line with the Government of Indias focus on village and rural sectors, the Bank has in place an innovative facility to support globalisation of rural industries through its Grassroots Business Initiative. The programme seeks to address the needs of relatively disadvantaged sections of society while creating expanded opportunities for traditional craftspersons and artisans, and rural entrepreneurs of the country. Towards this end, the Bank has consciously sought to establish, nurture and foster a variety of institutional linkages with select

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Non-Governmental Organisations (NGOs) / Self Help Groups (SHGs), with a view to assisting their members with capacity building, training and access to national and global markets. The Bank has earmarked separate funds for setting up Rural Technology Export Development Fund to promote exports as also enhance the export worthiness of rural grassroots innovative technologies from India. Thus, Exim Banks efforts are not only aimed at facilitating the visibility of rural products in the international market but also to find alternative channels through partnership arrangements with institutions and corporates in India.

To enhance support provided to the SME sector, a vibrant and important sector of the Indian economy, the Bank has entered into a cooperation arrangement with International Trade Centre, Geneva for implementing a unique Enterprise Management Development Services (EMDS) program. Which is an IT based solution provider to enable small enterprises to prepare business plans with international market in focus? This is a pioneering initiative for supporting SMEs and for providing term loans and export finance facilities to the identified units to help them in their globalization efforts. The Bank supports small enterprises through capacity building and assistance in formulation of viable proposals. It is envisaged

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that the learning from this programme would be transferred to other developing countries, and thus assist in capacity creation and institution building in the global arena. Research studies brought out by the Bank during the year include: Trade and Environment: A Theoretical and Empirical Analysis; Indian

Pharmaceutical Industry: Surging Globally; Regional Trade Agreements: Gateway to Global Trade; Knowledge Process Outsourcing: Emerging Opportunities for India; Indian Mineral Sector and its Export Potential. The Bank also brought out a publication titled Healthcare Tourism: Opportunities for India which highlights opportunities and challenges and outlines strategies for India to emerge as a major healthcare tourist destination. Exim Banks Commencement Day Annual Lecture 2008 was delivered by Mr. Kemal Dervis, Administrator of the United Nations Development Programme (UNDP) and focused on Perspectives on the New Structure of the World Economy During the year, the Banks Eximius Centre for Learning conducted 39 programmes on a wide range of topics to keep Indian companies abreast of developments in the global market. These included eleven country/region specific Business Opportunities seminars. A seminar series on the 5 opportunities for investment in British Midlands Region was organised at Kochi, Pune and Jaipur. Similar seminars were organised at Coimbatore, Kochi and Thiruvananthapuram on the Kingdom of Bahrain, and at Pune,

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Ahmedabad, Ludhiana, Chennai and Hyderabad on the business and investment opportunities in the State of Victoria in Australia. Three seminars on Business Opportunities in Asian Development Bank Funded Projects were conducted at Mumbai, New Delhi and Kolkata. During the year, the Bank opened a representative office in Dakar, Senegal, West Africa. The Dakar office of Exim Bank is expected to play a key, catalytic role in enhancing trade and investment between India and the West African Region in general and with the Francophone countries in particular The Dakar office has been conferred special status Accord de Sige by Government of Senegal on par with multilateral institutions located in Senegal. The Banks endeavours to create an enabling environment through synergies has been strengthened by Memoranda of Cooperation signed with a number of trade and investment promotion agencies, export credit agencies, banks and financial institutions such as African ExportImport Bank; CBI Netherlands; Corporacion Andina de Fomento, Venezuela; Export Finance and Insurance Corporation, Australia; Gulf Investment Corporation, Kuwait; The Asian Exim Banks Forum, conceived and initiated by Exim Bank of India in 1996, held its 13th Annual Meeting in Bali, Indonesia, in November 2007.

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The theme for the 2007 meeting was Strengthening Partnership among Asian Exim Banks and covered a wide range of topics including the global and regional economic outlook, broadening trade financing co-operation among Asian Exim Banks, clean energy trade & investment, development of Islamic financing in Asia. Exim Bank, with the support of a number of other Exim Banks and Development Finance Institutions (DFIs) from various developing countries in Asia, Africa, CIS and Latin America, has facilitated a Global Network of Exim Banks and DFIs called G-NEXID in Geneva, under the auspices of UNCTAD, to boost South-South cooperation in trade and investment. G-NEXID has been granted observer status by UNCTAD which underscores support for the Forum, while acceptance of the vision of the Forum by developing countries can be assessed from the fact that the Membership of the Forum has reached 23 by March 2008.

Procedural flow chart

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Exim Bank signs agreement with Borrower and announces when

effective.

Exporter checks procedures and Service fee with Exim Bank and

negotiates contract with Importer.

Importer consults borrower and signs contract with exporter.

Borrower approves contract.

Exim Bank approves contract and advises borrower and also

exporter and commercial bank.

Exporter ships goods.

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Commercial bank negotiates shipping documents and pays

exporter.

Exim Bank reimburses Commercial bank on receipt of claim by

debit to borrower.

Borrower repays Exim Bank on due date.

REVIEW OF OPERATIONS

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During 2007-08 (April - March), the Bank approved loans aggregating to Rs. 328.05 billion under various lending programmes as against Rs. 267.62 billion in the year 2006-07 (April-March), registering a growth of 23.0 per cent. Disbursements during the year were Rs. 271.59 billion as against Rs. 220.76 billion during 2006-07, representing 23 per cent growth. Gross loan assets as on March 31, 2008 were Rs. 291.52 billion, registering an increase of 25 per cent over the previous year. During the year, the Bank sanctioned guarantees aggregating Rs. 21.99 billion as against Rs. 49.98 billion in 2006-07. Guarantees issued during 2007-08 amounted to Rs. 20.39 billion as against Rs. 16.97 billion in 2006-07. Guarantees in the books of the Bank as on March 31, 2008 were Rs. 34.56 billion as against Rs. 35.36 billion as on March 31, 2007. Rupee loans and advances accounted for 56.0 per cent of the total loan assets as on March 31, 2008 while the balance 44 per cent were in foreign currency. Short-term loans accounted for 26 per cent of the total loans and advances as on March 31, 2008.

The Bank registered profit before tax of Rs. 5.33 billion on account of General Fund during 2007-08 as against a profit of Rs. 3.91 billion for the year 2006-07.

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After providing for income tax of Rs. 2 billion, profit after tax amounted to Rs. 3.33 billion during 2007-08 as against Rs. 2.99 billion during 2006-07. Out of this profit, an amount of Rs. 1.72 billion is transferred to Reserve Fund. In addition, the Bank has transferred Rs. 100 mn to Investment Fluctuation Reserve, Rs. 100 mn to Sinking Fund and Rs. 400 mn to Special Reserve u/s 36(1)(viii) of the Income Tax Act, 1961. The balance of Rs. 1.01 billion will be transferred to GOI as provided in the Exim Bank Act. Profit before tax of the Export Development Fund during 2007-08 was Rs. 28.92 mn as against Rs. 23.61 mn during 2006-07. After providing for tax of Rs. 9.83 mn, the post tax profit amounted to Rs. 19.09 mn as against Rs. 15.66 mn during 2006-07. The profit of Rs. 19.09 mn is carried forward to next year.

EXIM POLICY
The latest Exim Policy is focussed mainly on policies
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directed towards increasing exports, and suggests that the Government has more or less stopped worrying about the impact of import penetration on the productive sectors of the economy.

External trade context First, let us examine the overall context within which the new Exim Policy has been announced. It comes after a decade of very drastic policy changes with respect to both imports and exports since 1991. It is well known that the external sector in the form of a balance of payments crisis in 1990-91 was the proximate cause of the push towards neo-liberal economic reform that dominated the 1990s. In addition, the orientation of the economic reform programme was largely external, in terms of attempting to make the Indian economy more "competitive" in international trade terms. The explicit goals of the economic reform strategy with respect to the external sector, were to create a major shift in the momentum of export growth, and to attract very large inflows of foreign capital (particularly in the form of export-oriented FDI) to augment domestic savings and, therefore, allow much higher rates of gross domestic investment. In fact, the reform process accomplished neither of these objectives by the turn of the decade.

Rather, it involved rates of export expansion more or less similar to those of the past, caused much greater import penetration in manufacturing and, therefore, particular pressure on employmentintensive small-scale industries, and made the economy as a whole much
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more dependent upon volatile short-term capital inflows without really increasing the total inflow of foreign capital in relation to GDP.

The relative lack of success on the export growth front is evident from Chart 1. This shows that the rate of growth of exports over the 1990s was only marginally higher than it has been in the earlier decade, and was substantially lower than was achieved during the bad old "closed economy" days of the 1970s. Chart 2 shows that imports have grown faster and outstripped export growth over the 1990s. This has meant a substantial increase in the trade deficit, as shown in Chart 3. This reached a peak of nearly $13 billion in 1999-2000. This amounted to 4 per cent of GDP, as apparent from Chart 4. Even by the end of the decade, the trade deficit was higher than 3 per cent of GDP.

The problems on the external trade front have clearly carried over into the recent past. Charts 5a and 5b show that very recent trends in export and import continue to be disturbing.

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Despite a dramatic fall in oil prices over the past year, imports have increased, mainly due to a significant increase in non-oil imports despite the continuing domestic recession. Meanwhile, export growth has slumped from more than 20 per cent in 2000-01, to just above 1.5 per cent in the past year.

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In fact, the most recent data released by the DGCI&S reveal an even more bleak pattern. Aggregate exports in the period April 2001 to February 2002 barely increased at all, registering a pitiful 0.06 per cent rise over the corresponding period of the previous year. Since March is notoriously a bad month for exports, this suggests that exports in dollar terms are likely to have been stagnant over the past fiscal year.

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This cannot be seen as a reflection of the poor growth of world markets. It is true that total world merchandise trade slowed down dramatically in 2001, growing at only 2 per cent compared to 12 per cent in 2000. But Indian export growth has been even lower than this in fact, 33 times lower. Meanwhile, imports have continued to grow in value terms by 2.3 per cent and by much more in volume terms. Since low world oil prices prevailed over much of the year, this reflects that non-oil imports grew by nearly 9 per cent in value terms, and even more in volume terms, over this period. This obviously means that import penetration continues to affect domestic producers adversely.

Features
It is quite understandable that the Commerce Minister, Mr Murasoli Maran, decided to make export growth a focus of the new medium term Exim Policy, which was announced on March 31. There is no doubt that a successful export thrust in the future will have to be associated with a systematic policy, since it is now clear that relying only on private market-determined responses is inadequate for the purpose. The objectives of the Exim Policy 2002-07 are clearly ambitious. It explicitly aims to facilitate export expansion such that India's share of world exports reaches at least 1 per cent of world trade by the end of the period.

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In addition, it proposes to stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services. The Policy further plans on enhancing the

technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitive strength while generating new employment opportunities. It proposes simultaneously to encourage the attainment of internationally acceptable quality standards. All this would then provide Indian consumers with good quality goods and services at internationally competitive prices. While this is an optimistic outline of a future paradise for Indian producers and consumers, the crucial question, of course, is how to get there. The unfortunate reality is the Commerce Minister may have missed the basic point in terms of what determines export growth and improved "competitiveness". The apparent belief is that even more liberalisation combined with some fiscal concessions will do the trick. However, it is quite clear to most observers and especially to exporters themselves that problems of poor and costly infrastructure facilities, and inadequate access to reasonably cheap credit are among the most significant problems currently plaguing Indian producers.

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In fact, the Exim Policy statement does not even mention these issues, much less discuss ways in which such problems could be dealt with. One of the most urgent problems for goods exporters relates to the backlog and slow rate of movement through India's ports, which raises costs and affects markets for export goods. The problems of poor transport in general and unstable (and increasingly expensive) access to power and other essential inputs put domestic producers at a major disadvantage compared to their international competitors. Another major area of concern is the difficulty faced by small-scale exporters in raising bank credit, especially after financial liberalisation measures have reduced allocations for priority sector credit. Obviously, it would be too much to expect the Commerce Ministry alone to tackle these issues. But since these are among the most important constraints on India's exports currently, it was to be expected that the Mr Maran would take note of these and at least try to co-ordinate with other Ministries such as Power and Surface Transport in order to ensure some cohesive policy with respect to these problems. (Instead, the only co-ordination seems to have been with the Ministry of Finance, and that too, only because the strategy conforms to the Finance Ministry's known approach of preferring tax giveaways to increased public productive expenditure.)

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Sustained export expansion requires a more comprehensive and systematic macro strategy on the part of the Government, which includes a substantial increase in public infrastructure spending. Such a strategy would also end up improving conditions for producers for the domestic market as well, and therefore aggregate employment conditions. Indeed, such a systematic and strategic policy would be necessary if the export basket is to be diversified towards more exports that have the potential for greater dynamism in world markets. Over the past decade, the commodity composition of exports suggests that this has not occurred so far. But to build a market for Indian products in the world markets requires more than just reliance on private entrepreneurship, as the experience of all successful exporting countries amply demonstrates. It requires systematic government involvement in a variety of forms. The big increase that is expected is on agricultural exports, following upon anticipated private response to the liberalising measures outlined below.

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The trend in India's share of exports in some of these crucial areas is not cause for much optimism. While India's share of world trade in rice and spices has grown, in several other sectors India's share has fallen, sometimes quite sharply.

In fact, the only evidence of some strategic orientation in the current Exim Policy is the launch of the new "Focus Africa" programme, which is certainly welcome.

The past direction of trade (indicated in Chart 9) suggests that African markets have been greatly neglected by Indian exporters, which is a mistake because Africa (contrary to general perception) has been one of the faster growing regions of the world in the past decade.

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Consistent with the basic market-determined economic strategy framework of this Government, the main focus of the new Exim Policy exercise is on a range of measures that will further liberalise the export trade, especially with respect to agricultural exports, and on providing some fiscal incentives, including duty neutralisation and other tax sops to exporters. It also relies on more special economic zones (SEZs), provided with even more incentives, to take up the task of export promotion, even though the experience with export processing zones so far has been dismal. For agriculture, the Policy contains a number of measures. Quantitative restrictions have been lifted on exports of all commodities except onion and jute. There is provision for a transport subsidy for exports of fresh and processed fruits, vegetables, floriculture, poultry, dairy products and products of wheat and rice. Registration requirements, which were earlier necessary for farm exports, have been removed. The minimum export price condition has been lifted. While these will obviously reduce bureaucratic delays and assist more exports, there are questions about how small cultivators facing large and often monopsonistic distributors would able to manage in the new scenario in which they are to face these forces without any element of mediation. The Commerce Ministry obviously wants to assist the Food Ministry in getting rid of the embarassingly large public stocks of foodgrains through more exports.

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It is quite happy to assist in a process which will deprive millions of poor, hungry people within India of access to such grain, in order to push this grain out as (implicitly) subsidised exports. Of course, this attempt may come up against WTO regulations, so the Exim Policy proposes an internal transport subsidy on movement of foodgrains from FCI godowns to the nearest port, which it believes will bypass the WTO restrictions. In addition to all this, 20 agri-export zones (AEZs) have been sanctioned, covering mainly horticultural products. Mr Maran is clearly a keen promoter of such zones: past Exim Policies have witnessed the declaration of various SEZs. The 13 existing SEZs are also to be allowed to open overseas banking units, which are effectively offshore banks free from domestic restrictions such as those on cash-reserve ratio and statutory liquidity ratio. In addition, they have been promised tax concessions as well. This over-emphasis on agricultural exports can have very deleterious consequences for domestic consumption patterns. Already in the past decade, the rate of growth of foodgrain production has fallen below the rate of growth of population, for the first time since Independence. It is not clear that diversion of cropped area to cash crops will benefit the poor of the country or ensure long-term food security of the country.

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In fact, the experience of export-oriented agriculture in SubSaharan Africa and its consequences is anything but inspiring.

Thus far, of course, such incentives have not made much difference to the actual export performance of these areas or sectors, although they imply quite a lot of tax revenue foregone in the interests of providing export incentives.

The other main plank of the new Exim Policy is the provision of a range of fiscal concessions and tax sops to exporters under various schemes. Mr Maran has probably extracted more fiscal sops for exporters than any previous Commerce Minister, even though export performance has not displayed any greater dynamism as a result.

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Already over the fiscal year just concluded, the revenue loss from the various export promotion schemes is estimated to have been as high as Rs 23,000 crore or more. In 2002-03, rough calculations suggest that revenue outgo could amount to more than Rs 27,000 crore, or 60 per cent of budgeted customs duty collection.

It is interesting that this has been allowed by the same Finance Ministry that has prevented increased allocation for public employment schemes that would have increased rural employment, provided rural infrastructure and helped dispose of the excess food stocks.

The past experience with such sops suggests that this would not necessarily lead to increased exports either.

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A salutary example is that of gems and jewellery, an export sector that has been a major recipient of fiscal and trade policy sops especially since 1995-96. The import of pearls and semi-precious stones has been liberalised essentially to aid exporters in this sector, who have also received a range of other incentives. Nevertheless, the export performance has not been impressive. As Chart 12 shows, while gross exports have increased, net exports have actually fallen between 1995-96 and 2000-01. In fact, if imports of gold and silver are included, then over the past two years this sector has actually shown a substantial trade deficit in excess of $2 billion annually. There are many possible objections to the basic philosophy underlying the current Exim Policy, not least because it privileges export growth as the main objective of trade strategy and as the engine of Indian development. But even within this dubious aim, the approach adopted by the Commerce Minister is unlikely to deliver in terms of improved export performance, given past experience.

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Meanwhile, the Policy will mean the wastage of thousands of crores from the public exchequer that could be used for more productive purposes, including for developing a really effective and strategic export promotion policy.

Special Economic Zones

Special Economic Zones (SEZ) are growth engines that can boost manufacturing, augment exports and generate employment. The private sector has been actively associated with the development of SEZs. The SEZs require special fiscal and regulatory regime in order to impart a hassle free operational regime encompassing the state of the art infrastructure and support services. The proposed legislation on SEZs to be enacted in the near future would cover the concepts of the developer and co- developer , incorporate the provision of virtual SEZs, have fiscal concessions under the Income Tax and Customs Act, provide for Offshore Banking Units (OBUs) etc .

Key Recent Initiatives

Wholly owned subsidiaries of foreign companies permitted to make royalty payments to offshore parent companies subject to specified limits.

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Royalty payments upto specified percentages allowed under the automatic route, for use of trademark/ brand name of the foreign collaborator, without the condition of technology transfer. Industrial licensing requirement dispensed with in case of 100% EOU/EPZ/SEZ units, engaged in manufacture of items reserved for Small Scale Sector. FDI upto 100 percent allowed under the automatic route for manufacturing activities in SEZ, except in specified restricted areas. 100% investment allowed in B2B e-commerce, Internet Service Providers (ISPs) not providing gateways (both for satellite and submarine cables), Infrastructure Providers providing dark fibre (IP category I), Electronic Mail and Voice Mail subject to certain guidelines. Amount of FDI approved

Source: DIPP Major Country-wise FDI Approvals

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Source: DIPP

Top-five State-wise FDI approved (in USD billion)

FDI upto 26% permitted in the Insurance sector FDI in Information Technology sector may be made through the automatic route in cases of existing/ erstwhile joint ventures or technology transfer/trade mark agreements in the same or allied field.

Dividend balancing condition, as it existed in the case of 22 specified consumer goods industries, has been deleted. New EXIM policy announced on March 31,2001.
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Peak rate of Customs Duty reduced from 40% to 35%. Basic Excise Duty rate structure further rationalised with single rate (16%) CENVAT scheme replacing MODVAT Value Added Tax regime to be introduced by April 1, 2002.

FINANCING PROGRAMMES

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Loans to Indian Companies Deferred payment export:

Term finance is provided to Indian exporters of eligible goods and services which enable them to offer deferred credit to overseas buyers. Deferred credit can also cover Indian consultance, technology and other services. Commercial banks participate in this programme directly or under risk syndication arrangements.

Preshipment credit:
Finance is available form Exim Bank for companies executing export contracts involving cycle time exceeding six months. The facility also enables provision of rupee mobilization expenses for construction/turnky project exporter.

Term loans for export production:

Exim Bank provides term loans/deferred payment guarantees to 100% export. Oriented units, units in free trade zones and computer software exporters. In commaboration with International Finance Corporation. Washington, Exim Bank provides loans to enable small and medium enterprises upgrade export production capability. Facilities for deeded exports; Deemed exports are eligible for funded and non- funded facilities from Exim Bank.
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Overseas Investment finance:

Indian companies establishing joint ventures overseas are provided finance towards their equity contribution in the joint venture. Finance for export marketing: This programme, which is a component of a World Bank loan, helps exporters implement their export market development plans

Loans to Foreign Governments, Companies and financial Institutions

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Overseas Buyer's Credit:

Credit is directly offered to foreign entities for import of eligible goods and related services, on deferred payment.

Lines of Credit:
Besides foreign governments, finance is available to foreign financial institutions and government agencies to on-lend in the respective country for import of goods and services from India.

Relending Facility to Banks Overseas:

Relending facility is extended to banks overseas to enable them to provide term finance to their clients world-wide for imports from India.

Loans to Commercial Banks in India

Export Bills Rediscounting:

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Commercial Banks in India who are authorised to deal in foreign exchange can rediscount their short term export bills with Exim Banks, for an unexpired usance period of not more than 90 days.

Refinance of Export Credit: Authorised dealers in foreign exchange can obtain from Exim Bank 100% refinance of de3ferred payment loans extended for export of eligible Indian goods.

Guaranteeing of Obligation Exim Bank participates with commercial banks in India in the issue of guarantees required by Indian companies for the export contracts and for execution of overseas construction and turnkey projects.

EXPORT POLICY
Exports are the major focus of India's trade policy and a thrust area is exports involving higher value additions. Most items can be freely exported from India. A few items are subject to export control in order to avoid shortages in the domestic market, to conserve national resources and to protect the environment.

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Export profits are exempt from income tax. Higher royalty payments of 8% (net of taxes) are permitted on export sales as compared to 5% on domestic sales. Export commissions up to 10% are also permissible. Inputs required to be imported for export production are exempted from the basic customs duty. Export Oriented Units (EOUs) and Export Processing Zones (EPZs) enjoy special incentives such as duty free import of capital goods and raw materials for the purpose of export production.

A Brand Equity Fund has been set up to popularize high quality India brands in the world market. The corpus of the fund of Rs 5 billion (US $156 million) will receive equal contributions from the government and industry.

Export Charges & Requirements

Export charges: A limited number of items, mostly primary commodities or processed agricultural products, are subject to duties. Currently, the only

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products subject to an export tax (at the rate of 10%) are goat, sheep and bovine leathers. Products may also be subject to a minimum export price. The list of products subject to minimum prices includes basmati and nonbasmati rice, cotton, and hard and soft cotton waste. Most minimum export prices are specified in dollars on an fob basis. Settlement of Bills: The Government prescribes conditions for exchange control and settlement of bills related to exports under the authority of the Foreign Exchange Regulation Act, 1973. For normal commercial exports to all countries, except Nepal and Bhutan, exporters are required to complete the GR Form in duplicate. The GR Form covers exports not made by post.

With few exceptions, all exports must be declared on the appropriate form and the exporter's code number as assigned by the Reserve Bank of India must be shown on the form. The payment arrangements are letter of credit, sight draft, time draft and shipment on consignment. The time limit for settlement of export proceeds, that is, the amount representing the full export value of the goods, is six months. A maximum of 15 months is allowed for exports to Indian-owned warehouses abroad.

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Documents: The following documents are required for exports: 1. GR form; 2. export licence; 3. export declaration; 4. customs entry form; 5. customs invoice; 6. commercial invoice; 7. certificate of origin; 8. bill of lading/air waybill;
9. Packing list.

Special documents may be required depending on the type of product or destination. Certain export products may require a quality control inspection certificate from the Export Inspection Agency. Some food and pharmaceutical product may require a health or sanitary certificate for export. To cover products under GSP (generalized system of preferences) a certificate of origin may be required. The Export Inspection Agency, the various export promotion councils, chambers of commerce or the regional offices of the Chief Controller of Imports and Exports are the responsible bodies for issuing the certificate of origin.

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FERA REGULATIONS
Foreign Exchange Regulation Act, (FERA), 1973 controls Indias foreign exchange control regime. Comprehensive amendments have been made to FERA, especially with respect to foreign investment, to add strength to the liberalizations announced in the economic policies. FERA provisions that imposed restrictions on locally incorporated companies with foreign equity holding in excess of 40 per cent (known as "FERA companies") have been removed.

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Such companies are now permitted to operate in India without any special restrictions, effectively placing them on par with wholly Indian owned companies. Foreign exchange controls have been substantially relaxed. Effective from August 20, 1994, India announced its movement to Article VII status in the IMF: the Indian Rupee is now fully convertible on the current account. For authorized foreign investors, the Indian Rupee is already convertible on the capital account. Full capital account convertibility is expected in the coming years. Although the Indian foreign exchange market is not yet fully developed, a variety of instruments have been introduced in the recent past. The dollar rupee forward market is very active, and firms have access to importing to India.

Export Credit Guarantee Corporation of India Ltd

The Export Credit Guarantee Corporation of India Ltd. (ECGC) is an export promotion organization under the administrative control of the Ministry of Commerce & Industry, Department of Commerce. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking,

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insurance and exporting community. ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The present paid-up capital of the company is Rs.800 crores and authorized capital Rs.1000 crores

ECGC Expertise
ECGC provides a range of credit risk insurance covers to exporters against loss in export of goods and services; offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them; and provides overseas investment insurance to Indian companies investing in joint ventures abroad in the form of equity or loan. ECGC operates three special schemes, namely, the Exchange Fluctuation Risk Cover, Transfer Guarantee scheme and the Overseas Investment Insurance scheme.

ECGC Services
Overseas Investment Guarantees to Indian companies investing abroad: Any Indian investment made by way of equity capital or untied loan for the purpose of setting up or expansion of overseas projects is eligible for cover under investment insurance. The investment may be either in cash or in the form of export of Indian capital goods and services. Cover is available for the original investment together with annual dividends or interest receivable. The risks of war, expropriation and restriction on remittances are covered under the scheme. As the investor would be having a hand in the

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management of the joint venture, no cover for commercial risks is provided. The period of insurance cover does not normally exceed 15 years in the case of projects involving long construction period. The cover can be extended for a period of 15 years from the date of completion of the project, subject to a maximum of 20 years from the date of commencement of investment. The amount insured is reduced progressively in the last five years of the insurance period.

IMPORT POLICY
The economic needs of the country, effective use of foreign exchange and industrial as well as consumer requirements are the basic factors which influence India's import policy. On the import side the policy has three objectives: 1. To make necessary imported goods more easily available, including essential capital goods for modernizing and upgrading technology; 2. To simplify and streamline procedures for import licensing. 3. To promote efficient import substitution and self-reliance.
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There are only 4 prohibited goods: tallow fat, animal rennet, wild animals and unprocessed ivory. There is a restricted list, but most of the restrictions are on grounds of security, health and environmental protection or because the goods are reserved for production by small and tiny enterprises, which are home-based or village-based and which require low skills and employ a large number of people. But the policy of restricting import of consumer goods is changing. The Indian government's clearly laid down policy is to achieve, through a series of progressive steps, the average tariff levels prevalent in the ASEAN region. The basic customs tariff rate now ranges from 0 to 40% plus additional duty of 2%; the average rate is about 30%.

Imports are allowed free of duty for export production under a duty exemption scheme. Input-output norms have been specified for more than 4200 items. These norms specify the amount of duty-free import of inputs allowed for specified products to be exported. There are no quantitative restrictions on imports of capital goods and intermediates. Import of second-hand capital goods is permitted provided they have a minimum residual life of 5 years. There is an Export Promotion Capital Goods (EPCG) Scheme under which exporters are allowed to import capital goods (including computer systems) at concessionary customs duty, subject to fulfillment of specified export obligations. Service industries enjoy the facility of zero import duty under the EPCG Scheme. Likewise, hospitals, air cargo, hotels and other

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tourism-related industries. Software units can use data communication network to export their products.

Regulations and Procedures

All imports now fall into one of the following four categories:
1. Freely importable items; most capital goods fall into this category.

Items in this category do not require import licences and may be freely imported by any individual or entity.
2. Licensed imports; certain items can be imported only with licences

and only by actual users. The current "negative list" of items in this category includes several broad product groups that are classified as consumer goods; precious and semi-precious stones; products related to safety and security; seeds, plants and animals; some insecticides, pharmaceuticals and chemicals; some electronical items; several items reserved for production by the small-scale sector; and 17 miscellaneous or special-category items. In April 1993 the government ended licensing requirements for several agricultural items, including prawns, shrimp and poultry feed. 3. Canalised items; Items under this category can be imported only by specified public-sector agencies.
4. Prohibited items; only three items-tallow fat, animal rennet and

unprocessed ivory-are completely banned from importation.

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Import Restrictions
Licensing, Quotas and Prohibitions Import approval is based on compliance with procedures whereby specific items may be imported by certain types of importers under certain types of licences.

Importers are divided into three categories for the purpose of import licensing: 1. Actual users; An actual user applies for and receives a licence to import any item or an allotment of an imported item as required for his own use, not for business or trade in that item. 2. Registered exporters; defined as those who have a valid registration certificate issued by an export promotion council, commodity board or other registered authority designated by the Government for purposes of export-promotion. 3. Others.

The two types of actual user licence are: 1. General currency area licences which are valid for imports from all countries, except those countries from which imports are prohibited;

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2. Specific licences which are valid for imports from a specific

country or countries. Aside from the types of licences listed, the Open General Licence is perhaps the most liberalized type of licence available for certain items and certain types of importers.

Licenses are valid for 24 months for capital goods and 18 months for raw materials components, consumable and spares, with the licence term renewable.

FOREIGN EXCHANGE REGIME

General The Reserve Bank of India administers exchange controls in accordance with the Government's policy designed to maintain general control over the foreign exchange situation, particularly outgoing financial flows. The Foreign Exchange Regulation Act (FERA), 1973 confers powers to the Reserve Bank of India concerning foreign exchange control. General or specific permission is required from the Reserve Bank of India for all foreign exchange transactions. Foreign companies operating in India are governed by the 1973 Foreign Exchange Regulation Act (FERA), which sets guidelines

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for bank accounts, loans, foreign exchange trading and the remittance of dividends and profits. In March 1993, the government ended certain FERA restrictions on domestic borrowing, trading and acquisition of immovable property by companies with more than 40% foreign equity. Residents may use up to 25% of foreign exchange earnings to maintain a foreign currency bank account in India.

Foreign employees, liaison offices, project offices and branches of foreign companies may open and use a resident bank account in Indian currency provided that they have approval by the Reserve Bank for operations in India. Exporters who have net foreign exchange earnings of a certain level can maintain a foreign currency account outside of India. The sale of foreign exchange or rupee transfers to non-resident accounts in payment for imports may be made by authorized dealers. Persons, firms and banks (other than authorized banks) must apply to an authorized dealer on form A1 "Application for remittance in foreign currency" to pay for imported goods. In certain cases, additional questionnaire forms or supporting letters may be required along with form A1.

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Risk Management

The Bank has an Integrated Risk Management Committee (IRMC), which is independent of operating groups and reports directly to the top management. The IRMC reviews the Banks risk management policies in relation to various risks (portfolio, liquidity, interest rate, offbalance sheet and operational risks), investment policies and strategy, and regulatory and compliance issues in relation thereto. The IRMC oversees the operations of the Asset Liability Management Committee (ALCO), the Funds Management Committee (FMC) and the Credit Risk Management Committee (CRMC), all of which have crossfunctional representation. While ALCO deals with issues relating to ALM policy and processes and analyses the overall market risk (liquidity, interest-rate risk
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and currency risk) of the bank, CRMC deals with credit policy and procedures and analyses, manages and controls credit risk on a bankwide basis. Loan proposals are independently analysed by the Chief Risk Officer of the Bank who evaluates the risk profile of the proposals and provides inputs to the approving authority. During the year, the Bank, in accordance with its focus on further improving asset quality and credit appraisal, implemented a new Credit Risk Model (CRM) that is a significant improvement over the earlier Credit Grading Model in terms of enabling an improved credit appraisal process (by incorporating qualitative as well as quantitative parameters) and better portfolio management capability. The Bank also undertakes a consolidated annual review of the Business Continuity & Disaster Recovery Plans (BCDRPs) of all its offices. Each of the plans is vetted for completeness with regard to critical Business Continuity Risk Events (BCREs) and safeguards in place, for mitigating the impact thereof.

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INFORMATION AND ADVISORY SERVICES

The Bank provides a wide range of information, advisory and support services, which complement its financing programmes. These services are provided on a fee basis to Indian companies and overseas entities. The scope of services includes market-related information, sector and feasibility studies, technology supplier identification, partner search, investment facilitation and development of joint ventures both in India and abroad. During the year, the Bank provided a range of services to companies. Information in the form of a list of importers / exporters across different industries and sectors was provided to Indian firms active in international trade. The Bank also prepared a detailed project report for a proposed joint venture in Brazil, during the year.

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Conclusion
Export Import Bank of India at a glance Export Import Bank of India is also known as Exim Bank of India and was established by an Act passed by the Indian Parliament in September, 1981. Export Import Bank of India is fully owned by the Indian government and it started its operations in March, 1982. The major objectives of Export Import Bank of India are to provide economic assistance to importers and exporters and to function as the apex financial institution. Its services include export credit, overseas investment finance, agri & SME finance, film finance and finance for units that are export oriented. The total amount of loans disbursed by Export Import Bank of India amounted to Rs. 150,389 million in 2005- 2006 and in the following year, this figure increased to Rs. 220760 million.

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The net profit of the Bank came to around Rs. 2707 million in 2005- 2006. In the following year this figure increased to Rs. 2994 million.

The head office of Export Import Bank of India is located in Mumbai and its regional offices are located at Pune, Kolkata, Hyderabad, New Delhi, Bangalore, Chennai and Ahmedabad. The Bank's overseas offices are located at London, Washington D.C., Dakar, Dubai, Singapore and Johannesburg.

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Suggestions
The government of India should create a sustainable model with funding it fully by government. This model should help both the government and Exim Bank to achieve the targeted goals in favor of countrys development. Hence all the regulatory powers and authorities to handle it should be given to EXIM Bank.

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