AMITY GLOBAL BUSINESS SCHOOL MUMBAI

SUMMER INTERNSHIP REPORT ON

OPERATIONAL ASPECTS OF INTERNATIONAL BUSINESS OF
GANDHAR OIL REFINERY INDIA LTD.
SUBMITTED BY:

DOLLY KARIA

ENROLLMENT NO:

63

COURSE- BBA (2015-2018)

UNDER THE GUIDANCE OF:

Prof. MEGHA HEMDEV

pg. 1
 DECLARATION
I hereby declare that the work reported in this thesis entitled “operational aspects of
international business of Gandhar Oil Refinery India Ltd.” resulted out of the summer
internship project undertaken at “Gandhar Oil Refinery India Ltd.” during the period June
2017- July 2017 is original and has not been previously submitted anywhere else.

Name: Dolly Karia

Enrolment No.: 63

pg. 2
 CERTIFICATE
This is to certify that the work incorporated in the summer project “Operational aspects of
international business of Gandhar Oil Refinery India Ltd.” Submitted by Dolly Karia, was
carried out by the candidate under my supervision. Such material as has been obtained from
other sources has been duly acknowledged in this report.

Name of the Guide: Prof. Megha Hemdev

Signature of the Guide:

pg. 3
 Acknowledgment

This report would have not been possible without the contribution and collaboration of
others, my sincere gratitude to my project guide Mrs Megha Hemdev for her constant help
and guidance during the entire course of the research. She has always been there for
providing an unbiased critical overview of the project at each stage. To the rest of the
A.G.B.S. Mumbai, I extend my deepest gratitude.

I would also like to thank our honourable director Mr Pankaj Shukla for giving me the
platform to present my dissertation on the finance research topic, “Operational aspects of
international business of Gandhar Oil Refinery India ltd” and encouraging the same in the
form of a research project submitted for degree assessment purpose.

pg. 4
 TABLE OF CONTENT

Sr No. Particulars Page no.

1 Executive summary Pg 6

2 Introduction Pg 7

3 About Gandhar Pg8-Pg9

4 Export preliminaries Pg10-Pg11

5 Export procedure Pg12-Pg16

6 Export documentation Pg17-Pg29

7 Exports of the company Pg30

8 Import procedure Pg31-Pg34

9 Import documentation Pg35

10 Imports of the company Pgp36

11 Export import finance Pg37-Pg44

12 Foreign exchange management Pg45-Pg46

13 Hedging Pg47

14 Bibliography Pg48

pg. 5
 EXECUTIVE SUMMARY

This report is about a detailed explanation of import and export procedures, particularly the
procedure undertaken at Gandhar Oil Refinery India ltd. How Gandhar Oil Refinery India ltd
operates its international business. It gives a brief introduction about foreign exchange
management and hedging strategies of the company.

pg. 6
 INTRODUCTION

International business is nowadays characterised by rapid changes and the growing

importance of international markets. Foreign trade is one of the most important factors in
economic development of any nation. In India, it comprises of all imports and exports to and
from India. India is in fact the 16th largest export economy in the world. In 2015, India
exported $276B and imported $368B.

India is world’s 4th largest crude oil consumer with consumption at 3.1 million barrels per
day. It imports 70% of its total consumption. Crude oil is the biggest component of India’s
import basket and its price affects the overall economy.

Gandhar Oil Refinery India Limited is a firm manufacturing petroleum lubricants for various
uses. Its raw material is base oil which is a product of the crude refining process. Crude oil is
the backbone of today’s global economy and it is the largest traded commodity in the world.

pg. 7
 GANDHAR OIL REFINERY INDIA LTD.

Established in 1993, it is one of the fastest growing oil companies in India. It has two state-
of-the-art plants with large capacity for storage of base oils located in Taloja and Silvassa,
manufacturing mineral oils, liquid paraffin, petroleum jelly, rubber process oils, industrial and
automotive lubricants, transformer oils, and a variety of specialities. It caters to a diverse
spectrum of industries like Rubber (tyres /non-tyres), Automobiles, General Engineering,
Electric & Power Generation, Pharma, Cosmetics, Textiles and Steel.

The company is recognised as a Star Export House by the Government of the India. Its
products are exported to South America, Europe, Middle East, Africa, Far East and Australia.

The company has its own fleet of more than 80 tankers for prompt deliveries. It has been
appo Refinery. inted as Consignment Stockist cum DCA by the Indian Oil Corporation for the
sale of various grades of Polymers manufactured by them at Indian Oil Corporation’s Panipat.

pg. 8
Since 2011, it started importing coal.

On the 31st march 2017, the turnover of the company was 19.56cr on standalone basis. Out of
this 5.12cr constitute exports, 1.50cr export of coals and 3.62cr export of oil.

The raw material of Gandhar Oil Refinery India Ltd. is base oil which is the product of the
crude refining process. 85% of the raw material is imported from refiners across the globe
such as SK Korea, ADNOC Abu Dhabi, Saudi Aramco Saudi Arabia, and GS Caltex South
Korea. Residual 15% sourced from domestic suppliers like Indian Oil Corporation Ltd.,
Hindustan Petroleum Corporation Ltd., and Bharat Petroleum Cor

pg. 9
 EXPORT PRELIMINIAIRIES
There are various formalities and registrations to be made with different authorities before an
exporter can enter into export business and accept an export order. The setting up of an export
firm is completed in two stages:
a) Establishing a business firm
b) Obtaining the Importer-Exporter Code number for the business firm and completing
other registrations.

- Selection of name of firm: An entrepreneur can choose any name for the firm he
wants to start.
- Approval of name of the firm: There is no need to obtain prior approval of Regional
Licensing Authority of DGFT for the proposed name of business firm.
- Registration of Organization: The form of organization can be sole proprietorship,
partnership firm under Indian Partnership Act, 1932 or joint stock Company registered
under the Companies Act, 1956.
- Opening of a bank account: The firm or company has to open a bank account with a
branch of a commercial bank authorized by Reserve Bank of India to deal in foreign
exchange. Only a select few branches of commercial banks are authorized by RBI to

pg. 10
 deal in foreign exchange. The firm may require pre and post shipment finance for its
business.
- Opening a permanent account number: Export income is subject to a number of
exemptions and deductions under the Income Tax Act. For claiming those exemptions
and deductions, it is necessary for every exporter to obtain Permanent Account
Number from the income tax authority.
- Registration with Sales Tax Authority: Exporter need not pay sales tax while making
purchases, meant for export. For availing the benefit, firm has to register with sales
tax authorities and secure sales tax number.
- Importer-Exporter code number: No export or import transaction can be made without
obtaining an importer-exporter code number. IEC number is a pre-condition for
exports from and imports into India. IEC number entitles to import or export any item
of non-prohibited goods. This number is to be, invariably, quoted in all documents,
prescribed by rules, in particular, in Bill of Entry in case of imports and in Shipping
Bill, in case of exports.
- Registration cum membership: It is obligatory for every exporter to register with
appropriate Export Promotion Council (EPC) and obtain Registration cum
Membership Certificate. Any person applying for import or export license or any
other benefit under the current Exim Policy is required to obtain Registration cum
Membership Certificate (RCMC).
- Registration with ECGC: The exporter should also register with Export Credit and
Guarantee Corporation of (ECGC) in order to secure export payments against political
and commercial risks.

pg. 11
 EXPORT PROCEDURES

An export is a function of international trade whereby good produced in one country are
shipped to another country for future sale or trade or trade. It is an act of taking out any goods
by land, sea or air with proper transaction of money. It is a very wide concept and lot of
preparations is required by an exporter before starting an export business. The sale of such
goods adds to the producing nation’s gross output.
After all the preliminaries, comes the export procedure:

1- The selection of the product: All items are freely exportable except few items
appearing in prohibited/ restricted list. After studying the trends of export of
different products from India proper selection of the product(s) to be exported
may be made.

2- The selection of markets: An overseas market should be selected after research

covering market size, competition, quality requirements, payment terms etc.
Exporters can also evaluate the markets based on the export benefits available for
few countries.

pg. 12
3- Finding buyers: Participation in trade fairs, buyer seller meets, exhibitions, B2B
portals, web browsing are an effective tool to find buyers. EPC’s, Indian Missions
abroad, overseas chambers of commerce can also be helpful. Creating multilingual
Website with product catalogue, price, payment terms and other related
information would also help.

4- Sampling: Providing customized samples as per the demands of foreign buyers

help in getting export orders. As per FTP 2015-2020, exports of bona fide trade
and technical samples of freely exportable items shall be allowed without any
limit.

5- Pricing/costing: Product pricing is crucial in getting buyers’ attention and

promoting sales in view of international competition. The price should be worked
out taking into consideration all expenses from sampling to realization of export
proceeds on the basis of terms of sale. Goal of establishing export costing should
be to sell maximum quantity at competitive price with maximum profit margin.

6- Negotiation with Buyers: After determining the buyer’s interest in the product,
future prospects and continuity in business, demand for giving reasonable
allowance/discount in price may be considered.

7- Covering risks through ECGC: International trade involves payment risks due to
buyer/ Country insolvency. These risks can be covered by an appropriate Policy
from Export Credit Guarantee Corporation Ltd (ECGC). Where the buyer is
placing order without making advance payment or opening letter of Credit, it is
advisable to procure credit limit on the foreign buyer from ECGC to protect
against risk of non-payment.

8- Processing an export order:

i) Confirmation of order: On receiving an export order, it should be

examined carefully in respect of items, specification, payment conditions,
packaging, delivery schedule, etc. and then the order should be confirmed.
Accordingly, the exporter may enter into a formal contract with the
overseas buyer.

pg. 13
ii) Procurements goods: After confirmation of the export order, immediate
steps may be taken for procurement/manufacture of the goods meant for
export. It should be remembered that the order has been obtained with
much efforts and competition so the procurement should also be strictly as
per buyer’s requirement.

iii) Quality control: In today’s competitive era, it is important to be strict

quality conscious about the export goods. Some products like food and
agriculture, fishery, certain chemicals, etc. are subject to compulsory pre-
shipment inspection. Foreign buyers may also lay down their own
standards/specifications and insist upon inspection by their own
nominated agencies. Maintaining high quality is necessary to sustain in
export business.

iv) Finance: Exporters are eligible to obtain pre-shipment and post-shipment

finance from Commercial Banks at concessional interest rates to complete
the export transaction. Packing Credit advance in pre-shipment stage is
granted to new exporters against lodgment of L/C or confirmed order for
180 days to meet working capital requirements for purchase of raw
material/finished goods, labour expenses, packing, transporting, etc.
Normally Banks give 75% to 90% advances of the value of the order
keeping the balance as margin. Banks adjust the packing credit advance
from the proceeds of export bills negotiated, purchased or discounted. Post
Shipment finance is given to exporters normally upto 90% of the Invoice
value for normal transit period and in cases of usance export bills upto
notional due date. The maximum period for post-shipment advances is 180
days from the date of shipment. Advances granted by Banks are adjusted
by realization of the sale proceeds of the export bills. In case export bill
becomes overdue Banks will charge commercial lending rate of interest.

v) Labeling, packaging, packing and marking: The export goods should be

labeled, packaged and packed strictly as per the buyer’s specific
instructions. Good packaging delivers and presents the goods in top
condition and in attractive way. Similarly, good packing helps easy
handling, maximum loading, reducing shipping costs and to ensuring
pg. 14
 safety and standard of the cargo. Marking such as address, package
number, port and place of destination, weight, handling instructions, etc.
provides identification and information of cargo packed.

vi) Insurance: Marine insurance policies cover risks of loss or damage to the
goods during the while the goods are in transit. Generally in CIF contract
the exporters arrange the insurance whereas for C&F and FOB contract the
buyers obtain insurance policy.

vii) Delivery: It is important feature of export and the exporter must adhere the
delivery schedule. Planning should be there to let nothing stand in the way
of fast and efficient delivery.

viii) Custom Procedures:

- It is necessary to obtain PAN based Business Identification Number (BIN) from the
Customs prior to filing of shipping bill for clearance of export good and open a
current account in the designated bank for crediting of any drawback amount and the
same has to be registered on the system.

- In case of Non-EDI, the shipping bills or bills of export are required to be filled in the
format as prescribed in the Shipping Bill and Bill of Export (Form) regulations, 1991.

- An exporter need to apply different forms of shipping bill/ bill of export for export of
duty free goods, export of dutiable goods and export under drawback etc.

- Under EDI System, declarations in prescribed format are to be filed through the
Service Centers of Customs. A checklist is generated for verification of data by the
exporter/CHA. After verification, the data is submitted to the System by the Service
Center operator and the System generates a Shipping Bill Number, which is endorsed
on the printed checklist and returned to the exporter/CHA. In most of the cases, a
Shipping Bill is processed by the system on the basis of declarations made by the
exporters without any human intervention. Where the Appraiser Dock (export) orders
for samples to be drawn and tested, the Customs Officer may proceed to draw two
samples from the consignment and enter the particulars thereof along with details of
the testing agency in the ICES/E system.

pg. 15
- Any correction/amendments in the check list generated after filing of declaration can
be made at the service center, if the documents have not yet been submitted in the
system and the shipping bill number has not been generated. In situations, where
corrections are required to be made after the generation of the shipping bill number or
after the goods have been brought into the Export Dock, amendments is carried out in
the following manners:

 The goods have not yet been allowed "let export" amendments may be
permitted by the Assistant Commissioner (Exports).

 Where the "Let Export" order has already been given, amendments may be
permitted only by the Additional/Joint Commissioner, Custom House, in
charge of export section.

- In both the cases, after the permission for amendments has been granted, the Assistant
Commissioner / Deputy Commissioner (Export) may approve the amendments on the
system on behalf of the Additional /Joint Commissioner. Where the print out of the
Shipping Bill has already been generated, the exporter may first surrender all copies
of the shipping bill to the Dock Appraiser for cancellation before amendment is
approved on the system.

ix) Customs house agents: Exporters may avail services of Customs House
Agents licensed by the Commissioner of Customs. They are professionals
and facilitate work connected with clearance of cargo from Customs.

x) Documentation: FTP 2015-2020 describes the following mandatory

documents for import and export.

· Bill of Lading/ Airway bill

· Commercial invoice cum packing list

· Shipping bill/ bill of export/ bill of entry (for imports)

(Other documents like certificate of origin, inspection certificate etc may

be required as per the case.)

pg. 16
 xi) Submission of documents to the bank: After shipment, it is obligatory to
present the documents to the Bank within 21 days for onward dispatch to
the foreign Bank for arranging payment. Documents should be drawn
under Collection/Purchase/Negotiation under L/C as the case may be,
along with the following documents

- Bill of Exchange

- Letter of Credit (if shipment is under L/C)

- Invoice

- Packing List

- Airway Bill/Bill of Lading

- Declaration under Foreign Exchange

- Certificate of Origin/GSP

- Inspection Certificate, wherever necessary

- Any other document as required in the L/C or by the buyer or statutorily.

xii) Realization of export proceeds: As per FTP 2015-2020, all export contracts
and invoices shall be denominated either in freely convertible currency of
Indian rupees, but export proceeds should be realized in freely convertible
currency except for export to Iran

EXPORT DOCUMENTATION

The objectives of Commercial documents are:

1. To affect physical transfer of goods from the exporter’s place to the importer’s Place.
2. To transfer property and title of goods from the exporter to the importer and

pg. 17
 3. Realization of export proceeds from the exporter to the importer.
Principal export documents: these are eight documents, which are required to be sent by the
exporter to the importer.

i. Proforma invoice: Proforma invoice is the starting point of an export contract. As and
when the exporter receives the trade inquiry from the importer, exporter submits the
Proforma invoice to the importer. The Proforma invoice contains details such as name
and address of the exporter, name and address of the intending importer, nature of goods,
mode of transportation, unit price in terms of internationally accepted quotation, name of
the country of origin of goods, name of the country of final destination, period required

pg. 18
 for executing contract after receipt of confirmed order and finally signature of the
exporter.

ii. Commercial invoice: It is a document that is prepared by the exporting

company, which contains details about the product that is being exported, the
quantity of the products, the trade terms, the mode of transportation, details about
the payment terms, the value of the product that is exported, details of the port of
shipment and the port of destination and the G.R no and the Vessel name and
related descriptions of the product.

pg. 19
iii. Packing list: It contains the details of the goods their gross weight, net weight,
quantity, description of the package or cartons in which they are packed, the
shipping marks which they bare, the colour of the goods and of packages. It is
prepared by the exporting company. It gives a fair description to the importing
company about the type of goods and also whether it matches their requirement or
not.

pg. 20
iv. Bill of lading: Bill of Lading is a document issued by the shipping company or his
agent acknowledging the receipt of cargo on board. This is an undertaking to
deliver the goods in the same order and condition as received to the consignee or
his agent on receipt of freight, the shipping company is entitled to. It is a very
important document to the exporter as it constitutes document of title to the goods.
Each shipping company has its own bill of lading. The exporter prepares the bill
of lading in the form obtained from the shipping company or agents of shipping

pg. 21
company. The goods can be consigned to order of the exporter, which means the
exporter can authorize someone else to receive the goods on his behalf. In such a
case, the exporter would discharge the bill of lading on its reverse. When the bill
of lading is negotiated through the bank, it would be endorsed in favor of the bank
that would endorse further to the importer, on receipt of payment. Bill of Lading is
made in signed set of 2 originals, any one of which can give title to the goods. The
shipping company also issues non-negotiable copies (unsigned) which are not
documents of title to goods but serves the purpose of record only. The reverse side
of Bill of Lading contains the terms and conditions of the contract of carriage. The
clauses on most of the bills of lading are common. A Bill of lading should be clean
to facilitate the exporter to obtain the proceeds of export without difficulty.

pg. 22
pg. 23
v. Certificate of origin: As the very name indicates, certificate of origin is a
certificate that specifies the name of the country where goods are produced. This
is absolutely necessary where the importing country has banned the entry of goods
of certain countries to ensure that the goods from those countries are not allowed
to enter in. At the time of arrival of the goods in the importer’s country, this
certificate is necessary for the customs to permit preferential tariff. Certain
countries offer preferential tariff to goods produced and imported from India. In
such a case, this is a must to the importer to claim preferential tariff and importer
insists on this document from the exporter. This enables the importer’s country to
regulate the concessional tariff only to select countries and deny to the rest of the
countries.

pg. 24
pg. 25
vi. Insurance certificate: It is a protective cover to insure the goods from any unseen
and unexpected casualties or accidents which may occur during the course of
transportation of the goods from their country of origin to their port of destination.
The certificate contains details about the goods and also details about the premium
paid.

pg. 26
pg. 27
vii. Certificate of inspection/ quality control: It is a certificate issued by the Export
Inspection Agency certifying that the consignment has been inspected under the
Export (Quality Control and Inspection) Act, 1963 and found that the
requirements relating to quality control and inspection have been complied with,
as applicable, and the goods are export worthy.

pg. 28
viii. Bill of exchange: The Negotiable Instruments Act, 1881 defines a Bill of
Exchange as “ an instrument in writing containing an unconditional undertaking,
signed by the maker, directing a certain person to pay a certain sum of money only
to, or to the order of, a certain person or to the bearer of the instrument”. There are
five important parties to a Bill of Exchange: the drawer, the drawee, the payee, the
endorser and the endorsee.

pg. 29
ix. Shipping bill: The shipping bill is the main document on the basis of which the
customs permission is given. Under manual processing of export documents, the
exporter is required to file the appropriate type of shipping bill to seek the order
for customs clearance of the export shipment. Under computerized processing, the
exporter does not prepare the shipping bill; instead it is computer generated. The
customs order is called “LET EXPORT Order”. After the shipping bill is stamped
by the customs, then only the goods are allowed to be carted to the do

pg. 30
 EXPORTS OF THE COMPANY

25 to 30% of the company’s products are exported. Exports happen to about 108 countries
(Africa, Latina America, USA, Europe, Middle East, Asia etc). Most exports are against LCs,
stroke advanced payment terms.
The export realizations are generally parked in earner’s foreign currency account or used for
pre shipment credit in foreign currency (PCFC) availed. This provides a natural hedge against
foreign exchange fluctuations.
The company has a post-shipment builder facility in foreign exchange, which is
interchangeable with the pre-shipment PCFC.

pg. 31
 IMPORT PROCEDURES

Import trade refers to the purchase of good from a foreign country. The word “import” is
derived from the word ‘port’, since goods are often shipped via boat to foreign countries.
Along with exports, imports form the backbone of international trade; the higher the value of
imports entering a country, compared to the value of exports, the more negative the balance
of trade becomes.
The procedure for import trade differs from country to country, depending upon the import
policy, the statutory requirements and customs of different countries.

So the import procedure includes

1) Trade enquiry: an enquiry is a written request from the intending buyer or its agent for
information regarding the price and terns on which the exporter will be able to supply
good. It includes the quantity, price, trade terms, payment terms etc.
2) Procurement of import license: a person or a firm cannot import goods into India
without a valid import license. This license can only be provided if, the goods are
freely imported goods. Prohibited or restricted items are those goods which are
banned for import/ export
3) Obtaining foreign exchange: importer has to make payment for imports in the
currency of exporting country. The foreign exchange reserves of any country are
controlled by Government and are released through its central bank. In India, the
exchange control department of Reserve Bank of India deals with the foreign
exchange. The importer has to then submit an application in the prescribed form along
with the import license to any exchange bank as per the provisions of exchange
control act. Scrutinizing the application on the basis of exchange policy of
government of India in force at the time of foreign exchange. RBI sanctions or rejects
the lease of foreign exchange
4) Placing order or indent: the order is known as indent. It contains the instructions from
the importer so as to the quantity and quality of goods required, methods for
forwarding them.
5) Dispatching a letter of credit: exporter wants to be sure that there is no risk of non-

payment. Usually for this purpose he asks the importer to send a letter of credit to
him.

pg. 32
6) Obtaining necessary documents: on the receipt of letter of credit the exporter arranges
for shipment of goods and sends an advice note to the importer immediately after
shipment of goods. The exporter then draws a bill of lading, insurance policy
certificate, certificate of origin, commercial invoice etc, also attached to the bill of
exchange. So the bill exchange attached with all these documents is called
documentary bill. It is forwarded to the importer through a foreign exchange bank
which has a branch or an agent in the importer’s country for collecting payments of
the bill.
7) Custom formalities and clearance of goods: it includes
- filing Bill of Entry with business identification number
- determining rate of duty for clearance from warehouse
- filing requisite documents with the custom department
- submit import report/manifest
- receive permission to import goods

8) Bill of entry: it is one of the major import documents for import custom clearance. It
is one of the indicators of “total outward remittance of country” regulated by reserve
bank and Custom department. BOE is to be filed within 30 days of arrivals of goods
at a customs location. Once after filing it along with the necessary import customs
clearance documents, assessment and examination of goods are carried out by
concerned customs official. After completion of import customs formalities, a ‘pass
out order’ is issued under such bill of entry. Once an importer or his authorized
customs house agent obtains ‘pass out order’ from concerned customs official, the
imported goods can be moved out of customs. After paying necessary import charges
if any to carrier of goods and custodian of cargo, the goods can be taken out of
customs area to importer’s place. The original and a copy of it go to the Custom, once
copy to the importer, another for the bank, and one last for remittance.

9) the other documents required for import are:

- The commercial invoice: it is required for import customs clearance for value
appraisal by concerned customs official. Assessable value is calculated on the basis of
terms of delivery of goods mentioned in commercial invoice produced by importer at
customs location. The concerned appraising officer verifies the value mentioned in
commercial invoice matches with the actual market value of same goods. This method

pg. 33
 of inspection by appraising officer of customs prevents fraudulent activities of
importer or exporter by over invoicing or under invoicing. So Invoice plays a pivotal
role in value assessment in import customs clearance procedures.
- The bill of lading/ airway bill: Bill of lading under sea shipment or Airway bill under
air shipment is carrier’s document required to be submitted with customs for import
customs clearance purpose. Bill of lading or Airway bill issued by carrier provides the
details of cargo with terms of delivery.
- The import license: import license may be required as one of the documents for
import customs clearance procedures and formalities under specific products. This
license may be mandatory for importing specific goods as per guide lines provided by
government. Import of such specific products may have been being regulated by
government time to time. So government insist an import license as one of the
documents required for import customs clearance to bring those materials from
foreign countries.
- Insurance certificate: Insurance certificate is a supporting document against
importer’s declaration on terms of delivery. Insurance certificate under import
shipment helps customs authorities to verify, whether selling price includes insurance
or not. This is required to find assessable value which determines import duty
amount.
- Purchase order/ letter of credit: A purchase order reflects almost all terms and
conditions of sale contract which enables the customs official to confirm on value
assessment. If an import consignment is under letter of credit basis, the importer can
submit a copy of Letter of Credit along with the documents for import clearance.
- Literature for special goods: it may be required as one of the documents for import
clearance under some specific goods. For example, if machinery is imported, a
technical write up or literature explaining its function can be attached along with
importing documents. This document helps customs official to derive exact market
value of such imported machinery in turn helps for value assessment.
- Industrial license (if any): If Importer claims any import benefit as per guidelines of
government, such Industrial License can be produced to avail the benefit. In such
case, Industrial license copy can be submitted with customs authorities as one of the
import clearance documents.
- Registration cum membership certificate: For the purpose of availing import duty
exemption from government agencies under specific goods, production of RCMC
pg. 34
 with customs authorities is one of the requirements for import clearance. In such cases
importer needs to submit Registration Cum Membership Certificate along with import
customs clearance documents.
- Test report (is required): The customs officials may not be able to identify the quality
of goods imported. In order to assess the value of such goods, customs official may
draw sample of such imported goods and arranges to send for testing to government
authorized laboratories. The concerned customs officer can complete appraisement of
such goods only after obtaining such test report. So test report is one of the documents
under import customs clearance and formalities under some of specific goods.
- Central excise document: If importer avails any central excise benefit under imported
goods, the documents pertaining to the same need to be produced along with other
import customs clearance documents.
- ECGC: If importer avails any duty exemptions against imported goods under different
schemes.

10) Making the payment: the mode and time of making the payment is determined
according to the terms and conditions as agreed to earlier between the importer and
exporter, usually 30 to 90 days are allowed to the importer for making the payment.

11) Closing the transaction: last step in import procedure is closing the transaction. But if
he is not satisfied with the quality of goods he will write to the exporter and settle the
matters. In case the goods have been damaged in transit the insurance company will
pay him the compensation under an advice to the exporters. It is done by submitting
the relevant documents to custom.

pg. 35
 IMPORT DOCUMENTS

The import documents are:

- Proforma invoice
- Letter of credit: Letter of Credit is an arrangement wherein a Bank on the request of it
customer agrees to make payment to a beneficiary on receipt of documents from
beneficiary as per the terms stipulated in the Letter of Credit. LC is used extensively
in international and domestic trade transactions
- Commercial invoice
- Bill of lading
- Packing list
- Certificate of origin
- Certificate of analysis
- Bill of entry: An account of goods entered at a customhouse, of imports and exports,
detailing the merchant, quantity of goods, their type, and place of origin or
destination. It is issued by the customs presenting the total assigned value and the
corresponding duty charged on the cargo.

pg. 36
 IMPORT OF THE COMPANY

85% of the company’s raw material is imported; the raw material is the base oil which is the
product of the crude refining process. It is imported from refiners across the globe, SK Korea,
Adnoc Abu Dhabi, Saudi Aram Co, GS Caltex USA…
Residual 15% is sourced from domestic suppliers like IOCL, HPCL, and BPCL.
The company imports by the way of LCs. It has 10 banks from which LCs are opened at sight
bases in most cases and in some cases on a 30 days usance.
Since the terms of suppliers are at sight bases or maximum 30 days, the company uses
Buyer’s credit to pay for its obligations on the due date. This is because it takes for the
company minimum 60 days to realize the sale proceeds.
Buyer’s credits are taken from overseas branches of Indian banks as stipulated and the
sanction letter in respect to the banks. This also has the added advantage of doing away with
holding taxes which would arise from foreign non-Indian banks.
The buyer’s credit is taken for 90 days by when the sale proceeds are realized and payments
can be made.
In some extreme cases of liquidity shortage, the company has the option to roll over the
buyer’s credit for an additional period of 90 days
In some other cases, specifically one of the bankers or the company treats the buyer’s credit
as a fund based facility there way affecting drawing power, the company establishes import
LC with built in supplier’s credit up to maximum 150 days. In this case, both the buyer’s
credit and supplier’s credit are sourced by the company without any intermediary.

pg. 37
 EXPORT IMPORT FINANCE
I-Export finance

1) Meaning of export finance: In order to be competitive in markets, exporters are often

expected to offer attractive credit terms to their overseas buyers. Extending such
credits to foreign buyers put considerable strain on the liquidity of the exporting
firms. Therefore, it is extremely important to make adequate trade finances available
to the exporters from external sources at competitive terms during the post-shipment
stage. Unless competitive trade finance is available to the exporters, they often resort
to quote lower prices to compensate their inability to offer competitive credit terms.
As a part of export promotion strategy, national governments around the world offer
export credit, often at concessional rates to facilitate exports.

2) Export credit in India: In India, export credit is available both in Indian rupees and
foreign currency.

a- Export credit in Indian rupees: The Reserve Bank of India (RBI) prescribes a
ceiling rate for the rupee export credit linked to Benchmark Prime Lending Rates
(BPLRs) of individual banks available to their domestic borrowers. However, the
banks have the freedom to decide the actual rates to be charged with specified
ceilings. Generally, the interest rates do not exceed BPLR minus 2.5 percentage
points per annum for the specified categories of exports as under:

i. Pre-shipment credit (from the date of advance)

- Up to 180 days

- Against incentives receivable from the government covered by Export Credit and
Guarantee Corporation (ECGC) guarantee up to 90 days

ii. Post-shipment credit (from the date of advance)

- On demand bills for transit period, as specified by FEDAI (Foreign Exchange Dealers
Association of India)

- Usance bills (for total period comprising usance period of export bills, transit period
as specified by FEDAI, and grace period, wherever applicable)

pg. 38
  Up to 90 days

 p to 365 days for exporters under the Gold Card Scheme

- Against incentives receivable from government (covered by ECGC Guarantee) up to

90 days

- Against undrawn balances (up to 90 days)

- Against retention money (for supplies portion only) payable within one year from the
date of shipment (up to 90 days).

iii. Pre-shipment credit: Pre-shipment credit means any loan or advance

granted by a bank to an exporter for financing the purchase, processing,
manufacturing, or packing of goods prior to shipment. It is also known as
packing credit. As the ultimate payment is made by the importer, his/her
creditworthiness is important to the bank. Banks often insist upon the L/C
or a confirmed order before granting export credit. The banks reduce the
risk of non-payment by the importer by collateral or supporting guarantee.

iv. Period of advance: The period of packing credit given by the bank varies
on a case to case basis, depending upon the exporter’s requirement for
procurement, processing, or manufacturing and shipping of goods.
Primarily, individual banks decide the period of packing credit for exports.
However, the RBI provides refinance to the banks only for a period not
exceeding 180 days. If pre-shipment advances are not adjusted by
submission of export documents within a period of 360 days from the date
of advance, the advance cease to qualify for concessive rate of interest ab
initio. Banks may release the packing credit in one lump sum or in stages,
depending upon the requirement of the export order or L/C.

v. Liquidation of packing credit: The pre-shipment credit granted to an

exporter is liquidated out of the proceeds of the bills drawn for the
exported commodities on its purchases, discount, etc., thereby converting
pre-shipment credit to post-shipment credit. The packing credit may also
be repaid or prepaid out of the balances in Exchange Earners’ Foreign
pg. 39
 Currency (EEFC) Account. Moreover, banks are free to decide the rate of
interest from the date of advance.

vi. Running account facility: Generally, pre-shipment credit is provided to

exporters on lodgment of L/Cs or firm export orders. It has also been
observed that in some cases the availability of raw material is seasonal
whereas the time taken for manufacture and shipment of goods is more
than the delivery schedule as per the export contracts in others. Besides,
often the exporters have to procure raw material, manufacture the export
products, and keep the same ready for shipment, in anticipation of the
receipt of firm export orders or IVCs from overseas buyers. In view of
these difficulties faced by the exporters in availing the pre-shipment credit
in such cases, banks are authorized to extend pre-shipment credit ‘running
account facility’. Such running account facility is extended in respect of
any commodity without insisting upon prior lodgment of a firm export
order or an IVC depending upon the bank’s judgment.

vii. Post-shipment credit: Post-shipment credit means any loan or advance

granted or any other credit provided by a bank to an exporter of goods
from the date of extending credit after shipment of goods to the date of
realization of export proceeds. It includes any loan or advance granted to
an exporter, in consideration of any duty drawback allowed by the
government from time to time. Thus, the post-shipment advance can
mainly take the form of:

- Export bills purchased, discounted, or negotiated

- Advances against bills for collection

- Advances against duty drawback receivable from government

viii. Post-shipment finance can be categorized as:

- Advances against undrawn balances on export bills

- Advances against retention money

pg. 40
 - Exports on consignment basis

- Exports of goods for exhibition and sale

- Post-shipment credit on deferred payment terms

Post-shipment credit is to be liquidated by the proceeds of export bills received from abroad
in respect of goods exported.

ix. Period of post-shipment credit: In the case of demand bills, the period of
advance is the normal transit period (NTP) as specified by the FEDAI.
Normal transit period means the average period normally involved from
the date of negotiation, purchase, or discount till the receipt of bill
proceeds in the Nostrum account of the bank concerned, as prescribed by
the FEDAI from time to time. It is not to be confused with the time taken
for the arrival of goods at overseas destination. The demand bill is not paid
before the expiry of the normal transit period whereas the usance bill is
paid after the due date and is also termed as an overdue bill. In case of
usance bills, credit can be granted for a maximum duration of 365 days
from date of shipment inclusive of NTP and grace period, if any. However,
banks closely monitor the need for extending post-shipment credit up to
the permissible period of 365 days and they also influence the exporters to
realize the export proceeds within a shorter period.

a- Export credit in foreign currency: In order to make credit available to the

exporters at internationally competitive rates, banks (authorized dealers) also
extend credit in foreign currency’ (Exhibit 15.3) at LIBOR (London Interbank
Offered Rates), EURO LIBOR (London Interbank Offered Rates dominated in
Euro), or EURIBOR (Euro Interbank Offered Rates). LIBOR is a daily reference
rate based on the interest rates at which banks offer to lend unsecured funds to
other banks in the London wholesale (or ‘interbank’) money market. The rate paid
by one bank to another for a deposit is known as London Interbank Bid Rate
(LIBID).

pg. 41
 i. Pre-shipment credit in foreign currency: To enable the exporters to
have operational flexibility, banks extend pre-shipment credit in
foreign currency (PCFC) in any one of the convertible currencies,
such as US dollars, pound sterling, Japanese yen, euro, etc., in
respect to an export order invoiced in another convertible currency.
For instance, an exporter can avail of PCFC in US dollars against
an export order invoiced in euro. However, the risk and cost of
cross-currency transaction are that of the exporter. Under this
scheme, the exporters have the following options to avail export
finance:

- To avail of pre-shipment credit in rupees and then the post-shipment credit either in
rupees or discounting/re-discounting of export bills under Export Bills Abroad (EBR)
scheme

- To avail of pre-shipment credit in foreign currency and discount/rediscounting of the

export bills in foreign currency under EBR scheme

- To avail of pre-shipment credit in rupees and then convert at the discretion of the
bank

Banks are also permitted to extend PCFC for exports to Asian Currency Union (ACU)
countries. The applicable benefit to the exporters accrues only after the realization of the
export bills or when the resultant export bills are rediscounted on ‘without recourse’ basis.
The lending rate to the exporter should not exceed 1.0 percent over LIBOR, EURO LIBOR,
or EURIBOR, excluding withholding tax.

ii. Post-shipment credit in foreign currency: The exporters also have

options to avail post-shipment export credit either in foreign
currency or domestic currency. However, the post-shipment credit
has also to be in foreign currency if the pre-shipment credit has
already been availed in foreign currency so as to liquidate the pre-
shipment credit. Normally, the scheme covers bills with usance
period up to 180 days from the date of shipment. However, RBI
approval needs to be obtained for longer periods. Similar to the

pg. 42
 PCFC scheme, post-shipment credit can also be obtained in any
convertible currency. However, most Indian banks provide credit in
US dollars. Under the rediscounting of Export Bills Abroad
Scheme (EBR), banks are allowed to rediscount export bills abroad
at rates linked to international interest rates at post-shipment stage.
Banks may also arrange a Banker’s Acceptance Factor (BAF) for
rediscounting the export bills without any margin and duly covered
by collateralized documents. Banks may also have their own BAF
limits fixed with an overseas bank, a rediscounting agency or
factoring agency on ‘without recourse’ basis. Exporters also have
the option to arrange for themselves a line of credit on their own
with an overseas bank or any other agency, including a factoring
agency for rediscounting their export bills directly.

3) Export Finance to Overseas Importers: Generally, commercial banks extend exports

credit, often at concessional rates, to finance export transactions to the exporters as a
part of their export promotion measures. In addition, credit is also available to
overseas buyers so as to facilitate import of goods from India, mainly under two
forms:
a- Buyer’s credit: It is a credit extended by a bank in exporter’s country to an overseas
buyer, enabling the buyer to pay for machinery and equipment that s/he may be
importing for a specific project.
b- Line of credit: It is a credit extended by a bank in exporting country (for example,
India) to an overseas bank, institution, or government for the purpose of facilitating
the import of a variety of listed goods from the exporting country (India) into the
overseas country. A number of importers in the foreign country may be importing the
goods under one line of credit. Commercial banks carry out the task of export
financing under the guidelines of the central bank (for example Reserve Bank of
India). The export financing regulations are modified from time to time. Most
countries have an apex bank coordinating the country’s efforts of financing
international trade.

4) Credit Risk Insurance in Export Finance: Easy and hassle-free access to export
finance significantly enhances firms’ abilities to compete in international markets.

pg. 43
 Prior to agreeing to finance a firm’s export transactions, banks need to be assured of
the ability of the borrowers to repay the loan. Generally, banks insist on pleading
adequate collateral before sanctioning export finance. In an international transaction,
as a firm has to deal with an overseas buyer operating in different legal and political
environments, the risks increases manifolds on the smooth conduct of the commercial
transaction.

Evolution of international monetary systems, prevailing exchange rate arrangements, and

exchange rate quotations used in foreign exchange markets help international managers in
making foreign exchange decisions.

II- Import finance

- Import finance is required in order to bring goods into the country, but it is not always
easy to raise capital when looking at different products. This can be finished or
incomplete goods, but many lenders favor finished goods.
- Imported goods may be bought on letters of credit or open terms. Much trade is done
on trust between the buyer and seller; however as trade and companies expand and
there is a lack of trust between jurisdictions and new buyers or sellers – trade
instruments are used more frequently.Letters of credit are used as a type of import
finance to bring in more goods to a country, with the ability to trade with a foreign
entity that is not trusted. Import finance is an integral part of any growing company
and this can be structured in a number of ways.
- There are many reasons to use a lender to finance imports. Outside of the high cash
demands; this will also create certainty and security around trades. Understanding the
cash cycle and knowing how fast a product turns along with the margins and transport
mechanism is of utmost importance. In the event that the right import finance and
ABL structure can be put in place, then the trade cycle of a business can be separately
migrated away from the working capital requirements of a company and work
standalone; to a large degree.
- Types of import finance include:
 Trade Finance: Trade finance signifies financing for trade, and it concerns
both domestic and international trade transactions. A trade transaction

pg. 44
 requires a seller of goods and services as well as a buyer. Various
intermediaries such as banks and financial institutions can facilitate these
transactions by financing the trade.
 Usance and Standby Letters of Credit (LCs): It allows the purchaser
flexibility, increased working capital and the availability to sell through
stock prior to payment. Paying for the goods is easier at a later date when
compared to payment upon receipt; as there will usually have already
been an element of payment collection at this point, from the ultimate
purchaser.
 Bank confirmations and guarantees: by the way of LCs
 Invoice finance: Invoice financing is a general term used for asset based
lending products that allow companies to finance slow-paying accounts
receivable. There are two ways to finance invoices. The first way is
through a sale. Invoices can be sold to a factoring company in exchange
for an immediate payment
 Cash against documents: A payment arrangement in which an exporter
instructs a bank to hand over shipping and title documents (see
document of title) to the importer when the importer fully pays the
accompanying bill of exchange or draft. Also called documents
against payment.
 Bonds and bank guarantees: A bank guarantee is a promise from a bank or
lending institution that, if a borrower defaults on repayment of a loan,
the bank will cover the loss. So, while a bond is essentially a loan issued
by an entity and invested in by outside investors, a bank guarantee is a
promise that can be included in a bank loan.
 Asset backed facilities

- Import finance is looked at and reviewed on a case by case basis. Generally, a

financier would ask for the following in an application:

 Audited financial statements

 Full business plans
 Financial cash flow forecasts
 Creditor reports
 Details and references of the company directors
 Information on company liabilities

- Benefits of import financing: Import finance is off-balance sheet financial

instruments, which means they may not affect existing bank facilities or bank
relationships. The benefits of import finance mean that importers can grow without
taking on equity or angel investment, losing share of the business.

pg. 45
 FOREIGN EXCHANGE MANAGEMENT

Foreign trade is recognized as the most significant determinants of economic

development of a country, all over the world. For providing, regulating and creating
necessary environment for its orderly growth, several Acts have been put in place. The
foreign trade of a country consists of inward and outward movement of goods and services,
which results into outflow and inflow of foreign exchange. The foreign trade of India is
governed by the Foreign Trade (Development & Regulation) Act, 1992 and the rules and
orders issued there under. Payments for import and export transactions are governed by
Foreign Exchange Management Act, 1999. Customs Act, 1962 governs the physical
movement of goods and services through various modes of transportation. To make India a
quality producer and exporter of goods and services, apart from projecting such image, an
important Act—Exports (Quality control & inspection) Act, 1963 has been in vogue.
Developmental pace of foreign trade is dependent on the Export-Import Policy adopted by
the country too. Even the Exim Policy 2002-2007 lays its stress to simplify procedures,
sharply, to further reduce transaction costs. Today’s international trade is not only highly
competitive but also dynamic. Necessary responsive framework to make exports compete
globally is essential. In order to harness these gains from trade, the transaction costs, in turn
dependent on the framework support, involved need to be low for trading within the country
and for international trade. International trade is a vital part of development strategy and it
can be an effective instrument of economic growth, employment generation and poverty
alleviation. Market conditions change, almost daily, requiring quick response and more
importantly, anticipation of the future requirements is the need of the hour. To gear with the
changing requirements, it is essential that the framework has to remain in pace and change in
anticipation, accordingly, and then only international trade can pick up the speed envisaged.

Both exports and imports involve foreign exchange. Export results in receipt of foreign
exchange and import results in payments for purchases made. As and when exports are made,
there are incidental remittances involving foreign exchange in the context of participation in
trade fairs, agency commission, subscription for trade magazines, sales promotion tours,
advertisements in the foreign media etc. All the transactions fall in current account, which are
necessary for the purpose of export business. Investment abroad, lending and borrowing

pg. 46
money and purchase of plant and machinery fall in capital account. It is necessary for
exporters as well as importers to have good understanding in respect of regulations relating to
foreign exchange. Regulations relating to foreign exchange are known as Exchange Control
Regulations. Knowledge of these regulations is necessary to work within the purview of law.

pg. 47
 HEDGING

Hedging means reducing or controlling risk. This is done by taking a position in the futures
market that is opposite to the one in the physical market with the objective of reducing or
limiting risks associated with price changes. It is a two-step process. A gain or loss in the cash
position due to changes in price levels will be countered by changes in the value of a futures
position. For instance, a wheat farmer can sell wheat futures to protect the value of his crop
prior to harvest. If there is a fall in price, the loss in the cash market position will be
countered by a gain in futures position.
The hedger tries to fix the price at a certain level with the objective of ensuring certainty in
the cost of production or revenue of sale.
The futures market also has substantial participation by speculators who take positions based
on the price movement and bet upon it. Also, there are arbitrageurs who use this market to
pocket profits whenever there are inefficiencies in the prices. However, they ensure that the
prices of spot and futures remain correlated.
A buying hedge is also called a long hedge. Buying hedge means buying a futures contract to
hedge a cash position. Dealers, consumers, fabricators, etc, who have taken or intend to take
an exposure in the physical market and want to lock- in prices, use the buying hedge
strategy.
Benefits of buying hedge strategy:

 To replace inventory at a lower prevailing cost.

 To protect uncovered forward sale of finished products.

The purpose of entering into a buying hedge is to protect the buyer against price increase of a
commodity in the spot market that has already been sold at a specific price but not purchased
as yet. It is very common among exporters and importers to sell commodities at an agreed-
upon price for forward delivery. If the commodity is not yet in possession, the forward
delivery is considered uncovered

The company has 25 to 30% natural hedge by the way of its exports. It has a hedging policy
by the way of which it does not hedge beyond 55% of its residual imports, otherwise, the cost

pg. 48
of hedging may end up being more than the national exchange fluctuation loss. The company
hedges by the way of forward contracts mostly.

BIBLIOGRAPHY
http://atlas.media.mit.edu/en/profile/country/ind/

http://www.avans.nl/international/programs/programfinder/international-business-
operations/introduction

http://www.kotakcommodities.com/crude-oil-trading-in-india.html

http://www.indiantradeportal.in/vs.jsp?lang=0&id=0,25,44

https://www.tradefinanceglobal.com/finance-products/import-finance/

pg. 49