EXPORT FINANCE REGULATORY FRAMEWORK & METHODS

Indira Gandhi National Open University (IGNOU) has extended the last day of submission of IGNOU Assignments for session June 2020 to 31st May 2020. Candidates who are facing problem in making assignments here is the solution to your problem.

Master of Commerce – M.Com First Year Solved Assignments for July 2019 and January 2020 Admission Cycles

M.COM First Year Tutor Marked Solved Assignment

Course Code: IBO – 04
Course Title: Export-Import Procedures & Documentation
Assignment Code: IBO-04/TMA/2019-20
Coverage: All Blocks

IBO – 04 Export-Import Procedures & Documentation Solved Assignment for 2019-20

Q2.) What are the regulatory frameworks of import finance? Explain various methods of import finance available to Indian exporters.

Ans: Import finance is the capital that is used to bring goods into the country. Import transactions can be a significant burden on a company's cash flow because the delays and complications often involved mean money is paid out long before the goods are delivered.

Import financing involves making payments to foreign entities for the goods purchased from them. From the management decision-making viewpoint, it means making the decision regarding terms of payment (i.e. choosing one among several alternatives), arranging funds, involving a choice of the financial institution, and the instrument used for making payment and involving the choice of intermediary, through whom the payment is to be made.

Regulatory Framework of Import Financing:

Import into India is regulated to an extent though all India are allowed to Import the goods covered by Open General Licence without an import license such imports are regulated by the following regulatory framework:

1.) Foreign Trade (Development and Regulation) Act, 1992: 

The foreign policy of India is governed and regulated by the Foreign Trade (Development and Regulation) Act, 1992. Under this Act, various powers have been bestowed upon the Central Government. According to the provisions of this act, the Central Government has all the power to make any provisions related to foreign trade in order to fulfill the objectives of the act.

2.) Foreign Exchange Management Act, 1999:

The Foreign Exchange Management Act (FEMA) is an Act of the Parliament of India in 1999, which replaced the Foreign Exchange Regulation Act. This act seeks to make offenses related to foreign exchange civil offenses. The objective of the act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments for promoting orderly development and maintenance of foreign exchange market in India.

3.) Indian Customs and Excise Act:

It relates to the entry of imported goods, the Customs duties payable at the port of entry, and is administered by the Central Board of Excise and Customs.

The rules and operational procedures and changes relating to imports are framed by the Foreign Exchange Dealers Association of India (FEDAI) in line with the policies formulated for Uniform Customs and Practice for Documentary credit by the International Chamber of Commerce.

Methods of Import Finance:

(a.) Financing Import under Letter of Credit: An Import Letter of Credit, which is also referred to as documentary credit, is a financial instrument where the issuing bank, acting on behalf of the importer, contractually agrees to pay the beneficiary or exporter the amount stipulated, provided conditions specified in the Letter of Credit have been satisfied.

(b.) Financing against Bill Under Collection: Import Bill Collection is the mode of payment for international trade where the seller forwards financial and commercial documents to the buyer, against which the payment is made. The collection bank examines the documents and the instructions stated in the covering schedule to ensure that all the stated documents have been received intact and the Bill of Lading and the Bill of Exchange are endorsed in its favor or to its order. Then the bank presents the documents to the importer on payment or against written acceptance or under the loan.

(c.) Financing Imports against Deferred Payment: When a supplier exporter agrees to supply the goods on credit terms beyond six months in such case the authorized dealer has to refer each deferred payment case to RBI for prior approval of advance payment, bank guarantee and installments with exchange control copy of import license, contract copy and statement of desired facilities the request is appraised and the importer should have the sound financial strength and owned cash to repay installments.

(d.) Financing under Foreign Credit: India gets or takes a lot of grants or loans to finance imports from various international institutions, these foreign funds are used to finance imports, especially for development projects. The government issues the letter of commitment and the letter of reimbursement. In all such cases, the importer makes payment in Indian rupees and this is offset against the foreign credit.

(e.) Import Loans by Export-Import Bank of India: The Export-Import Bank of India finance the bulk imports of consumable inputs required for the manufacture of export goods and provides refinance to the commercial bank extending credit to the importer for over rupees one crore.

EXIM Bank also provides finance for imports of inputs or machinery for the production of goods for exports.