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                                    The Crucial Roles of DGFT and EXIM Bank

What is the role of DGFT and EXIM Bank in EXPORTS?

The Directorate General of Foreign Trade (DGFT) and the Export-Import Bank of India (EXIM Bank) play significant roles in facilitating and promoting exports in India. Here's a brief overview of their respective roles:

 

Directorate General of Foreign Trade (DGFT): The DGFT operates under the Ministry of Commerce and Industry and is responsible for implementing and formulating the country's foreign trade policies. Its VITAL role in exports includes:

• Policy Formulation: DGFT formulates and implements various policies and measures to promote exports, including export incentives, trade agreements, export control regulations, and export promotion schemes.
• Licencing and Registration: DGFT issues Importer-Exporter Code (IEC) and Exporter-Importer Profile (EIP) numbers, which are essential for businesses involved in export-import activities. It also grants various licences and authorizations required for specific export activities, such as Advance Authorization, Duty-Free Import Authorization (DFIA), and the Export Promotion Capital Goods (EPCG) scheme.
• Export Promotion Schemes: DGFT administers several export promotion schemes, such as the Merchandise Exports from India Scheme (MEIS), the Services Exports from India Scheme (SEIS), the Advance Authorization Scheme, and the Export Promotion Capital Goods Scheme. These schemes provide financial incentives, duty exemptions, and other benefits.
• Trade Facilitation: DGFT helps to simplify export procedures, reduce bureaucracy, and promote ease of business. It guides exporters on trade-related matters, export documentation, and compliance with international trade regulations.

Unveiling the Role of DGFT

Export-Import Bank of India (EXIM Bank): EXIM Bank is a specialized financial institution established by the Government of India to promote and finance India's international trade. Its primary role in exports includes:

• Export Financing: EXIM Bank provides financial services and products to support Indian exporters. It offers pre-shipment and post-shipment export credit facilities, export finance guarantees, lines of credit to overseas buyers, and buyer's credit to facilitate export transactions.
• Export Credit Insurance: EXIM Bank offers export credit insurance to protect exporters against commercial and political risks. This insurance coverage helps exporters mitigate risks associated with non-payment or delayed payment by overseas buyers.
• Market Research and Advisory Services: EXIM Bank conducts market research and provides valuable insights on international markets, export opportunities, and trade-related information to assist exporters in making informed decisions. It also offers advisory services and guidance on export finance, risk management, and export-related regulations.
• Trade Promotion and Capacity Building: EXIM Bank collaborates with other institutions and organizations to promote export-oriented industries, encourage export diversification, and enhance the export capabilities of Indian businesses. It supports capacity-building initiatives, training programmes, and awareness campaigns for exporters.

 

DGFT and EXIM Bank have complementary roles in India's export ecosystem. While DGFT focuses on policy formulation, licencing, export promotion schemes, and trade facilitation, EXIM Bank provides financial services, export credit facilities, market research, and advisory support to facilitate and promote exports. Together, they contribute to the growth and competitiveness of Indian exporters in the global marketplace.

Partnering for International Trade: EXIM Bank of India

 How do merchant exporters calculate the CIF price based on FOB valuation?

Merchant exporters calculate the CIF (Cost, Insurance, and Freight) price based on the FOB (Free on Board) valuation by adding freight charges, insurance costs, and other relevant charges to the FOB value. Here is the step-by-step process:

• Determine the FOB Value: Establish the FOB value by considering the cost of goods, domestic transportation expenses, packaging costs, export duties, and other charges that the exporter incurs until they load the goods onto the vessel at the port of shipment.
• Calculate Freight Charges: Determine the cost of transporting the goods from the port of shipment to the destination port. Consider factors such as shipping method, distance, volume, and additional services required.
• Include Insurance Costs: Factor in the cost of insurance coverage to protect against risks during transportation. Insurance expenses depend on the nature of goods, destination country, and nature of coverage.
• Consider Other Charges: Account for additional charges related to the export process, such as terminal handling fees, documentation costs, customs duties, port charges, and other relevant expenses.
• Add Freight, Insurance, and Other Charges to the FOB Value: Add the freight charges, insurance costs, and other relevant charges to the FOB value. This calculation yields the CIF price.

 

By following this process, merchant exporters can accurately calculate the CIF price, which represents the total value of the goods, including transportation and insurance, up to the destination port. It is important to note that the CIF price may be subject to applicable taxes, customs duties, and fees at the destination port, which affects the overall cost calculation.

 

Can we add a fixed value to the FOB price to get the CIF price?

You can add a fixed value to the FOB (Free on Board) price to calculate the CIF (Cost, Insurance, and Freight) price. Adding a fixed value allows for a straightforward approach to determining the CIF price, regardless of fluctuations in exchange rates or other variables. Here's how you can do it:

• Determine the FOB Price: Establish the FOB price, which represents the cost of goods and associated expenses until the loading of goods onto the vessel at the port of shipment.
• Add the Fixed Value: Identify the fixed value you want to add to the FOB price. This value could represent various factors such as anticipated transportation costs, insurance expenses, or any other charges related to the shipment.
• Calculate the CIF Price: You can add the fixed value to the FOB price to obtain the CIF price. The formula would be CIF Price = FOB Price + Fixed Value.

Adding a fixed value to the FOB (Free on Board) price is a convenient method to calculate the CIF (Cost, Insurance, and Freight) price, eliminating the need to consider additional factors or percentages. However, the fixed value accurately incorporates the anticipated shipping costs, insurance, and other relevant charges. This process confirms the accurate representation of the total value of the goods at the destination port.

 

How to get the maximum benefits of international currencies like Dollars and Pounds in the export business? 

To maximize the benefits of international currencies like Dollars and Pounds in the export business, consider the following strategies:

• Market Research: Conduct thorough market research to identify target markets where the demand for your exported products or services is healthy and where the Dollar or Sterling Pound is. Focus on countries where the local currency has a favourable exchange rate with the Dollar or Pound, as it can increase your export revenue.
• Competitive Pricing: Set competitive prices for your exported products or services in Dollars or Pounds. Consider the pricing dynamics in the target market, including local competition, customer preferences, and purchasing power. Aim for a balance between profitability and competitiveness to attract customers while maximizing your earnings in international currencies.
• Currency Hedging: Mitigate currency exchange risks by using currency hedging techniques. Consider hedging instruments such as forward contracts or options to protect against adverse currency fluctuations. These strategies can help stabilize your export earnings in Dollars or Pounds and minimize the impact of exchange rate volatility.
• Export Financing: Explore export financing options in Dollars or Pounds. Engage with financial institutions that offer export financing facilities denominated in these currencies. Such financing can provide advantages such as lower interest rates, favourable payment terms, and reduced currency conversion costs, enhancing profitability.
• Expand Distribution Channels: Collaborate with distributors or partners in other countries where the Dollar or Pound is strong. This process allows you to receive payments in these currencies directly, eliminating the need for frequent currency conversions and reducing associated costs.
• Negotiate Currency Terms: Consider negotiating payment terms in Dollars or Pounds While negotiating export contracts. This action minimizes the risk of currency fluctuations and ensures you receive payments in the desired currency. It also simplifies accounting and reduces currency conversion expenses.
• Monitor Exchange Rates: Stay updated on exchange rate movements between your local currency and the Dollar or Pound. Regularly monitor currency trends and consider timing your export transactions to earn the advantage of favourable exchange rates.
• Government Support: Explore government initiatives and export promotion schemes that facilitate exports in international currencies. Governments often provide support programs, incentives, and guarantees to encourage trade and boost foreign currency earnings.
• Establish Strong Relationships: Build talented relationships with international buyers and customers who regularly transact in Dollars or Pounds. Long-term partnerships can provide stability and regular export opportunities, ensuring a consistent flow of revenue in these currencies.

Remember, navigating international currency markets involves risks and complexities. It is advisable to consult with financial experts, trade advisors, and export professionals to devise a comprehensive strategy that aligns with your business goals and risk tolerance.