ms-03 mba assignment july dec 2010 Question6

Write short  notes on the following:-

A) Restructuring

B) Current Account Convertibility

C) Industrial  Location

A)    Restructuring

            Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Alternate reasons for restructuring include a change of ownership or ownership structure, demerger, or a response to a crisis or major change in the business such as bankruptcy, repositioning, or buyout. Restructuring may also be described as corporate restructuring, debt restructuring and financial restructuring.
            In education, restructuring refers a requirement in the No Child Left Behind act of 2001, which requires schools identified as chronically failing for 5 years or more to undertake rapid changes that affect how the school is led and instruction delivered.^[1]
            Executives involved in restructuring often hire financial and legal advisors to assist in the transaction details and negotiation. It may also be done by a new CEO hired specifically to make the difficult and controversial decisions required to save or reposition the company. It generally involves financing debt, selling portions of the company to investors, and reorganizing or reducing operations.
            The basic nature of restructuring is a zero sum game. Strategic restructuring reduces financial losses, simultaneously reducing tensions between debt and equity holders to facilitate a prompt resolution of a distressed situation.
Steps:

• ensure the company has enough liquidity to operate during implementation of a complete restructuring
• produce accurate working capital forecasts
• provide open and clear lines of communication with creditors who mostly control the company's ability to raise financing
• update detailed business plan and considerations^[2]

 

Valuations in restructuring

            In corporate restructuring, valuations are used as negotiating tools and more than third-party reviews designed for litigation avoidance. This distinction between negotiation and process is a difference between financial restructuring and corporate finance.^[2]

Restructuring in Europe

The “London Approach”
            Historically, European banks handled non-investment grade lending and capital structures that were fairly straightforward. Nicknamed the “London Approach” in the UK, restructurings focused on avoiding debt write-offs rather than providing distressed companies with an appropriately sized balance sheet. This approach became impractical in the 1990s with private equity increasing demand for highly leveraged capital structures that created the market in high-yield and mezzanine debt. Increased volume of distressed debt drew in hedge funds and credit derivatives deepened the market—trends outside the control of both the regulator and the leading commercial banks.

Characteristics

• Cash management and cash generation during crisis
• Impaired Loan Advisory Services (ILAS)
• Retention of corporate management sometimes "stay bonus" payments or equity grants
• Sale of underutilized assets, such as patents or brands
• Outsourcing of operations such as payroll and technical support to a more efficient third party
• Moving of operations such as manufacturing to lower-cost locations
• Reorganization of functions such as sales, marketing, and distribution
• Renegotiation of labor contracts to reduce overhead
• Refinancing of corporate debt to reduce interest payments
• A major public relations campaign to reposition the company with consumers
• Forfeiture of all or part of the ownership share by pre restructuring stock holders (if the remainder represents only a fraction of the original firm, it is termed a stub).

Results

            A company that has been restructured effectively will theoretically be leaner, more efficient, better organized, and better focused on its core business with a revised strategic and financial plan. If the restructured company was a leverage acquisition, the parent company will likely resell it at a profit if the restructuring has proven successful.

B)     CAPITAL ACCOUNT CONVERTIBILITY

 What is currency convertibility?

            Currency convertibility means “the freedom to convert one currency into other internationally accepted currencies”.  There are two popular categories of currency convertibility, namely :

·        Convertibility for current international transactions; and

·        Convertibility for international capital movements.

Currency convertibility implies the absence of exchange controls or restrictions on foreign exchange transactions.

What is meant by Current Account Convertibility:

            Current account convertibility is popularly defined as the freedom to buy or sell foreign exchange for :-

a.       The international transactions consisting of payments due in connection with foreign trade, other current businesses including services and normal short-term banking and credit facilities

b.      Payments due as interest on loans and as net income from other investments

c.       Payment of moderate amounts of amortisation of loans for depreciation of direct investments

d.      Moderate remittances for family living expenses

e.       Authorised Dealers may also provide exchange facilities to their customers without prior approval of the RBI beyond specified indicative limits, provided, they are satisfied about the bonafides of the application such as, business travel, participation in overseas conferences/seminars, studies/ study tours abroad, medical treatment/check-up and specialised apprenticeship training.

What is meant by Capital Account Convertibility?

            Tarapore Committee on Capital Account Convertibility appointed in February, 1997 defines Capital Account Convertibility as the “freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange”.    In other terms we can say Capital Account Convertibility (CAC)  means that the home currency can be freely converted into foreign currencies for acquisition of capital assets abroad and vice versa.

 Background of Capital Account Convertibility :

            Foreign exchange transactions are broadly classified into two types: current account transactions and capital account transactions.  In the early nineties, India’s foreign exchange reserves were so low that these were hardly  enough  to pay for a few weeks of imports.  To overcome this crisis situation,  Indian Government had to pledge a part of its gold reserves to the Bank of England to obtain foreign exchange.   However, after reforms were initiated and there was some improvement on FOREX front in 1994,  transactions on the current account were made fully convertible and foreign exchange was made freely available for such transactions. But capital account transactions were not fully convertible. The rationale behind this was clear.that  India wanted to conserve precious foreign exchange and protect the rupee from volatile fluctuations. 

            By late nineties situation further improved, a committee on capital account convertibility was setup in February, 1997 by the Reserve Bank of India (RBI) under the chairmanship of former RBI deputy governor S.S. Tarapore to "lay the road map" to capital account convertibility.   The committee recommended that full capital account convertibility be brought in only after certain preconditions were satisfied. These included low inflation, financial sector reforms, a flexible exchange rate policy and a stringent fiscal policy.  However, the report was not accepted due to Asian Crisis.

            The five-member committee has recommended a three-year time frame for complete convertibility by 1999-2000. The highlights of the report including the preconditions to be achieved for the full float of money are as follows:- 

Pre-Conditions Set By Tarapore Committee :

·        Gross fiscal deficit to GDP ratio has to come down from a budgeted 4.5 per cent in 1997-98 to 3.5% in 1999-2000.

·        A consolidated sinking fund has to be set up to meet government's debt repayment needs; to be financed by increased in RBI's profit transfer to the govt. and disinvestment proceeds.

·        Inflation rate should remain between an average 3-5 per cent for the 3-year period 1997-2000

·        Gross NPAs of the public sector banking system needs to be brought down from the present 13.7% to 5% by 2000. At the same time, average effective CRR needs to be brought down from the current 9.3% to 3%.

·        RBI should have a Monitoring Exchange Rate Band of plus minus 5% around a neutral Real Effective Exchange Rate RBI should be transparent about the changes in REER. 

·        External sector policies should be designed to increase current receipts to GDP ratio and bring down the debt servicing ratio from 25% to 20%.

·        Four indicators should be used for evaluating adequacy of foreign exchange reserves to safeguard against any contingency. Plus, a minimum net foreign asset to currency ratio of 40 per cent should be prescribed by law in the RBI Act.

·        Phased liberalisation of capital controls

The Committee's recommendations for a phased liberalization of controls on capital outflows over the three year period which have been set out in detail in a tabular form in Chapter 4 of the Report, inter alia, include:-

(i) Indian Joint Venture/Wholly Owned Subsidiaries (JVs/WOSs) should be allowed to invest up to US $ 50 million in ventures abroad at the level of the Authorised Dealers (ADs) in phase 1 with transparent and comprehensive guidelines set out by the RBI. The existing requirement of repatriation of the amount of investment by way of dividend etc., within a period of 5 years may be removed. Furthermore, JVs/WOs could be allowed to be set up by any party and not be restricted to only exporters/exchange earners.

ii) Exporters/exchange earners may be allowed 100 per cent retention of earnings in Exchange Earners Foreign Currency (EEFC) accounts with complete flexibility in operation of these accounts including cheque writing facility in Phase I.

iii) Individual residents may be allowed to invest in assets in financial market abroad up to $ 25,000 in Phase I with progressive increase to US $ 50,000 in Phase II and US$ 100,000 in Phase III. Similar limits may be allowed for non-residents out of their non-repatriable assets in India.

iv) SEBI registered Indian investors may be allowed to set funds for investments abroad subject to overall limits of $ 500 million in Phase I, $ 1 billion in Phase II and $ 2 billion in Phase III.

v) Banks may be allowed much more liberal limits in regard to borrowings from abroad and deployment of funds outside India. Borrowings (short and long term) may be subject to an overall limit of 50 per cent of unimpaired Tier 1 capital in Phase 1, 75 per cent in Phase II and 100 per cent in Phase III with a sub-limit for short term borrowing. in case of deployment of funds abroad, the requirement of section 25 of Banking Regulation Act and the prudential norms for open position and gap limits would apply.

vi) Foreign direct and portfolio investment and disinvestment should be governed by comprehensive and transparent guidelines, and prior RBI approval at various stages may be dispensed with subject to reporting by ADs. All non-residents may be treated on part purposes of such investments.

vii) In order to develop and enable the integration of forex, money and securities market, all participants on the spot market should be permitted to operate in the forward markets; FIIs, non-residents and non-resident banks may be allowed forward cover to the extent of their assets in India; all India Financial Institutions (FIs) fulfilling requisite criteria should be allowed to become full-fledged ADs; currency futures may be introduced with screen based trading and efficient settlement system; participation in money markets may be widened, market segmentation removed and interest rates deregulated; the RBI should withdraw from the primary market in Government securities; the role of primary and satellite dealers should be increased; fiscal incentives should be provided for individuals investing in Government securities; the Government should set up its own office of public debt.

viii) There is a strong case for liberalising the overall policy regime on gold; Banks and FIs fulfilling well defined criteria may be allowed to participate in gold markets in India and abroad and deal in gold products.

            The assumption of the committee was that these pre-conditions would take care of possible problems created by unseen flight of capital. Given a sound fiscal and financial set-up, the flight of capital was unlikely to be large, particularly in the short run, as capital would be invested and not all of it would be in a liquid form.

 Present Status :

Major Pre-Conditions by Tarapore Committee	Status as on March 2006
1 Reduction in gross fiscal deficit to 3.5%  by 1999-2000	The present fiscal deficit is still at 4.1% (above the level of 3.5%).  However, estimates for the next fiscal year are pegged at 3.8%
2. The inflation rate for 3 years should be an average 3% to 5%	Inflation at present is around 4.00%.
3. Forex reserves should at least be enough to cover 6 months import cover	The present forex reserves are enough to cover more than one year’s imports.
4. Gross NPAs to be brought down to 5% by 1999-2000	Gross NPA for the banking sector is still marginally higher than 5%
5. CRR to be reduced to 3% by 1999-2000	CRR is still at 5.00%
6. Interest Rate to be fully deregulated	All interest rates, except Saving Fund interest rates, have already been deregulated.

The process of opening up the Indian economy has proceeded in steady steps.

• First, the exchange rate regime was allowed to be determined by market forces as against the fixed exchange rate linked to a basket of currencies.
• Second, this was followed by the convertibility of the Indian rupee for current account transactions with India accepting the obligations under Article VIII of the IMF in August 1994.
• Third, capital account convertibility has proceeded at a steady pace.  RBI views capital account convertibility as a process rather than as an event.
• Fourth, the distinct improvement in the external sector has enabled a progressive liberalisation of the exchange and payments regime in India. Reflecting the changed approach to foreign exchange restrictions, the restrictive Foreign Exchange Regulation Act (FERA), 1973 has been replaced by the Foreign Exchange Management Act, 1999.

            Thus, at present in India we have a restricted capital account convertibility.  Indian entities (i.e. individuals, companies or otherwise) are allowed to invest or acquire assets outside India or a foreign entity remit funds for investment or acquisition of assets with specified ‘cap” on such investments and for specific purpose.  A full convertibility will allow free movement of funds in and out of India without any restrictions on purpose and amount.  Thus, after full convertibility is allowed, residents in India will be able to transfer money abroad and receive from other entities across the world.   However, government will certainly make rules and regulations to ensure these do not lead to money laundering or funding for illegal activities.

            Prime Minister Manmohan Singh on 18^th March 2006  said that the country's economic position internally and externally had become 'far more comfortable' and it was worth looking into greater capital account convertibility. In a speech at the Reserve Bank of India (RBI) in the country's financial hub Mumbai, Prime Minister Manmohan Singh said he would ask the Finance Minister and RBI to come out with a roadmap to greater convertibility 'based on current realities'.  PM also said "Given the changes that have taken place over the last two decades, there is merit in moving towards fuller capital account convertibility within a transparent framework," Singh said.

RBI in its circular issued in March, 2006 has laid down that economic reforms in India have accelerated growth, enhanced stability and strengthened both external and financial sectors. Our trade as well as financial sector is already considerably integrated with the global economy. India's cautious approach towards opening of the capital account and viewing capital account liberalisation as a process contingent upon certain preconditions has stood India in good stead.

Given the changes that have taken place over the last two decades, however, there is merit in moving towards fuller capital account convertibility within a transparent framework. There is, thus, a need to revisit the subject and come out with a roadmap towards fuller Capital Account Convertibility based on current realities. In consultation with the Government of India, the Reserve Bank of India has appointed a committee to set out the framework for fuller Capital Account Convertibility.

 The Committee consists of the following:

i. Shri S.S Tarapore Chairman

ii. Dr. Surjit S. Bhalla Member

iii. Shri M.G Bhide Member

iv. Dr. R.H. Patil Member

v. Shri A.V Rajwade Member

vi. Dr. Ajit Ranade Member

The terms of reference of the Committee will be:

i. To review the experience of various measures of capital account liberalisation in India,

ii. To examine implications of fuller capital account convertibility on monetary and exchange rate management, financial markets and financial system,

iii. To study the implications of dollarisation in India of domestic assets and liabilities and internationalisation of the Indian rupee,

iv. To provide a comprehensive medium-term operational framework, with sequencing and timing, for fuller capital account convertibility taking into account the above implications and progress in revenue and fiscal deficit of both centre and states,

v. To survey regulatory framework in countries which have advanced towards fuller capital account convertibility,

vi. To suggest appropriate policy measures and prudential safe- guards to ensure monetary and financial stability, and

vii. To make such other recommendations as the Committee may deem relevant to the subject.

            Technical work is being initiated in the Reserve Bank of India. The Committee will commence its work from May 1, 2006 and it is expected to submit its report by July 31, 2006.    The Committee will adopt its own procedures and meet as often as necessary. The Reserve Bank of India will provide Secretariat to the Committee.

 FACTORS WHICH ARE CRITICAL / OF  CONCERN  IN ADOPTING CAPITAL ACCOUNT CONVERTIBILITY:

There are number of issues which are of concern for adopting capital account convertibility.  

• The impact of allowing unlimited access to short-term external commercial borrowing for meeting working capital and other domestic requirements. In respect of short-term external commercial borrowings, there is already a strong international consensus that emerging markets should keep such borrowings relatively small in relation to their total external debt or reserves. Many of the financial crises in the 1990s occurred because the short-term debt was excessive. When times were good, such debt was easily accessible. The position, however, changed dramatically in times of external pressure. All creditors who could redeem the debt did so within a very short period, causing extreme domestic financial vulnerability. The occurrence of such a possibility has to be avoided, and we would do well to continue with our policy of keeping access to short-term debt limited as a conscious policy at all times – good and bad.

• Providing unrestricted freedom to domestic residents to convert their domestic bank deposits and idle assets (such as, real estate), in response to market developments or exchange rate expectations. The day-to-day movement in exchange rates is determined by "flows" of funds, i.e. by demand and supply of spot or forward transactions in the market. Now, suppose the exchange rate is depreciating unduly sharply (for whatever reasons) and is expected to continue to do so for the near future. Now, further suppose that domestic residents, therefore, that they should convert a part or whole of their stock of domestic assets from domestic currency to foreign currency. This will be financially desirable as the domestic value of their converted assets is expected to increase because of anticipated depreciation. And, if a large number of residents so decide simultaneously within a short period of time, as they may, this expectation would become self-fulfilling. A severe external crisis is then unavoidable.

•  Although at present our reserves are high and exchange rate movements are, by and large, orderly. However, there can be events like Kargil ware or Pokhran Test, which creates external uncertainty,  Domestic stock of bank deposits in rupees in India is presently close to US $ 290 billion, nearly three and a half times our total reserves. At the time of Kargil or Pokhran or the oil crises, the multiple of domestic deposits over reserves was in fact several times higher than now. One can imagine what would have had happened to our external situation, if within a very short period, domestic residents decided to rush to their neighbourhood banks and convert a significant part of these deposits into sterling, euro or dollar.   No emerging market exchange rate system can cope with this kind of contingency. This may be an unlikely possibility today, but it must be factored in while deciding on a long term policy of free convertibility of "stock" of domestic assets. Incidentally, this kind of eventuality is less likely to occur in respect of industrial countries with international currencies such as Euro or Dollar, which are held by banks, corporates, and other entities as part of their long-term global asset portfolio (as distinguished from emerging market currencies in which banks and other intermediaries normally take a daily long or short position for purposes of currency trade).

Impact of Capital Account Convertibility

            After full convertibility is adopted by India, it will lead to acceptance of Indian Rupee currency all over the world.

            In case of  two convertible currencies, Forward Exchange Rates reflect interest rate differentials between these two  currencies. Thus, we can say that the Forward Exchange Rate for the higher interest rate currency would depreciate so as to neutralize the interest rate difference.  However, sometimes  there can be opportunities when forward rates do not fully neutralize interest rate differentials.  In such situations, arbitrageurs get into the act and forward exchange rates quickly adjust to eliminate the possibility of risk-less profits.

            Capital account convertibility is likely to bring depth  and large volumes in  long-term INR currency swap markets.  Thus for a better market determination of INR exchange rates, the INR should be convertible.

C)    Location of Industry

A model of industrial location proposed by A. Weber (1909, trans. 1929), which assumes that industrialists choose a least-cost location for the development of new industry. The theory is based on a number of assumptions, among them that markets are fixed at certain specific points, that transport costs are proportional to the weight of the goods and the distance covered by a raw material or a finished product, that perfect competition exists, and that decisions are made by economic man.

             Weber postulated that raw materials and markets would exert a ‘pull’ on the location of an industry through transport costs. Industries with a high material index would be pulled towards the raw material. Industries with a low material index would be pulled towards the market.

            Once a least-cost location has been established, Weber goes on to consider the deflecting effect of labour costs. To determine whether the savings provided by moving to a location of cheaper or more efficient labour would more than offset the increase in transport costs, isodapanes are constructed around the point of production at the point of minimum transport costs. The extra price of the wage bill is calculated for the point of production. If the source of cheap labour lies within the isodapane which has the value of the higher wages differential (the critical isodapane), it would be more profitable to choose the site with low labour costs rather than the least transport costs location.

            Industrial location may be swayed by agglomeration economies. The savings which would be made if, say, three firms were to locate together, are calculated for each plant. The isodapane with that value is drawn around the three least-cost locations. If these isodapanes overlap, it would be profitable for all three to locate together in the area of overlap.

ms-03 mba assignment july dec 2010 Question5

1.      What are the functions of Development Banks? Describe its Quantitative and  Qualitative roles. 

Development Banks in India

A Development Bank is a polygonal development finance institution devoted to improving the social and monetary development of its associate nations. Its main emphasis is the welfare of the people. For example the Asian Development Bank's overarching goal is to decrease poverty in Asia and the Pacific. It helps improve the value of people's lives by providing loans and scientific support for a broad variety of development activities.
A development bank's policies or programs center on the following priorities:
a) Economic Growth
b) Human Development
c) Gender and Development
d) Good Governance
e) Environmental Protection
f) Private Sector Development
g) Regional cooperation
The main functions of a Development Bank:
a) Increase loans and equity investments to its developing associate countries (DMCs) for their monetary and social development.
b) Provides technical help for the planning and implementation of development projects and programs and for advisory services.
c) Promotes and facilitates speculation of public and private capital for growth and development.
d) Responds to requests for assistance in coordinating growth policies and plans of its increasing member countries

Formation of Development Banks In India:
        Development banks were set up in India at various points of time starting from the late 1940s to cater to the medium to long term financing requirements of industry as the capital market in India had not developed sufficiently. The endorsement of planned industrialization at the national level provided the critical enticement for organization of Development banks at both all-India and state levels
        In order to perform their role, Development Banks were extended funds in the shape of Long Term Operations (LTO) Fund of the Reserve bank of India and government guaranteed bonds, which constituted main sources of their funds. Funds from these sources were not only available at concessional rates, but also on a long term basis with their maturity period ranging from 10-15 years
         On the asset side, their operations were marked by near absence of competition. A large variety of economic institutions have come into existence over the years to perform a type of financial actions While some of them operate at all-India level, others are state level institutions.

         Besides providing direct loans, financial institutions also extend economic assistance by way of underwriting and direct contribution and by issuing guarantees. Recently, some Development Banks have started extending short term/working capital finance, although long term lending continues to be their major activity.

ms-03 mba assignment july dec 2010 Question4

1.   Briefly explain the latest trade policy measures for 2008-09 and 2009-10. Refer to the recent Economic Survey.

Foreign Trade Policy

Interim Indian Foreign Trade Policy 2009 - 10.
            This section presents a bird's eye view of the Interim Indian Foreign Trade Policy 2009 - 10. The Government of India has made many provisions to promote the trade of the country at the international level so that the country registers its presence in the world as one of the fastest growing economies of the world. The Foreign Trade Policy is an important and well etched blue print which gives a direction to the trades of the country in the wake of export and import. This section of the portal has enlisted the main highlights of the latest policies announced on the 26th February, 2009 along with the brief of the speech of the Ministry of Commerce and Industry. The Ministry of Commerce and Industry under the Government of India announces Foreign Trade Policy (Exim) after every five years. The policy aims at developing export potential and export performance, encouraging Foreign Trade and creating favorable balance of payments position. The current Interim New Exim Policy released on 26th February, 2009.

Speech of Shri Kamal Nath, Cabinet Minister; Ministry of Commerce and Industry:

            The announcement of Foreign Trade Policy 2009-10 commemorates with the speech of Mr. Kamal Nath who is holding the post of Cabinet Minister; The Ministry of Commerce and Industry at present. The minister announcing the policy states the present scenario of the world economy where two of the engines of global integration-trade and capital flows-are simultaneously expected to shift into reverse direction. India is also expected to be effected by this trend; however he is of the view that the country will recover from this slump very fast "due to the nature of our trade, the diversification of our trade basket, our trade facilitation measures and the proactive steps taken by our Government". Due to the formidable backing of strong economic fundamentals the Government "will stimulate demand, increase confidence, uplift business sentiment and give a fresh impetus to India's trade and growth story."

            Later he focuses on the twin objectives to double the percentage share of global merchandise trade within the next five years as well as act as an instrument of economic growth by giving a thrust to employment generation. The speech highlights the sector which provides significant export prospects coupled with potential for employment generation in semi-urban and rural areas such as Agriculture, Handicrafts, Handloom, Gems and Jewellery and Leather and Footwear sectors. These sectors are identified as the major sectors on which the Government has prepared Special Focus initiatives. With these ideas in the core Mr. Kamal Nath announces the New Interim Foreign Trade Policy 2009-10.

Highlights of the Interim Indian Foreign Trade Policy 2009 - 10.
FTP BENEFITS WITHOUT BRC

·                  Duty credit scrip now will be issued without waiting for realization of export proceeds. The exporters shall be required to submit proof of export proceeds realization within the time limits prescribed by Reserve Bank of India. The issuance of these benefits without BRC would be subject to a Bank Guarantee/LUT in terms of Circular to be issued. This provision shall be applicable for applications made on or after 1.4.2009.

ADDITIONAL BENEFITS UNDER PROMOTIONAL SCHEMES

·                  Rupees 325 Crore will be provided under Promotional Schemes for Leather, Textile etc. for exports.

·                  Benefit of 5% under FPS has been notified for export of handmade carpets, in lieu of 3.5% benefit allowed earlier under VKGUY Scheme.

GEMS & JEWELLERY SECTOR

·                  Import restrictions on worked corals have been removed to address the grievance of gem and jewellery exporters.

·                  An authorized person of Gem & Jewellery units in EOU shall be allowed personal carriage of gold in primary form up to 10 Kg in a financial year subject to RBI and customs guidelines.

ADVANCE AUTHORISATION

·                  Export obligation period against advance authorizations has been extended up to 36 months in view of the present global economic slowdown.

·                  Supply of an Intermediate product by the domestic supplier directly from their factory to the Port against Advance Intermediate Authorization, for export by ultimate exporter, has been allowed.

·                  In case of Advance Authorization for Annual Requirement where Standard Input-Output Norms are not fixed, the provisions in Customs Notification have been amended in line with Foreign Trade Policy.

DEPB SCHEME

·                  At present, DEPB/Duty Credit Scrip can be used for payment of duty only on items which are under free category.

EPCG SCHEME

·                  Under the EPCG scheme, in case of decline in exports of a product(s) by more than 5%, the export obligation for all exporters of that product(s) is to be reduced proportionately.

·                  EPCG Authorization / Redemption Form i.e. ANF 5A and 5B are being simplified and new forms would be issued shortly.

PREMIER TRADING HOUSES

·                  At present, the Government of India recognizes Premier Trading Houses based on an export turnover of Rs.10, 000 crore in the previous three years and the current year taken together.

TOWNS OF EXPORT EXCELLENCE

·                  Bhilwara in the state of Rajasthan and Surat in Gujarat have been recognized as Towns of Export Excellence for the textiles and diamonds respectively.

OTHER FACILITATION MEASURES

·                  Re-imbursement of additional duty of excise levied on fuel under the Finance Acts would be admissible in respect of EOUs.

·                  Re-credit of 4% SAD, in the case of payment of the duty by incentive scheme scrips.

·                  As per the existing procedure, applicants have to submit individual invoices certified by the jurisdictional excise authorities for claiming duty drawback claims. A simplified provision has now been introduced where exporters can now submit a Central Excise certified statement in lieu of individual invoices and a Monthly Statement confirming duty payment in lieu of ER-1/ ER-3, for the purpose of Deemed Export Benefits.

·                  Export of blood samples is now permitted without license after obtaining �no objection certificate� from Director General of Health Services (DGHS).

·                  Simplified export procedure for issue of Free Sale Certificate.

In addition to the above, DGFT and Department of Revenue provisions have been aligned in following matters:

·                  Utilization of Duty Credit scrip allowed under Reward Schemes of Chapter 3 / DEPB in Chapter 4 of FTP for payment of duty under EPCG Scheme .

·                  Notification of DFIA scheme aligned with FTP provisions.

·                  Granite Sector EOUs have been allowed procurement of spares up to 5% value of quarrying equipment in each financial year.

·                  Re-import of exported pharmaceutical samples by EOUs without payment of duty for statutory requirement of Stability or Retention has been allowed and notified by DOR.

·                  Department of Revenue shall issue necessary clarification thereby allowing to supply goods and services at Zero Duty to authorized organizations notified for Zero Duty import.

·                  Customs Notification to allow import of Agricultural Capital Goods / Equipments by Status Holders.

Interim Exim Policy 2009 - 10 Highlights.
TRADE FACILITATION MEASURES

(SUPPLEMENT TO FOREIGN TRADE POLICY 2004-09) ANNOUNCED ON 26TH FEBRUARY, 2009

MINISTRY OF COMMERCE AND INDUSTRY DEPARTMENT OF COMMERCE GOVERNMENT OF INDIA TRADE FACILITATION MEASURES

(SUPPLEMENT TO FOREIGN TRADE POLICY 2004-09)

FTP BENEFITS WITHOUT BRC

1.Duty credit scrips under Chapter 3 and under DEPB scheme shall now be issued without waiting for realization of export proceeds. The exporters shall be required to submit proof of export proceeds realization within the time limits prescribed by Reserve Bank of India. The issuance of these benefits without BRC would be subject to a Bank Guarantee/LUT in terms of Circular to be issued. This provision shall be applicable for applications made on or after 1.4.2009.

ADDITIONAL BENEFITS UNDER PROMOTIONAL SCHEMES

2. Rupees 325 Crores would be provided under Promotional Schemes for Leather, Textile etc. for exports made with effect from 1.4.09.

3. Benefit of 5% under FPS has been notified for export of Handmade carpets, in lieu of 3.5% benefit allowed earlier under VKGUY Scheme.

4. Technical textiles and stapling machine have been added under Focus Product Scheme. An additional benefit of 2.5% is notified for export of dried vegetables under VKGUY.

GEMS & JEWELLERY SECTOR

5. STCL Limited, Diamond India Limited, MSTC Limited, Gem & Jewellery Export Promotion Council and Star Trading Houses (for gem and jewellery sector) have been added under the list of nominated agencies notified under Para 4A.4 of Foreign Trade Policy for the purpose of import of precious metals.The procedure and monitoring provisions for implementation of these additional agencies would be notified separately in line with RBI guidelines.

6.Import restrictions on worked corals have been removed to address the grievance of gem and jewellery exporters.

7.Authorised person of Gem & Jewellery units in EOU shall be allowed personal carriage of gold in primary form upto 10 kgs in a financial year subject to RBI and customs guidelines.

ADVANCE AUTHORISATION

8. Export obligation period against advance authorizations has been extended upto 36 months in view of the present global economic slowdown.

9. Supply of an Intermediate product by the domestic supplier directly from their factory to the Port against Advance Intermediate Authorisation, for export by ultimate exporter, has been allowed.

10. For Advance Licenses issued prior to 1.4.2002, the requirement of MODVAT/CENVAT certificate dispensed with in cases where the Customs Notification itself prescribed for payment of CVD. This will help in closure of a number of pending advance licences.

11. In case of Advance Authorisation for Annual Requirement where Standard Input-Output Norms are not fixed, the provisions in Customs Notification have been amended in line with Foreign Trade Policy.

DEPB SCHEME

12. At present, DEPB/Duty Credit Scrip can be used for payment of duty only on items which are under free category. The utilization is now extended for payment of duty for import of restricted items also.

13. Value cap applicable under DEPB have been revised upwards for products.

EPCG SCHEME

14. Under EPCG scheme, in case of decline in exports of a product(s) by more than 5%, the export obligation for all exporters of that product(s) is to be reduced proportionately. This provision has been extended for the year 2009-10, for exports during 2008-09.

15. EPCG Authorisation / Redemption Form i.e ANF 5A and 5B are being simplified and new forms would be issued shortly.

PREMIER TRADING HOUSES

16. At present, Govt. recognizes Premier Trading Houses based on an export turnover of Rs.10,000 crores in the previous three years and the current year taken together.In view of the prevailing global slowdown, the threshold limit for recognition as Premier Trading House has now been reduced to Rs.7500 crores.

TOWNS OF EXPORT EXCELLENCE

17. Bhilwara in Rajasthan and Surat in Gujarat have been recognized as Towns of Export Excellence, for textiles and diamonds respectively.

OTHER FACILITATION MEASURES

18. Re-imbursement of additional duty of excise levied on fuel under the Finance Acts would also be admissible in respect of EOUs.

19. Re-credit of 4% SAD, in case of payment of duty by incentive scheme scrips such as VKGUY, FPS and FMS, has now been allowed.

20. As per the existing procedure, applicants have to submit individual invoices certified by the jurisdictional excise authorities for claiming duty drawback claims. Further, for getting refund of Terminal Excise Duty deemed export ER-1 / ER-3 are required as documentary proof evidencing payment of excise duty. A simplified provision has now been introduced and exporters can now submit a Central Excise certified statement in lieu of individual invoices and a Monthly Statement confirming duty payment in lieu of ER-1/ ER-3, for the purpose of Deemed Export Benefits.

21. Export of blood samples is now permitted without license after obtaining ‘no objection certificate’ from Director General of Health Services (DGHS).

22. Simplified export procedure for issue of Free Sale Certificate.

23. Independent office of DGFT being opened at Srinagar.

24. Krishnapatnam seaport included for the purpose of Export Promotion Scheme.

25. Electronic Message Transfer facility for Advance Authorisation and EPCG Scheme established for shipments from EDI ports w.e.f. 1.4.2009. Requirement of hard copy of Shipping Bills dispensed with for Export Obligation discharge.

26. In addition to the above, DGFT and Department of Revenue provisions have been aligned in following matters:

(i) Utilization of Duty Credit scrip allowed under Reward Schemes of Chapter 3 / DEPB in Chapter 4 of FTP for payment of duty under

EPCG Scheme .

(ii)Notification of DFIA scheme aligned with FTP provisions.

(iii)Granite Sector EOUs have been allowed procurement ofspares upto 5% value of quarrying equipment in each financial year.

(iv)High Tech Products duty credit scrip - Issuance of corresponding Customs Notification for implementing High Tech Products duty credit scrip.

(v)Re-import of exported pharmaceutical samples by EOUs without payment of duty for statutory requirement of Stability or Retention has been allowed and notified by DOR.

(vi)Department of Revenue shall issue necessary clarification implementing provisions of paragraph 6.9(e) of FTP related to EOUs, thereby allowing them to supply goods and services at Zero Duty to authorized organisations notified for Zero Duty import.

(vii)Customs Notification to allow import of Agricultural Capital Goods /  Equipments by Status Holders (under para 3.8.6 of FTP) aligned with provisions of FTP.