A STUDY ON

EXPORTS & IMPORTS PROCEDURES

With reference to

GTN INDUSTRIES LTD., HYDERABAD

A project report Submitted in Partial Fulfillment of
The Requirement for the Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

OF
ANDHRA UNIVERSITY
Submitted by
V V SATISH MEDISETTI
(H.T.No.20854100029)

Under the Esteemed Guidance of

Mr.K.L.CHANDU, M.B.A.,
Faculty in Management Studies

DEPARTMENT OF MASTER OF BUSINESS ADMINISTRATION

ADITYA INSTITUTE OF P.G STUDIES
(Approved by AICTE, Affiliated to AU, & Accredited by NBA)
Aditya Nagar, ADB Road, SURAMPALEM-533437
2008-10

ADITYA INSTITUTE OF P.G.STUDIES

DEPARTMENT OF BUSINESS MANAGEMENT
(Affiliated To Andhra University)
Aditya Nagar, ADB Road, SURAMPALEM-533437, E.G.Dst.
Phones: (08852)252243,252250, cell:9866576662

CERTIFICATE

This is to certify that the project entitled EXPORTS AND IMPORTS PROCEDURES
with reference to GTN INDUSTRIES LTD., AT HYDERABAD is the bonafide work done by
Mr. V V SATISH MEDISETTI with Regd.no:2085410029 during the period 2008-10 in partial
fulfillment of the requirement for the award of the Degree of MASTER OF BUSINESS
ADMINISTRATION in Aditya institute of P.G studies affiliated to Andhra University is a record
of benefited work carried out by under my guidance and supervision.

Project Guide
Mr. K.L. CHANDU.

Head of the dept.

Mr. J.Nagendra Kumar

DECLARATION

I hereby declare that the project report entitled A STUDY ON EXPORTS AND
IMPORTS PROCEDURES with reference to GTN INDUSTRIES LTD., HYDERABAD
submitted for the degree of Master of Business Administration is my original work and has not
formed the basis for the award of any degree, diploma, associate ship, fellowship (or) similar other
titles. It has not been submitted to any other University or Institution for the award of M.B.A.

Date:
Place

:
(V V SATISH MEDISETTI)

ACKNOWLEDGEMENT

I should take the responsibility to acknowledge the following distinguished

personalities who graciously allowed me to carry out this project work successively.
I am very much thankful to Mr. J.Nagendra Kumar, M.B.A, and Head of
the department of management studies. I am also thankful to all other members of the staff
for their kind cooperation in this behalf.
I am highly thankful to my guide Mr. K.L.CHANDU sir, M.B.A, Faculty in
Management Studies for his valuable advices and encouragement throughout the course.
I express my deep sense of gratitude to K SATYAM HR Manager and Mr.G
RAGHU Marketing Manager for their kind help and valuable suggestions in preparing this
project and also to office staff members.
I also express my sincere thanks to my friends and classmates for their
advice and suggestions in giving a proper shape to study.

(V V SATISH MEDISETTI)

CONTENTS
CHAPTER I
INTRODUCTION
OBJECTIVE OF THE STUDY
NEED FOR THE STUDY
METHODOLOGY
LIMITATIONS

CHAPTER II
INDUSTRY SCENARIO

CHAPTER III
COMPANY PROFILE

CHAPTER IV
THEORETICAL FRAME WORK

CHAPTER V
SUMMARY
FINDINGS
SUGGESTIONS
CONCLUSION

BIBLIOGRAPHY

Page no

CHAPTER -I

INTRODUTION

INTRODUCTION

The textile industry is one of the oldest in the world. The oldest known textiles,
which date back to about 5000 B.C., are scraps of linen cloth found in Egyptian caves. The
industry was primarily a family and domestic one until the early part of the 1500s when the
first factory system was established. It wasnt until the Industrial Revolution in England, in
the 18th century, that power machines for spinning and weaving were invented.
In the early 17th century of colonial America, textiles were primarily manufactured
in New England homes. Flax and wool were the major fibers used, however, cotton, grown
primarily on southern plantations, became increasingly important.
The twentieth century has seen the development of the fist manmade fibers (rayon
was first produced in 1910). Although natural fibers (wool, cotton, silk, and linen) are still
used extensively today, they are more expensive and are often mixed with manmade fibers
such as polyester, the most widely used synthetic fiber. In addition, segments of the textile
industry have become highly automated and computerized.

OBJECTIVES OF THE STUDY

To identify and evaluate the role of agents in improving export and import
business.

To access the export and import procedures currently followed by the company.

To over view the institutional and regulatory framework pertaining to textile

exports.

To know about the procedure of risk management in this industry.

To provide a general outlook for exports and imports in textile industry.

METHODOLOGY
The study is made by collecting data from both primary sources and secondary
sources.

PRIMARY DATA:
The primary data is collected through Interviewing Various Authorities like Traffic
Department, Exim & Marketing Department & R&D Department of GTN Industries Ltd.,

SECONDARY DATA:
Secondary data has been collected from the annual reports of GTN Industries,
magazines from Library of GTN Industries, Journals and other websites.

LIMITATIONS
1. The period of the study is only for about 2 months, which is a major constraint.
2. Some of the respondents rejected to disclose relevant information regarding the
survey.
3. Some of the official was in their meetings and busy attending their work and that
had cost time.
4. The perceptual bias or attitudes of the respondents may also act as hurdles to the
study.

CHAPTER - II

INDUSTRIAL
SCENARIO

INDUSTRIAL ANALYSIS
INTRODUCTION
India has a mission to capture 2% of the global share of trade by 2010, up from the
present level of less than 1%. Export is one of the lucrative business activities in India. The
government also provides various promotional schemes to the exporters for earning
valuable foreign exchange for the country and for meeting their requirements for importing
modern technology and essential inputs.

CURRENT GLOBAL TEXTILE SCENARIO

According to statistics, the global textile market possesses a worth of more than
$400 billions presently. In a more globalize environment, the industry has faced high
competition as well as opportunities. It is predicted that Global textile production will
grow by 25 percent between 2002 and 2010 and Asian region will largely contribute in this
regard.
World Demand & Supply Situation
Quantity in million Metric tons
Year Beginning August 1

03-04

04-05

05-06

06-07

07-08

08-09*

World Beginning stock

10.48

8.71

11.62

12.31

12.71

12.50

World Cotton Production

20.96

27.00

25.64

26.72

26.21

23.70

World Cotton Consumption

21.74

23.58

24.95

26.36

26.29

23.62

World Cotton Exports

7.24

7.75

9.73

8.10

8.34

6.18

World Ending stocks

8.75

11.62

12.31

12.71

12.50

12.58

As per latest ICAC release dated 1st April 2009

*projected

INDIAN TEXTILE SCENARIO

Textile constitutes the single largest industry in India. The segment of the industry
during the year 2000-01 has been positive. Production of man-made fibre increased from
835 million kgs in 1999-2000 to 904 million kgs during the year 2000-01 registering a
growth of 8.26%. The production of spun yarn increased to 3160 million kgs during 200001 from 3046 million kgs during 1999-2000 registering a growth of 3.7%. The production
of man-made filament yarn registered a growth of 2.91% during the year 1999-2000
increasing from 894 million kgs to 920 million kgs. The production of fabric registered a
growth of 2.7% during the year 1999-2000 increasing from 39,208 million sq mtrs to
40,256 million sq mtrs.
With the growing awareness in the industry of its strengths and weakness and the
need for exploiting the opportunities and averting threats, the government has initiated
many policy measures as follows.

The Technology Upgradation Fund Scheme (TUFS) was launched in April 99 to

provide easy access to capital for technological upgradation by various segments of
the Industry.

The Technology Mission on Cotton (TMC) was launched in February 2000 to

address issues relating to the core fibre of Cotton like low productivity,
contamination, obsolete ginning and pressing factories, lack of storage facilities
and marketing infrastructure

A New Long Term Textiles and Garments Export Entitlement (Quota) Policies
2000-2004 was announced for a period of five years with effect from 1.1.2000 to
31.12.2004 covering the remaining period of the quota regime.

Vision India 2015 for Textiles

Textile economy to grow to $ 90 bn. by 2015.
Creation of 15 million new jobs in Textile Sector.
To increase Indias share in world trade to 8% by 2015.
Achieve export value of $ 60 Billion by 2015.
Modernization and consolidation for creating a globally competitive industry.

INDIAS MAJOR COMPETITIORS IN THE WORLD

In the present scenario, the rapid increase in international trade, particularly after
liberalization, has sharply escalated the pressures on existing infrastructure links. The
resources required overhauling the backlogs in terms of capacity inadequacies and quality
deficiencies are no more within the reach of budgetary funds.

To understand Indias position among other textile producing the industry

contributes 9% of GDP and 35% of foreign exchange earning, Indias share in global
exports is only 3% compared to Chinas 13.75% percent. In addition to China, other
developing countries are emerging as serious competitive threats to India. Looking at
export shares, Korea (6%) and Taiwan (5.5%) are ahead of India, while Turkey (2.9%) has
already caught up and others like Thailand (2.3%) and Indonesia (2%) are not much further
behind. The reason for this development is the fact that India lags behind these countries in
investment levels, technology, quality and logistics. If India were competitive in some key
segments it could serve as a basis for building a modern industry, but there is no evidence
of such signs, except to some extent in the spinning industry.

COST COMPETITIVE ANALYSIS OF INDIAN TEXTILE INDUSTRY

For the labor intensive textile product India has advantage of higher cost
competitiveness over the major industrialized countries like US, Germany, UK etc.
However India lacks competitive advantage as compared to other South Asian countries
like China. The main contributors to the cost disadvantage of India are higher cost of
power, poor infrastructure resulting in higher cost of logistics, higher interest rates and
taxes (including indirect taxes on account of CST and VAT). Due to these costs the Indian
companies become uncompetitive by 10% as compared to South Asian countries and by
5% with respect to US and Europe. The Indian Technical Textile Industry has done the
cost competitive analysis based on the following parameters.

Operating cost including labor, power and transaction cost.

Capital cost and interest costs.

Taxes and duties.

OPERATING COST
For the manufacturers and exporters of textile in India , raw materials, salary &
wages ,power and fuel cost and transaction cost( for exports and inland transportation) are
the key operating costs which affect the cost competitiveness as compared to other
countries.

The breakdown of cost structure is as given below

Cost Element

% Share

Raw material

50

Labour

Power and fuel

Other manufacturing expenses

Selling and administrative cost

12

Miscellaneous expenses

Interest cost

Depreciation cost

Corporate Taxes

RAW MATERIALS
The requirement for raw material for production in textile industry of India is met
by domestic production as well as imports. The import includes cotton fiber, nylon,
aramid, glass fiber etc. As most of the raw material used by textile industry are at zero duty
hence there is very little or no cost disadvantage on account of same for the Indian
manufactures.

POWER AND FUEL COST

The power cost in India is around Rs 4- 5 per KWH which is double the power cost
in China and US ,around 20% higher than Germany ,30-40 % higher than the cost in
Thailand and Indonesia.

Also major South Indian has the problem of severe power shortage which leads to
power outages of 4-6 hours per day. This forces the manufactures to buy power from other
plants which costs around Rs 7-8 KWH hence the production cost increases.

LABOUR COST
The labour cost in India is in the range of 5-10 % of the labour costs in US and
Europe and around 60% of that of China. But the problem lies with the labour productivity
which is lower in India (around half of that in China and US, around 40 % of Germany and
30 % lower than Thailand and Indonesia).

Thus in terms of labour, India has effective cost advantage of around 80-90 % as
compared to US and Europe and at par with China.

TRANSACTION COST
The transaction costs of exports from India are higher in India as compared to other
countries like China. This adds up to the cost disadvantage to the Indian exporters to the
tune of 5 % comparatively. Apart from this the time taken for port clearance and shipment
is around 10-15 days higher in India which leads to longer lead times and higher working
capital requirements. For example, Chinese exporters on an average require a total time of
18 days to export to US but for India double time is required for same hence making India
less competitive.

CAPITAL COSTS

Majority of machinery required for high end textile industry is imported and setting
of same requires higher cost. Apart from this the strong dependence on export and lower
domestic demand leads to lower economies of scale which leads to higher per unit fixed
cost of production.

Also the interest rates are very high in India as compared to US and Europe. In
order to address this issue the Government of India has sanctioned technical textile projects
worth USD 200 million since April 1999 under TUFS.

TAXES AND DUTIES

The Indian manufacturers are subjected to both Central Sales Tax (CST) and Value
Added Tax (VAT) which cannot be set-off against each other. Thus this leads to additional
costs. In addition to it the Indian exporters are subjected to several service tax payments on
the goods exported.
For the exports, service tax is exempted only in case of insurance for overseas agent cargo.
Other services like project consultants fees (for seeting up or upgradation of the plant),
inland freight charges (to the port) for exports ,C& F agents commission at the port and

insurance expenses etc doesnt come under service tax exemption has lead to increase in
cost for export of these products.
Also the effecive corporate tax is higher in India as compared to other coutries which is as
shown below

OVERALL COST COMPETITIVENESS OF INDIAN

MANUFACTURERS

OVERALL SUMMARY

CHAPTER- III

COMPANY
PROFILE

GTN INDUSTRIES LTD. A PROFILE

GTN Industries Limited which was previously known as GTN textiles was initiated
by Mr. G Thambi Nayar hence the name GTN. It came into existence on 2 August 1962 in
Alwaye, Kerala.
In 1966 it was taken over by its present promoter, Patodia group but since GTN
was a popular name hence continued by the same and rechristened the company as GTN
Industries Limited.
The company mainly exports fine quality of cotton yarn and imports cotton which
is used as raw material for the same. The company has its production units equipped with
latest technology machinery hence its products are known for its reliable quality. The
company constantly upgrades its machinery so that its products are not bogged down by
technology superior products from its competitors from India as well as abroad.

HISTORY OF THE COMPANY

The Company belonging to Patodia Family GTN
Group is functioning under the guidance of Shri. M L Patodia,
Chairman. The Group which was originally engaged in trading
in all types of yarns as well as textiles and cotton acquired vast
experience and understanding of the various aspects of the trade over four decades. The
Group, as a natural corollary entered into the manufacturing of cotton yarn with the
acquisition of Aluva Unit, in 1966. Initially focusing its attention in the marketing of
quality yarn in the domestic market, the group, since 1980, shifted its emphasis to the
manufacture of high quality and finer count yarns for the sophisticated international

markets, with a major share in countries like Japan and Italy. In 1983, GTN established
another Unit at Chitkul Village, Sangareddy Taluk, Medak District in Andhra Pradesh.
The Company had acquired another Cotton Spinning Unit in Nagpur, Maharashtra
during

1994-95 by virtue of amalgamation of erstwhile Perfect Spinners Limited, which

was promoted by GTN Group. As late as in 1997, the Company further set up yarn dyeing
and mercerizing unit at Shadnagar, Andhra Pradesh. The Company has also promoted
Patspin India Limited, a 100% E.O.U as a joint venture along with an Equity participation
from ITOCHU Corporation, Japan and KSIDC, Trivandrum. GTN has invested 39.07% of
the Paid-up Equity Share Capital of Patspin India Limited, a Listed Company, which also
has cotton spinning unit in Kerala.
GTN Group has over 3 decades of experience in the International Market. The
Companys Aluva Unit is fully modernized by spending over Rs.50 crores with the latest
technology to achieve the optimum productivity meeting the highest quality at par with the
International quality standards. GTN continues to maintain its leadership in exports of fine
and superfine combed cotton yarns. The Company has been constantly focusing its efforts
to cater to high priced end users in sophisticated markets and enjoys excellent relations
with all of its overseas customers, which have been assiduously built over the years by
strictly adhering to delivery schedules, maintaining consistent quality and providing
prompt after sales service.
In recognition of excellent export performance and leadership in the field of cotton
yarn export, the Company has won the Gold Trophy from TEXPROCIL, for the last 20
years consecutively for outstanding export performance in yarn amongst manufacturer
exporter mills in the Country. GTN is the pioneer Company in India to produce specialized
yarns like compact yarns for high end users.

The principle business of the Company is manufacture and export of cotton yarn.
The main objects are set out in the Memorandum and Articles of Association and interalia
allows engaging in various business including those as spinners, weavers, bleachers, dyers
of cotton yarn, producers of processed yarn, mercerized yarn, dyed yarn, bleached cotton
yarns, etc.

CHANGE OF NAME OF THE COMPANY

The Company was incorporated on 28th March, 2005 under the Companies Act,
1956, as GTN Industries Limited to enable takeover part of the business of GTN Textiles
Limited, under the Scheme of Arrangement being implemented. The Scheme of
Arrangement for demerger of GTN Textiles Limited was approved by the Honble High
Court of Kerala dated 28.9.2005; 5.12.2005 and 9.12.2005, respectively. In terms of the
Scheme, the name of GTN Industries Limited was changed to GTN Textiles Limited and
vice versa with effect from 27.12.2005.
The Company has been carrying manufacturing activities in the name of GTN
Textiles Limited since 1966 at its Spinning Unit at Aluva, Kerala. Thereafter, it expanded
its activity by further setting up a Spinning Unit in 1983 at Medak, Andhra Pradesh and by
acquiring another Spinning Unit in 1994 at Nagpur, Maharashtra. As late as 1997, it further
setup yarn dyeing and mercerising Unit at Shadnagar, Andhra Pradesh. Pursuant to the
Scheme, GTN Textiles Limited (Transferee Company) will own Aluva Unit, investment of
39.07% of the Paid-up Equity Share Capital of Patspin India Limited along with other
assets specified in the Scheme. Thus, after transfer of business as stated above, GTN
Textiles Limited which is one of the oldest and well known name in the Industry will
continue Own its first Unit set up in Kerala. Accordingly, it was decided to inter change

the name of the Transferor and Transferee Companies by renaming the Transferee
Company as GTN Textiles Limited, after completion of scheme of demerger.
The Registrar of Companies-Kerala has issued Fresh Certificate of Incorporation
dated 27.12.2005 consequent to change of name.

MAIN OBJECTS OF THE COMPANY

The Main Objects of the Company as set out in the Memorandum of Association
are as follows:1) To carry on all or any of the businesses as manufacturers, distributors, producers,
assemblers, fabricators, designers, hirers, repairers, cleaners, exchangers, alterers, buyers,
sellers, importers, exporters, stockiest, agents, representatives, storers and warehouses and
dealers in textile industry and other allied industries.
2) To carry on the business of preparing, combining, spinning, doubling, twisting,
texturising, imparting, crimping, converting, calendaring, testing, sizing, weaving, knitting,
bleaching, processing, dyeing ginning, cutting, scouring, winding, mercerizing, combing,
printing, finishing, manufacturing, buying, selling, importing, exporting or otherwise
dealing in industrial fabrics, synthetic fabrics, synthetic yarn, cotton yarn, nylon, nylon tyre
yarn, tyre cord, tyre fabrics and other end products, polyester, acrylic, viscose, poly
propelene cotton, linen, wool, silk, flex, hemp, jute, artificial silk rayon, canvas and other
fibers or textile substances whether natural or synthetic or manmade, in any state and
whether similar to the foregoing substances or not, and to treat, utilise and deal in any
waste arising from any such operations and to manufacture, felted, knitted, looped and
embroidered fabrics, lace and other types of manufactured, processed or decorated fabrics
and to manufacture coated or laminated fabrics and readymade garments and apparels.

ABSOLUTE RESPONSIBILITY OF GTN TEXTILES LIMITED (GTN)

GTN Textiles Limited (formerly GTN Industries Limited) (GTN) having made all
reasonable inquiries, accepts responsibility for, and confirms that this Information
Memorandum contains all information with regard to GTN Textiles Limited (formerly
GTN Industries Limited) which is material, that the information contained in this
Information Memorandum is true and correct in all material aspects and is not misleading
in any material respect, that the opinions and intentions expressed herein are honestly held
and that there are no other facts, the omission of which makes this Information
Memorandum as a whole or any of such information or the expression of any such
opinions or intentions misleading in any material respect.

THE OTHER COMPANIES OF THIS GROUP ARE

Perfect Knitters Limited
This unit is capable of producing 1.2 million knitted garments every year in the
highest end of life style garments which is possible due to state of art Juki assembly
line garment confection arrangement.

Imperial Garments Limited

This unit is capable of producing 4 million knitted garments per annum in the
highest end of lifestyle garments.

GTN Engineering India Limited

This unit was established in 1990 to manufacture metallic products for exports of
engineered castings, gate valves and bar stocks.

PLANT AND OFFICE LOCATION

The company has its office and plants at the following locations:

Hyderabad
Corporate office
Knitting unit

-Doubling (Medak)

Yarn processing unit

-Shadnagar

Garments unit

-Patancheru and Balanagar

Fabric processing unit

Nagpur
Office
Spinning unit

Coimbatore
Engineering unit

New- Delhi

-Indira Karan Village

Office

Kolkata
Office

PLANT CAPACITY
GTN Industries

Existing Spindleage Future Capacity

Hyderabad
Nagpur
Total Spindleage

54,000
36,000
90,000

THE

FOLLOWING

Expansion
12,000
12,000

PRODUCTS

ARE

Total Spindleage
66,000
36,000
1,02,000

EXPORTED

INDUSTRIES

Cotton Yarns count group NE 20s to NE 140s

Compact Yarns- count group NE 30s to NE 100s

Organic Yarns-count group NE 20s to NE 40s

Two for one twisted-Knitting & Weaving Yarns

Gassed Mercerized ,Mercerized Dyed ,Mouline Yarns

BY

GTN

Gassed Fabrics , Double Mercerized Fabrics & Garments

ACHIEVEMENTS

Leading exporter of fine and superfine cotton yarns

Winner of best exporter award from Government of India continuously for 18

years.

CUSTOMERS
The major product exported by the company is cotton yarn. This is exported
majorly to the following countries like South Korea, Italy, and Brazil, Turkey, Bangladesh,
Peru. Apart from these the product is also exported to Poland, Switzerland, France,
Germany, Taiwan, Colombia, China, Japan Hong Kong etc.

SUPPLIERS
GTN industries procures its raw material cotton mainly through imports from the
following countries

United States of America.

Australia.

Egypt.

TIE-UP WITH BANKS

GTN is working in tandem with the following banks for the purpose of its transactions
related to its monetary needs. The listed below serves the purpose for opening of letter of
credit, loans and other transactions related to exports and imports.

Central Bank of India

IDBI

Ing-Vysa Bank

State Bank of India

State Bank of Travancore

QUALITY POLICY
The quality policy of company states the following points

Highest level of customer satisfaction

Time delivery of material.

Up gradation of product amid globalization.

Achievement of above will be done with the help of teamwork.

PROCUREMENT OF RAW MATERIAL

The raw material is cotton which is procured either from India or from abroad

INDIAN COTTON

Guntur -MCU-5

Adilabad-MECH-1

Gujarat-Sankar 3,4 or 5

Maharashtra-Banni

Above is used mainly for knitting purpose

IMPORTED COTTON
This is of fine count and used mainly for weaving.

EGYPT
GIZA 70
GIZA 86
GIZA 88

UNITED STATES OF AMERICA

SJV/RG

 SJV/ACALA
PIMA

SUDAN
XG1B
XG2B
XG3B
XG4B

QUALITY PARAMETER
The procurement of cotton is done based on the following quality criteria

Staple length

Span length

Uniformity ratio

Micron

Trash

G/Tex

Strength

PACKING
The packing and further shipment is done as per the customers requirement

Cones

Paper Cones

Plastic Cones

Wooden Pallet
This consists of 400 cones and weighs around 720 Kilo grams. This is covered by six
layers of shrink wrap plastic so that it may not fall down during transportation.

Cartons
This consists of 24 cones and weighs around 40 Kilo grams.

LOGISTICS
Since the company is into business of exports and imports hence there is
continuous movement of goods which is streamlined using various tactics of logistics.
For every shipment there is analysis of prevailing conditions for the following

Mode of transport to be adopted

Road, rail, air or water

Size of container

Partially filled or fully filled container

This decision varies from country to country as some country container charge for
full container is less than partially filled container.

Port of origin

Factory location

Prevailing condition which are not in control of company like riots, strikes etc.
To summarize here the management of the company takes a collective decision

based on the available options and the profits involved in that. The option selected
sometimes may not be profitable but since has the potential to affect goodwill of the
company thus selected accordingly.

MARKETING DIVISION
Since its inception GTN is known brand name in India as well as abroad due to its
superior quality material and after sales support provided by the organization. So well
known is the name that company is still number one in cotton yarn export from India(local
sale also) and with an annual turnover of around Rs.300 crore.
GTN garners 80% of its sales through export of cotton yarn and remaining through
local sales. The sale is carried out mainly with agents or direct contact with the buyers.
Sometimes there is involvement of two agents one is from India and another from the
importing country. For the services of agents commission is paid to be which may range
between 3 to 4.5 % but as per RBI norms maximum can be 12.5%.
Since cotton yarn is a raw material for fabrics hence it doesnt require those kinds
of promotions as seen for other goods. Due to strong brand name in the market the
marketing division has to work in tandem with the agents to gain new buyers. The personal
working here has to coordinate with the agents to carry out the business.
The agents look out for potential buyers who when satisfied with quality and price
enters into a sale contract with GTN. The terms of the contract vary from country to

country as well as from one to another. These conditions are accepted after the consent
with top management and shipment is done accordingly. The payment terms may be

Advance payment,

Cash against documents

Letter of credit transaction which again may be sight, usance etc.

MARKETING POLICY
To provide highest level of satisfaction to customers.

SALES PROCEDURE

Floating enquiry

Receipt of quotation

Actual order

Shipping

Billing

GTN COMPANY BALANCE SHEET

CHAPTER IV

THEORETICAL
FRAME WORK

1. ROLE OF AGENTS
GTN carries out its export with the help of agents who act as interface between the
company and the buyer. The marketing division of the company deals with these agents for

the sale of material to other countries. Once the shipment is done and payment for same
has been received the agents are paid commission as per the sale contract for which the
concerned agent sends a debit note to the company and processing for same is done in the
following manner.
After receiving the debit note one has to check whether all the details mentioned in
the same matches with that of sale contract & LC.
Once all the documents are in place then following documents are required to be
submitted to bank for payment purpose

Covering letter This includes all the details pertaining to export like name of
agent, address of agent, IBAN number, seller name, materials etc.

A2 form-This is mandatory as per bank for payment purpose. This is for payment
other than imports & remittances covering intermediary trade. A type of application
for remittance abroad.

Debit Note of party

Copy of Invoice

Copy of Bill of lading

Copy of Shipping bill

Sales contract

AGENCY COMMISSION ON EXPORTS

Amount of commission has been declared on SDF form and accepted by the
Customs authorities or Ministry of Information Technology, Government of India
as the case may be. In cases where the commission has not been declared on SDF
form remittance may be allowed after satisfying the adduced by the exporter for not
declaring

commission

agreement/written

on

Export

Declaration

provided

valid

understanding between the exporters and/or beneficiary for

payments of commission exists

Form

The relative shipment has already been made.

2. EXPORT PROCEDURE
GTN Industries Limited is earning its maximum revenue from the export of cotton
yarn. The business is carried out with the help of agents, who serves as mediator between
the supplier and the buyer and are paid commission for the service provided. The agent
plays important role in the business as it is cumbersome to check the credibility of every
importer of the goods and is a time consuming process. Thus, in order to streamline its
business the company resorts to services of the agents. The process begins with carrying
out market research about the requirements in terms of quality and quantity as well as their
government regulations for the same.
Once the market research is over then the company sends an introductory letter to
the prospective buyer which is having the relevant details about the company that includes
introduction of company, product portfolio, plant capacity and quality certificate held. This
is preliminary procedure in case of a new buyer which is followed by the procedure for the
export listed below.
Sending the samples as per requirement of prospective buyer.
Quality check of the sample by the buyer.

 If sample conforms to the norms laid by the buyer then enquiries are received about
the price, quality, delivery schedule and export terms and conditions.
Price finalization.
Agreement about payment terms and delivery schedule.
Receiving order directly from the importer or through agents.
Receipt of letter of credit.
Receipt of shipping order.
Packing, marking and forwarding of the goods.
Preparing invoice which is having all the shipping details of the consignment and
expenses incurred on the same.
Getting custom clearance.
Delivery costs to be incurred as per the sale contract.
Insurance is subjected to sale contract terms.
Receipt of bill of lading which support the shipment of the material.
Obtaining certificate of origin to avail benefits through various government
schemes.
For payment, the relevant documents are submitted to the negotiation bank which
upon scrutinizing will be sent to its counterpart LC opening bank of the importer.

 The LC opening bank will again check the documents for discrepancy and if there
are none will give acceptance in case of DA bills (Documents against acceptance).
In case of DP bills (Documents against payment) they will release documents after
payment.

3.1 DOCUMENTS REQUIRED

For the purpose of export there are two kinds of documents prepared.

Pre-shipment documents
These are prepared generally by the factory from where the material is taken for the
shipment .In some cases EXIM division also prepares this. The various documents
prepared for this are:
Proforma invoice
Packing list

 Form ARE-I(Application for removal of excisable goods)

Self declaration form
Invoice cum delivery challan.

Post-shipment documents
These are prepared by the Head office once the container has been loaded in the
ship. The various documents prepared for this are:
Bills of exchange in duplicate
Commercial invoice
Packing list
Bills of lading
Certificate of origin
Shipping bill four copies
Exchange control copy for RBI
Exporters copy for own record
Export promotion copy for DGFT
Customs copy for customs

FOLLOWING ARE THE DOCUMENTS SUBMITTED TO BANK

AFTER SHIPMENT
Bills of exchange in duplicate
Commercial invoice
Packing list
Bills of lading
Certificate of origin
Original letter of credit
Shipping bills four copies
One for RBI
One for own record
One for DGFT
One for customs

EXPORT DOCUMENTS
Any export shipment involved various documents required by various authorities such as
customs, excise, RBI hence various documents are prepared as per the requirements.

1. Commercial Invoice
It is an important and basic export document. It is also known as documents of
contents as it contains all the information required for the preparation of other
documents. It is prepared by the exporter after the execution of export order giving
details about the goods shipped. This is main evidence of contract of sale or
purchase hence this must be strictly in accordance with the contract of sale.

Contents

Name and address of the exporter.

Name and address of the consignee.

Name and the number of Vessel or Flight.

Name of the port of loading.

Name of the port of discharge and final destination.

Invoice number and date.

Exporter's reference number.

Buyer's reference number and date.

Name of the country of origin of goods.

Name of the country of final destination.

Terms of delivery and payment.

Marks and container number.

Number and packing description.

Description of goods giving details of quantity, rate and total amount in terms
of internationally accepted price quotation.

Signature of the exporter with date.

2. Inspection Certificate

The certificate is issued by the inspection authority such as export inspection

agency. This certificate states that the goods have been inspected before shipment
and they confirm to the accepted quality standards.

3. Marine Insurance Policy

Goods is transit are subjected to the risk of loss of goods arising due to fire
on ship, theft etc. Marine insurance protects losses incidental to voyages and in
land transportation.
The exporter is bound to insure the goods in case of CIF quotation, but he
can also insure the goods in case of FOB contract, at the request of the importer,
but the premium payment will be made by the exporter.

4. Certificate of Origin
The importers in several countries require a certificate of origin without
which clearance to import is refused. The certificate of origin states that the goods
exported are originally manufactured in the country whose name is mentioned in
the certificate.

5. Bill of Lading
The bill of lading is a document issued by the shipping company or its
agents acknowledging the receipt of goods on board the vessel. It is also an

undertaking to deliver the goods in the like order and condition as received to the
consignee or his order.

Contents
Name and logo of the shipping line.
Name and address of the shipper.
Name and the number of vessel.
Name of the port of loading.
Name of the port of discharge and place of delivery.
Marks and container number.
Packing and container description.
Total number of containers and packages,
Description of goods in terms of quantity.
Container status and seal number.
Gross weight in Kgs and volume in terms of cubic meters.
Amount of freight paid or payable.
Shipping bill number and date.
Signature and initials of the Chief Officer.

6. Airway Bill
It is also called an air consignment note which is a receipt issued by an
airline for the carriage of the goods. As each shipping company has its own
shipping bill hence each airline has its own airway bill.

7. Packing List
The exporter prepares the packing list to facilitate the buyer to check the
shipment. It contains the detailed description of the goods packed in each case,
their gross and net weight etc.

8. Bill of Exchange
This is the instrument used in receiving payment from the importer. A bill
of exchange is drawn by the exporter on importer to make the payment on demand
at sight or after a certain period of time.

9. Proforma Invoice
The starting point of an export contract is in the form of offer made by the
exporter to the foreign customer. The offer made by the exporter is in the form of a
Proforma invoice. It is a quotation given as a reply to an inquiry. It normally forms
the basis of all trade transactions.

3.2 EXPORT REGULATIONS

INTRODUCTION
Export trade is regulated by DGFT and its regional offices, functioning under the
Ministry of Commerce and Industries, Department of Commerce, Government of India.
Policies and procedures required to be followed for exports from India are announced by
DGFT.

RBI GUIDELINES FOR EXPORTS

REALIZATION AND REPATRIATION OF EXPORT PROCEEDS
It is obligatory on the part of the exporter that the amount representing the full
value of goods or software exported should be realized and repatriated to India within a
stipulated period from the date of export.

EXCHANGE EARNERS FOREIGN CURRENCY (EEFC) ACCOUNT

A person resident in India may open with AD Category-I bank in India, an account
in foreign currency called EEFC account in terms of Regulation 4 of the FEMA Regulation
2000.
This account shall be maintained only in the form of non-interest bearing current
account. The rate of interest may be determined by the banks themselves. No credit
facilities, either fund-based or non-fund based, shall be permitted against the security of
balances held in EEFC accounts by the AD Category-I banks.

ADVANCE PAYMENTS AGAINST EXPORTS

In terms of Regulation 16 of FEMA 2000, where an exporter receives advance
payment (with or without interest), from a buyer outside India, the exporter shall be under
an obligation to ensure that

The shipment of goods is made within one year from the date of receipt of advance
payment.

The documents covering the shipment are routed the AD Category-I bank through
whom the advance payment is received.

In the event of the exporters inability to make the shipment, partly or fully within
one year from the date of receipt of advance payment, no remittance towards
refund of unutilized portion of advance payments or towards payment of interest
shall be made after the expiry of the said period of one year, without the prior
approval of RBI.

DISPATCH OF DOCUMENTS
AD Category-I banks should normally dispatch shipping documents to their
overseas branches/correspondents expeditiously. However they may dispatch shipping
documents direct to the consignee or their agents resident in the country of final
destination of goods in cases where:

Advance payment or an irrevocable letter of credit has been received for the full
value of the export shipment and the underlying sale contract/letter of credit
provides for dispatch of documents direct to the consignee or his agent resident in
the country of final destination of goods.

The exporter is a regular customer and the AD Category-I banks is satisfied, on the
basis of standing and track record of the exporter and the arrangements made for
realization of exports proceeds that the request can be acceded to.

SELF DECLARATION FORM (SDF)

The following system may be followed in case of SDF:

The SDF should be submitted in duplicate (to be annexed to the relative shipping
bill) to the Commissioner of Customs concerned.

After verifying and authenticating the declaration in SDF, the Commissioner of

Customs will hand over to the exporter, one copy of the shipping bill marked
Exchange Control Copy in which form SDF has been appended for being
submitted to the AD Category-I banks within 21 days from the date of export.

RETURNS OF DOCUMENTS TO EXPORTER

The duplicate copies of GR/SDF forms and shipping documents, once submitted to
the AD Category-I banks for negotiation, collection, etc should not ordinarily be returned
to exporters, except for rectification of errors and resubmission.

CHANGE OF BUYER/CONSIGNEE
Prior approval of RBI is required if, after goods have been shipped, they are to be
transferred to a buyer other than the original buyer in the event of default by the latter,
provided the reduction in value, if any, involved doesnt exceed 25 % and the realization of
export proceeds is not delayed beyond the period of 12 months from the date of export.

SHIPMENT LOST IN TRANSIT

When shipments from India for which payment has not been received either by
negotiation of bills under letter of credit or otherwise are lost in transit ,the AD Category-I
banks must ensure that insurance claim is made as soon as the loss is known.
In case where the claim is payable abroad, the AD banks must arrange to collect the
full amount of claim due on the lost shipment, through the medium of his overseas
branch /correspondent.

4. IMPORTS
The various imports done by the company are capital goods, spares of machine and
raw material. The capital goods are imported through factory only and spares may come
without any additional cost depending on the purchase condition.
GTN industries procures its raw material cotton mainly through imports from the
following countries

United States of America.

Australia.

Egypt.
The import is carried out with or without the help of agents. Generally agents are

preferred as it is difficult to ascertain the credibility of prospective supplier.

Once the prospective supplier is finalized then company enters into a sale contract
with the same and terms and condition for price, quality and delivery schedule is finalized.
This is followed by opening of LC with the bank which is in accordance with the contract.
For the purpose of imports bills of entry is prepared whereas in case of export it is shipping
bill.
Raw cotton is exempted from the duty which comes under following heads

Basic Duty

Custom Duty

SAD- Special Additional Duty

CVD-Counter Value Duty

Educational cess on CVD

Higher education cess on CVD

Customs educational cess

Higher education cess on customs.

CHECKLIST FOR IMPORTERS FOR LC OPENING

Importer in India who opens credits in favour of their supplier abroad has to take
care of several important aspects.

The importer should make proper enquiries about the standing, capacity and
business practices of the foreign supplier before placing an order with him

The credit established in favor of the foreign seller should be in conformity with
the prevailing exchange and import regulations in India.

Excessive details should not be included instead some referred document number
can be given.

The importer should give clear instruction whether he wants the shipping
documents to be mailed to the issuing bank in India in a single lot/two lots by
registered air mail or courier.

Upon receipt of documents the issuing bank in India will examine the documents
and decide whether the documents comply with the credit terms.

If compliance is there then issuing bank reimburses the bank from which
documents are received and recovers the equivalent amount plus its commission
and charges from the importer.

In case of some discrepancy the issuing bank seeks importers instruction and if
importer waives the discrepancies then reimbursement is provided to the foreign
bank.

4.1 IMPORT REGULATIONS

INTRODUCTION
Import trade is regulated by the Directorate General of Foreign Trade (DGFT)
under the Ministry of Commerce & Industry, Department of Commerce, Government of
India. The Authorized Dealer Category-I (AD Category-I) bank should ensure that the
imports are in conformity with the foreign trade policy in force and foreign exchange
management rules,2000 framed by Govt. of India.

RBI GUIDELINES FOR IMPORTS

Rules and regulation from the foreign exchange angle to be followed by the AD
Category - I banks while undertaking import payment transactions on behalf of their
clients.

FORM A-1:
This is required for application by persons, firms and companies for making
payments, exceeding USD 500 or its equivalent, towards imports into India.

OBLIGATION
In terms of Section 10(6) of FEMA 1999, any person acquiring foreign exchange is
permitted to use it either for purpose mentioned in the declaration made by him to an
authorized dealer bank under Section 10(5) of the Act or to use it for any other purpose for
which acquisition of foreign exchange is permissible under the said Act, or Rules or
Regulations framed there under.

When foreign exchange acquired has been utilized for import of goods into India,
the AD Category-I bank should ensure that importer furnishes evidences of import viz.,
Exchange Control copy of the Bill of Entry, Postal Appraisal Form or Customs
Assessment Certificate etc and satisfy himself that goods equivalent to the value of
remittance have been imported.

PAYMENT SETTLEMENT
For normal imports the remittances against imports should be completed not later
than 6 months from the date of shipment, except in cases where amounts are withheld
towards guarantee of performance etc.

ADVANCE REMITTANCE
AD Category-I bank may allow advance remittance for import of goods without
any ceiling subject to the following conditions.

If the amount of advance remittance exceeds USD 100,000 or its equivalent, an

unconditional, irrevocable standby Letter of Credit or a guarantee from an
international bank of repute situated outside India or a guarantee of an AD
Category-I bank in India, if such a guarantee is issued against the counter-guarantee
of an international bank of repute situated outside India.

In cases where the importer (other than a Public Sector Company or a

Department/Undertaking of Government of India/State Governments) is unable to
obtain bank guarantee from overseas supplier and AD Category-I bank is satisfied
about track record and bonafides of the importer, the requirement of the bank
guarantee /standby Letter of Credit may not be insisted upon for advance

remittances up to USD 1,000,000. AD Category-I banks may frame their own

internal guidelines to deal with such cases as per a suitable policy framed by the
banks Board of Director.
The remittance is made directly to the supplier or manufacturer of the goods and
not to any third party or to a numbered account.
Physical import of goods into India is made within six months (three years in case
of capital goods) from the date of remittance and the importer gives an undertaking to
furnish documentary evidences of import within fifteen days from the close of the relevant
period.

RECEIPT OF IMPORT BILLS/DOCUMENTS

Import bills and documents should be received from the banker of the supplier by
the banker of the importer in India. AD Category-I bank should not, therefore make
remittances where import bills have been received directly by the importers from the
overseas supplier.

INTEREST ON IMPORT
AD Category-I bank may allow payment of interest on Bills usance bills or overdue
interest for a period of less than three years from the date of shipment at the prescribed
rates. The current all-in-cost ceilings are as under:
Maturity Period
Up to one year
More than one but less than three years

EVIDENCE OF IMPORT

All in-cost ceiling over 6 months LIBOR

75 basis points
125 basis points

In case of all imports, where value of foreign exchange remitted/paid for import
into India exceeds USD 100,000 or its equivalent, it is obligatory on the part of the AD
Category-I bank through whom the relative remittance was made to ensure that the
importer submits the following:

The Exchange Control Copy of the Bill of Entry for home consumption,
Or

The Exchange Control Copy of the Bill of Entry for warehousing ,in case of 100%
Export Oriented Units,
Or

Customs Assessment Certificate or Postal Appraisal Form ,as declared by the

importer to the Customs Authorities where import has been made by post ,as
evidence that the goods for which the payment was made have actually been
imported into India.

ACKNOWLEDGEMENT
AD Category-I bank should acknowledge receipts of evidence of import e.g.
Exchange Control copy of the Bills of Entry, Postal Appraisal Form or Customs
Assessment Certificate etc from importers by issuing acknowledgement slips containing all
relevant particulars relating to the import transactions.

5. LETTER OF CREDIT TRANSACTION

There are three major parts
1. Preliminary considerations
2. General principles
3. Issue related to documents

Draft.

Invoice.

Transport document-Bill of lading, charter party BL, multi model transport

document, air transport document, road, rail, inland waterway transport document.

Insurance document.

Certificate of origin.

Now the details of above are

1. PRELIMINARY CONSIDERATIONS:

Applicant and beneficiary should carefully consider which document should be

required and who should produce it, with the time frame for presentation to avoid
unnecessary costs, delays and disputes in examination of documents. Even if the
credit expressly refers to underlying sale contract on the basis of which the credit
might have been established, the terms of documentary credit are independent.

Applicant must be aware of that some of the UCP (Uniform Customs and Practices)
defines the terms in a manner that may produce unexpected results unless the
applicant is fully acquaints himself with these provisions.

There are certain credits calling for presentation of documents that are to be issued
or countersigned by the applicant himself. For some reasons if the applicant decides
not to issue the prescribed document or not agreeing to countersign the document,
the purpose of the documentary credit gets defeated.

2. GENERAL PRINCIPLES

Use of generally accepted abbreviations should not make a document discrepant.

Using slash (/) may have different meaning. Unless apparent in the context used,
slash marks should not be used as a substitute for a word.

Corrections and alterations in the document issued by the beneficiary himself,

except draft, which have not been legalized or the like need not be authenticated.
Correction and alterations in the documents, other than documents created by the
beneficiary, must appear to be authenticated by the party who has issued the
documents or by a party authorized by the issuer to do so.

Dates for drafts/transport documents/insurance must be there even if credit does not
expressly require so. Any document, including a certificate of analysis, inspection
certificate and pre shipment inspection certificate must be dated after the date of
shipment. However, if a credit requires a document evidencing a pre shipment
event, the document must either by its title or content, indicate the event
(inspection) took place prior to or on the date of shipment.

Some expressions are not defined in the Uniform Customs and Practices (UCP) but
are frequently used in documentary credit transactions. Some expressions which are
defined :

SHIPPING DOCUMENT: All documents, except draft, required in

the credit would be treated as shipping document.

STALE DOCUMENTS ACCEPTABLE: If this term appears in the

credit it means that documents presented later than 21 days after the date of
shipment are acceptable as long as they are presented within validity of
credit.

THIRD PARTY DOCUMENTS: All documents excluding drafts but

including invoices may be issued by a party other than the beneficiary. If
the issuing banks intent is that the transport documents may show a shipper
other than the beneficiary, the clause is not necessary because it is already
permitted under UCP.

EXPORTING COUNTRY: Where beneficiary is domiciled and/or the

country of origin of the goods and/or the country of receipt by the carrier
and/or the country from which shipment or dispatch are made.

MISSPELLING OR TYPING ERRORS: Any misspelling or typing

errors which do not affect the meaning of a word or the sentence, in which
it occurs, do not make a document discrepant.

ORIGINALS AND COPIES: Documents issued more than one

original may be marked Original, Duplicate, Triplicate or First
Original, Second Original etc.
Each required document must be presented in at least one original, unless
the credit allows for presentation of documents as copies. Where an original
would not be accepted in lieu of a copy, the credit must prohibit an original.

SHIPPING MARKS: Containerized goods will sometimes only show

the container number under the heading of shipping marks.

SIGNATURES: Even if not stated in the credit, drafts, certificates and

declarations by their nature requires signature. Transport document,
insurance must be signed in accordance with the provisions of UCP.
Certain documents having a signature box do not mean that it requires
signature.

3. ISSUES RELATED TO DOCUMENTS

Drafts and calculation of maturity dates.

Invoices.

Ocean bill of lading.

Multi model transport documents.

Air transport document.

Road or rail or inland waterway transport document.

Insurance document.

Certificate of origin.

STANDARD CONDITIONS OF THE AGREEMENT GIVEN ALONG

WITH LETTER OF CREDIT

Form of documentary credit

Documentary credit number

Date of issue

Applicable rules

Date and place of expiry

Applicant

Beneficiary

Currency code and amount

Percentage credit amount

Available with .byName & address

Drafts- Refers to bills of exchange.

Drawee

Partial shipment

Transshipment

Port of loading /airport of departure

Port of discharge /airport of destination

Latest date of shipment

Description of goods &/or services

Documents required

Additional conditions

Charges

Period for presentations

Confirmation instructions

Instruction to paying/accepting/negotiating bank

PROCEDURE INVOLVED IN THE LETTER OF CREDIT

The following are the step in the process of opening a letter of credit:

Exporters Request: The exporter requests the importer to issue LC in his favor. LC
is the most secured form of payment in foreign trade.

Importers Request to his Bank: The importer requests his bank to open a L/C. He
May either pay the amount of credit in his current account with the bank.

Issue of LC: The issuing bank issues the L/C and forwards it to its correspondent
bank with also request to inform the beneficiary that the L/C has been opened. The
issuing bank may also request the advising bank to add its confirmation to the L/C,
if so required by the beneficiary.

Receipt of LC: the exporter takes in his possession the L/C. He should see it that
the L/C is confirmed.

Shipment of Goods: Then exporter supplies the goods and presents the full set of
documents along with the draft to the negotiating bank.

Scrutiny of Documents: The negotiating bank then scrutinizes the documents and if
they are in order makes the payment to the exporter.

Negotiation: The exporters bank negotiates the document against the letter of
credit and forwards the export documents to the L/C opening bank or as per their
instructions.

Realization of payment: The issuing bank will reimburse the amount (which is paid
to the exporter) to the negotiating bank.

Document to Importer: the issuing in turn presents the documents to the importer
and debits his account for the corresponding amount.

MEANING

OF

TERMS

USED

IN

LETTER

OF

CREDIT

TRANSACTION

Advising banks means the bank that advice the credit at the request of the issuing
bank.

Applicant means the party on whose request the credit is made.

Banking day means a day on which a bank is regularly open at the place at which
an act subject to these rules is to be performed.

Beneficiary means the party in whose favor a credit is issued.

Complying presentation means a presentation that is in accordance with the terms

and conditions of the credit, the applicable provisions of these rules and
international standard banking practices.

Confirmation means a definite undertaking of the confirming bank, in addition to

that of the issuing bank, to honor or negotiate a complying presentation.

Confirming bank means the bank that adds its conformation to a credit upon the
issuing banks authorization or request.

Credit means any arrangement, however named or described, that is irrevocable

and thereby constitutes a definite undertaking of the issuing bank to honor a
complying presentation.

Honor means to pay at sight if the credit is available by sight payment or to incur a
deferred payment undertaking and pay at maturity if the credit is available by
deferred payment or to accept a bill of exchange drawn by the beneficiary and pay
at maturity if the credit is available by acceptance.

Issuing bank means the bank that issues a credit at the request of an applicant or
on its own behalf.

Negotiation means the purchase by the nominated bank of drafts and/or documents
under a complying presentation, by advancing or agreeing to advance funds to the
beneficiary on or before the banking day on which reimbursement due to the
nominated bank.

Nominated bank means the bank with which the credit is available or any bank in
case of a credit available with any bank.

Presentation means either the delivery of documents under a credit to the issuing
bank or nominated bank or the documents so delivered.

Presenter means a beneficiary, bank or other party that makes a presentation.

EXAMINATION OF DOCUMENTS, WAIVER OF DISCREPANCIES

AND NOTICE UNDER UCP 500

Examination of
Compliance of
documents

Documents comply,
pay, accept or incur a
deferred payment
undertaking

Documents do not

Decide to refuse or

Seek waiver

Decide to refuse

Take up or refuse and give

notice
Applicant waiver received

If waiver received bank

determines whether or
not it will accept the
applicant waiver
Issuing bank
waives

Bank determines
that it will accept
the applicant
waiver

Give notice of
refusal
Applicant waiver not
received

Give notice of
refusal

Bank determines
that it will not
accept the applicant
waiver

Issuing bank
waives
Pay, accept or
incur a deferred
payment
undertaking

Pay, accept or
incur a deferred
payment
undertaking

Pay, accept or
incur a deferred
payment
undertaking

Give notice of
refusal

6. RISK MANAGEMENT
Business risk is classified into three major types

Price risk

Credit risk

Pure risk

Price risk refers to the uncertainty over the magnitude of cash flows due to possible
changes in output and input prices. Analysis of price plays a central role in strategic
management. Further the types of price risks are

Commodity price risk

Interest rate risk

Exchange rate risk

Credit risk refers to accounts receivables. The risk that a firms customer and the parties
to which it has lent money will fail to make promised payments is known as credit risk.

Pure risk consists of the following aspects

The risk of reduction in value of business assets due to physical damage, theft and
expropriation.

The risk of legal liability for damages for harm to customers, suppliers, shareholder
and the other parties.

The risk associated with paying benefits to injured workers under workers
compensation law etc.

EXCHANGE RATE RISK

Exchange rate volatility is a known fact. A brief flurry on the foreign exchange
markets and the US dollar priced exports made only yesterday may result in much loss
than one expected once the receipts are converted back into Indian rupees. There is
continuous fluctuation in exchange rates, thereby bringing uncertainty in receipts for
exports and payments against exports.
Even if one sells in Indian rupees, the risk of fluctuation in exchange rate is still
there. It is merely passed on to the overseas exporters or importers. The foreign buyer that
is the customer will not find his business profitable in such circumstances. He may, as a
result, prefer to buy from any other company which is prepared to trade in his currency
than Indian rupees. The net result is loss in export business.
Fluctuation in currency can have varying degree of impact on the actual amount of
the transaction. There could be (and usually is) a difference in the exchange rate between

the date of presenting the bill and the date of realization of the bill. The risk arising out of
that can be covered using Forward Contract.
This is a contract entered into by a party engaged in the concerned foreign
exchange transaction (exporter) with an authorized dealer (bank). Such a contract involves
a Forward Rate which is determined by the bank and at which the exporter agrees to
make payment for the bill submitted with the bank out of the proceeds received as payment
for the bill.
This mechanism helps in the following way to the exporter. The forward rate is
usually few notches above the Spot Rate (current going rate). It is also expected that the
exchange rate of the currency with respect to US dollar would fall over a period of time. If
in actuality the rate at the end of period exceeds the rate projected (Forward Rate), the
exporter is not affected. However, if the reverse is the case that is rate below the forward
rate, then the exporter is covered against any losses arising out of the same. The
fundamental principle behind forward contract is that of hedging. The exporter attempts to
prevent loss arising out of any adverse exchange fluctuations.
As GTN Industries is an export oriented company hence it also goes for forward
booking of the currency as per the projected rate of same from the market. The decision
regarding this is taken by the top management of the company as this is a very crucial
decision and any wrong decision can severely affect the profitability of the company.
After agreeing on a rate the amount of foreign currency is booked with the bank for
a specific period of time. That amount has to be utilized for the transaction purposes
whatever may be the market rate. Thus company in this way negates the effect of currency
fluctuation on its profitability.

In case the company is unable to use the amount in stated time then its account will
be debited by the bank for leftover amount at the prevailing market rate.

6.1 FORWARD CONTRACTS REGULATIONS

A person resident in India may enter into a forward contract with an AD Category-I
bank in India to hedge an exposure to exchange risk in respect of a transaction for which
sale and/or purchase of foreign exchange is permitted under the FEMA 1999 or rules or
regulations or directions or orders made or issued there under, subject to the following
terms and conditions:

The AD Category- I bank through verification of documentary evidences is

satisfied about the genuineness of the underlying exposure, irrespective of the
transaction being a current or a capital account transaction. Full particulars of the
contract should be marked on such documents under proper authentication and
copies thereof retained for verification.

Where exact amount of the underlying transaction is not ascertainable, the contract
is booked on the basis of a reasonable estimate.

Foreign currency loans/bonds will be eligible for hedge only after final approval is
accorded by the RBI where such approval is necessary or loan identification
number is given by RBI.

Balances in Exchange Earners Foreign Currency (EEFC) accounts sold forward by

the account holders shall remain earmarked for delivery and such contracts shall
not be cancelled .They may be rolled over.

All forward contracts with rupee as one of the currencies, booked to cover foreign
exchange exposures falling due within one year can be freely cancelled and
rebooked.

Substitution of contracts for hedging trade transaction may be permitted by an

authorized dealer on being satisfied with the circumstances under which such
substitution has become necessary.
AD Category-I banks may allow importers and exporters to book forward contracts

on the basis of a declaration of an exposure and based on past performance up to the

average of the previous three financial years (April to March) actual import/export
turnover or the previous years actual import/export turnover, whichever is higher subject
to following conditions:

The forward contract booked in the aggregate during the year and outstanding at
any point of time should not exceed the eligible limit i.e. the average of the
previous three financial years actual import/export turnover or the previous years
actual import /export turnover. Contracts booked in excess of 75 % of the eligible
limit will be deliverable basis and cannot be cancelled.

Any forward contract booked without producing documentary evidence will be

marked off against this limit.

Importer and exporters should furnish a declaration to the AD Category-I banks

regarding accounts booked with other AD Category-I banks under this facility.

An undertaking may be taken from the customer to produce supporting

documentary evidence at the time of cancellation/before the maturity of the forward
contract.

Outstanding forward contracts higher than 50 % of the eligible limit may be

permitted by the AD Category-I banks only on being satisfied about the genuine
requirements of their constituents after reviewing additional documents.

In the case of an exporter, the amount of overdue bills should not be in excess of
10 % of the turnover, to avail the above facility.

RISK MANAGEMENT POLICY FOR CORPORATE

AD Category-I bank should ensure that the Board of Directors of the corporate has
drawn up a risk management policy, laid down clear guidelines for concluding the
transactions and institutionalized the arrangements for a periodical review of operations
and annual audit of transactions to verify compliances with regulations.

6.2 EXPORT CREDIT AND GUARANTEE CORPORATION

ECGC is a sort of guarantee or cover for the exporter. With LC also there are some
associated risks. In case there is failure on the part of importer for the payment of the
consignment sent, due to some unavoidable circumstances. These situations may be
bankruptcy; war, change is government policy of the importers country etc.
Here the ECGC comes into picture. It takes up the responsibility of paying the
funds to the exporter and makes all efforts including legal proceedings to recover the dues
from the customer, provided the exporter has taken an ECGC cover.

7. BENEFITS AVAILED UNDER GOVERNMENT POLICIES

The Export-Import policy 1992-97 brought about many fundamental changes in
India's external trade policy. It gradually laid the foundation of globalization of Indian
economy by initiating liberalization and making Indian industries to face competition
from foreign MNCs. Until 1992, Indian markets were highly protected and the Indian
government used to give many incentives to the Indian exporters.
Export promotion was accorded a very low priority during the initial programme
of economic development in India. During the 1950s and almost up to mid 1960 exportpromotion was not at all considered as an essential element in India's economic
development process. Easy and adequate availability of external assistance from World
Bank and other international agencies as well as developed countries has provided India

with more than adequate amount of foreign exchange for financing development as well
as essential imports. Hence, the urgency of earning foreign exchange through expanding
exports was not there.
In addition, because of the large size of the domestic market in India, 'import
substitution' rather than the' export promotion' was considered as a more useful strategy
for India's economic development process.
Similarly during the period of the First Three Five year plans over 1950-51 to
1965-66" Indian economy was in a formative stage. Consequently Indias capacity to
export manufactures or industrial products was extremely limited. Hence, on this account
as well, India could not look at international markets especially because of her
extremely limited capacity to offer supplies of- industrial products.
However after 1965-66, the aid flows to India were substantially reduced.
Consequently, for the first time India was made to depend significantly on its exports for
acquiring foreign exchange to meet her needs of essential imports. Moreover, by the
second-half of 1960s, a number of industries especially in the engineering, chemicals,
leather, marine and other sectors have reached a stage from where they were looking for
an opening in international market.
Government of India had therefore, considered it as appropriate to lay emphasis
on the need for export promotion so as to enable the country to meet the need of imports.
Fortunately, it received an encouraging response from the industrial sector which was also
looking for international markets.
Over the last couple of decades export promotion has assumed critical importance
in Indian economy. Export growth has become the main determinant of economic growth

in India. The process of globalization and liberalization has further enhanced the need
of strengthening the support of export-import trade business of the country. Moreover,
with the increasing burden of debt-servicing on the one hand and the situation of aidfatigue on the other, exports have now emerged as the only viable source of meeting the
foreign exchange needs of Indian economy.
Hence, the feasibility of financing almost entirely depends upon the growth in
Indian export. It may, therefore, be, stated that the future economic growth in India is
inseparably linked with growth in Indian exports. Hence, export, promotion is being an
overriding consideration in policy formulation.

Export promotion' policy in India has three main segments. They are as follows:

Policies for increasing Investment and production in export sector

Price-support measures for rendering exports more competitive

Measures for strengthening marketing effort by the export sector

The various schemes are

EPCG SCHEME: Export promotion capital goods (EPCG) scheme allows import of
capital goods for pre production, production and post production at 3% customs duty,
subject to an export obligation equivalent to 8 times of duty saved on capital goods
imported under EPCG scheme, to be fulfilled in 8 years reckoned from authorization issuedate. The parameter differs from industry to industry.

However, in respect of EPCG authorization with a duty saved amount of Rs.100 crores or
more, export obligation shall be fulfilled in 12 years. Capital goods shall include spares
(including refurbished /reconditioned spares), tools, jigs, fixtures, dies and moulds.
Second hand capital goods, without any restriction on age, may also be imported under
EPCG scheme.

DUTY EXEMPTION & REMISSION SCHEMES: Duty exemptions scheme

enables duty free imports of inputs required for export production. Duty exemption
schemes consist of a) advance authorization and b) Duty free import authorization (DFIA).
Duty remission schemes consist of a) Duty entitlement passbook scheme (DEPB) and b)
Duty drawback scheme (DBK).

ADVANCE AUTHORIZATION: An advance authorization is issued to allow duty

free import of inputs, which are physically incorporated in export product (making normal
allowances for wastage).In addition, fuel.oil, energy .catalysts which are consumed /
utilized to obtain export product, may also be allowed. Director General of foreign trade,
by means of public notice, may exclude any product(s) from purview of advance
authorization.

DUTY FREE IMPORT AUTHORIZATION (DFIA): DFIA is issued to allow

duty free imports of inputs, fuel, oil, energy sources, catalysts which are required for
production of export product. DGFT, by means of public notice may exclude any
product(s) from purview of DFIA. This scheme is in force from 1 st May 2006. Pre-export
authorization shall be issued with actual user condition and shall be exempted from

payment of basic custom duty/excise duty, education cess, anti-dumping duty and
safeguard duty, if any. This is on quantity and value and has to do transaction within 2
years with a positive value addition. Some norms are laid by Government for it which can
sometimes be there for individual company also as per prevailing production practices
there.

DUTY ENTITLEMENT PASSBOOK SCHEME (DEPB): The objective of

DEPB is to neutralize incidence of customs duty on import content of export product
.Component of special additional duty and customs duty on fuel shall also be allowed
under DEPB factored in DEPB rate in case of non-availment of CENVAT credit.
Neutralization shall be provided by way of grant of duty credit against export product.
DEPB and/or items imported against it are freely transferable. Transfer of DEPB shall
however be for import at specified port, which shall be the port from where exports have
been made. Import from port other than port of export shall be allowed as per terms and
condition of Department of Revenue notification.

DUTY DRAWBACK SCHEME (DBK): The Government has identified some

sectors to which it provides the benefit of refund of duties which are incurred during
import of those materials which either directly or indirectly affects the export. This is
given by CBEC (Central board of excise & customs). No organization can avail all the
benefits altogether but has to analyze which one is profitable for that and take the benefits
of those by applying for it.

9. CURRENT MARKET SCENARIO

INDUSTRY PROFILE
The Indian textile industry is one of the largest in the world with a massive raw
material and textile manufacturing base. About 27 % of the foreign exchange earnings are
from export of textile and clothing only. Around 8% of the total excise revenue is
contributed by the textile industry. It accounts for 21 % of the employment in the
economy.
India has a dominant position in the world textile economy. The few facts
substantiate this thing

Type

Position

Raw cotton production

Second

Cotton yarn production

Second

Cellulosic fiber/yarn production

Second

Silk production

Second

Synthetic fiber/yarn

Fourth

Loomage

First

Spindlage

Second

The textile industry in India has a strong multi-fiber raw material production base,
vast pool of skilled personnel, entrepreneurial talent, good export potential and low import
content. Production systems are flexible, dynamic and vibrant. But this strength of industry
is getting reduced on account of disadvantages in production process due to deficiencies in
the area of technology and supply chain management.
Due to globalization the industry is exposed to competition from export oriented
economies like China which has the potential to destabilize our export as well as local
market. But it also offers unlimited opportunities after identifying the strength and
weakness so as to accelerate the export growth. The inherent strength of this industry in
terms of strong raw material base, skilled man power and low wage cost makes it a suitable
candidate in the globalised textile industry.

9.1 COTTON
GLOBAL SCENARIO

As per International Cotton Advisory Committee (ICAC), during the year 2007-08
the world acreage under cotton has reduced by 33.41 million hectare as against
34.30 million hectare during previous year.

As per ICAC estimation the world cotton production during 2007-08 is decreased
by around 2% at 26.28 million tons against 26.65 million tons during the previous
year.

ICAC estimate indicates that world cotton consumption in this year is at par with
last year.

Due to decrease in cotton production, the world ending stocks have been reduced
by around 3%.

INDIAN SCENARIO

During 2007-08 the acreage under cotton has reached a record level of 95.55 lakh
hectare in the country.

India has achieved highest ever cotton production at 5.36 million hectare tons
which is 13 % higher than the previous year. Thus enabling India to become second
largest producer of cotton after China.

The productivity of cotton has also increased from 521kgs per hectare to 560kgs
per hectare.

GOVERNMENT POLICIES

The growth in the industry is considerably more due to the liberal trade policies
adopted by the government. The fiscal duty structure has also influenced the growth and
structure of the industry. The Technology of Upgradation Fund Scheme (TUFS) has
provided a fresh lease of life to the industry .It has helped to overcome the technological
obsolescence and create economies of scale. It has also helped in transition from a
quantitatively restricted textile trade to a market driven export regime.

9.2 COTTON YARN

Indias total textile export in 2008-09 is expected to remain flat as compared to
previous year as a falling rupee has offset losses in first six months. During January 2009,
all except cotton /viscose and acrylic /cotton yarn, all yarns recorded significant declines
from their last years numbers. Major decline was seen in cotton yarn exports which
accounts for almost 75% of all yarns. The Indian Rupee has depreciated by almost 20 %
during the 12 month period.

AVAILABILITY OF QUALITY COTTON IN BULK:

The predominant raw material of textile industry is cotton, which constitutes about 55 per
cent of cost of production. Nearly, 70 per cent of area under cotton is rain-fed and
therefore vagaries of monsoon play a critical role in the domestic availability of cotton.
Although in recent years, the cotton production has more or less stabilized, cotton being an
agricultural product, there could be fluctuations in prices and adequate availability of
quality cotton.

MANAGEMENT PERCEPTION: GTN Group has extensive experience of over 4

decades in the selection and procurement of quality cottons at appropriate prices. However,
the Company acknowledges that it is exposed to fluctuations in the prices of raw materials
but is confident to handle them deftly.

EXECUTIVE SUMMARY
The present economic condition and increased globalization has changed the business
environment drastically. The concept of liberalization has paved way for increase in
competition in every sector of the economy. Now companies are not restricted by the
boundaries of the countries instead they are expanding their business globally.
As GTN Industries Limited is in the business of export of cotton yarn and import of cotton;
hence the prevailing government policies and export-import regulations significantly affect
the business. GTN industries Limited, is a prominent player in the area of textile export. It
is a Rs 300 crore enterprise headed by Mr. M.K. Patodia. The company has international
focus and gets around 80% of its sales from the overseas market.
The project Exports and imports procedure at GTN Industries Limited is
undertaken at GTN Industries Limited, Hyderabad. The purpose of this project is to
provide a comprehensive coverage of various government policies, beneficial schemes for

the exporters and the importers, Reserve Bank of India regulations, Directorate General of
Foreign Trade norms.
The project gives a detailed insight about the working of the organization while carrying
out the business. This includes the process from procurement of raw material to the
shipment of the final product. As the business is mainly carried out with the help of agents
and majority of payment are carried out with the help of letter of credit transaction so as to
minimize the associated risks.
As export and import is carried out under direct purview of government hence various
rules and regulations pertaining to that should be taken care off. This project covers
various rules and regulation concerning the business of the organization. Apart from above
thorough understanding of various beneficiary schemes of the government has been done
keeping in mind the related terminologies for the same.
As the payment for the export and import is mainly done in US Dollar hence any
fluctuation in the exchange rate has the potential to affect the profitability of the company
hence the project covers the need for the forward booking of the currency and the
prevailing government norms for the same.
No project will be complete without the analysis of the industry and current market
condition, hence relevant data has been generated from various articles published about the
textile industry. The analysis highlights where the Indian industry is lagging when
compared with other countries industry and available opportunities for improvement in the
same.
The project has been a great learning experience which has given a forehand view of
working of an organization associated with exports and imports and problems associated

with the same. This is the learning which took place within a period of nearly two months
at GTN Industries Limited.

CHAPTER V

FINDINGS,

SUGGESTIONS
AND
CONCLUSION

FINDINGS
From the study that I have done in GTN Industries on Export-Import topic, I found
some of the important points which stood as back bone to the industry. They are:

I have found is this industry is maintaining balance between price and quality. As
being spread internationally it is very important step for any industry to maintain its
quality and at the same time the reasonable price. All this made this GTN a very
successful industry.

The effect of global recession also affected this industry as it also showed
fluctuations in the currency rates.

The next finding is it has higher taxes and interest rates on exports which may lead
to the problems for growth of the industry.

The other finding is due to its disadvantage in location they take long transit time to
they market i.e., simply the transportation time will be more as the branches are
located very far from the city.

And the pressure on pricing is also great due to the quota system.

GTN has a number of integrated companies which shows the extent of the strength
of the company.

GTN has very good ability to handle value additions and it also has good
competitive quality.

Last, but not least, I found that due to its adequate labour supply it has deep rooted
itself into the domestic market.

These are the some of the important findings that I have found in my duration of the
study.

SUGGESTIONS

One of the most important problem that exists here is they take very long transit
time due to its fragmented business units. So I suggest that some measures should
be followed to reduce i.e., by bringing the plants a bit closer.

Other suggestion is it should liberalize the taxes and interest rates so as to develop
much faster.

It has being spread in very far distance. So the plan of actions is becoming late, so
steps should be make to reduce it.

Though it have good infrastructure I suggest the company to use more sophisticated
technology by which the position of cotton yarn industry is enhanced country wide.

No doubt the industry is very vast and complicated but is should try new designs
and techniques to be much closer to the public and also be eco friendly.

CONCLUSION
From the data i.e., collected both from primary source and secondary source this
consolidated report gives the overall information about the GTN industries with reference

to both Indian and also global scenario. It revealed this company as a successful and
upcoming one in textile industries.
As discussed earlier export and import comes under direct purview of government
hence the rules and regulations pertaining to that are changeable in nature. It depends on
the ideology followed as well as the prevailing domestic as well as world economic
conditions.
This report has been prepared based on the existing norms which may again change
based on the outcome of general election in the country. Hence to be successful in the
business of export and import one has to keep a tab on existing policies of the government
and takes decisions accordingly.

BIBLIOGRAPHY

BIBILOGRAPHY

http://www.gtnindustries.com

http://www.rbi.org.in/scripts/Fema.aspx

http://indiabudget.nic.in

Baseline survey of textile industry in India, Office of textile commissioner of India,

Final report March 2009

FEMA master circulars RBI forex department.

Letter of credit documentary transactions, FICCI.

Uniform Customs and Practices (UCP-500), International Chambers of Commerce.

GLOSSARY
Advising Bank
Where confirmation is not considered necessary the credit will be issued by the issuing
bank in favour of the beneficiary without definite additional undertaking of a confirming

bank. Here it is normal for issuing bank to request a bank in the country of beneficiary to
pass the credit to the beneficiary.
The act of passing credit on to the beneficiary is known as advising the credit and this bank
becomes the advising bank.
AD Category-I Bank
It stands for authorized dealer category-I bank, these banks are authorized by RBI for
the monetary transactions pertaining to imports and exports.
Application for Removal of Excisable Goods (ARE-I)
When the goods are procured for the purpose of export then as proof for same the form
namely ARE-I is required. Thus providing this form ensures no payment of excise duty.
Bank Certificate of Export Realization (BRC)
This is submitted to DGFT as proof that the mentioned shipment has taken place so as to
avail the various available government benefits.
Confirming Bank
This bank provides both convenience and security to the exporter. Confirmation of credit
removes the financial and political risk of the importers country and provides a bank which
is conveniently located for the exporter. By confirming documentary credit the confirming
bank adds additional undertaking to that of the issuing bank. The confirming bank is
undertaking to pay the beneficiary provided the terms and conditions of the credit are
complied regardless of whether payment is forthcoming or not from the issuing bank.
Confirmation

The confirmation is a direct undertaking between the confirming bank and the beneficiary.
DA
This stands for documents against acceptance. This is not a secure method since here
merely giving acceptance to bank documents can be received and stock can be collected
from port.
DP
This stands for documents against payment. This is a secure method as document and
subsequent release of material from port will be only after payment for the same.
Exchange earner foreign currency account (EEFC)
Here the exporter is allowed to retain the earnings in US Dollar from the exports for some
specified purposes only.
ESCROW account
This is used when Indian Rupee is used for export/import.

LC
This stands for letter of credit. This is a document issued by a bank guaranteeing payment
on behalf of one of its client when all the conditions stated in the letter has been met.
There is maximum limit up to which an LC can be opened .This limit can differ from bank
to bank as per the relations of the company with the bank.

It may sight LC or usance LC. In former case immediate payment is made on receipt of the
documents within five working banking days whereas in later it depends on the stated
condition period. In case when all the LC limits are exhausted then in that case company
can resort to funding through fixed deposits with the banks.
Packing credit
This indicates the advance given in Indian Rupees by the bank to the exporter. It can be
order for order where the exporter has to show that he got some particular order for the
specified amount or else it can be done by maintaining running account following a FIFO
system of payment.
Packing credit in foreign currency (PCFC)
This indicates the advance given in foreign currency by the bank to the exporter. This is
given as per LIBOR rate plus some basis points as interest. Previously it was valid for 6
months now can be kept up to 9 months.

Realization advice
The documents received from the exporter is submitted to the LC opening bank of
importing country then once payment is made by the LC opening bank realization advice
will be received by the exporter stating the receipt of the payment.
Revocable Credit

This may be amended or cancelled by the issuing bank at any moment and without prior
notice to the beneficiary. Not used very often as risky for beneficiary.
Transferable Credit
A transferable credit is a credit under which the beneficiary may request the bank
authorized to pay, incur a deferred payment undertaking, accept or negotiate or in the case
of a freely negotiable credit, the bank specifically authorized in the credit as a transferring
bank, to make the credit available in whole or in part to one or more other beneficiaries.
Transshipment
When the goods send by ship is not going through a direct route or when the vessel is
changed on some port then this is termed as transshipment.