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Banking transactions crossing national

boundaries

International lending:

• all claims of domestic banks offices on foreign residents

• claims of foreign bank offices on local residents

• claims of domestic bank offices on domestic residents in foreign currency

Deposits similarly classified (by residence of bank or depositor, or currency)

Eurocurrency deposits – placed with banks outside the country whose

currency the deposits are denominated in(not necessarily in euros!)

Features of international banking

Key aspects: currency risk and complexity of credit risk besides typical

banking risks Competition for market share among banks (typically spreads very narrow)Cyclical nature, with periodic crises Competition for bank loans from the

international bond market (close substitutes for loans) Importance of international interbank market (IIBM) as source of liquidity and funding for banks, and risks arising

Role of risk management activities (swaps, options, futures).

Euro currency mkt.: The money market in which Eurocurrency, currency held in banks outside of the country where it is legal tender, is borrowed and lent by banks in Europe.

The Eurocurrency market allows for more convenient borrowing, which improves the international flow of capital for trade between countries and companies. For example, a Japanese company borrowing U.S. dollars from a bank in France is using the Eurocurrency market.

Euro bond market: A Eurobond is an international debt security.

Structure: similar to the standard debt security used in domestic markets.

Basic characteristics:

a Eurobond is transferable (usually bearer).

a Eurobond is intended to be tradeable.

a Eurobond is a medium- to long-term debt security.

a Eurobond is generally launched through a public offering.

a Eurobond is generally listed on a stock exchange.

The Eurobond market is just one segment of the Euromarket

Cost and availability of international financial flows:

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INTERNATIONNAL FINANCIAL MANAGEMENT

Lesson Objectives

In the lesson you all will learn about

· Different kind of flows and their rational, flows are as

follows:

· Trade flow

· Flow of services

· Unilateral Transfer

· Direct investment abroad

· Portfolio investment abroad

· Short term capital flow

Money serves as a medium of exchange both for domestic as

well as international transactions. However, the ‘money in these

two transactions is not the same. While in the former, it is the

national currency, in the latter, it is the international money.

International money, which is acceptable as a means of payment

throughout the world, consists of hard currencies (e. g. US

dollar, U.K. pound and German Mare, which are convertible

into any currency in the world). Barring counter-trades, an

importing country has pay the exporting country in the latter’s

currency, which can be obtained through hard currencies only.

Trade Flows

Most countries buy and sell tangible goods (merchandise)

abroad. For example, India buys crude oil from Saudi Arabia,

USSAR, UAF, Iran, Iraq and Kuwait; capital goods from Japan,

Germany, USA and U,K.;

Similarly, India sells precious metals to USA, Hong Kong,

Japan India sells’ precious metals to USSR, Germany, Italy,

USA, and UK.

Trade flows take place among countries due to the David

Ricardo’s principle of comparative advantage, the imbalances

between and supply for these products, the trade negotiations

among nations and / or technological lead lag of counties.

According to the Hechscher Ohlin theory, the root causes or the

comparative advantage disadvantage lies in the factor endowments

among nations and factor intensities of products.

Countries with capital abundance and labour scarcity (hence

having relatively low capital rental and high wage rate) import

labour intensive products and export capital intensive products,

while those with reverse factor endowments import capital

intensive products and export labour intensive goods. Lately,

Michaele Porter (1990) has argued that comparative advantage

among nations can be created even through appropriate policy

measures.

Though India has achieved self sufficiency in food gains, yet she

imports these products during the years of drought/ flood

when their supplies fall short of demand. Similarly, we export

edible oils and other products of shortage to some countries

on trade negotiations basis even when we are importing the

LESSON 5:

INTERNATIONAL FINANCIAL FLOWS

same products from some other countries. India imports

sophisticated equipments and electronic gadgets form Japan

and Germany, because the latter countries are technologically

more advanced than ours.

Since all trade flows are to be paid for in terms of the exporting

country’s currency or a hard currency, these lead to international

financial flows.

Flow of Services

Services, also called invisible or intangible goods, which flow

country to country include transportation of people and goods

(shipping), travel abroad, foreign banking services of borrowing

and lending abroad, investing in stocks and debentures

aboard, insurance of people and goods traveling abroad,

rendering of consulting services abroad, permitting the use of

goodwill in the from of brand name abroad, etc. exchange of

these services among countries leads to international financial

flows in the forms of air/ship/train/ road fares, freight charges

foreign exchange in India. Besides, India. Besides, India

borrows from multinational agencies, foreign banks and

advanced countries, on which it pays interest.

Of the various services exchanged globally, travel and transportation,

and income from foreign investment are the most

important ones.

Unilateral Transfer

Unilateral transfers are voluntary payments by the residents of a

country to the residents of other countries and they invoice on

quid pro qu. These include remittances; gifts, donations and

grants, and they could be made both by the government and

the private people and firms. In addition, these transfers include

pensions paid to erstwhile employees currently living abroad.

Large number of Indians have settled abroad and they do remit

funds to relatives in India. Besides, India receives lot of grants

and aids from multinationals and rich countries like USA AND

Japan.

The official (government) unilateral transfers depends directly

on the relative economic status of the country in relation to the

rest of the world. Thus, these transfers are form the developed

world to the developing and under developed world.

Direct Investment Abroad

Direct investment abroad refers to the purchase of capital goods

in one country by residents of other countries, when substantial

ownership (10% or more) and management by the investor is

involved. This could arise through establishment of a subsidiary

or a branch unit abroad, and purchase of stocks and

debenture of a company based abroad and investment of

retained earnings therein.

Investments go where returns are high and risks are low, subject

to, of course, the policy constraints existing in different

countries. The returns and risk on investments abroad depend

© Copy Right: Rai University

11.338 17

INTERNATIONNAL FINANCIAL MANAGEMENT

on the variability of the foreign exchange rate, among other

factors, which is significant since the break down of the Bretton

wood system in 1974. Political stability is yet another important

deterterminant, particularly of the risk referred to here. A

mature country tends to inveracities investment aboard as its

own stock of capital grows and its rate of return falls relative to

other countries. Cheaper labour, availability of raw material,

economies of scale in production, low tax rates are the other

important determinants of direct investment aboard.

Portfolio Investment Abroad

Portfolio investment abroad consists of claim among nations in

the form of stocks, debentures, and long term loans, provided

no substantial ownership is involved. The substantial ownership

has been defined arbitrarily as 10 prevent or more under USA

regulations. Thus, the dividing line between direct and portfolio

investment is in terms of the extent of ownership.

As in the case of direct investment, both government as well as

private residents undertake portfolio investment aboard.

Though purchase of stocks by government in foreign markets

is limited, large amounts of amounts of borrowing and

landings are carried out between governments of different

countries. Also, the multilateral agencies like the World Bank

advance loans to member countries and the latter repay the

same. All such transactions are components of portfolio

investment.

Short-Term Capital Flows

Besides the long-term capital flows in the forms of direct and

portfolio investments abroad, there is a flow of capital among

nations for a short period (less than one year) as well. These

flows take the forms of export credit and loans, import debts,

bank deposits, and commercial papers held abroad, foreign

currency holdings and obligations, etc. incidentally, you may

note that the difference between long and short term capital

floes is on the basis of instruments rather than the intentions

of the investor.

The short-term capital flows across nations take place due to a

variety of factors. Further, the determinants of these flows

depend on the type of the flow. In order to explain their

determinants, it is convenient to divide the short-term flows

into three categories, viz. trade capital, arbitrage and speculative.

The motives behind each of these flows and their determinants

are explained below.

Trade Capital

Exports and imports are negotiated both on down payments

as well as on credits. When down payments are made, bank

deposits in exporting country’s currency increases while those in

importing country’s currency decrease. In the case of transactions

on credits, accounts receivables/payables increase. Since

these accounts are usually payable within one year, they are

included in short-term capital flows. The volume of trade

capital obviously varies directly with the magnitude of merchandise

trade, and the credit relationships between trading partners.

Arbitrage

Under arbitrage, individuals and institutions buy one currency

and sell other currency with the sole objective of making profits

without taking risk. The opportunity for such profits arises due

to two factors. One, spot exchange rates are not quite consistent

in all the worldwide markets. Two, the difference between spot

(exchanger) rate and forward rates is not always consistent with

the interest rate differentials in different markets. To see the

gains from arbitrage under these two conditions, we take one

example for each case.

Speculative Flows

Speculative flows of capital take place across countries with the

sole objective of making money through deliberate understanding

of foreign exchange risk. Since the breakdown of the

Bretton Woods system in 1971, exchange rates have been

fluctuating widely and this has given rise to significant speculative

flows of capital. Speculators buy currencies which they

expect to appreciate and sell those which they expect to depreciate.

These transactions are, of course, subject to government

regulations.

The magnitude of speculative flows depends directly on the

variability of exchange rates and the ability and attitudes f

speculators towards risks. When the exchange rates were relatively

stable until 1971, speculative flows were very much limited. With

the increased variability of exchange rates and the enormous

profits that the speculators in foreign exchange have made, the

scope for such transactions has increased manifold and the trend

is expected to continue in future. Nevertheless, it must be noted

that these speculations are perhaps the most difficult and the best

brains have been attracted by this profession.

Points to Ponder

· Notwithstanding the goal of self-reliance, there exists

significant international financial flows and its trends is on

increase.

· International flows are in the forms of goods, services and

assets and are carried out through foreign exchange by

individuals, firms and governments and multilateral agencies.

· International flows are caused by variety of factors like relative

prices, income, interest rate, return on investment, technical

development, bilateral and multilateral negotiation etc.

Key Words:

· Arbitrage refers to buying one currency and selling other

currency with the sole objective of making profits without

taking any risk.

· Direct investment abroad refers to the purchase of capital

goods in one country by residents of other countries, when

substantial ownership (more than 10%) and management by

the investor is involved.

Student’s Activity

1. Write a note on the viability of flow of products and services

from one country to another country.

There are two major variables (or factors) that strongly influence the asset demand or portfolio choice of an individual or a firm is the rate of return and the risk level of the asset.

(1)  The rate of return of an asset represents the positive aspect of the asset. Individuals and firms seek assets that provide the highest rates of return.

(2)  The risk level (i.e. the uncertainty of the return) of an asset represents the negative aspect of the asset. Individuals and firms seek assets that provide the lowest levels of risk.

Unfortunately, there is a tradeoff between risk and return. When an asset provides a high level of return, it usually also has a high level of risk. Similarly, when an asset provides a low level of risk, it usually also has a low level of return.

It is important to understand that the risk level of an asset can be categorized into two groups: diversifiable and non-diversifiable risks. Before we discuss the difference between diversifiable and non-diversifiable risks, we need to first understand the term diversification. The act of diversification implies that an individual (or a firm) allocates his/her wealth among several types of assets rather than just one asset. In other words, diversification means spreading the risk of a portfolio by investing in several different types of assets rather than putting all the money in one asset. This is similar to the old saying: Never put all your eggs in one basket.

The impact of diversification on a portfolio’s risk level

Suppose you can invest in two different assets, A and B, as shown below. In the first  case, the returns of the two assets move in opposite direction; and in the second case, the returns of the two assets move in the same direction.

Suppose you invest an equal amount of money in the two assets. From the two graphs above, we know that when the two assets’ returns move in the exact opposite direction, it is possible to completely eliminate the risk of the portfolio. However, when the two assets’ returns move in the exact same direction, none of the portfolio’s risk has been eliminated.

What are diversifiable and non-diversifiable risks?

Diversifiable risk (or non-systematic risk) is the part of an asset’s risk that can be eliminated through diversification. This type of risk is usually event specific.

Example: Suppose you are an avid Apple computer user, and you decide to invest all your money in Apple stocks. If you have done so, you will be very vulnerable in the last few months when Apple announced losses and a major change in management. However, you can reduce the risk of your portfolio if you invest in other computer companies such IBM, Compaq, etc. However, this is not a very well diversified portfolio because you have invested your money in the computer industry. As a result, you will still be vulnerable to changes in the computer industry.

Non-diversifiable risk (or systematic risk) is the part of an asset’s risk that cannot be eliminated through diversification. This type of risk is also known as the market risk.

Example: Suppose you have invested in a portfolio that contains different types of securities in different types of industries in the U.S. Changes in a specific industry has little or no impact on your portfolio. However, if the U.S. government defaults on its bonds issues due to a break down in the budget talk, it will have a major impact on the portfolio’s return.

As a result, the non-diversifiable risk of an asset is more important than its diversifiable risk. The reason for this is that when an individual holds a well-diversified portfolio, the only remaining risk is the non-diversifiable risk. In this case, the individual will be compensated, in the form of the rate of return, for the portfolio’s non-diversifiable risk (but not the diversifiable risk).

There are a few relations between the non-diversifiable risk of an asset and its rate of return:

(1)  The higher the non-diversifiable risk the higher the rate of return needed to compensate an individual.

(2)  For a given rate of return, the higher the non-diversifiable risk the lower the demand for an asset.

(3)  For a given level of non-diversifiable risk, the higher the rate of return, the higher the demand for an asset.

Factors affecting asset demand

Earlier, we have discussed risk and return as the two components that governs an individual’s or a firm’s choice of asset: higher risk needs to be accompanied by higher return. We will now proceed to discuss some of the factors that affect an individual’s or a firm’s asset demand of an investor (either an individual or a firm).

(i) Wealth

Wealth represents the total accumulation of an individual’s permanent purchasing power stored in various types of assets. It represents the resources available to the individual. For example, if Steve inherited $5,000 from his aunt’s estate, we can say that Steve is $5,000 wealthier. Or in the case of Mary who found an oil field in her backyard is $10 million richer.

It is important to distinguish the difference between wealth and income (or earnings). Wealth usually represents storage of permanent purchasing power, whereas income represents mostly storage of temporary purchasing power. In other words, most of an individual’s earnings are used towards current consumption (such as food, entertainment, paying bills, etc.), and the left over is saved or invested (i.e. converting temporary to permanent purchasing power).

Given everything else remains the same, as the wealth of an individual increase, his/her demand for assets also increases. However, it is important to note that the demand for different assets responds differently to a change in an individual’s wealth. There are 3 general types of assets: inferior, necessity and luxury.

(i) An inferior asset is an asset whose demand decreases as an individual’s wealth increases.

(ii) A necessity asset is an asset whose demand increases as an individual’s wealth increases. However, the increase in the asset’s demand is at a lower rate than the increase in the individual’s wealth.

It is key to note that it is not very easy to find an inferior asset in a modern economy. As a result, we will focus only on necessity and luxury assets. To look at the response of the demand of those assets to changes in wealth, we need to look at the asset’s wealth elasticity of demand, which is defined as follows:

A necessity asset will have a wealth elasticity of less than 1, while a luxury asset will have a wealth elasticity of more than 1.

(2) Expected returns

In an earlier section, we have discussed the holding period return of an asset, which represents the percentage gain/loss (relative to the purchase price) while holding the asset. The holding period return (HPR) represents a realized return, i.e. a gain/loss that has already taken place. However, an investor does not use the past to make investment decisions for the future. He/she tries to make an intelligent guess of what is going to happen in the future. In other words, he/she looks at the expected return of an asset:

where   state of the economy

probability of state i occurring

return of an asset if state i occurs

From the above equation, we know that the expected return of an asset is simply the weighted average of all the possible returns.

Example: Suppose John has the following prediction of what an asset’s return in the different states of an economy. Based on this information, can you determine the expected return of this asset?

Given everything else remains the same, as the expected return of an asset increases, the demand of that asset also increases.

Since a particular asset is always competing with other assets as store of values, the changes in the expected returns of competing assets will also affect the demand of the asset. Given everything else remains the same, as the expected returns of competing assets decrease, the demand of the asset increases.

From the above situations, we know that it is more important to look at the relative expected return of an asset (in relation to its competition) rather than its absolute expected return. Given everything else remains the same, as the relative expected return of an asset increases, the demand of that asset also increases.

(3) Risk

As we have discussed earlier, risk represents the negative aspect of an asset. In most situations, the standard deviation (s) of the returns of an asset represents the risk or volatility of the asset:

Example: Determine the risk of John’s asset using information in the previous example.

Most investors are risk averse, i.e. having a low tolerance for risk. As a result, given everything else remains the same, an asset with lower level of risk is more attractive than an asset with higher level of risk. It is once again important to point out that we need to be concerned with the relative risk level rather than the absolute risk level of the asset. Given everything else remains the same, as the relative risk level of the asset decreases, the demand for the asset increases.

(4) Liquidity

The liquidity of an asset represents how fast it can be converted into cash without having a major impact on its price. In the U.S., Treasury bill is one of the most liquid assets, while an office building is one of the least liquid assets.

Given everything else remains the same, as the relative liquidity of an asset increases, the demand for the asset increases.

Attribution methodologies are different for each investment mandate and as yet, no standard calculations are available. Therefore, it is essential to study in detail the calculations for each attribute and to be aware of each calculation’s assumptions and limitations. This applies for both the testing of vendor software products or the development of a proprietary system. A decision tree chart should demonstrate the attribution process followed by the calculations for each attribute.

A decision tree for an international equity portfolio may look like this:

The model could include transaction costs for a better relative comparison to an index.

In this analysis, Country Selection captures the manager’s decision to over(under) weight a country and if that country over(under) performs the benchmark as a whole. Sector allocation is the same but for a sector/industry. Currency reflects the currency translation effect (implicit) of the securities and active currency management decisions, e.g. hedging, (explicit). Beta or risk management, or a similar bucket, would capture those active decision based on those factors or the limitations placed on the manager due to client demands. Security captures the specific stock selection having removed those previous systematic exposures. From these factors, the benefits of attribution, included those listed below, can be reaped.

Benefits of Attribution (assuming properly constructed methodology):

• Focuses on detailed risk factors and key performance drivers of a portfolio
• Isolates those performance/risk factors that are outside a manager’s control due to client demands or prospectus limitations
• Isolates manager’s performance/risk from non-systematic risks and it’s corresponding rewards
• Client presentation/education on risk/reward tradeoffs
• Ensures manager’s performance remains within investment discipline or client/prospectus demands
• Highlight potential manager weakpoints that can be focused on to keep portfolio competitive

Attribution methodologies vary across vendors and investment mandates to the degree that what one vendor/proprietary system considers security selection may be strikingly different from that of another vendor/system would calculate for the same portfolio. With that in mind, the following general questions that can help identify if an attribution methodology is properly constructed as well as provide a checklist of the potential differences inherent among attribution packages.

General Concerns

• Does any attribute’s calculation result in an overlap of each other?
• Are the key risk/return driving factors captured and accurately measured?
• Are the portfolio’s and indices’ risk/return factors calculated similarly?
• Are factors outside management control isolated?
• Was the proper benchmark chosen to compare the portfolio to?
• Does the methodology give benchmark returns for which to compare portfolio investments outside of index? (otherwise full performance for those investments may be improperly put in another attribute (e.g. sector/asset/country selection)?
• Does a historical data retention data capacity exist? Amongst other concerns, this could be an ad hoc database to test market/country/sector correlation for hedging or other purposes.

International Portfolio Concerns

• Is passive currency translation effects differentiated from active currency hedging decisions?
• Does the country selection attribute relate country level return to that of the entire index return (otherwise methodology could give positive country selection to the overweighting of a sub-performing country relative to the total benchmark simply because that country has a positive return – e.g. if overweight a country with +0.01% return but all other countries in the index exceed that return and the full index return is +10.00% should the manager be given positive country selection?)?
• Is both base and local currency data available?

Equity Concerns

• Is beta or P/E data available for both portfolio and benchmark?
• Is sector/industry breakdown similar and detailed enough for portfolio and benchmark?
• Is the capacity there to breakdown portfolio and benchmark holdings down by capitalization?
• Are common and preferred stocks separable?
• Are options treated as derivatives or equity equivalents?
• At what point are convertible securities treated as equity and is it consistent with benchmark and portfolio?

Fixed Income Concerns

• Is the proper duration measure used for each asset class?
• Is convexity listed as a risk/performance factor?
• Is yield curve analysis captured in the methodology?
• Are non-linear yield curve movements captured via key rate duration or other measures?
• Are quality ratings, sector/industry, and asset class separated for analysis?
• Are coupon, maturity and yield ranges or buckets available separated for analysis?
• Is state and bond type (revenue or general obligation) separated for municipal bonds?
• Are income and price returns separated?

These questions should assist in the analysis of an attribution system development or purchase that can be given flexibility while maintaining customization. The strength of any attribution analysis lies in the comparability and accuracy of the data. At each point of a value added analysis, the portfolio and benchmark should be using data calculated with the same methodology. Through that avenue, a firm can develop and/or purchase a solid attribution system and realize the advantages to the risk management process the advanced tool of attribution offers.

The time is ripe for a restructuring of the Planning Commission with a clearly defined set of functions, so that it becomes more effective both in formulation of public investment plans and implementation.

INDIA has so far stuck to Five Year Plans and the Nehruvian legacy has not been discarded altogether. The context in which Free India was born has vastly changed, but the basic problems, no matter how much industrialised and modern the country has become , still remain.

In the developing world, India’s success in development planning was widely acknowledged unlike the developed nations which recognised only its largest democracy; the socialist experiment of the four decades (1950s to 1980s) was not looked at favourably.

Socialism was equated with an expanding public sector, and self-reliance with an import-substitution strategy, in which export pessimism prevailed. The economy was getting over-regulated as it came up with constraints to production and matching demand an d supply.

India had to rely on domestic resources with foreign aid playing a marginal role. Foreign exchange shortages were a recurring phenomenon. A high-cost economy with little regard for price competitiveness and inefficiencies of public enterprises added to t he fiscal burden.

The GDP growth in the first three decades was at a low

average of 3.5 per cent despite massive outlays in the public sector, as determined by the Planning Commission for successive

Five Year Plans. Development policies failed to make a dent on unemployment or bring about a certain degree of redistribution of incomes, though overall per capita consumption expenditure had risen in the higher growth decade of 1980s.

India’s growth record turned impressive in the 1980s even with slow, cautious liberalisation of economic policies, as the then leadership began displaying pragmatism and taking note of the external realities. Higher growth though, came at a heavy price a s the fiscal deficit ballooned and borrowings — internal and external — soared. The Gulf War, at the end of the decade,

triggered a balance of payments crisis and, in bailing itself out, India was left with no option but to embark on tough fiscal

adjustment and structural reforms programme to reduce macroeconomic imbalances and promote growth.

The year 1991, thus, became a watershed in India’s development saga when the economy was opened up and policies were overhauled to promote greater involvement of the private sector. Liberalisation and reforms covering trade, industry, investment, foreign exchange and financial sectors helped to move India on a higher growth path from an average of 5.7 per cent in the 1980s to over 6 per cent. But continuing fiscal imbalances with a marked increase in revenue deficits and a virtual pause in reforms in th e latter half of the decade threatened to flatten the growth curve.

A controlled economy and planning could go together with a dominant role for the public sector. In the 1990s, as liberalisation spread, the limitations of the planning process came to the fore. While public sector outlays had exponential growth from Plan to Plan, shortfalls, both in resource generation and target fulfillment, had continued to widen. Economic growth is fuelled mainly by savings in the private sector (household and corporate sectors) and investments, in which the share of the public secto r is declining steadily. Government savings have been in the negative for several years.

The Government’s inability to inject larger resources for productive purposes and social development, and the growing dependence on private investments — domestic and foreign — for infrastructure have turned the prospects for development financing blea k.

The stark fact is that there can be no meaningful planning for public outlays until the Centre and the States are able to nearly wipe out their revenue deficits and arrest the unsustainable growth in borrowings. Currently, approximately 50 per cent of Ce ntre’s net revenue receipts go towards interest payments with the corresponding share of States at 22 per cent of their total revenues.

The state of public finances in India today is far worse than at the beginning of the decade. The extent of deterioration is brought out by the Eleventh Finance Commission’s report.

A stage has been reached when government expenditure can no longer be financed through debt and deficits, the limits having been reached in both. Recent years have seen an inexorable rise in government expenditure and borrowings, with the fiscal deficit close to 10 per cent and the debt-GDP ratio at 65 per cent (Centre and States combined).

Putting the fiscal house in order, even in the best of times, would be difficult over a short period. Under Indian political conditions, unstable coalition governments have not been able to exercise their authority to control unproductive expenditure. Th e NDA Government, headed by Mr. Atal Bihari Vajpayee, may look relatively stable, but it is facing

pulls and pressures within, and has failed to secure a consensus on fiscal and other difficult reforms.

Dismal as the fiscal scenario is, planning has ceased

to retain the importance that successive governments till the mid-1990s had attached to national development. The Vajpayee Government’s commitment to planning is nebulous, and the Prime Minister is a greater believer in ad hoc approaches — given his re peated resort to Task Forces and Committees on any major issue that he is required to dwell on in his policy speeches. His Government is fancifully engaged in writing new policies which do not fall into a coherent framework of economic planning.

The Ninth Plan (1997-2002) has had a chequered start, having been launched at the close of the second year (1998-99), and not even been discussed in Parliament. In the first three years of the Plan, there have been lapses in public investments, due to th e bulge in the fiscal deficits of the Centre and the States, and both infrastructure (especially power generation) and social sectors have been hit by poor funding.

The Planning Commission’s mid-term appraisal of the Plan is yet to see the light of the day — with only one year left. It would be extremely difficult to make up for any shortfalls even to a limited extent. The Commission is now reconciled to not achiev ing the average GDP growth rate of 6.5 per cent targeted under the Plan. The assumptions on domestic savings and investment, employment, infrastructure development and bringing down fiscal deficit of the Centre to 4 per cent of GDP are all being invalida ted, judging from the trends of the Plan’s first four years.

Economic and social goals have been enunciated in every Plan but their realisation remains as distant as ever. The Commission has, no doubt, to function within the limitations of an advisory body — outside the Constitution — which deliberates and lays down the objectives, policies and programmes under each Plan, as well as the physical and financial dimensions underlying the Plans.

Once the Plan outlays are finalised and remitted to the States and the Centre, the Commission maintains no track record of implementation, nor the evaluations at long intervals throw any light on the effectiveness of resource use, and delivery of service s. The impact of economic growth on different segments of the population is hardly visible to the Commission, which has to depend on the data collected by the Central Statistical Organisation with a considerable time lag. In the five decades of planned d evelopment, the Commission has hardly developed mechanisms to tackle the inadequacies and deficiencies in implementation and achieve the desired results.

In the 1990s, the public sector ceased to be the engine of growth of the economy, and the Eighth Plan (1992-97) acknowledged that planning would henceforth have to be indicative. As the state yields growing economic space to market forces, planning would essentially be limited to the extent where and at what levels public investments are necessary to achieve broader national goals. The Ninth Plan, no doubt, laid stress on public investment in infrastructure, but here again, not only has there been conti nuous shortfall, the policies to attract private participation, as in power and telecommunications, have hardly borne fruit.

The staggering dimensions of the gap between Plan targets and performance over the years have undermined the credibility of the planning process. The Commission itself no longer commands the authority it did as an independent agency to determine the deve lopment priorities and allocate resources. Apart from the sweeping liberalisation of the economy and its outward orientation, the severe resource limitations, and the policies and the decisions taken at various levels of government outside the Plan frame work, are making the tasks of the Commission more difficult.

Increasingly, the Commission is being looked upon as an appendage of the government, rather than as a think-tank that examined development issues objectively and came up with feasible options. The Commission’s Deputy Chairman himself heads a number of ta sk forces set up by the Prime Minister, and it remains to be seen how far their conclusions would get incorporated in any Plan. The Commission is drawing up a National Human Development Report, besides assisting States in the preparation of State-level d evelopment reports.

Whatever the shortcomings in Plan implementation, the Indian economy has maintained a growth momentum in the 1990s — thanks to policy liberalisations. Freed from the shackles of licensing and other regulations, productive sectors have begun to exhibit g reater dynamism than in the halcyon days of public sector dominance.

The Planning Commission, for its part, is also re-assessing its role in the vastly altered domestic and global scenario. The time is ripe for a restructuring of the Planning Commission with a clearly defined set of functions, so that it becomes more effe ctive both in formulation of public investment plans and implementation. It must increasingly address such basic needs as education, health and issues related to poverty alleviation and labour-intensive growth, to bring down the wide disparities between different regions of the country. Regional imbalances and financing problems will now get aggravated with the formation of three new smaller States.

Rather than being overawed by the recurring setbacks to development, the Commission is now shifting its sights to long-term goals and has decided to present a “Vision 2020” document. The Tenth Five-Year Plan will presumably be fitted into the 20-year p erspective that the Commission is working on.

Top of Form

On the eve of Independence in 1947, foreign trade of India was typical of a colonial and agricultural economy. Trade relations were mainly confined to Britain and other Commonwealth countries. Exports consisted chiefly of raw materials and plantation crops while imports composed of light consumer goods and other manufactures. Over the last 60 years, India’s foreign trade has undergone a complete change in terms of composition and direction. The exports cover a wide range of traditional and non-traditional items while imports consist mainly of capital goods, petroleum products, raw materials, and chemicals to meet the ever-increasing needs of a developing and diversifying economy. For about 40 years (1950-90, foreign trade of India suffered from strict bureaucratic and discretionary controls. Similarly, foreign exchange transactions were tightly controlled by the Government and the Reserve Bank of India. From 1947 till mid-1990s, India, with some exceptions, always faced deficit in its balance of payments, i.e. imports always exceeded exports. This was characteristic of a developing country struggling for reconstruction and modernization of its economy. Imports galloped because of increasing requirements of capital goods, defence equipment, petroleum products, and raw materials. Exports remained relatively sluggish owing to lack of exportable surplus, competition in the international market, inflation at home, and increasing protectionist policies of the developed countries. Beginning mid-1991, the Government of India introduced a series of reforms to liberalise and globalise the Indian economy. Reforms in the external sector of India were intended to integrate the Indian economy with the world economy. India’s approach to openness has been cautious, contingent on achieving certain preconditions to ensure an orderly process of liberalization and ensuring macroeconomic stability. This approach has been vindicated in recent years with the growing incidence of financial crises elsewhere in the world. All the same, the policy regime in India in regard to liberalization of the foreign sector has witnessed very significant change. In recognition of the growing importance of the foreign trade in driving the economy, this book describes and examines changes in the pattern of India’s foreign trade since Independence in 1947, with focus on post-1991 developments. It addresses issues related to trade policy, export strategy, tariff policy, current account dynamics, exchange rate management, foreign exchange reserves, capital account liberalization, external debt and aid, foreign investments (both direct and portfolio), and WTO.

Export Credit Guarantee Corporation of India Limited, was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit.

Being essentially an export promotion organisation, it functions under the administrative control of the Ministry of Commerce, Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community. ECGC, the fifth largest credit insurer of the world, presently covers 17.31% of India’s total exports. The present paid-up capital of the company is Rs.150 crores, which is expected to be enhanced to Rs.500 crores by the year 2002.

ECGC provides a range of credit risk insurance covers to exporters against loss in export of goods and services, and also offers guarantees to banks and financial institutions to enable exporters obtain better facilities from them. Exporters have a lot to benefit from ECGC as it provides —

1. insurance protection to exporters against payment risks
2. provides information on credit-worthiness of overseas buyers
3. provides information on about 180 countries with its own credit ratings
4. guidance in export related activities
5. makes it easy to obtain export finance from banks/financial institutions
6. assists exporters in recovering bad debts

The scope of the Export Promotion Capital Goods Scheme (EPCG) has been enlarged, following the amendments to the EXIM Policy on 31st March, 1995. The major provisions of the scheme are as follows

Export & Import – Incentives- Procedural Simplifications

Duty Entitlement Pass Book Scheme: As suggested by the Trade and Industry, instead of number of schemes like Quantity Based Advance Licence (QBAL), Value Based Advance Licence (VABAL), Special VABAL Schemes in respect of Electronics, Engineering, Ready-made Garments, Pharmaceuticals and Pass Book Scheme, the new EXIM Policy has only two schemes i.e. Advance Licensing Scheme corresponding to QBAL and a new scheme known as Duty Entitlement Pass Book Scheme (DEPB).

DEPB Scheme incorporates the concept of the old Pass Book but with simplified procedures and greater coverage and transparency in the matter of giving credit entitlements. The entitlement rate will be pre-determined so that the exporters at the time of exports can do their costing accordingly. It is a transparent scheme and does away with any discretion to the Licensing Authority or Custom Authority and can be availed on Pre-Export/Post-Export basis.

This scheme is very easy to operate and the exporter has to come to the Licensing Authority only once for getting the credit under post export DEPB. This should help the exporter to a great extent as there were many complaints of delay in getting credit under the old Pass Book Scheme.

Trade and Industry had requested for extension of old Pass Book Scheme to other ports. Accordingly, DEPB has been extended to all the ports for which Advance Licences facility is available.

Trade and Industry had asked for making the credit under the old Pass Book Scheme, transferable. Under DEPB, the credit can be transferred within the same port of Registration.

Export Processing Zones- FTZs and EPZs

Free Trade Zones and Export Processing Zones | Incentives for Export Processing Zones

FREE TRADE ZONES & EXPORT PROCESSING ZONES

1. Kandla Free Trade Zone (KAFTZ), Kandla, Gujarat;
2. Santa Cruz Electronic Export Processing Zone (SEEPZ), S. Cruz, Maharashtra;
3. Cochin Export Processing Zone (CEPZ), Cochin, Kerala;
4. Falta Export Processing Zone (FEPZ), Falta,West Bengal;
5. Madras Export Processing Zone (MEPZ), Madras, Tamil Nadu;
6. Noida Export Processing Zone (NEPZ), Noida, Uttar Pradesh;
7. Visakhapatnam Export Processing Zone (VEPZ), Visakhapatnam, Andhra Pradesh.

While the Santa Cruz Electronics Export Processing Zone (SEEPZ) is meant exclusively for the exports of electronics and gems and jewellery, all other zones are multi-product zones. 100% foreign equity is welcome in EOUs and EPZs.

Recently, with a view to augmenting infrastructural facilities for export production, government has permitted the setting up of EPZs in the private and joint sectors including those by Non Resident Indians and foreign companies

ncentives for EPZs
SOME INCENTIVES GIVEN TO EPZs AND EOUs

1. Single Window Clearance
2. No import licences are required
3. Import of all industrial inputs exempt from customs duty
4. Supplies from the DTA to EOUs and EPZ units are regarded as deemed exports and are hence exempt from payment of excise duty which means that high quality inputs are available at lower costs.
5. On fulfilment of certain conditions, EPZs, and EOUs are exempted from payment of corporate income tax for a block of 5 years in the first 8 years of operation. Export earnings continue to be exempt from tax even after the tax holiday is over.
6. Private bonded warehouses in the 7 EPZs can be set up for
   • Import and sale of goods including in the DTA, subject to payment of applicable duties at the time of sale
   • Trading including re-export after repacking/labeling oRe-export after repair, reconditioning or re-engineering
   • EOUs and EPZs are permitted to sub-contract part of their production processes for job work to units in the DTA on a case by case basis.
7. Supplies to the DTA under international competitive bidding against payment in foreign exchange to other EOUs and EPZ units and against import licenses are considered towards fulfilment at the export obligation.
8. The FOB value of exports of EOUs and EPZ units can be clubbed with that of parent companies located in the DTA for the purpose of obtaining a Trading or Export House status
9. EOUs and EPZ units may export goods through Trading and Export Houses or other EOU and EPZ Units.

RUPEE EXPORT CREDIT (PRE-SHIPMENT AND POST-SHIPMENT)

SBI understands and values your Pre shipment and post shipment commitments……  our  trade finance cell offers both Pre shipment and Post shipment credit in rupee denominated terms to exporters having firm export orders or confirmed letters of credit.

Avail Rupee export credit at most competitive rates at 449 branches.

Click to locate nearest forex authorized branch

Book forward contracts in respect of future export credit drawals.

Click here for export credit (rupee denominated) Interest rates.
Pre-Shipment Export Credit

SBI offers Pre-shipment Credit (Packing Credit) to the exporters, for financing purchase, processing, manufacturing or packing of goods prior to shipment.

This would mean any loan or advance extended to you by SBI on the basis of:

a) Letter of Credit opened in your favor or in favor of some other person, by an overseas buyer;
b) a confirmed and irrevocable order for the export of goods from India;
c) any other evidence of an order or export from India having been placed on the exporter or some other person, unless lodgement of export order or Letter of Credit with the bank has been waived.

Packing Credit is granted for a period depending upon the circumstances of the individual case, such as the time required for procuring, manufacturing or processing (where necessary) and shipping the relative goods. Packing credit is released in one lump sum or in stages, as per the requirement for executing the orders/LC.

The pre-shipment / packing credit granted has to be liquidated out of the proceeds of the bill dawn for the exported commodities, once the bill is purchased/discounted etc., thereby converting pre-shipment credit into post-shipment credit.

Post-Shipment Export Credit
SBI extend Post-shipment Credit that is any loan / advance granted or any other credit provided by SBI for purposes such as export of goods from India.

It runs from the date of extending credit, after shipment of goods to the date of realization of export proceeds and includes any loan / advance granted on the security of any duty drawback allowed by the Govt. from time to time. Post-shipment credit has to be liquidated by the proceeds of export bills received from abroad in respect of goods exported.

The exporter has the following options at post-shipment stage:

i.  To get export bills purchased /discounted / negotiated;
ii. To get advances against bills for collection;
iii. To receive advances against duty drawback receivable from Govt.

The exporter has the option to avail of pre-shipment and post-shipment credit either in rupee or in foreign currency. However, if the pre-shipment credit has been availed in foreign currency, the post-shipment credit has necessarily to be under EBR Scheme since foreign currency pre-shipment credit has to be liquidated in foreign currency. The details of pre-shipment and post-shipment credit in foreign currency are mentioned below.

For details contact:
(the Asstt. General Manager (Commercial & International Banking Products)

PRE-SHIPMENT CREDIT IN FOREIGN CURRENCY(PCFC)

SBI‘s Pre-shipment Credit in Foreign Currency (PCFC) is just what you need, when you are looking for funds in foreign currency. Avail it to meet your manufacturing, processing and packing fund requirements at international interest rates. Just not this, you can also cover the cost of both domestic as well as imported inputs of
SBI’s PCFC gives you choice of four different currencies in which to operate the scheme – the US Dollar, Pound Sterling, Euro and the Japanese Yen.

SBI has 64 branches across the country handling the PCFC facility for your exclusive convenience. Click here for the list of A & B category designated branches, with addresses/phone and fax nos. etc.

Our Foreign Department, based at Kolkatta, is the nodal centre for raising and deploying offshore and onshore funds for lending under PCFC.

Getting Started – Opening a PCFC

Make sure you have firm export orders or confirmed letters of credit, and you’ll find that obtaining the PCFC facility from SBI is a cakewalk. Of course, you also need to satisfy other credit norms.

Now for the icing on the cake – we let you have a running account facility with us for PCFC if you are an exporter with a good track record. The specified eligibility factor is that your over dues should not exceed 5 per cent of the average annual export realisations during the preceding three calendar years. In cases where a running account facility has been extended, you must produce a letter of credit or a firm export order within a reasonable amount of time.

More good news for existing clients – there is no need for a separate sub-limit for PCFC for you! The PCFC can be made available within the export packing credit available to you provided the outstanding amounts under both rupee and foreign currency facilities do not exceed the sanctioned limits.

Operating PCFC

PCFC is to be repaid only with the proceeds of the export bill tendered, under the export bill-rediscounting scheme.

In case of cancellation of export order, the PCFC line may be closed by selling equivalent amount of foreign exchange at TT selling rate prevalent on the date of liquidation.

How do the schemes operate?

PCFC & EBR schemes go hand in hand. The operation of these schemes is in three stages, viz.
i) Disbursement of PCFC
ii) Disbursement of EBR and simultaneous repayment of PCFC and
iii) Repayment of EBR.

When the exporter has sufficient drawing power available within his overall limit to accommodate the proposed PCFC advance, PCFC is made available to him either in foreign currency for payment of his import bills or in Indian rupees for purchase of domestic raw material by converting the foreign currency of PCFC at T.T. Buying rate.

PCFC is operated like cash credit account with balances in foreign currency. The liability of the exporter to the Bank on account of PCFC is in foreign currency. The rupee equivalent will be shown in the account only at notional rates which really doesn’t concern the exporter.Interest on PCFC will be arrived in foreign currency and the rupee equivalent thereof will be recovered at quarterly intervals from the exporter’s CC or Current account.

Click here for Export Credit (Foreign Currency Denominated) Interest rates.

For further details, please contact the Asstt. General Manager (Commercial & International Banking Products) nearest to you.

Frequently Asked Questions (FAQs)

Q. Is there any withholding tax on SBI PCFC?
A. No withholding tax is payable on the PCFC, if the interest on the foreign currency line is to be remitted to SBI foreign offices.

Q. Can PCFC drawals be booked on a forward basis?
A. Yes, forward contracts can be booked in respect of future PCFC drawals.

Q. What about cross currency drawals?
A. At SBI, PCFC drawals in cross currencies are allowed, subject to the exporter bearing the risk in currency fluctuations. However, cross currency drawals are restricted to the US Dollar. For instance, for an export order in a non-designated currency like the Swiss Franc, PCFC will be given only in USD. However, for orders in Pound Sterling, Euro and the Japanese Yen, pre-shipment credit may be availed in the respective currencies or USD. Multiple currency drawals against the same order are not permitted, for the sake of operational convenience.

EXPORT BILL REDISCOUNTING
Introduction
Avail SBI’s export bill rediscounting (EBR) for post shipment finance at international rates of interest.

PCFC will be liquidated with the discounting of bills under EBR scheme. The foreign currency of the bill will be applied to PCFC in foreign currency and if there is any surplus of the bill after adjusting to PCFC, the surplus portion will be converted into Indian rupees and credited to the exporter’s CC or Current account.

The EBR advance which is a foreign currency loan will be eventually closed when the overseas buyer pays the bill and the export proceeds are realised.

Take your pick from any of the four designated currencies: US Dollar, Pound Sterling, Euro and the Japanese Yen.

Contact any of our 64 forex-intensive branches handling EBR.

Getting Started
All export bills, demand and usance, are eligible for SBI’s EBR scheme. All exporters are eligible to cover their bills drawn under letters of credit, non-credit bills under sanctioned limits in the bill rediscounting scheme.

Operating the EBR Scheme
The bank offers export bill rediscounting for a maximum period of 180 days, inclusive of grace and transit periods.

What are the special advantages in availing PCFC & EBR from SBI?
Vast network of designated branches to handle the schemes and also a well laid out system of customers of non designated branches availing the schemes at the nearest designated branches.

• No minimum amount is prescribed for drawals under PCFC and EBR schemes
• No withholding tax need be paid by the exporters, as the lines of credit for funding PCFC and EBR are drawn by SBI from its own foreign offices.
• Competitive rates of interest for customers with good credit rating and high value business.

• guarantee provides protection to banks against non-realisation of export proceeds and the resultant failure of the exporter to repay the advances availed.

100% EXPORT ORIENTED UNITS

100% EXPORT ORIENTED UNITS (EOUs)

Companies can be setup anywhere in the country, including the Domestic Tariff Areas (DTAs), but declared as a 100% Export Oriented Unit, which means the total production from the company would be exported to customers abroad. Such companies enjoy special benefits largely similar to the units setup in the Export Processing Zones.

Rules Governing EOUs

Units located in export processing zones or elsewhere as 100%. In general, the minimum value addition for such units should be 20%, however for fish and shrimp culture and feed production units the specified minimum local value addition is 30%. The Government reserves the right to specify higher minimum value addition in specific cases.

Benefits offered to 100% EOUs

The main advantages in setting up a unit as an 100% export oriented unit are

• Full duty exemption on all imports;
• Tax holiday for any 5 consecutive years within 8 years from the commencement of production;
• Full exemption from sales tax and excise duty on all local purchases;
• Permission to convert all foreign exchange earnings at market determined rate; and
• Permission to have upto 100% foreign equity;
• EOUs/EPZ units can raise foreign currency loans, subject to certain conditions;
• Industrial plots and standard design factories are available to EOUs/EPZ units at concessional rates. For plots
  the concession will be 75% for the first year, 50% for the second year, and 25% for the third year, if and only if production had commenced in the first year or the second year not otherwise. For SDF buildings sheds the concession will be 50% for the first year and 40% for the second year if production had commenced in the first year. The concession will be 25% for the third year. These concessions are also only if production had commenced by the end of the first year, not otherwise.

Additional Benefits

100% export oriented units are permitted to sell a certain specified percentage of their production in the domestic market. Units having an indigenous input content of 30% are allowed to sell upto 25% of their production in the local market, if indigenous input content is less than 30% the domestic sales can be upto 15% of the total production.

Requirements for Approval

100% Export Oriented Units Scheme~

Such approvals will be subject to the conditions given below:~

The entire production and operation of 100% Export Oriented shall be in a customs bonded factory unless otherwise specifically the Collector of Customs/Central Excise concerned will provide the bonding facilities for the factory premises on payment. The normal procedure that is applicable for Customs bonding will be followed including transit bond for the purpose of goods being taken from the port of importation to the factory
.

• Import of capital goods permitted is to be effected within two years from the date of issue of the Letter of Intent/Permission. In case where the capital goods have not been imported by the unit within the said period of two years, the unit will have to apply afresh to the Administrative Department concerned.

The Administrative Department, if satisfied with the reasons for failure to import Capital Goods with the stipulated period, will obtain the approval of the Board. In case any additional import of Capital Goods over and above the value permitted initially is required, the unit will have to apply afresh to Board of Approvals, through the Administrative Ministry concerned along with relevant details.

• 100% Export Oriented Units will be eligible for replenishment benefits in accordance with the provision laid down in the Import & Export Policy of Government of India.
• The entire production shall be exported except Rejects upto 5% or such percentage as may be fixed by the Board; Supplies effected in the Domestic Tariff Area as per the provisions of Policy and Effected the Domestic Tariff Area under global tender conditions.
• The items permitted for import under Open General License and the conditions applicable thereto are
  contained in the relevant Open General License given in Vol. II. For their other import requirements, if any, not covered under Open General License, the unit concerned will have to obtain import license from the Chief Controller of Imports and Exports, New Delhi. Applications will be considered on merits, having regard to indigenous angle and other conditions.
• The unit will have to show a minimum value addition of 20% or such percentage as mentioned in the Letter of Intent/Permission. For this purpose, all foreign exchange out-go as well as supplies procured from the Domestic Tariff Area of raw materials, components and consumables shall be taken into account. Units desirous of setting up projects under the 100% Export Oriented Units Scheme will, henceforth, have to submit detailed techno-economic feasibility reports, including marketing arrangements along with their application so that Government is able to satisfy itself on the basis of viability of the proposed project. With a view to ensuring viability of projects, it has been decided to approve, under the scheme, only such projects as offer a reasonable annual turnover, depending on the nature of the venture. The guidelines will be decided by Government from time to time.
• While applying for approval, the applicant unit should also furnish the list of items including capital goods, it
  will need to import. In respect of raw materials, components, consumables and spares, etc. the requirements (imported and indigenous both) covering a period of five years in respect of each item should be given. The quantity and value should also be mentioned in respect of each item. The list of items should also include items which have been placed under Open General License under the normal Import Policy.
• A unit approved under this Scheme shall execute a Bond or legal agreement in the prescribed format with the licensing authority concerned undertaking to fulfill the export obligation prescribed.
• Failure to discharge the export obligation will render the unit liable to payment of Customs duty on the material imported at the value and at the rate as applicable at the time of import without prejudice to any other actions that may be taken under the Custom Act, 1962 and the Imports and Exports (Control) Act, 1947 and the orders issued thereunder. Exemption from Customs duty on imports by 100% Export Oriented Units will be subject to such other orders as may be issued separately by the Department of Revenue, Ministry of Finance, New Delhi.
• Within a month of the close of each financial year, the unit concerned shall furnish an annual account to the concerned licensing authority in regard to Quantity and value (c.i.f. or the price paid, as the case may be) of items directly imported or supplies obtained domestic tariff area; The quantity and FOB value of items exported outside the country; Sales of rejects permitted; Sales permitted to domestic tariff area; and Supplies to domestic tariff area under the global tender condition.
• Units shall also furnish quarterly progress/performance reports prescribed performa to the Export Production Section (100% Export Oriented Units Cell), Ministry of Commerce. Failure to do so will involve deter penal action.
• Wherever an existing industrial unit is operating both as domestic unit as well as an approved 100% Export Oriented Unit, it should have two distinctly different names for the two units.
• It is clarified that it is not necessary for the approved 100% Export Oriented Unit to have a separate legal entity. However, it should be possible to distinguish the import and export or supplies effected by the 100% Export Oriented Units made by the other unit/units of the same firm/company. The 100% Export Oriented Unit, though not having separate legal entity, would not be eligible to be considered for the benefits of any provisions under this policy other than those provided for 100% Export Oriented Units.

EXPORTS & IMPORTS

All goods may be freely imported or exported save for two ‘Negative Lists’. The Negative List of Imports and Negative List of Exports place restriction on imports or exports of certain goods on the ground of public policy.

• Capital goods are freely importable without any restriction. Import of second-hand capital goods, except for few specified sectors (which include food processing industry, seafood and packaging/packaging material) require a license.
• Second-hand capital goods imported should not be more than 7 years old and should have a minimum residual life of 5 years.
• As mentioned earlier, foreign exchange for import of goods would have to be obtained from the market at market at market determined rates.
• Effective import duties currently range between 0 and 65 per cent.
• Lower duty rates are generally applicable to raw materials and intermediate goods in comparison with finished products. General machinery and project imports currently attract duty at the rate of 25%. The Government has announced its intention to progressively reduce duty rates over the next few years.
• Imports of raw materials and intermediates required for export production do not attract any import duties. Capital goods imported for export production are importable at concessional duties ranging between 15% and 25% of CIF value. Units located in free trade zones or 100% export-oriented units are exempted from all import duties. Certain sales to domestic units where the buyers earn or save foreign exchange for the country are termed as ‘deemed exports’ and such production/sales qualify for export- related incentives.

List Prohibited/Restricted for Imports in Food Sector

The list of goods in this sector prohibited/restricted for import are as follows:
AB-PROHIBITED

• Tallow, fats and oils of animal origin
• Animal rennet
  AB-RESTRICTED
• Concentrate of alcoholic beverages
• Wines
• Saffron, Cloves, Cinnamon and Cassia
• Seeds, Plants and animals
• Insecticides and Pesticides
• Flavouring essences
• Perfumery compounds/Synthetic essential oils.
  AB-CANALISED (imports only through Government Agencies)
• Oils and seeds and all other material from which oil can be extracted.
• Fatty acids and acid oils
• Cereals

List Prohibited/Restricted for Exports in Food Sector

All items can be exported freely except for few prohibited / restricted items. The list of prohibited / restricted items, in this sector, are as follows: ~ABPROHIBITED~

• Beef
• Fats and oils of animal origin excluding fish oil

AB-RESTRICTED

• Cattle
• Coconut and Copra excluding some coconut products
• De-oiled groundnut cake containing more than 1% oil
• Expeller cake of all varieties except cotton seed expeller cakes
• Fish meal with less than 50% protein content
• Silver pomfrets, subject to certain conditions
• Wild orchids
• Mulberry pierced cocoon
• Milk, baby milk and sterilised liquid milk pulses.
• Processed pulses (other than those made of pulses imported for re-export)
• Paddy
• Rice bran
• Seeds and Planting Materials
• Seaweeds
• Uncrushed bones other than fish bones
• Vegetable oils
• Brown sea-weeds subject to certain conditions
• Cotton-seed expeller cakes
• Culled live sheep and goat (Adult)
• Wheat Straw
• Saffla seed
  AB-CANALISED EXPORTS (only through Government Agencies)
• Butter
• Gum resia
• Niger seeds
• Onions

EXPORTS DOCUMENTATION STEPS INVOLVED

The following steps need to be followed to execute an export order:

Parties, Acts and important publications:

Among the most important Acts/publications which should be consulted by an exporter in connection with the processing of an export order, its execution and its fulfillment are the:

• Customs Act
• Carriage of Goods by Sea Act ;
• Foreign Exchange Regulation Act ;
• Schedule of Charges of Goods in respect of the port of shipment;
• Handbook of Export Promotion; Import-Export Policy Volumes I and II; and Handbook of Import-Export Procedures. The main parties involved in processing are the exporter, the foreign buyer, the negotiating bank, the shipping company, the insurance company, the Reserve Bank of India, the Chief Controller of Imports & Exports, the Collector of Customs, the Port Commissioners and the clearing and forwarding agents. Before processing the export order, a businessman/firm has to undertake certain activities which will enable him/it to accomplish his export obligation. These are as follows: 1) Obtaining the Reserve Bank Code Number:
• This is a requirement under the Foreign Exchange Regulation Act. For getting this code number, a firm has to apply to divisional office of the RBI having jurisdiction over the area where it is located. The prescribed form for the purpose is called ‘CNX’ which has the current account of the firm in question. Besides giving details about the organisation and items to be exported, the exporting party has to furnish its permanent Income Tax account number. 2) Registration with Export Promotion Councils:
• Registering is an essential requirement if an exporter wishes to avail of the benefits granted by the Government under its Import policy. Among the important registering authorities are various Export Promotion Councils or Commodity Boards such as the Marine Products Export Development Authority, the Agricultural and Processed Food Products Export Development Authority, the Tea Board, the Coffee Board, the office of the Jute Commissioner, the Khadi and Village Industries Commission, Directors of Industries of state governments, Development Commissioners of Free Trade Zones/Export Processing Zones and the Federation of Indian Export Organisations. 3) Obtaining an Import-Export Code Number:
• This number has to be obtained from the Joint Chief Controller of Import and Exports (JCCI&E)/the licensing authority or else the Customs authorities will not permit the clearance of goods to an importer. Steps that need to be followed to process an export order: ~ABStep 1~ ~AIScrutinise the order with reference to the terms and conditions of the contract.~ The export order must specify the mode of payment in unmistakable terms such as the Letter of Credit, Documents, on Payment, Documents against Acceptance. The most important documents required by an importer are : a) Bill of Exchange b) Commercial Invoice c) On Board Clean Bill of Lading d) Marine Insurance Policy e) Packing list and f) Certificate of Origin. These should be given to the negotiating bank. ~ABStep 2~ ~AIFor a manufacture-exporter, after the export order has been confirmed, a `delivery note’ should be sent to the works manager.~ This note should contain all relevant details pertaining to the specifications/requirements of the importer. Nothing should be left at the discretion of the works/factory manager. A merchant-exporter, who purchases the required goods from the market or gets them produced by other manufacturers, also has to provide the necessary specifications/requirements/instructions to the supplier of the goods to be exported. ~ABStep 3~ ~AIAfter the goods have been manufactured/procured, the following is to be done:~
• Clearance from the Central Excise authorities by obtaining the Gate Pass (GP)-1 form if goods are to be
  removed under claim for rebate of duty, GP-2 form if goods are to be removed under a bond i.e. as per the terms and conditions of the Collector of Customs or AR-4/AR-4A form if the exporter wishes to avail the services of the Central Excise Officer for the purpose of having a physical verification at the factory and thereafter sealing of packages;
• The concerned Export Inspection; c) A Railway Receipt has to be obtained if the goods are despatched by train to the port of shipment. ~ABStep 4~ Once the goods have been despatched to the port, the Works/Factory manager is supposed to send a `despatch advice’ to the firm’s Export Department. Then marine insurance cover is solicited. At this stage, formalities regarding floor price regulations, canalisation, certificate of origin, ECGC (Export Credit Guarantee Commission) cover need to be completed. Thereafter, the Export Department sends the following documents to its Clearing & Forwarding agent (henceforth called the agent):
• Commercial Invoice
• Original Export order
• Original Letter of Credit
• GR from showing RBI Code Number of the exporter
• AR_4A/AR-4form
• Excise gate pass
• Packing & Weight Lists
• Certificate of Inspection
• Declaration form
• Invoice
• Export License where necessary
• Purchase Memo
• Railway receipt.
  ~ABStep 5~ ~AIAfter the agent has taken control of the consignment, a shipping bill is prepared by him.~ Three kinds of shipping bills are to be prepared depending on the category of export goods. These are Free, Dutiable and Drawback shipping bills. ~ABStep 6~ Once the shipping bill has been cleared by Customs, the agent forwards a copy of the shipping bill to the Shed Superintendent of the concerned Port Trust and therafter a Dock Challan is made, which is then released to the agent after debiting the exporter’s account with the concerned Port Commissioners. ~ABStep 7~ A Mate’s Receipt is prepared by the ship’s export clerk and is given to the agent once port charges have been paid. The agent then forwards the relevant documents to the exporter. ~ABStep 8~

After receiving the above documents from the agent, the exporter files a claim with the Maritime Collector of Central Excise forbade of excise duty.~ In the meantime, a shipment advice should be sent to the importer. Documents are then presented to the negotiating bank. Thereafter the documents are transmitted to the banker of the importer, after which the importer would take custody of the consignment once the goods reach their destination and other relevant formalities are completed are completed at that end.

PROCEDURES for IMPORT

All licenses for imports and exports are valid for a specific period during which the import of export of the goods should be completed. If the license does not specify any specific period, the imports should be completely by 31st March of the licensing year. Every individual or firm or company importing goods, whether against an import license or otherwise, or exporting goods, is required to obtain Importer-Exporter Code(IEC) No. from the concerned licensing authority unless specifically exempted by the Directorate General of Foreign Trade (DGFT). The customs authorities do not allow clearance of goods to an importer who does not process a valid IEC number. This applies also to a person importing or exporting goods as an agent or as a holder of letter of authority, or as a transfer of an import license. The IEC No. is required to be quoted in the relevant bill of entry. The code number is valid only for the individual/organisation for whom it has been allotted. An import license for raw materials, components and goods other than capital goods is normally endorsed with a validity of 12 months and that for capital goods for a validity of 24 months. The Indian importer in case of processed food industry can make an application to the Directorate General of Technical Development, India, for the use of import certificate, in prescribed form: The validity of imports of plant and machinery allowed to be imported freely is for new machinery only. However, their import in second hand condition is also allowed by the Government but only against an import license. The import of second-hand capital goods for the manufacture/processing sea food is permitted without license. Goods which are allowed to be imported without any restriction can be sold or transferred by the importer without permission from any authorities. Transfer of imported goods subject to ‘Actual User’ condition and in surplus requires prior permission from the licensing authority. A license holder can appoint another person as his agent for arranging the imports permitted against the license. The functions of the agent, who is acting on the behalf of the license holder, may be limited to placing orders, opening letters of credit, making remittance for importing the goods, arranging movement of goods to be imported and clearing the same through the customs, etc. For the import of certain restricted items of raw materials, components, parts, consumable, etc for which there is no specific policy, the applicant can make an application to the Directorate General of Foreign Trade, New Delhi in duplicate in prescribed form along with following documents: Bank receipt/Demand draft for payment of the application fee.

• A certificate from a chartered accountant or cost accountant or company secretary, who is not a director or employee of the applicant firm or its associates, showing consumption of all the items proposed to be imported during the preceding two licensing years (irrespective of whether they were imported or indigeneously procured by the applicant).
• Justification for imports and copy of orders for the execution of which imports are sought.
• Copy of industrial license, registration certificate or any other relevant certificate, in the name of the applicant. i.e. value of direct exports by the applicant during the preceding two licensing years. In cases where the goods have been found short-shipped, short-landed or lost in transit prior to actual import anM/or detected as such at the time of clearance through the customs, replacement imports are permitted on the strength of the certificates issued by the Customs authorities and no license is required.
• The agreed sale price, less the capital gain tax, can be remitted fully only if the Reserve Bank considers the sale price to be reasonable.

The new 5-year Export and Import for the period 1997-2002 aims at giving a major thrust to acceleration of India’s exportsthrough restructuring and revamping of various export promotion schemes and wide ranging measures for simplification and streamling of procedures with a view to making them more transparent and easy to administer.

The policy aims at consolidating the achievement made possible during the preceeding 5-year Exim Policy for 1992-97, while continuing the process of trade reforms and trade liberlisation with a view to achieving higher rate of export growth. The new Exim Policy focused on the need to allow exporters to concentrate on the manufacture and marketing of their products globally in an environment unhindered by discreationary controls and procedural bottlenecks. The policy aims at enabling the industry to enhance its competitiveness in the global markets and to achieve its full potential in the areas of its strength.

Its objectives are : Accelerating the country’s transition to a globally oriented vibrant economy in order to derive maximum benefits from expanding global market opportunities, Stimulating sustained economic growth by providing access to essential Raw Materials, Intermediates, Components, Consumables and Capital Goods, derived from augmenting production, Enhancing the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitiveness while generating new employment opportunities.

Encouraging the attainment of internationally accepted standards of quality and providing consumers with good quality products at reasonable prices.

Highlights of Exim Policy

The new 5-year Export and Import policy for the period 1997-2002 aims at giving a major thrust to acceleration of India’s exports through restructuring and revamping of various export promotion schemes and wide ranging measures for simplification of procedures with a view to making them more transparent and easy to administer.

Gems & Jewellery Scheme To promote export of gold jewellery, it is proposed to increase the number of nominated agencies permitted to stock gold. At present only HHEC, SBI, MMTC and STC are doing this. This improvement will make available adequate quantity of gold to exporters on replenishment basis or on outright purchase.

Moreover, the EOU/EPZ units are being permitted to sell 10% of their output in the DTA against SIL on payment of duty.

Duty Exemption Scheme Significant changes have been made to reduce the multiplicity of schemes, improve their attractiveness and to make them simple and easy to administer. The quantity based advance license has been continued.

It has restructured various export promotion schemes and has replaced Value Based Advance License and the Passbook Scheme by a new scheme called Duty Entitlement Passbook Scheme. Under this scheme, an exporter, on the basis of notified entitlement rates, will be granted duty credits which will allow them to import inputs duty free. He can make use of this to import any free importable item. The credit can be transferred to another person but the transfer will be valid within the same port.

Under the Advance Licensing Scheme, the procedure has been further simplified. The Export Obligation period of 12 months has now been extended to 18 months. Further extension for 6 months will be granted on payment of 1% of the value of unfulfilled exports. This will reduce considerable paper work and harassment to the exporter.

Software Software units can undertake exports using a data communication link or in the form of physical exports through a courier service also. They will be permitted on-line data communication for DTA sales, use of the computer system for commercial training and import of goods on loan from clients for a specified period.

Agro Sector Import of equipment of Rs 5 crores and above under the Zero Duty EPCG Scheme will be permitted for this sector.

Double weightage will be given to agro exports in calculating the eligibility of Export Houses, Trading Houses, etc. An additional 1% Special Import License on the total value of exports will be given for export of fruits, vegetables, floriculture and horticulture products.

EOU/EPZ units will be permitted to sell 50% of their output in the DTA on payment of duty without insistence on value addition.

Special Incentives for Export of SSI product/Products from North Eastern States/New Markets
An additional Special Import Licence of 1% on total value of exports has been given to EH/TH, etc., where such exports of products from North Eastern States constitute 10% or more of the total exports made. Double weightage on such exports has been given for recognition as EH/TH/STH/SSTH. Additional SIL has also been given for exploration of new markets. SIL on export of SSI products has been increased from 1% to 2%.

In case of small scale exporters holding ISO 9000 series or IS/ISO 9000 series quality certification, the FOB value of export will now be Rs. 1 crores and above during the preceding three licensing years instead of the limit of Rs. 5 crore and Rs. 2 crore respectively prescribed for others.

Export /Trading /Star Trading /Super Star Trading Houses
Earlier eligibility criterion for recognition of Export House/Trading House/Star Trading House/Super Star Trading House based on the average annual export performance of the preceding 3 licensing years was Rs 10 crores, 50 crores, 250 crores and 750 crores respectively. Keeping in mind the export target growth to be reached by the turn of the century and the fact that such status holders contribute between 60-70% of the country’s total exports this has now been revised to Rs 20 crores, 100 crores, 500 crores and 1500 crores respectively.

Incentives to improve Quality of Export Products The SIL entitlement of exporters holding IS/ISO 9000 series has been increased from 2% of FOB to 5% of FOB.

Procedural Simplifications

A] DUTY EXEMPTION SCHEME : As suggested by the Trade and Industry, instead of number of schemes like Quantity Based Advance Licence (QBAL), Value Based Advance Licence (VABAL), Special VABAL Schemes in respect of Electronics, Engineering, Ready made Garments, Pharmaceuticals and Pass Book Scheme, the new EXIM Policy has only two schemes i.e. Advance Licensing Scheme corresponding to QBAL and a new scheme known as Duty Entitlement Pass Book Scheme (DEPB).

DEPB Scheme incorporates the concept of the old Pass Book but with simplified procedures and greater coverage and transparency in the matter of giving credit entitlements. The entitlement rate will be pre-determined so that the exporters at the time of exports can do their costing accordingly. It is a transparent scheme and does away with any discretion to the Licensing Authority or Custom Authority and can be availed on Pre-Export/Post-Export basis.

This scheme is very easy to operate and the exporter has to come to the Licensing Authority only once for getting the credit under post export DEPB. This should help the exporter to a great extent as there were many complaints of delay in getting credit under the old Pass Book Scheme.

Trade and Industry had requested for extension of old Pass Book Scheme to other ports. Accordingly, DEPB has been extended to all the ports for which Advance Licences facility is available.

Trade and Industry had asked for making the credit under the old Pass Book Scheme, transferable. Under DEPB, the credit can be transferred within the same port of Registration. This Scheme covers both Manufacturer Exporter as well as Merchant Exporter.

B] Gem and Jewellery Schemes : Under the Gem & Jewellery REP Scheme, third party exports have been allowed so that the small exporters are able to market their products in the international market and are able to claim REP licences based on disclaimer certificate from the third party.

The facility of bulk licence for import of rough diamonds has been further liberalized and now the bulk licence holder can import from any source and not necessarily from DTC London.

C] Net Foreign Exchange Earning : The definition of Net foreign Exchange earning for getting recognition as EH/TH/STH/SSTH, for claiming SIL on NFE basis and for discharging Export Obligation under Zero Duty EPCG Scheme, has been made simpler and unambiguous. Only the value of licences issued excluding the value of Special Import Licences and EPCG licences will be deducted from the FOB value of exports to arrive at NFE.

Other Simplifications

Inter-face with DGFT has been reduced considerably as can be seen from the following measures: The export obligation period under Advance Licence has been enhanced from 12 months to 18 months and similarly the validity of the Advance Licence has been enhanced from 12 months to 18 months. Hence the exporter gets more time for export and import automatically without coming to DGFT for extension.

In case the exporter is not able to complete exports even in this enhanced period, provision has been made for extension of export obligation period by Regional Licensing Authority to the extent of 6 months on payment of penalty@ 1% of unfulfilled export obligation value. This will also provide an incentive to the exporter to complete export obligation within the original period of 18 months. Jigs, Tools, Fixtures, Moulds, Tackles, Computer Hardwares and Instruments imported for the purpose of jobbing under DES can now be retained on payment of Customs Duty without the permission of Advance Licensing Committee if the item imported is not in the Negative List of Imports.

The value limit for Advance Licence under production programme basis has been enhanced from 25% of average FOB value of his exports to 100% of average FOB value of his exports so that the exporter could obtain Advance Licence in one go for his requirement and does not have to come to Regional Licence Authority time and again.

The financial powers of Regional Licensing Authority for issuance of licence where input-output norms have already been fixed and for issue of EPCG licences has been enhanced so that the parties could get the facility at the nearest point. Exporters of Gem & Jewellery earlier had to complete the exports within 90 days in outright purchase basis or Replenishment Scheme or within 60 days under Loan Scheme and his period could be further extended by 30 days.

The time period under all these categories has been enhanced by 30 days straight away without any provision of further extension so that the exporter does not have to come to DGFT for getting extension. Counter-Assistance System in the Headquarters DGFT and all the Regional Licensing Offices will be further strengthened and Head of the Office will be personally responsible for streamlining the Counter-Assistance System inrespect of every scheme under EXIM Policy so that delays do not occur in processing applications under the various EXIM Policy Schemes.

Wherever exporters cannot file their claims for incentives under EXIM Policy because of genuine reasons, a facility has been provided to consider such applications which have been submitted late but not later than six months of the specified last date, by applying a cut of 10% on their entitlement. This will do away with the need to request for relaxation of the Policy and Procedures for accepting late applications.

Every attempt has been made to clearly specify the operational requirements under various schemes to avoid the need for seeking clarifications. Need to submit a large number of documents with every application has been reviewed and the minimum number of documents prescribed. Besides, the repetitive nature of information sought in every application has been dispensed with and application forms have been greatly streamlined and rationalised to elicit only the barest essential information required for giving exporters the benefit of EXIM Policy Schemes.

Trends and Prospects

Exports are the major focus of India’s trade policy. The export sector is a core sector in the economic growth of the country and is important for addressing macro economic concerns. The incentives offered by the export promotion package is comparable to that of any other country. The focus remains on inducing the foreign investors to set up export oriented units in India. India offers a production base for foreign markets around the world for sourcing components and products manufactured at a low cost.

Export growth has shown a downward trend since the year 1996. Export growth during April-February 1997-98 is placed at 2.63% in dollar terms over that of the corresponding period in 1996-97. The 1997 figures stand at only 4%.

The performance in the current fiscal year (1997-998) has been erratic – there was a sharp decline in the first quarter, which was somewhat reversed in the second quarter, again to slow down in the third quarter with a slight improvement noted in the month of February 1998. The slow growth may be attributed to both domestic and international factors besides sectorial problems and difficulties. The amendments to the Exim policy announced by the Government in April 1998 have been framed keeping in view the fact that it would take some time to achieve high growth.

Opportunities
India’s strategic location, between Middle East and South East Asia, presents itself as a country with immense business opportunities. Its neighbors include Pakistan, China, Nepal, Sri Lanka and Bangladesh. The countries labor advantage adds to this. India has vast reserves of technical and scientific manpower, backed by engineering and management institutes of excellence. India’s skilled labor is in great demand in the world’s premier organizations. Both skilled and unskilled labor is easy to find and wage rates are highly competitive compared to international levels. Language is not a barrier as the professional work force is conversant in English and the main transactions and procedures are done in the same language. The government also provides a number of incentives and facilities for exporters. India’s rich resource and production base provides significant opportunities for investors to establish export units.

THE PROTECTION OF WOMEN AGAINST SEXUAL HARASSEMENT AT WORKPLACE BILL, 2007

A BILL
to provide for prevention and redressal of sexual harassment of women at workplace and for matters connected therewith or incidental thereto.

BE it enacted by Parliament in the Fifty-eighth Year of the Republic of India as follows:-

CHAPTER I

PRILIMINARY

1. (1) This Act may be called the Protection of Women against Sexual Harassment at Workplace Act, 2007.

(2) It extends to the whole of India.

(3) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

Short title, extent and commencement.

2. In this Act, unless the context otherwise requires,-
(a) “aggrieved woman” means any woman employee against whom any act of sexual harassment is alleged to have been committed;

(b) “appropriate Government” means in relation to a workplace which is established, owned, controlled or wholly or substantially financed by funds provided directly or indirectly-

(i) by the Central Government or the Union territory administration, the Central Government;

(ii) by the State Government, the State Government.

(c) “Chairperson” means the Chairperson of the Committee or of the District Committee, as the case may be;

(d) “Committee” means an Internal Complaints Committee constituted under section 4;

(e) “District Officer” means an officer appointed under section 5;

(f) “employee” means a person employed at a workplace for any work on regular, temporary, ad-hoc or daily wage basis, either directly or by or through an agent, including a contractor, with or without the knowledge of the principal employer, whether for remuneration or not, or working on a voluntary basis or otherwise, whether the terms of employment are express or implied and includes a domestic worker, a co-worker, a contract worker, probationer, trainee, apprentice or by any other name called;

(g) “employer” means:-

(i) in relation to any department, organisation, undertaking, establishment, enterprise, institution, office, branch or unit of the appropriate Government or a local authority, the head of that department, organisation, undertaking, establishment, enterprise, institution, office, branch or unit or such other officer as the appropriate Government or the local authority, as the case may be, may by an order specify in this behalf;

(ii) in any workplace not covered under clause (i), any person responsible for the management, supervision and control of the of the workplace;

(h) “Local Committee” means the Local Complaints Committee constituted under section 6;

(i) “member” means a member of the Committee or of the Local Committee, as the case may be;

(j) “prescribed” means prescribed by rules made under this Act;

(k) “respondent” means a person against whom a complaint has been made under section 7;

(l) “Workplace” means:-

(i) any department, organisation, undertaking, establishment, enterprise, institution, office, branch or unit which is established, owned, controlled or wholly or substantially financed by funds provided directly or indirectly by the appropriate Government or the local authority or a Government company or a corporation or a co-operative society;

(ii) any private sector organisation or a private venture, undertaking, enterprise, institution, establishment, society, unit or service provider carrying on commercial, professional, vocational, educational, industrial or financial activities including production, supply, sale, distribution or service;

(iii) a house or dwelling place;

(iv) and includes any place visited by the employee arising out of, or during and in the course of, employment;

(v) “Unorganized Sector” which shall come within the meaning of “workplace”, means all private unincorporated enterprises including own account enterprises engaged in any agriculture, industry, trade and/or business and includes sectors as mentioned in the schedule, being illustrative.

3. No woman employee at a work place shall be subjected to sexual harassment including unwelcome sexually determined behavior, physical contact, advances, sexually coloured remarks, showing pornography, sexual demand, request for sexual favours or any other unwelcome conduct of sexual nature whether verbal, textual, physical, graphic or electronic or by any other actions, which may include, -

(i) implied or overt promise of preferential treatment in employment; or

(ii) implied or overt threat of detrimental treatment in employment; or

(iii) implied or overt threat about the present or future employment status;

(iv) conduct which interferes with work or creates an intimidating or offensive or hostile work environment; or

(iv) humiliating conduct constituting health and safety problems.

Prevention of sexual harassment at workplace.

CHAPTER II

CONSTITUTION OF COMMITTES

Constitution of Internal Complaints Committee.

4. (1) For the purpose of this Act, every employer of a work place shall constitute, by an Office Order in writing, an Internal Complaints Committee.

Provided that where the offices or administrative units of the workplace are located at different places or divisional or sub-divisional level, the Committee shall be constituted at all administrative units or offices.

(2) The Committee shall consist of the following members namely:-

(a) a Chairperson, from amongst employees, who shall be a senior level woman, committed to the cause of women. In case a senior level woman employee is not available, the Chairperson shall be appointed from a sister organization or a non-governmental organization;

(b) not less than two members from amongst employees committed to the cause of women or who have had experience in social work; and

(c) one member from amongst such non-governmental organisations or associations or other interests committed to the cause of women, as may be specified:

Provided that atleast fifty per cent of the members so nominated shall be women.

(3) The Chairperson and every member of the Committee shall hold office for such period, not exceeding three years, from the date of their nomination as may be specified.

(4) The Chairperson and members of the Committee shall be entitled to such allowances or remuneration as may be prescribed.

(5) Where the Chairperson or any member of the Committee contravenes the provisions of section 14, such Chairperson or member, as the case may be, shall be removed from the Committee and the vacancy so created or any casual vacancy shall be filled by fresh appointment in accordance with the provisions of this section.

5. The appropriate Government may appoint a District Magistrate or Additional District Magistrate or the Collector or Deputy Collector as a District Officer for every District to carry out the functions under this Act.
Appointment of District Officer

6. (1) Where at a workplace, constitution of the Committee is not possible or practicable, or where the complaint is against the employer himself, the District Officer may, constitute at every Block, a Local Complaints Committee.

(2) The Local Committee shall consist of the following members:-

(a) a chairperson to be appointed by the appropriate Government from amongst women committed to the cause of women;

(b) one member to be appointed by the appropriate Government from amongst the registered trade unions or workers associations functioning in that block or district;

(c) two members, of whom at least one shall be a woman, to be appointed by the appropriate Government from amongst such Non-Governmental Organizations or associations or other interests committed to the cause of women, as may be specified.

(3) The Chairperson and every member of the Local Committee shall hold office for such period, not exceeding three years, from the date of their appointment as may be specified.

(4) The Chairperson and Members of the Local Committee shall be entitled to such allowances or remuneration as may be prescribed.

(5) The jurisdiction of the Local Committee shall be limited to the area within the Block level where it is constituted.

(6) Where the Chairperson or any member of the Local Committee contravenes the provisions of section 14, such Chairperson or member, as the case may be, shall be removed from the Local Committee and the vacancy so created or any casual vacancy shall be filled by fresh appointment in accordance with the provisions of this section.

Constitution of Local Complaints Committee.

CHAPTER III

COMPLAINT

Complaint of sexual harassment. 7. (1) An aggrieved woman may make a complaint of sexual harassment at workplace to the Committee or the Local Committee, as the case may be, in writing:

Provided that where such complaint cannot be made in writing, the Chairperson or any member of the Committee or the Local Committee, as the case may be, shall render all reasonable assistance to the woman making the complaint to reduce the same in writing.

(2) Where the aggrieved woman is not able to make a complaint on account of her physical or mental incapacity or death or otherwise, her legal heir or such other person as may be prescribed may make a complaint under this section.

8. (1) At the request of the aggrieved woman the Committee or the Local Committee, as the case may be, may, before initiating enquiry under this Act, take steps to settle the matter between her and the respondent through conciliation.

(2) Where a settlement is arrived at under sub-section (1), the Committee or the Local Committee, as the case may be, shall record the settlement and recommend the employer not to take any action in the matter.

(3) The Committee or the Local Committee, as the case may be, shall provide the copies of the settlement recorded under sub-section (2) to the aggrieved woman and the respondent.

(4) Where a settlement is arrived at under sub-section (1), no further enquiry shall be conducted by the Committee or the Local Committee, as the case may be.

Conciliation

9. (1) Where conciliation under sub-section (1) of section 8 is not arrived at, the Committee or the Local Committee, as the case may be, shall, subject to the provisions of section 14, proceed to make enquiry into the complaint in such manner as may be prescribed:

Provided that where the aggrieved woman informs the Committee or the Local Committee, as the case may be, that any term or condition of the conciliation arrived at under sub-section (1) of section 8 has not been complied with by the respondent, the Committee or the Local Committee shall also proceed to make inquiry into the complaint.

(2) The Committee or the Local Committee, as the case may be, shall have such powers for the purpose of making enquiry under sub-section (1) as may be prescribed.

(3) The enquiry under sub-section (1) shall be completed within a period of ninety days.

(4) Where the Committee or the Local Committee, as the case may be, fails to complete the enquiry within the period specified under sub-section (3), the employer or the District Officer, as the case may be, may take such action as may be prescribed.

Enquiry into complaint.

CHAPTER IV

ENQUIRY INTO COMPLAINT

Action during pendency of enquiry.
10. (1) During the pendency of enquiry, on a written request made by the aggrieved woman, the Committee or the Local Committee, as the case may be, may recommend to the employer to-

(a) transfer the aggrieved woman or the respondent to any other workplace; or

(b) grant leave to the aggrieved woman; or

(c) grant to the aggrieved woman any other relief which may be prescribed.

(2) On the recommendation of the committee or the Local Committee, as the case may be, under sub-section (1), the employer or the District Officer may take such necessary action as may be deemed proper.

Enquiry report.
11. (1) On the completion of an enquiry under this Act, the Committee or the Local Committee, as the case may be, shall provide a report of its findings to the employer, or as the case may be, District officer.

(2) Where the committee or the Local Committee, as the case may be, arrives at the conclusion that the allegation against the respondent has not been proved, it shall recommend to the employer or the District Officer that no action is required to be taken in the matter.

(3) Where the committee or the Local Committee, as the case may be, arrives at the conclusion that the allegation against the respondent has been proved, it shall recommend to the employer or the District Officer, as the case may be, -

(a) to take action for misconduct in accordance with the provisions of the service rules applicable to the respondent or where no such service rules have been made, in such manner as may be prescribed; or

(b) to deduct from the salary or wages of the respondent such sum of compensation to be paid to the aggrieved woman or to legal heirs, as it may determine, in accordance with the provisions of section 13; or to direct the respondent to pay such compensation to the aggrieved woman.

(4) Where any recommendation has been made to the employer or the District Officer under sub-section (1) he shall act upon the recommendation within ninety days of its receipt by him:

Provided that where the employer or the District Officer is not in agreement with any conclusion arrived at or recommendation made by the committee or the Local Committee, he may alter the conclusion or recommendation in consultation with the committee or the Local Committee, as the case may be, and the parties concerned in such manner as may be decided in the consultation and shall act upon the recommendation within ninety days of completion of the consultation.

12. (1) Where the Committee or the Local Committee, as the case may be, arrives at a conclusion that the allegation against the respondent is false or malicious or the aggrieved woman or any other person making the complaint has produced any forged or misleading document, it may recommend to the employer or the District Officer to take action against the woman or the person who has made the complaint in accordance with the provisions of the service rules applicable to her or him or where no such service rules have been made, in such manner as may be prescribed.

(2) Where the Committee or the Local Committee, as the case may be, arrives at a conclusion that during the enquiry any witness has given false evidence or produced any forged or misleading document, it may recommend to the employer of the witness or the District Officer to take action in accordance with the provisions of the service rules applicable to the said witness or where no such service rules have been made, in such manner as may be prescribed.

Punishment for false or malicious complaint and false evidence.

13. (1) For the purpose of determining the compensation to be paid to the aggrieved woman under clause (b) of sub-section (3) of section 11, the Committee or the Local Committee, as the case may be, shall have regard to-

(a) the mental trauma, pain, suffering and emotional distress caused to the aggrieved woman;

(b) the loss in the career opportunity due to the incident of sexual harassment;

(c) medical expenses incurred by the victim for physical or psychiatric treatment;

(d) the income and financial status of the respondent;

(e) feasibility of such payment in lump sum or in installments.

Determination of compensation .

Prohibition of publication or making known contents of complaint and enquiry proceedings.

14. Notwithstanding anything contained in the Right to Information Act, 2005, the contents of the complaint made under sub-section (1) of section 7, the identity and addresses of the aggrieved woman, respondent and witnesses, any information relating to conciliation and enquiry proceedings, recommendations of the Committee or the Local Committee, as the case may be, and the action taken by the employer under the provisions of this Act shall not be published, communicated or made known to the public, press and media in any manner:

Provided that information may be disseminated regarding the justice secured to any victim of sexual harassment under this Act without disclosing the identity and address of the aggrieved woman, respondent and witnesses.

22 of 2005

Penalty for publication or making known contents of complaint and enquiry proceedings.

15. Where any person entrusted with the duty to handle or deal with the complaint, enquiry or any recommendations or action to be taken under the provisions of this Act contravenes the provisions of section 14 shall be liable for penalty in accordance with the provisions of the service rules applicable to the said person or where no such service rules have been made, in such manner as may be prescribed.

Appeal.
16. Any person aggrieved by any order passed under clauses (a) or (b) of sub-section (3) of section 11 or sub-sections (1) or (2) of section 12 or section 15 may prefer an appeal in accordance with the provisions of the service rules applicable to the said person or where no such service rules have been made, in such manner as may be prescribed.

CHAPTER V

DUTIES OF EMPLOYER

Duties of the Employer 17. The employer shall-
(a) provide a safe working environment at the workplace;

(b) display at any conspicuous place in the workplace the Office Order made under sub-section (1) of section 4;

(c) undertake workshops and training programmes at regular intervals for sensitizing the members;

(d) provide necessary facilities to the Committee or the Local Committee, as the case may be, to deal with the complaint and conduct enquiry;

(e) ensure the attendance of respondent and witnesses before the Committee or the Local Committee, as the case may be;

(f) make available such information to the Committee or the Local Committee, as the case may be, as it may require with regard to the complaint made under sub-section (1) of section 7.

CHAPTER VI

MISCELLANEOUS

18. The Committee or the Local Committee, as the case may be, shall in each calendar year prepare, in such form and at such time as may be prescribed, an annual report and submit the same to the employer.

Committee to submit annual report.

19. The employer shall include a section on the cases filed and judgments conferred under this Act in each annual report of his organization.

Employer to include information in annual report.

20. (1) The appropriate Government, on being satisfied that it is necessary in the public interest or in the interest of women employees at a workplace to do so, by order in writing,-

(a) call upon any employer or District Officer to furnish in writing such information relating to sexual harassment as it may require;

(b) authorise any officer to make inspection of the records and workplace in relation to sexual harassment, who shall submit a report of such inspection to it within such period as may be specified in the order.

(2) Every employer and District Officer shall produce on demand before the officer making the inspection all information, records and other documents in his custody having a bearing on the subject matter of such inspection.

21. Where the employer or the District Officer fails to-

(a) constitute a Committee under sub-section (1) of section 4;

(b) take action under sections 11, 12 and 19; and

(c) contravenes or attempts to contravene or abets contravention of other provisions of this Act or any rules made thereunder,

he or she shall be punishable with fine which may extend to rupees ten thousand.

Power of the appropriate Government to make rules.
22. (1) The Central Government may, by notification in the official gazette, make rules for carrying out the provisions of this Act.

(2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:-

(a) the allowances and remuneration to be paid to the Chairperson and members under sub-section (4) of section 4;

(b) the allowances and remuneration to be paid to the Chairperson and members under sub-section (4) of section 6;

(c) the person who may make complaint under sub-section (2) of section 7;

(d) the manner of enquiry under sub-section (1) of section 9;

(e) the powers for making enquiry under sub-section (2) of section 9;

(f) the action to be taken by employer or District Officer under sub-section (4) of section 9;

(g) the relief to be recommended under clause (c) of sub-section (1) of section 10;

(h) the manner of action to be taken under clause (a) of sub-section (3) of section 11;

(i) the manner of action to be taken under sub-section (1) of section 12;

(j) the manner of action to be taken under sub-section (2) of section 12;

(k) the manner of action to be taken under section 15;

(l) the manner of appeal under section 16; and

(m) the form and time for preparation of annual report by Committee under section 18;

(3) Every rule made by the Central Government under this Act shall be laid as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of be no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.

(4) Every rule made under this Act by the State Government shall be laid, as soon as may be after it is made, before each House of the State Legislature where it consists of two Houses, or where such Legislature consists of one House, before that House.

(i) Every dispute, difference, or question which may at any time arise  between the parties  thereto or any person  claiming under them, touching or arising out of or in respect of this agreement (deed) or the subject matter thereof shall be referred to the arbitration  of XY, etc. or if he shall be  unable or unwilling to act, to another arbitrator to be agreed upon between the parties or failing  agreement to be nominated by…………or, failing agreement to two  arbitrators  one to be appointed by each party to the  difference (whether consisting of one or more than one person) and in case of difference of opinion between them  to an umpire appointed by the said two arbitrators before entering on the reference  and the decision  of the arbitrator ( or such arbitrators, or umpire as the case may be) shall be final  and binding on the parties.

OR

(ii) In the event of any dispute, difference or question arising out of or in respect of this agreement or the commission of any breach of any terms thereof or of compensation  payable thereof or in any manner whatsoever in connection with it, the same shall be referred  to the Chamber of  Commerce……….(or the Association of………..) for arbitration  as provided in Rules framed by the said Chamber (or Association) for the purpose. The decision or award so given shall be binding on the parties hereto.

OR

(iii) All disputes arising  between the partners as to the interpretation, operation, or effect of any clause in this deed or any other difference arising between the partners, which cannot be mutually resolved, shall  be referred to the arbitration of…………failing him to any other arbitrator chosen by the partners in writing. The decision of such an arbitrator shall be binding on the partners.