The Regulatory Foundation
International trade from India operates under two primary frameworks:
Foreign Exchange Management Act (FEMA): governs all cross-border money movement. Any payment received for exports or sent for imports must flow through authorized dealer (AD) banks and be reported to the RBI within prescribed timelines. FEMA replaced the older FERA with a less punitive framework — violations are civil, not criminal.
Foreign Trade Policy (FTP): issued every five years by DGFT (Directorate General of Foreign Trade), it defines India’s export promotion strategy, import restrictions, and the incentive scheme structure. The current FTP 2023 introduced RoDTEP as the primary export incentive replacing MEIS.
Entry Requirements
IEC (Importer-Exporter Code): a 10-digit code issued by DGFT. Mandatory before executing any import or export. Application is online via the DGFT portal with GST registration and bank account details. Processing time: 1–2 working days. The IEC is linked to PAN and is permanent — no renewal.
RCMC (Registration-cum-Membership Certificate): required for exporters of specific product categories regulated by Export Promotion Councils (EPCs). Different councils cover different sectors: APEDA for agricultural products, EEPC for engineering goods, Chemicals and Allied Products EPC, etc. RCMC is necessary to claim export incentives under schemes like MEIS/RoDTEP.
Government Export Incentive Schemes
RoDTEP (Remission of Duties and Taxes on Exported Products): the current primary scheme. Rebates embedded taxes and duties that are not refunded through GST drawback — electricity duty, mandi tax, fuel taxes on transport. Rates vary by product HS code (0.5% to 4.3% of FOB value).
Duty Drawback: refund of customs duties paid on imported inputs used in the manufacture of exported goods. Two variants: All Industry Rate (AIR) — fixed rates by product category; Brand Rate — custom rate for manufacturers who can demonstrate actual duty paid on imported inputs.
EPCG (Export Promotion Capital Goods): allows import of capital equipment at zero or reduced customs duty in exchange for an export obligation (typically 6× the duty saved, fulfilled within 6 years). Beneficial for manufacturers making large equipment investments.
Advance Authorization: allows duty-free import of inputs that are physically incorporated into export products. Tied to specific export commitments; requires maintenance of detailed records.
Incoterms 2020: Defining Risk and Cost Transfer
Incoterms define the precise point at which cost and risk transfer from seller to buyer. Choosing the wrong Incoterm can create unexpected liability or cost exposure.
| Incoterm | Risk Transfer Point | Who Arranges Freight | Who Arranges Insurance |
|---|---|---|---|
| EXW (Ex Works) | Seller’s premises | Buyer | Buyer |
| FCA (Free Carrier) | Named carrier location | Buyer | Buyer |
| FOB (Free on Board) | On board vessel at origin port | Buyer | Buyer |
| CFR (Cost and Freight) | On board vessel | Seller | Buyer |
| CIF (Cost, Insurance, Freight) | On board vessel | Seller | Seller (minimum) |
| DAP (Delivered at Place) | Named destination place | Seller | Seller |
| DDP (Delivered Duty Paid) | Named destination | Seller | Seller |
FOB is the most common Incoterm in Indian export transactions. The seller delivers goods to the port and loads them on the vessel; risk passes at that point. The buyer arranges and pays for ocean freight and insurance.
CIF is common when the buyer wants a single price inclusive of freight and insurance. The seller arranges both but only provides minimum insurance coverage (110% of invoice value against total loss).
DDP places maximum burden on the seller — they handle everything including import customs clearance and duty at destination. Used for established seller-buyer relationships where the seller has strong logistics capability in the destination country.
Export Documentation
A complete export shipment requires:
Commercial Invoice: the primary transaction document. Must include: exporter and consignee details, description of goods, HS code, quantity, unit price, total value, currency, Incoterm, country of origin.
Packing List: itemized list of packages, their contents, gross and net weights, dimensions. Cross-references the commercial invoice.
Bill of Lading (B/L): issued by the shipping company. Evidence of the contract of carriage and receipt of goods. In a documentary credit transaction, the original B/L is the document of title — physical possession of the B/L controls the goods. Airway bills (for air freight) are non-negotiable; B/Ls can be negotiable (to order) or non-negotiable (straight).
Certificate of Origin (CoO): certifies where the goods were manufactured. Required for claiming preferential duty rates under Free Trade Agreements (FTAs). Different FTAs require different forms: SAFTA Form D for South Asia, ASEAN Form AI, Form A for GSP benefits.
Product-specific documents (as applicable):
- Phytosanitary certificate: for agricultural products, issued by the Plant Quarantine Authority
- Fumigation certificate: for wood packaging, verifying treatment against pests
- Test reports: for regulated products (electronics, chemicals, pharmaceuticals)
- Quality inspection certificates: for some commodities where buyer requires third-party inspection
Payment Instruments
Letter of Credit (LC): the most secure instrument for new relationships. The buyer’s bank (issuing bank) guarantees payment to the seller upon presentation of compliant documents to the seller’s bank (negotiating bank). Two types: sight LC (payment immediately on document presentation) and usance/deferred LC (payment after a defined period, e.g., 90 days after sight).
Telegraphic Transfer (TT/Wire): direct bank transfer. Faster than LC but requires trust — the seller ships goods before payment or the buyer pays before receiving goods. Common for established relationships.
Documents against Payment (DP): the seller ships goods and presents documents to their bank, which forwards them to the buyer’s bank. The buyer’s bank releases documents (and therefore the B/L/title) only against immediate payment.
Documents against Acceptance (DA): similar to DP but the buyer accepts a bill of exchange (promising to pay at a future date) in exchange for the documents. The seller extends credit. Used when the buyer needs goods before they can generate revenue to pay.
Advance Payment: buyer pays before goods are shipped. Maximum security for the seller, maximum risk for the buyer. Common for small orders or bespoke/made-to-order goods.
The Supply Chain Connection
Understanding export-import mechanics is directly relevant to supply chain ML work. Demand forecasting for internationally traded goods must account for:
- Lead times that include not just manufacturing but also documentation preparation, customs clearance (2–10 days depending on country and channel), and ocean transit (15–45 days for most Asia routes)
- Shipment consolidation patterns that create lumpy, irregular order quantities
- Incoterm-driven inventory ownership timing — FOB goods are the buyer’s risk once loaded, but DDP goods remain the seller’s risk until delivered
At Blue Yonder, supply chain planning for apparel clients involved modeling these trade flows explicitly — a stockout in a European distribution center could take 45 days to replenish from an Asian manufacturer, not the 5-day replenishment cycle that a purely domestic model would assume.