To Understand the Prospects of Begampur Handloom Cluster in the Export Market As Well As International Trade Fairs

Under the Guidance ofMr. Dibyendu Bikas Datta

SUBMITTED BYAnkita Dhandharia| Bhavya Singh| Lipi| Savita Rani| Tanya JainMFM: 2013-15Department of Fashion ManagementNational Institute of Technology, Kolkata

AcknowledgementWe as a team would like to give our biggest thanks to National Institute of Fashion Technology, Kolkata for taking such a huge initiative in trying to help and improve the handloom clusters of India and for having us as a part of it.The entire FMS Department, NIFT, Kolkata has been very supportive throughout. We would like extend our gratitude towards our respected faculty members Mr.Dibyendu Bikash Dutta, Ms. Bharti Moitra and Dr. Anannya Deb Roy for accompanying us for our visit and helping throughout.

We would like to give our sincere thanks to Prof. Dr. Sandip Mukherjee who guided us throughout the tenure of the project. A special thanks to our mentor Associate Professor Mr. Dibyendu Bikash Dutta who was a constant source of support.

Mr. Vikas, Mr. Tapas Das and all the other owners and managers of the various units who took out valuable time to familiarize us with the city and the artisans involved with the craft, we give them our heartiest thanks.

We would like to thank the various master artisans and craftsmen for giving us an insight into their lives and providing us with the valuable information.

Last but not the least, the humble people of Begampur has been very warm and welcoming

DeclarationTo include plagiarism and ethical issues statements and is a formal requirement. We declare the following:

1) That the material contained in this dissertation is the end result of our own work and that the due acknowledgement has been given in the bibliography and all references to ALL sources be printed, electronic or personal have been mentioned. 2) We agree to our dissertation being submitted to a plagiarism detection services, where it will be stored in a database and compared against work submitted from this or any other school or from other institutions using the service.

We declare that ethical issues have been considered, evaluated and appropriately addressed in this research.

Course: MFMName: Ankita Dhandharia| Bhavya Singh| Lipi| Savita Rani| Tanya Jain

Department: FMS (2013-15)Centre: NIFT, Kolkata

Table of Content

RESEARCH OBJECTIVES:Primary Objective:To understand the prospects of Begampur Cluster in the export market as well as International Trade Fairs.Secondary Objectives: To understand the internal & external business environment and identify the strength, weaknesses, opportunities and threats of the clusters visited. To suggest the strategies and ways to enter international market. To identify the various Legal procedures, formalities regarding handicraft exports in India.

RESEARCH METHDOLOGYSources of Data: Primary Sources: Primary data may be obtained from individuals, from families representatives, or from organisations. Secondary Sources: Secondary sources of data should first be considered, which refer to those that are already gathered and available data (in contrast with primary data). There may be internal sources within the client firm. Externally, these sources may include books or periodicals, published reports, data services, and computer data banks.Secondary data for the study has been collected from the following sources.i. Begampore Handloom Weaving Clusterii. Weavers Service Centre, Kolkataiii. Tantuja Bhavan, Kolkataiv. Biswa Bangla (Manjusha Bhavan 5th floor), Kolkatav. Craft Council of India, ICCR Kamala Hochimin Saranivi. Utsav Fashion, Kolkatavii. Craft Council of West Bengal

Our research makes use of both secondary and primary data; we use secondary data for gathering information about the retail scenario in India, and primary data to gather information about sample frames characteristics.Method of Data Collection:Once the decision in favour or of primary data is taken, one has to decide the mode of connection. The two methods available are observational methods and survey method.Observation: This method suggests that data are collected through ones observation. Another aspect of this method of is that it is not reactive as data are collected unobtrusively without the direct participation of the respondent. This is a major advantage as the behaviour can be recorded without relying on reports from the respondent.Surveys: In marketing research, field surveys are commonly used to collect to data from the respondents. Survey can be1. Personal interview2. Telephonic interview3. By mail4. By InternetIn our study, the method of data collection is survey methods through Internet, through the use of questionnaires.Research Tool:The questionnaire is structured and non-disguised in nature-a structured questionnaire is a formal list of questions framed so as to get the facts. The interviewer asks the questions strictly in accordance with a pre arranged order and where the object of enquiry is revealed to the respondent.Type of questions1. Open ended2. Close endedi. Dichotomousii. Multiple choiceIn our study, close ended multiple choice questions were used where the respondent is offered two or more choices, the marketing researcher exhausts all the possible choices and the respondent has to indicate which one is applicable in his case.Rank order scale-this is another type of comparative scaling technique in which respondents are presented with several items simultaneously and asked to rank them in the order of priority. This scale was used for of conjoint analysis. Graphical Analysis is through use of pie charts, bar diagrams etc.

LITERATURE REVIEW:(Ramswamy, 2013) In his research studied the present situation of handloom industry with the special focus on the Thenzawl cluster in Mizoram and also on the women weavers. This cluster has become a model of entrepreneurship for underprivileged tribal women. The researchers undertook the mapping of Thenzawl handloom cluster and observed that of the 205 micro handloom enterprises operating there interestingly, 98 per cent of the entrepreneurs were women. We highlight the impact of micro handloom enterprises on livelihood in terms of the extent of dependence of entrepreneur households on handloom enterprises, the proportion of small weavers (on the basis of looms owned) and income earned from the enterprises in the cluster. The article also offers suggestions to initiate cluster development activities in the cluster to enable it to sustain their initiative and grow.(Chowdhury, 1989) in his paper studies about the character and consequence of the response forged by a predominantly rural industry, the handlooms, in Bangladesh a country with massive poverty and considerable underdevelopment of public initiative to the forces of economic liberalisation and a certain degree of investment reprioritisation favouring rural development and infrastructure. The study found out that the profitability of handlooms has risen because the labour productivity has gone up. Producers returns have also improved due to a more flexible and independent marketing regime, as also to widespread availability of yarn trade credit that is mutually advantageous to the traders and weavers. (Mathur, 2006) in his article studies the growth of Maheshwari Sarees, produced in Maheshwar, Madhya Pradesh. The centre had stated with a production centre with 12 women and 6 looms in 1978 and has grown into phenomenon. The society today boasts of 120 functional looms with an equal number of weavers. All this has been made possible due to sustained efforts on multiple fronts of the weaving trade. These efforts can be classified into three broad domains: streamlining production, making the trade attractive for the weavers, and most importantly, engaging with markets and associated forces. (Roy, 1999) in his paper studies the powerlooms in Tamil Nadu. The powerloom industry has done exceptionally well in India, in the long run and especially during an export boom after trade liberalisation in the late 1980s. Its growth illustrates several intuitions of recent international literature and small firm dynamics. Using the example of an export oriented weaving region, the paper describes the origin and presents the conditions of the industry, its major handicaps, how it tries to address its handicaps and what kind of policy initiatives may be needed to deal with them. The paper also suggests that some recent changes in organisation and technology in the industry can be seen as attempts to deal wit these weaknesses.Krugman, (1991): New economic geography: Clusters as collocation decisions of firms due to increasing returns to scale, lower costs of moving goods across space, etc.

Rosenfeld (2005): clusters are simply geographic concentrations of interrelated companies and institutions of sufficient scale to generate externalities.

Cortright (2006): An industry cluster is a group of firms and related economic actors and institutions, that are located near one another and that draw productive advantage from their mutual proximity and connections.

Glaeser and Gottlieb (2009): People cluster incites to be close to something. At their heart, agglomeration economies are simply reductions in transport costs for goods, people, and ideas (p.1005).

Marshall (1890): Clusters as external economies created by labor market pooling and the benefits of moving people across firms, supplier specialization, knowledge spillovers.

Porter (1998): Geographic concentrations of interconnected companies and institutions in a particular field, linked by commonalities and complementarities. Clusters include: linked industries and other entities (suppliers), distribution channels and customers (demand), related institutions (research organization, universities, training entities, etc)

Saxenian (1994): Clusters as social and institutional phenomena: technological change, organizations, social networks, and other non-market relationship in which markets are embedded: organization within and between businesses, relationship among firms.

Hill and Brennan (2000, p. 67-8): We define a competitive industrial cluster as a geographic concentration of competitive firms or establishments in the same industry that either have close buy-sell relationships with other industries in the region, or share a specialized labor pool that provides firms with a competitive advantage over the same industry in other places.

Chowdhury, N. (1989). Bangladesh's Handloom Economy in Transition : A Case of Unequal Growth, Structural Adjustment and Economic Mobility Amid Laissez-Faire Markets : A Synthesis. The Bangladesh Development Studies , 1-22.Mathur, N. (2006). Maheswari Handloom Weavers. Ecconomic and Political Weekly , 3382-3384.Ramswamy, R. (2013). Women Weavers in Mizoram: Sustaining Livelihood through Cluster Development. Indian Journal of Gender Studies , 435-452.Roy, T. (2002). Acceptance of Innovations in Early Twentieth-Century Indian Weaving. The Economic History Review , 507-532.Roy, T. (1999). Growth and Recession in small scale industry: A study of Tamil Nadu Powerlooms . Economic and Political weekly , 3137-3143.Roy, T. (1999). Growth and recession in Small scale Industry: A study of Tamil Nadu Pwerlooms. Economic and Poltical Weekly , 3137-3143. Krugman, P. (1991). Increasing returns and economic geography. Journal of Political Economy,99(3),483-99. Rosenfeld, S. (2005). Industry Clusters: Business Choice, Policy Outcome, or Branding Strategy? Carrboro, NC. Regional Technology Strategies. Cortright, J. (2006). Making sense of clusters: regional competitiveness and economic development. Discussion paper Brookings Institution Metropolitan Policy Program. Glaeser, E. and Gottlieb, J. (2009). The Wealth of Cities: Agglomeration economies and spatial equilibrium in the United States. Journal of Economic Literature, 47(4), 983-1028. Saxenian, A. (1994). Regional advantage: Culture and competition in Silicon Valley and Route 128. Cambridge and London: Harvard University Press. Hill, E. and Brennan, J.F. (2000). A methodology for identifying the drivers of industrial clusters: the foundation of regional competitive advantage. Economic Development Quarterly, 14,65- 96. Porter, M. (1998). Competitive Advantage. Creating and sustaining superior performance. New York: Free Press.

INTRODUCTION TO HANDLOOM INDUSTRY AND CLUSTERS:Indian Handicrafts Industry & ExportsThe story of Indian handicrafts dates back to one of the oldest civilizations of the world. Representing beauty, dignity, form and style, handicrafts from India are objects dart. The sheer versatility of the various materials used to create handcrafted gift items make them truly unique. Materials range from wood, stone, metal, grass, papier mache and glass, to cane bamboo, textiles, clay, terracotta and ceramic - everything goes into the creation of a masterpiece.Significant GrowthToday, handicrafts and handcrafted gift items manufactured and exported from India are much sought after and have established an unsurpassable reputation in the international market. In 201213, Indian handicrafts exports stood at US$ 3.3 billion, registering a growth of approximately 22 per cent over the previous year. Exports of Indian handicrafts have grown at a rate of around 7 per cent since 200102.In line with the 12th Plan objective to achieve faster, more inclusive and sustainable growth, the strategy under the 12th Plan for the Handicrafts sector aims at creating world class globally competitive environment, providing sustainable livelihood opportunities to the artisans and thereby resulting in balanced socio-economic development and inclusive growth.Projections for HandicraftsThe exports of handicrafts is expected to reach INR 28368 cr (approx US$ 6177 million) in case an average growth of 18% per annum is maintained during the 12th Five Year Plan period. The Compounded Annual Growth Rate (CAGR) during the period 2012-13 till 2016-17 is 18%.The interventions will have a cascading effect on the production and sales in domestic markets. Assuming that 40% of the production for Handicrafts is consumed in domestic market and 60% is exported. The current employment as in 2010-11 is 6.7 million; however, the number of individuals to be employed with sector by 2016-17 is estimated to be 12.29 million. The CAGR during the period 2012-13 till 2016-17 is assumed @10 %.EmploymentIndian Handicrafts industry is considered as the second highest employment providing industry after agriculture. The employment increased from 65.72 lakh in 2005-06 to 76.17 lakh in 2010-11.Out of 74.17 lakh, 24.7% are SC, 2.3% are ST and 47.4% are female i.e. around 17.92 lakh are SC, 3.10 lakh are ST and 35.15 lakh are females.Production:Production in the handloom sector recorded a figure of 6952 million sqr. meters in the year 2012-13. During 2013-14 production in the handloom sector is reported to be 7116 million sqr. Meters

Export Scenario:The exports of handicrafts (other than hand knotted carpets) was merelyRs. 387.00croresduring the year of establishment of the Council i.e. 1986-87 rose to level of 17970.12Croresin year 2012-13.

Key Markets and Export DestinationsToday, owing to the increase in the manufacture and export of handicrafts, Indian handicrafts have reached every part of the world. Some of the major export destinations for Indian handicrafts include the following:

Indian handicrafts are exported across geographies with the top 10 markets being the US, the UK, the UAE, Germany, France, LAC, Italy, the Netherlands, Canada and AustraliaGrowth in Handicraft Export with respect to Total Exports

Indian Handicrafts & Gifts Fair which today had become a show window of Indian handicrafts among all the leading overseasbuyersneeds no introduction the show is being organized since 1994. The participation trend is:

DEFINITION OF CLUSTERA cluster is defined as a concentration of enterprises producing same or similar products or strategic services and is situated within a contiguous geographical area spanning over a few villages, a town or a city and its surrounding areas in a district and face common opportunities and threats. Accordingly, we have not considered activities which are of daily use services and/or where scope for joint action or passive cooperation is minimal or where the product grouping is too wide for common threats/opportunities to emerge. Clusters may be broadly divided into the following broad categories:Industrial cluster: Having at least 100 enterprises and/or a minimum turnover of Rs.100 million. Units in these clusters are functioning from factory premises with hired workers. Such clusters have a mix of micro, small, medium, few large and at times all micro units.

Micro-enterprise clusters: Such clusters are all micro units and are mostly done by household based units by mostly utilising home based workers. These include artisanal (handicrafts and handloom) and other micro enterprise clusters. A handloom cluster has a minimum of about 500 looms and that of handicrafts and other microenterprise clusters is estimated to have around 50 units. A business or industrial cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. Clusters are groups of inter-related industries that drive wealth creation in a region, primarily through export of goods and services. The use of clusters as a descriptive tool for regional economic relationships provides a richer, more meaningful representation of local industry drivers and regional dynamics than do traditional methods. An industry cluster is different from the classic definition of industry sectors because it represents the entire value chain of a broadly defined industry from suppliers to end products, including supporting services and specialized infrastructure. Cluster industries are geographically concentrated and inter-connected by the flow of goods and services, which is stronger than the flow linking them to the rest of the economy. Clusters include both high and low-value added employment. Clusters differ from one another depending upon their location, their history of emergence, the nature and organisation of their production, and their markets. A broad distinction may be set between clusters on a high or low road to growth, respectively between clusters where commercial dynamism is promoted through investments in efficiency enhancement and innovation, or clusters where firms adopt strategies based on cost reductions, notably in labor, resulting in the stagnation of productivity and growth. The high road to growth is current in developed countries, where the national regulatory framework and certain formal regulation, often devised at the cluster level, prevent from unfair business practices. Low road strategies prevail in developing countries, some clusters show a combination of the high and low roads to growth, but none is on an entirely high road. "Clusters are geographic concentrations of interconnected companies and institutions in a particular field. Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialized inputs such as components, machinery, and services, and providers of specialized infrastructure. Clusters also often extend downstream to channels and customers and laterally to manufacturers of complementary products and to companies in industries related by skills, technologies, or common inputs. Finally, many clusters include governmental and other institutions--such as universities, standards-setting agencies, think tanks, vocational training providers, and trade associations." (Porter, M.E. (1998). "Clusters and the New Economics of Competition," Harvard Business Review, November-December, 1998.)Increasingly, the competitiveness of metropolitan regions relies on the development of industrial clusters, or geographic concentrations of businesses and institutions in related economic sectors. The physical proximity of the players encourages interaction and promotes the exchange of ideas and expertise.A look at successful economies also highlights the importance of developing innovative industrial clusters characterized by a high level of interaction among firms, thus enabling them, as a group, to learn about changing economic conditions, adapt to them and benefit from them. The interactive nature of clusters stimulates innovation and economic learning.Clusters stimulate regional competitiveness in three ways:i. by increasing business productivityii. by boosting their innovation capacity, which underpins future productivity gainsiii. by stimulating the formation of new businesses, which expand and strengthen the clusterFirms that are part of a cluster are expected to operate more efficiently when sourcing inputs; accessing information, technology and institutions; coordinating with related firms; and measuring their performance against other firms so as to improve.

CLUSTER SCENERIO: WEST BENGAL Administrative Set Up:As usual in order to ensure that Power looms do not encroach upon the area of production by handlooms, there is one post of Deputy Director (Enforcement) under the control of Director of Textiles, Handloom, Spinning Mills, Silk weaving and Handloom based Handicraft Division who with the help of this subordinate inspectors and staff is responsible for enforcing the Provisions of the Handloom (Reservation of articles for production) Act, 1985 in the State.

Details of Handloom Cluster Development Projects as on 31/3/2013

BEGAMPUR CLUSTERDetails of Begampur Cluster:

Begampur is a census town in Hooghly district in the state of West Bengal, India. It is under Chanditala police station in Srirampore subdivision.Weavers are permanent inhabitants of Begampur village and are experts in weaving Mathapaar Sarees which are plane woven with colored borders using 60s and 80s cotton yarn and also plane cotton sarees with dobby border designs. The product is traditionally known as Begampuri Saree and used as one of the regular domestic items in Bengal and the other parts of the country.Begampur Handloom Cluster came into existence obviously to infuse interest and to boost the morale among the weavers. It is also aimed to increase their income by engaging them in this tradition and transform their skill into producing diversified items using Jacquard and Dobby devices and multi treadle technique etc. for making new and intricate designs in demand. By this way new marketing avenues for their products will be explored.It was strongly felt that a need has come to complement the traditional practices and methodologies with contemporary knowledge so that the cluster is well equipped to play a pivotal role in economic development of the area.In the view of the above, Weavers' Service Centre, Kolkata, the implementing agency of the cluster, imparts technology training for diversified products and provides need based inputs in the area of marketing, technology, institutional tie-ups and capacity buildings in different enterprise related sectors.GenderWomen play important role in handloom weaving. They help and support men, in various ways. Their labour cost gets masked in wages which a weaver receives. GeographyBegampur is located at 22.74N 88.24E. It has an average elevation of 15metres (49feet).DemographicsAs of 2001 India census, Begampur had a population of 9545. Males constitute 51% of the population and females 49%. Begampur has an average literacy rate of 75%, higher than the national average of 59.5%; with 53% of the literates being male and 47% being female. 9% of the population is under 6 years of age.EconomicsShantipur, Dhaniakhali, Begampur, and Farasdanga are the main cotton weaving centres in West Bengal which are involved in the weaving of fine-textured saris and dhotis. The saris of Begampur have deep and bright colours. Begampur also produces the gorgeous Mathapaar saris.TransportBegampur is 23 kilometres (14mi) from Howrah on the Howrah-Bardhaman chord line and is part of the Kolkata Suburban Railway system.Handloom products of Bengal have a rich tradition. The heritage of our master weavers and artisans are now blended with new technological designs and threads to produce wide variety of products. As an economic trade & industrial activity, the handlooms occupy a place second only to agriculture in providing livelihood to the people. The Government of West Bengal has given emphasis for the Handloom & Textiles Sector with announcement of new textile policy and setting up of Commissionerate of Textiles for development, infrastructure support and also improves attraction for investment.

Skill DifferencesAt a fundamental level, the skill differences across weavers are not significant. However, weavers develop an orientation based on the nature of work they do. Thus, a weaver working on a high-end product cultivates an eye for errors and acquires patience and precision. The trade, in its own context, highlights these traits and tends, sometimes, to present these as basic differences in skill. The work culture of the community is satisfactory in this cluster. These weavers may be induced to put in their labour for longer hours than scheduled, if they are offered higher wages. In that case, the productivity of this cluster is sure to go up.Traditional Continuity in This Occupation: Arguments against the above changeover are cited below: Alternative occupational opportunities are rather remote for weavers. Alternative occupations which are generally performed by unskilled labors do not ensure better income security. Alternative occupations deprive a weaver of the convenience of working from his home. Alter occupations entail strenuous physical labour under harsh conditions and also loss of dignity. The only alternative occupation for weavers who desire a change over may be field agriculture. But Begampur district being a flood prone area is open to risk and danger as well as uncertainty in income. Career span of the weaversIt depends on the health and mainly eye sight of the weavers. It has been observed that a weaver remains active as well as productive in this trade for a span of 18 48 years. His productivity, efficiency and necessarily his capacity to earn also falls down gradually.General view of the cluster weaversWeavers blame the market for their fate, since their wages is not at all satisfactory. Power looms are affecting the handlooms. No other option but to shift to other work.Govt. support requires strengthening the marketing. As for example, State Apex Body platform for marketing should be strengthened. Govt. should make efforts for general condition of weavers.Representative committee / association in the cluster:A committee namely Begampur Handloom Cluster Development Society is existing in Begampur district Handloom Cluster. It was formed, mainly with the representatives of weavers. Main object of formation of such committee is to protect the traditional handlooms in respect of globalize competitive market. Apart from this, the intention of the committee is to ensure better co-ordination with the concerned Govt. (both Central / State) department for availing maximum benefits for the development of this sector as well as weaving community.SUPPORT ORGANISATIONSIn this cluster, underneath agencies / institutions plays a key role for supporting the environment.Govt. agencies relate with handlooms Primary / Dist. Level Co-op. Societies Financial Institutions like Bank, etc. Local district based administration.1.Government agencies related with handloomsThere is one office for handloom cluster under the Directorate of Handloom & Textiles, Govt. of West Bengal. Office of the Begampur Handloom Cluster Development Handloom Society, Begampur Weavers Service Centre, Ministry of Textiles, Govt. of India based at Kolkata National Handloom Dev. Corpn. Ltd. Under administrative control of Ministry of Textiles, Govt. of India, having Regional Office at Kolkata National Institute of Fashion Technology based at Kolkata Textile Committee at Kolkata

Function and Activities of Office of the Begampur Handloom Cluster Development Handloom Society, BegampurMainly these two offices are headed by the Handloom Development Officer. These offices are mainly responsible for registration of Co-operative societies and monitoring the activities of the weavers co-operative societies.It also routed the different Central / State Government schemes for the benefits of handloom weavers and assists for implementation of different developmental schemes of Govt. through registered co-operative Societies of handloom. These include design, development, market development assistance, insurance and pension scheme for weavers, different health package scheme, support for export etc. It also helps to organize sale cum exhibitions on handloom products before local festivals like Durga Puja Bengali New Year etc. Function and activities of WSC Kolkata:The weavers are facilitated with filed/campus training from time to time where they are provided with latest information of dyeing techniques and weaving. Apart from that they also arrange exhibitions, seminars, workshops, focusing on new and improved design, equipment and processing techniques. They assist in implementing various govt. schemes in handloom sector & also give assistance and interaction with State Govt. handloom agencies.

Activities of N.H.D.C. Ltd: NHDC Ltd was set up in the year 1983 with the motive to cater raw material like standard quality of yarn, dyes & chemicals to the weavers under schemes provided by the Govt. of India from time to time. The Corporations motive is to regulate the yarn supply, so that the raw material is available to the weavers at reasonable price and standard quality is maintained. Apart from the commercial activities, developmental work related with the handloom such as:

Eco-care dyeing & processing To Disseminate Appropriate Technology Exhibition. Orientation Programmes on H.R.D. Organizing the Silk Feb/Special Exhibition on handloom Products. Activities of N.I.F.T. NIFT Kolkata started in the year 1995 with the objectives apart from imparting education on various fashion design course throughout India, also to assist other Govt. agencies in implementing various schemes for the upliftment of skills of artisans, craft persons and raise their standard of life and strive for overall development of fellow countrymen involved in handloom, handicrafts and other sector.

Services rendered by NIFT Kolkata towards development of the handloom weavers in West Bengal. : 1. Assisting in setting up Computer Aided Design (CAD) centre and also conducting CAT training workshop at NIFT campus from time to time. 2. Develop colour forecast and trends for the weavers for the European market and helping them in their execution. 3. Depute students of the weaving societies as a diploma project trainee for the upliftment of the weavers. 4. Participate in different DEPM seminars with different weavers societies and present papers on colour and trends. 5. Developing various vegetable colours for exportable products. 6. Participated in the Tex-Style India Fair at Pragati Maidan, New Delhi since year 2000 and helped many weavers organization to execute their stall display. 7. Working on establishing a Common Facility Centre (CFC) for the weavers.

Textile Committee Kolkata An Autonomous statutory body established under the Act of Parliament (TC Act 1963) under the administrative control of the Ministry of Textiles, Govt. of India. Functions: Unique organization with facilities for quality appraisal, assistance to exporters, textile testing, I.S.O. consultancy, market research and R&D related to textile industry. STRUCTURE OF THE CLUSTER Here, handloom sector consists of a set of handloom weavers and intermediaries. There are distinctive patterns, though the lines among various typologies are not sharp and change.There is only 1 Master weaver, 17 weavers and 2 supervisors in this cluster. Customers belong to two different categories. First category being certain societies which comprise of 10-14 members, one of them being Karsarai Society. These societies get the orders from institutions like Tantuja, Craft Council of India etc. Second category being the local markets like Bada Bazar, Khengrapatti, and other small markets in and around West Bengal.

Role of MahajansHere a handloom weaver is a job worker - receiving dyed yarn and design from the Mahajans, handing over a woven product and receiving wages. They form 95% of the now active weaver population at Begampur.A Mahajan is the medium between the weavers and the customers. He provides the raw materials such as yarns and threads for weaving as well as specific design if requested by the buyer. It is the Mahajan who provides wages to the weavers.

Working for the Mahajan is a common phenomenon here. The Mahajan supplies the raw materials; for example, the yarn supplied is already dyed and sized.The Mahajan specifies the designs, and also does the marketing once the product is woven. Typically, the entire family works continuously on the looms. For instance, Neelam Des family consists of his wife and a son aged 12. Except the child all of them weave. Their family income is approximately Rs. 8000 per month.PRODUCT MIXMathapaar Sarees:Weavers are permanent inhabitants of Begampur village and are experts in weaving Mathapar Sarees which are plane woven with colored borders using 60s and 80s cotton yarn and also plane cotton sarees with dobby border designs. The product is traditionally known as Begampuri Saree and used as one of the regular domestic items in Bengal and the other parts of the country. One kind is with naksha (zari borders with mostly temple motifs) and the other kind is without naksha.

MARKET FOR THE PRODUCTS:

Domestic:

Mathapaar sarees with different varieties like Naksapaar, Butik etc. which has been described as one of the most highly prized products of Indian Textiles tradition. This cluster is pioneer in production of this type of heritage handloom products in West Bengal. The price of cotton based Nakshapaar saree varies from Rs.300 400 per piece. That is why, these types of sarees have long established or traditional brand equity towards middle class segment in the domestic market. On the other hand, this type of saree are used to secure a large share of the price cake when it is sold through retail outlets like Traders Assembly at Kolkata or outside the State. But weaving community in this case does not enjoy the share of it. Above all, the sarees of this cluster has not been able to explore the neighbouring State market in a significant mannerInternational:

BUSINESS ANALYSIS1. SWOT ANALYSIS:STRENGTH: i. The traditional strength of the industry is its brand equity. The unique design and craftsmanship produced in Mathapaar sarees by the weavers in this cluster are the real strength. ii. The localization of weaver force, designers, loom fabricators, dyers and traders the group of competencies and resources are easily available inside the cluster. iii. Ample scope for product diversification by developing new designs through skilled artisans. iv. Possibilities of creating new product range besides the existing range of sarees for export market. Since dress material, home furnishing, stoles, scarves, dupattas etc. have already got good response in export market through merchant exporters. WEAKNESS: i. Presently in absence of marketing platform of State Apex body, it is fully dependent on trader group. ii. Lack of alternative marketing efforts of the SMEs group is also a major drawback of this cluster. iii. Monotonous quality of design also leads to deterioration of the quality of final product which ultimately impeding the progress of the cluster. iv. Infrastructural facility e.g., improve road condition, rural electrification, adequate railway communication as well as road transport are far below the expectation. v. Declining trend of clusters main product i.e. handloom sarees. Products are relatively costly because of the use of costly raw material i.e. higher counts of cotton hank yarn and silk yarn. vi. Linkages with the support institutions are better than in other cluster areas in West Bengal. OPPORTUNITIES: i. Ample scope for product diversification through modification of looms as well as development of latest design. ii. Through exposure visit, the designer and dyers should be made to interact with relevant service institutions/ exporters and thus they will be able to develop new technologiesand initiatives towards development of the cluster. iii. The website for cluster product catalogues can be created by a local service provider which can promote the market in outside the State and abroad also. iv. Geographical Indication registration is considered to be the most appropriate tool I.P.R. protection for the traditional knowledge of the weaving community It can be implemented in this cluster. v. Market linkage programmes may promote linkages between large volume buyers e.g., buying house, large companies like ITC Ltd. vi. Interventions may also pull up the supply issues such as improving quality, transportation, packaging, infrastructure etc. vii. Infrastructure facilitating direct support to infrastructure development, advocacy to influence Govt. support etc. THREAT: i. Emergence of power looms for product items like Lungi, Napkin (Gamcha) etc. ii. Decline in demand of sarees. iii. Increase in demand of low cost power loom product. iv. Competition from nearby cluster inside as well as outside State. v. Absence of occupational alternatives and legal frameworkleads to deterioration of the standard quality of the cluster product.

2. PEST ANALYSIS:i. Political: West Bengal as a state is known for its rich and varied textile and handloom industry. The state has been doing a lot to promote this industry. The Textile policy of the Government of West Bengal aims at doubling the share of West Bengals textiles industry from the current 5.2% to at least 10% in next ten years i.e. by 2022-23 in Indias textiles industry.The state government is taking a lot of steps to promote this industry: Providing a better and more conducive business environment for textile sector with special focus on spinning mills, yarn procurement, handloom, power loom, hosiery and garment sector. Simplifying the business regulatory environment in the state. Developing web-enabled common application gateway Progressively making clearances by the state authorities web-enabled. Introducing timelines defined in respect of all clearances. Enhancing the quality of human resource through training and skill development packages. Promoting pooling of common services and functions (common facility center) under cluster approach for the benefit of smaller players Strengthening participation of and support to SHGs and cooperatives in the production and marketing in textile sector. To meet the above goals the Government has set up many institutions like: West Bengal State Spinning Mills Federation (SPINFED) West Bengal Silk Development Corporation Ltd. (RESHAMSHREE) State Design Facilitation Centre (SDFC) for Handloom sector in partnership with private sector. The government also plans to provide subsidy for availability of electricity, water etc.

Though the government has been taking so many initiatives but there has been very little done for the Begampur district specifically. And the cluster isnt able to function to the full of the capacity to the very little subsidy that has been set aside for the cluster. The cluster has hardly been given any assistance as compared to other clusters like Srirampur and Phulia. And there are hardly any supporting institutions for Begampur.ii. Economic: The economic conditions of the Begampur cluster is economically not that advanced as the main occupation of the people there is weaving and the wages that are paid are no sufficient to meet their ends meet. The majority of weavers in this cluster earn a maximum of Rs 5,000 pm which is not enough to sustain an entire family. There is no financial aid and support available for the weavers either from neither the clusters nor the state government. This also as a factor for the people to leave this profession as seen by the trends.

iii. Social: The living standard of people is modest. Most of them live in Pucca Houses and semi-pucca houses. The children of most of the weavers attend schools and the weavers have received basic level of education.

iv. Technology: The weavers initially used the annual looms that have been used for years now. But gradually they have started using power looms. The use of Power looms lets them produce the same saree in the less time and less cost. Though this technology would prove beneficial in the longer run the high initial cost acts as hindrance for the wide usage of this. There are very few power looms in the cluster owing to this.

3. GROWTH ANSALYSIS THROUGH ANSOFF MODEL:Every business owner wants togrow their business but it is often difficult todetermine the best way forward.Here is a straightforward description of four different growth strategies and an explanation ofhow to determine which is best for your business.

This model was suggested by Igor Ansoff in 1958. He suggested that business owners ability to grow their businesses comes down to how they market new or existing products in new or existing markets. 1. He suggested the following Matrix as a framework for identifying corporate growth opportunities.1. Two dimensions determine the scope of options, namely 1. Products 1. Markets.Increasing Risk

ProductMarketExisting ProductNew Product

Existing MarketMarket PenetrationProduct DevelopmentIncreasing Risk

New MarketMarket Development

Diversification

Ansoff Matrix1. Market Penetration selling more of the same things to more of the same customers1. Market Development selling more of the same things to different customers1. Product Development selling new products or services tothe same customers1. Diversification selling new products or services to different customers.Using Ansoffs matrix, business owners can evaluate each of the growth strategies in turn to assess which is likely to result in the best possible return.i. Market Penetration Strategy: Aim of the strategy: To maintain or increase share of the current market with current products To secure dominance of a growth market or restructure a mature market by driving out competition Market penetration involves an increase in sales of existing products to existing markets - selling more of the same to the same people But it is difficult to achieve growth through increased market penetration if the market is saturated In a stagnating market increase in sales is only possible by grabbing market share from rivals. Hence competition will be intense in such markets Risks are low but the prospects of success are low unless there is strong growth in the marketApplicability of Market Penetration The market is not saturated There is growth in the market Competitors share of the market is falling Increased volumes lead to economies of scale There is scope for selling more to existing customersii. Market development This involvesa. Selling the same product to different peopleb. Entering new markets or segments with existing products c. Gaining new customers, new segments, new marketsd. Entering overseas markets Market development will require changes to marketing strategy e.g. new distribution channels, different pricing policy, now promotional strategy to attract different types of customers Applicability of market Development Strategy Market development is used when a. New channels of distribution reliable, inexpensive, good qualityb. Firm is successful at what it doesc. Untapped/unsaturated marketsd. Excess production capacitye. Basic industry rapidly becoming global Market development involves moderate risk - there is a lack of familiarity with customers but at least the product is familiariii. Product development This is the development of new products for the existing market New products come in the form of:a. New products to replace current productsb. New innovative productsc. Product improvementsd. Product line extensionse. New products to complement existing productsf. Products at a different quality level to existing productsiv. Diversification Diversification in the Ansoff Matrix means: New products sold to new markets New products for new customers It is a risky strategy because it involves two unknowns Therefore new products and new markets should be selected which offer the prospect for growth which the existing product market mix does not. One problem is to identify real life examples of firms developing new products for genuinely new groups of customers Diversification can be sub-divided into related and unrelatedDiversification may be a. Related diversification Horizontal diversification: when new products are introduced to current markets Vertical diversification: when an organisation decides to move into its suppliers or customers business to secure supply or to firm up the use of products in end products Concentric diversification: when new products closely related to current products are introduced into new marketsb. Unrelated Diversificationi. Growth in products and markets that are completely newii. Development beyond the present industry into products and markets which bear little relation to the present product market mixiii. No commonality with existing products and marketsiv. It is also known as conglomerate diversification: When completely new, technologically unrelated products are introduced into the new markets.v. As it represents a departure from existing products and markets it does represent considerable riskAnalysis of Ansoffs Matrix and Risk EvaluationThe greater the degree of newness the greater the risk. Hence:1. Market penetration - little risk involved1. Market development - moderate risk1. Product development - moderate risk1. Diversification - high risk because both product and market are new and unknownConclusion: For the growth of these clusters we suggest the market development strategy by extending the current products into international markets, which is an Ethnocentric approach guided by domestic market extension concept: Domestic strategies, techniques, and personnel are perceived as superior because of the following reasons:1. These craftsmen have their core strengths in their current Products.2. Domestic market has become highly competitive as the products are homogeneous with less degree of Differentiation.3. Domestic market is reaching saturation.4. New markets are emerging such as China, Latin America and South Africa and demand for Indian hand- printed Textiles in increasing in Foreign markets.5. NRIs can be prospective customers.6. New Channels of Distribution are available:E- Commerce7. New Channels for Promotion Internet ads pay per click Websites own & others International Trade fairs Social networking sites8. Comparatively Low investment in comparison to other strategies.9. Suitable for these micro and small Level entrepreneurs and craftsmen who cannot afford investment in expensive R& D for new product development.10. After opening up of FDI, Domestic Industry is getting globalised gradually.

Export Procedures, Documentation and Legalities

I. Reasons for Entering International or Global markets Growth Access to new markets Higher margins in international market than in domestic market. Can be a good source of utilization of Excess Capacity. Survival Against competitors with lower costs and increased competition in Domestic markets. After Opening up of FDI many Global Players are entering Domestic market. Push and pull factors Domestic market is highly Competitive and reaching saturation. Domestic Industry is highly fragmented. Indian Government is promoting Exports through various schemes and liberal EXIM policies to earn more foreign exchange in order to reduce fiscal deficit. Demand for hand printed textiles in increasing in the international markets. Demand for Organic Eco Friendly Products are Increasing in Global markets. New emerging markets after MFA such as South Africa, Latin America and China.

II. Stages in entering International Market

I. No Direct Foreign MarketingII. Infrequent Foreign Marketing Export operationsIII. Regular Foreign Marketing Export operations, Direct investment sales operations, Direct investment Production operationsIV. International Marketing Fully committed and involved in international marketing through production and service operationsV. Global Marketing Companies treat the world as one market

III. Documents requiredIn India, several documents have been prescribed to ensure compliance of Export Trade Control Foreign Exchange Regulations Quality Control & Pre-shipment Inspection Central Excise, etc.Proper documentation enables the importers to get the contracted goods and the exporters to get the payment & export incentivesTrade documents may be broadly categorized into 3 heads1. Commercial documents2. Legal or Regulatory documents3. Incentive and Assistance Claim documents

Commercial Documents1. Commercial Invoice 2. Packing list3. Insurance Certificate/Policy4. Bill of Exchange5. Shipment Advice

6. Certificate of Origin7. Pre Shipment Inspection Certificate

Legal Documents as per requirement of GOI Export License if necessary Ar4/Ar5 Form Pre-shipment Inspection Certificate Export Declaration form GR/PP/VPP/COD/Softex Form Shipping Bill - customsExport Process and documents requiredPrerequisitesStep 1: Registration with Income Tax Authorities for PANGoods exported out of the country are eligible for exemption from both Value Added Tax and Central Sales Tax. So, to get the benefit of tax exemption it is important for an exporter to get registered with the Tax Authorities.a)An applicant will fill Form 49A online and submit the form.

(b)If there are any errors, rectify them and re-submit the form.

(c)A confirmation screen with all the data filled by the applicant will be displayed.

(d)The applicant may either edit or confirm the same.

(e)On confirmation, an acknowledgement will be displayed. The acknowledgement will contain a unique 15-digit acknowledgement number.

(f)The applicant is requested to save and print this acknowledgement.

(g)'Individual' applicants should affix two recent colour photographs with white background (size 3.5 cm x 2.5 cm) in the space provided in the acknowledgement. The photographs should not be stapled or clipped to the acknowledgement. The clarity of image on PAN card will depend on the quality and clarity of photograph affixed on the acknowledgement.

(h)Signature / Left Thumb Impression should only bewithin the boxprovided in the acknowledgement. The signature should not be on the photograph affixed on right side of the form. In case of applicants other than 'Individuals', the authorized signatory shall sign the acknowledgement and affix the appropriate seal or stamp.The signature should not be on photograph. If there is any mark on photograph such that it hinders the clear visibility of the face of the applicant, the application will not be accepted.

Signature / Left hand thumb impression should be provided across the photo affixed on the left side of the form in such a manner that portion of signature/impression is on photo as well as on acknowledgement.

(i)Thumb impression, if used, should be attested by a Magistrate or a Notary Public or a Gazetted Officer under official seal and stamp.

(j)If communication Address is within India

(a). The fee for processing PAN application is96.00(85.00 + 12.36% service tax).

(b). Payment can be made either by

- Demand Draft

- Cheque

- Credit Card / Debit Card

- Net Banking

Step 2: Obtain TANTAN or Tax Deduction and Collection Account Number is a 10 digit alpha numeric number required to be obtained by all persons who are responsible for deducting or collecting tax. Under Section 203A of the Income Tax Act, 1961, it is mandatory to quote Tax Deduction Account Number (TAN) allotted by the Income Tax Department (ITD) on all TDS returns.It is compulsory to quote TAN in TDS/TCS return (including any e-TDS/TCS return), any TDS/TCS payment challan and TDS/TCS certificates.AN is allotted by the Income Tax Department on the basis of the application submitted to TIN Facilitation Centres managed by NSDL. NSDL will intimate the TAN which will be required to be mentioned in all future correspondence relating to TDS/TCS.

Application Procedure

(a)An applicant will fill Form 49B online and submit the form.

(b)If there are any errors, rectify them and re-submit the form.

(c)A confirmation screen with all the data filled by the applicant will be displayed.

(d)The applicant may either edit or confirm the same.

Acknowledgment

(a)On confirmation, an acknowledgment screen will be displayed. The acknowledgment consists of:

*A unique 14-digit acknowledgment number

*Status of applicant

*Name of applicant

*Contact details (address, e-mail and telephone number)

*Payment details

*Space for signature

(b)Applicant shall save and print this acknowledgment.

(c)Signature / Left thumb impression should only be within the box provided in the acknowledgment. In case of applicants other than 'Individuals', the authorised signatory shall sign the acknowledgment and affix the appropriate seal or stamp.

(d)Left hand Thumb impression, if used, should be attested by a Magistrate or a Notary Public or Gazetted Officer, under official seal and stamp.

Payment

(a)The fee for processing TAN application is62.00 (55.00 application charge + 12.36% Service Tax).

(b)Payment can be made by

-demand draftor

-chequeor

-credit card / debit cardor

-net banking

(c)Demand draft / cheque shall be in favor of'NSDL - TIN'.

(d)Name of the applicant and the acknowledgment number should be mentioned on the reverse of the demand draft / cheque.

(e)Demand draft shall be payable at Mumbai.

(f)Applicants making payment by cheque shall deposit a local cheque (drawn on any bank) with any HDFC Bank branch across the country (except Dahej). The applicant shall mentionTANNSDLon the deposit slip.

Submission of Documents

(a)The acknowledgment duly signed, along with demand draft, if any, shall be sent to NSDL at

NSDL e-Governance Infrastructure Limited,

5thfloor, Mantri Sterling,

Plot No. 341, Survey No. 997/8,

Model Colony,

Near Deep Bungalow Chowk,

Pune 411016

(b)Superscribe the envelope with 'APPLICATION FOR TAN - Acknowledgment Number' (e.g.'APPLICATION TAN - 88301020000244').

(c)Your acknowledgment and demand draft, if any, should reach NSDL within 15 days from the date of online application.

(d)Application will be processed only on receipt of duly signed acknowledgment and realisation of payment.

Step 3: Obtain TIN No. from NSDLTIN stands for Tax-Payer Identification Number, is unique number allotted by Commercial tax department of respective State. Its an eleven digit number to be mentioned in all VAT transactions and correspondence.TIN number is used to identify dealers registered under VAT. First two digits of TIN indicate the issued state code. However, Other 9 digit of TIN creation may differs by state governments.TIN number registration is required for Manufacturers, Traders, Exporters and Dealers. When new registration is undertaken under VAT or Central Sales Tax a new TIN will be allotted under registration number. The TIN number should appear on all Quotations/Orders/Invoices by both Sending Company and Receiving Company.You can apply for this number online or visit one of the governments many facilitation centres across the country and submit this form. Visit this link to find the one closest to you. These are the documents that you will need to apply for a TIN number 1. ID Proof / Address proof / PAN card of proprietor with six photographs 2. Address proof of Business premises 3. 1st Sale / Purchase Invoice, copy of LR/GR & payment/collection proof with bank statement 4. Surety/Security/Reference. This may differ slightly from State to State. After these documents are checked and scrutinized, a unique TIN number is provided to applicant. For applicants who have Central Sales Tax number, this can be changed to TIN number on request by the tax department.

Step4: Application for an Export License, if requiredTo determine whether a license is needed to export a particular commercial product or service, an exporter must first classify the item by identifying what is calledITC (HS) Classifications. Export license are only issued for the goods mentioned in the Schedule 2 of ITC (HS) Classifications of Export and Import items.As per Section XI of ITC HS CODE List and India Harmonised System Product classification codes, Export of Silk and cotton saris and scarves and dresses is free provided it has 85 % of respective fibre content.Chapter 50, 52 and 62 gives the requisite details.For all other products in general a proper application can be submitted to the Director General of Foreign Trade (DGFT). GUIDELINES FOR APPLICANTS Please see paragraph 2.50 of HBP v1 1. Two copies of the application must be submitted unless otherwise mentioned. 2. Each individual page of the application has to be signed by the applicant. 3. a. ANF 1 has to be filled in by all applicants. In case of applications submitted electronically, no hard copies of ANF1. However in cases where applications are submitted otherwise, hard copy of ANF1 has to be submitted. b. Only relevant portions of Application need to be filled in. 4. Application must be accompanied by documents as per details given below: For Export Licence for Restricted Items 1. Bank Receipt (in duplicate)/Demand Draft/EFT details evidencing payment of application fee in terms of Appendix 21B. 2. Self certified copy of Export OrderAddress of DGFT Kolkata:Government Of IndiaMINISTRY OF COMMERCE & INDUSTRYOFFICE OF THE ZONAL JOINT DIRECTOR GENERAL OF FOREIGN TRADE4, Esplanade East,Kolkata - 700 069.PBX Contact No.:033-22486831/32/33/34FAX:033-22485892E-Mail:jtdgftkol@nic.in/kolkata-dgft@nic.inWebsite : dgft.gov.in http://dgftkolkata.wb.nic.in/Step 5: Registration with Director General of Foreign Trade (DGFT) for IEC Number.For every first time exporter, it is necessary to get registered with the DGFT (Director General of Foreign Trade), Ministry of Commerce, Government of India.Prior to 1997, it was necessary for every first time exporter to obtain IEC number from Reserve Bank of India (RBI) before engaging in any kind of export operations. But now this job is being done by DGFT

DGFT provide exporter a unique IEC Number. IEC Number is a ten digits code required for the purpose of export as well as import. No exporter is allowed to export his good abroad without IEC number.

Exemption: If the goods are exported to Nepal, or to Myanmar through Indo-Myanmar boarder or to China through Gunji, Namgaya, Shipkila or Nathula ports then it is not necessary to obtain IEC number provided the CIF value of a single consignment does not exceed Indian amount of Rs. 25, 000 /-.

Application Procedure:

Application for IEC number can be submitted to the nearest regional authority of DGFT.Application form which is known as "Aayaat Niryaat Form - ANF2A" can also be submitted online at the DGFT web-site: http://dgft.gov.in.

Requirements : An applicant is required to submit

PAN account number. Only one IEC is issued against a single PAN number. Current Bank Account number and Bankers Certificate. Fee: An amount of Rs 1000/- is required to submit with the application fee. Mode of payment: This amount can be submitted in the form of a Demand Draft or payment through EFT (Electronic Fund Transfer by Nominated Bank by DGFT.

Step 2: Registration with Export Promotion Council for RCMC Certificate

Registered under the Indian Company Act, Export Promotion Councils or EPC is a non-profit organisation for the promotion of various goods exported from India in international market. EPC works in close association with the Ministry of Commerce and Industry, Government of India and act as a platform for interaction between the exporting community and the government.

So, it becomes important for an exporter to obtain a registration cum membership certificate (RCMC) from the EPCH

For the Export of handicraft the registration should be done with EPCH i.e. Export Promotion Council for Handicrafts in India. Requirements: Prospective members are required to submit their application as per the prescribed application form. The membership form can be obtained by paying Rs. 100/- in cash/demand draft drawn in favour of Export Promotion Council for Handicrafts payable at New Delhi.

The Amount of membership (April March) fees are as follows:Entrance fee in the year of enrolment - Rs. 1000/-Annual Membership fee - Rs. 2500/-Total (during the year of Enrollment) - Rs 3500/- + Service Tax (12.36%)Every year Membership Fee is due on 1st April and payment is to be made by 30th June. Membership renewal fee is Rs. 2500/- + Service Tax (12.36%) every year.The RCMC certificate is valid from 1st April of the licensing year in which it was issued and shall be valid for five years ending 31st March of the licensing year, unless otherwise specifiedStep 6: Open Current account with Bank having Foreign Exchange transaction facilities

In case the Current bank of the prospective exporter doesnt facilitate the transactions in Foreign Exchange then a new account with such bank needs to be opened which facilitates the same. The same should also be able to discount and negotiate the Documentary bills and credit in future.

Export Process and Documents required at each Step

Step 1: Get an order and enter into a Sales ContractSales Contract: A sales contract should include in general the following things Name and address of the parties Product standard & specifications & unit value Quantity Inspection Total Value of contract Terms of Deliveries FOB, CIF, DAF etc Tax, Duties and Charges Period of shipment, Delivery Part shipment, trans- shipment Terms of Payment, amount, mode currency Discount & Commissions License & Permits Packaging, labelling & marking Insurance terms and requirements Documentary requirements Clauses for delay in delivery Force Majeure or Excuse for Non Performance of contract Remedial action Applicable law Arbitration Signature of partiesTerms of Payment:There are 3 standard ways of payment methods in the export import trade international trade market:1. Clean Payment Advance payment Open account2. Collection of Bills3. Letters of Credit L/C

1.Clean PaymentsIn clean payment method, all shipping documents, including title documents are handled directly between the trading partners. The role of banks is limited to clearing amounts as required. Clean payment method offers a relatively cheap and uncomplicated method of payment for both importers and exporters.

There are basically two types of clean payments:1. Cash In Advance Receive cash from the buyer before shipping In case of HUGE payments (importer may demand a bank guarantee) Used in case of uncertain Political or economic environment in buyers country. Generally used when exporter is in a strong trading position & exacting product is not available Safest option for an exporter but not generally used.2. Open Account:

It involves high risk on the part of the Exporter as he ships the goods without receiving the payment and any acknowledgement. He also forwards the shipping doc directly to buyer with a cover letter along with the invoice and awaits the payment.The main drawback of open account method is that exporter assumes all the risks while the importer get the advantage over the delay use of company's cash resources and is also not responsible for the risk associated with goodsGenerally used in case of highly reputed buyer and when the exporter is absolutely sanguine of the importer.

1. Documentary BillsThe Payment Collection of Bills also called Uniform Rules for Collections is published by International Chamber of Commerce (ICC) under the document number 522 (URC522) and is followed by more than 90% of the world's banks.In this method of payment in international trade the exporter entrusts the handling of commercial and often financial documents to banks and gives the banks necessary instructions concerning the release of these documents to the Importer. It is considered to be one of the cost effective methods of evidencing a transaction for buyers, where documents are manipulated via the banking system.There are two methods of collections of bill :Documents Against Payment D/PIn this case documents are released to the importer only when the payment has been doneThis is sometimes also referred as Cash against Documents/Cash on Delivery. In effect D/P means payable at sight (on demand). The collecting bank hands over the shipping documents including the document of title (bill of lading) only when the importer has paid the bill. The drawee is usually expected to pay within 3 working days of presentation. The attached instructions to the shipping documents would show "Release Documents Against Payment"Docuemts Against Acceptance(D/A)In this case documents are released to the importer only against acceptance of a draft. Under Documents Against Acceptance, the Exporter allows credit to Importer, the period of credit is referred to as Usance, The importer/ drawee is required to accept the bill to make a signed promise to pay the bill at a set date in the future. When he has signed the bill in acceptance, he can take the documents and clear his goods.

The payment date is calculated from the term of the bill, which is usually a multiple of 30 days and start either from sight or form the date of shipment, whichever is stated on the bill of exchange. The attached instruction would show "Release Documents Against Acceptance".Usance D/P BillsA Usance D/P Bill is an agreement where the buyer accepts the bill payable at a specified date in future but does not receive the documents until he has actually paid for them. The reason is that airmailed documents may arrive much earlier than the goods shipped by sea.

The buyer is not responsible to pay the bill before its due date, but he may want to do so, if the ship arrives before that date. This mode of payments is less usual, but offers more settlement.

These are still D/P terms so there is no extra risk to the exporter or his bank. As an alternative the covering scheduled may simply allow acceptance or payments to be deferred awaiting arrival of carrying vessel.There are different types of usance D/P bills, some of which do not require acceptance specially those drawn payable at a fix period after date or drawn payable at a fixed date.Bills requiring acceptance are those drawn at a fix period after sight, which is necessary to establish the maturity date. If there are problems regarding storage of goods under a usance D/P bill, the collecting bank should notify the remitting bank without delay for instructions.However, it should benoted that it is not necessary for the collecting bank to follow each and every instructions given by the Remitting Banks.

1. Letter of CreditLetter of Credit L/c also known as Documentary Credit is a widely used term to make payment secure in domestic and international trade. The document is issued by a financial organization at the buyer request. Buyer also provide the necessary instructions in preparing the document.The International Chamber of Commerce (ICC) in the Uniform Custom and Practice for Documentary Credit (UCPDC) defines L/C as:"An arrangement, however named or described, whereby a bank (the Issuing bank) acting at the request and on the instructions of a customer (the Applicant) or on its own behalf :a. Is to make a payment to or to the order third party ( the beneficiary ) or is to accept bills of exchange (drafts) drawn by the beneficiary.b. Authorised another bank to effect such payments or to accept and pay such bills of exchange (draft).c. Authorised another bank to negotiate against stipulated documents provided that the terms are complied with.A key principle underlying letter of credit (L/C) is that banks deal only in documents and not in goods. The decision to pay under a letter of credit will be based entirely on whether the documents presented to the bank appear on their face to be in accordance with the terms and conditions of the letter of credit.Parties to Letters of Credit Applicant (Opener):Applicant which is also referred to as account party is normally a buyer or customer of the goods, who has to make payment to beneficiary. LC is initiated and issued at his request and on the basis of his instructions. Issuing Bank (Opening Bank) :The issuing bank is the one which create a letter of credit and takes the responsibility to make the payments on receipt of the documents from the beneficiary or through their banker. Advising Bank :An Advising Bank provides advice to the beneficiary and takes the responsibility for sending the documents to the issuing bank and is normally located in the country of the beneficiary. Confirming Bank :Confirming bank adds its guarantee to the credit opened by another bank, thereby undertaking the responsibility of payment/negotiation acceptance under the credit, in additional to that of the issuing bank. Negotiating Bank:The Negotiating Bank is the bank who negotiates the documents submitted to them by the beneficiary under the credit either advised through them or restricted to them for negotiation. On negotiation of the documents they will claim the reimbursement under the credit and makes the payment to the beneficiary provided the documents submitted are in accordance with the terms and conditions of the letters of credit.

Payment Procedure under L/C1. Buyer and Seller agrees on terms and conditions of the sale2. Buyer instructs its bank to open an L/C incorporating previously agreed terms of sale3. The buyer's bank prepares a Letter of Credit (L/C), including all instructions to the seller's bank concerning the shipment and sends the L/C to the seller's bank, requesting confirmation4. The seller may request confirmation from a confirming bank for added security5. The Seller's bank prepares a letter of confirmation to forward to the seller along with the L/C6. The seller reviews carefully all conditions in the L/C, specially shipment schedule in consultation with his freight forwarder7. The seller arranges the goods and hand over to freight forwarder for delivery at appropriate port or airport8. Once goods are loaded/shipped, the forwarder completes necessary documentation and hand them over to the seller.9. The seller then presents the documents to his bank, informing full compliance with terms and conditions of L/C10. The seller's bank reviews the documents. 11. The documents are airmailed to the buyer's bank for review and passing necessary documents to buyer. 12. The buyer's bank sends the draft to buyer for payment/acceptance13. Buyer pays bank/sends acceptance14. The buyer gets the documents needed to claim the goods. 15. The seller's bank gets payment and pays seller immediately or at a later dateVarious Types of L/Cs are:1. Revocable Letter of Credit L/cA revocable letter of credit may be revoked or modified for any reason, at any time by the issuing bank without notification. It is rarely used in international trade and not considered satisfactory for the exporters but has an advantage over that of the importers and the issuing bank.2. Irrevocable Letter of Credit L/CIn this case it is not possible to revoked or amended a credit without the agreement of the issuing bank, the confirming bank, and the beneficiary.Form an exporters point of view it is believed to be more beneficial. An irrevocable letter of credit from the issuing bank insures the beneficiary that if the required documents are presented and the terms and conditions are complied with, payment will be made.3. Confirmed Letter of Credit L/CConfirmed Letter of Credit is a special type of L/c in which another bank apart from the issuing bank has added its guarantee. Although,the cost of confirming by two banks makes it costlier, this type of L/c is more beneficial for the beneficiary as it doubles the guarantee.

4. Sight Credit and Usance Credit L/CSight credit states that the payments would be made by the issuing bank at sight, on demand or on presentation. In case of usance credit, draft are drawn on the issuing bank or the correspondent bank at specified usance period. The credit will indicate whether the usance draft are to be drawn on the issuing bank or in the case of confirmed credit on the confirming bank.5. Back to Back Letter of Credit L/CBack to Back Letter of Credit is also termed as Countervailing Credit. A credit is known as backtoback credit when a L/c is opened with security of another L/c.A backtoback credit which can also be referred as credit and countercredit is actually a method of financing both sides of a transaction in which a middleman buys goods from one customer and sells them to another.6. Transferable Letter of Credit L/CA transferable documentary credit is a type of credit under which the first beneficiary which is usually a middleman may request the nominated bank to transfer credit in whole or in part to the second beneficiary.

7. Confirmed & Unconfirmed Letter of Credit(L/C) Under a Confirmed Letter of Credit, a bank, called the Confirming Bank, adds its commitment to that of the issuing bank. By adding its commitment, the Confirming Bank takes the responsibility of claim under the letter of credit, assuming all terms and conditions of the letter of credit are met.

No Confirmation from the Advising bank in Exporters Country in case of Unconfirmed L/C. opened by an issuing bank in which the advising bank does not add its confirmation to the credit The promise to pay comes from the issuing bank only, UNLIKE in a confirmed irrevocable L/C where both issuing & advising bank promise to pay the beneficiary.

8. With & Without Recourse L/C With Recourse: If the buyer fails to pay the bank after the specified period, the bank can have recourse on the exporter.

Without Recourse: The bank has NO recourse on the exporter, IF the buyer fails to pay the bank after the specified period9. Anticipatory L/C This credit provides for advance payment, or at least part payment to the beneficiary against his undertaking to effect the shipment and submit the bill and/or documents in terms of credit within the validity Ultimate liability lies with the applicant (buyer)Red Clause: Since the clause is printed /typed usually in red ink, its called Red Clause credits. Green Clause: The Green Clause is an extension of the Red Clause it envisages the credit given to the exporter to cover the period of storage of goods at the sea port10. Revolving L/CIn revolving L/C, the amount involved when utilized is reinstated, without issuing another L/C and usually under the same terms and conditions. It can be revocable / irrevocable and may be revolving in relation to time or value within a given overall period of validity.11. Deferred payment L/C the exporter supplies plant, machineries, capital goods, etc. Importer pays in installments over a period ranging from 1 to 7 years or even more no draft is drawn, payment by the opening bank is determined in accordance with the terms laid down in the credit12. Transit L/C It is issued in one country with the beneficiary in another country but is advised through and usually confirmed by a bank in London13. Restricted & Unrestricted L/C If no specific bank is designated to pay, accept or negotiate, the credit is termed as unrestricted or open or general credits if a specified bank is designated to pay, accept or negotiate, the credit is termed as restricted or specialNote: The Best L/C: CONFIRMED IRREVOCABLE WITHOUT RECOURSE L/C because in this case the Indian bank has added obligation to pay.

Degree of Risk Involved

Step 2: Arranging FinancePre Shipment FinancePre Shipment Finance is issued by a financial institution when the seller want the payment of the goods before shipment. The main objectives behind preshipment finance or pre export finance is to enable exporter to: Procure raw materials. Carry out manufacturing process. Provide a secure warehouse for goods and raw materials. Process and pack the goods. Ship the goods to the buyers. Meet other financial cost of the business.Types of Pre Shipment Finance Packing Credit Advance against Cheques/Draft etc. representing Advance Payments.Preshipment finance is extended in the following forms : Packing Credit in Indian Rupee Packing Credit in Foreign Currency (PCFC)Requirement for Getting Packing CreditPacking credit facility can be provided to an exporter on production of the following evidences to the bank:1. Formal application for release the packing credit with undertaking to the effect that the exporter would be ship the goods within stipulated due date and submit the relevant shipping documents to the banks within prescribed time limit.2. Firm order or irrevocable L/C or original cable / fax / telex message exchange between the exporter and the buyer.3. Licence issued by DGFT if the goods to be exported fall under the restricted or canalized category. If the item falls under quota system, proper quota allotment proof needs to be submitted.

EligibilityQuantum of FinanceThe Quantum of Finance is granted to an exporter against the LC or an expected order. The only guideline principle is the concept of Need Based Finance. Banks determine the percentage of margin, depending on factors such as: The nature of Order. The nature of the commodity. The capability of exporter to bring in the requisite contribution.Appraisal and Sanction of Limits1. Before making any an allowance for Credit facilities banks need to check the different aspects like product profile, political and economic details about country. Apart from these things, the bank also looks in to the status report of the prospective buyer, with whom the exporter proposes to do the business. To check all these information, banks can seek the help of institution like ECGC or International consulting agencies like Dun and Brad street etc.

The Bank extended the packing credit facilities after ensuring the following"1. The exporter is a regular customer, a bona fide exporter and has a goods standing in the market.2. Whether the exporter has the necessary license and quota permit (as mentioned earlier) or not.3. Whether the country with which the exporter wants to deal is under the list of Restricted Cover Countries (RCC) or not.

Disbursement of Packing Credit Advance2. Once the proper sanctioning of the documents is done, bank ensures whether exporter has executed the list of documents mentioned earlier or not. Disbursement is normally allowed when all the documents are properly executed.

Sometimes an exporter is not able to produce the export order at time of availing packing credit. So, in these cases, the bank provide a special packing credit facility and is known as Running Account Packing.

Before disbursing the bank specifically check for the following particulars in the submitted documents" Name of buyer Commodity to be exported Quantity Value (either CIF or FOB) Last date of shipment / negotiation. Any other terms to be complied withThe quantum of finance is fixed depending on the FOB value of contract /LC or the domestic values of goods, whichever is found to be lower. Normally insurance and freight charged are considered at a later stage, when the goods are ready to be shipped.

In this case disbursals are made only in stages and if possible not in cash. The payments are made directly to the supplier by drafts/bankers/cheques.

The bank decides the duration of packing credit depending upon the time required by the exporter for processing of goods.

The maximum duration of packing credit period is 180 days, however bank may provide a further 90 days extension on its own discretion, without referring to RBI.

Post Shipment FinancePost Shipment Finance is a kind of loan provided by a financial institution to an exporter or seller against a shipment that has already been made. This type of export finance is granted from the date of extending the credit after shipment of the goods to the realization date of the exporter proceeds. Exporters dont wait for the importer to deposit the funds.Basic FeaturesThe features of postshipment finance are: Purpose of FinancePostshipment finance is meant to finance export sales receivable after the date of shipment of goods to the date of realization of exports proceeds. In cases of deemed exports, it is extended to finance receivable against supplies made to designated agencies. Basis of FinancePostshipment finances is provided against evidence of shipment of goods or supplies made to the importer or seller or any other designated agency.Types of FinancePostshipment finance can be secured or unsecured. Since the finance is extended against evidence of export shipment and bank obtains the documents of title of goods, the finance is normally self liquidating. In that case it involves advance against undrawn balance, and is usually unsecured in nature.Further, the finance is mostly a funded advance. In few cases, such as financing of project exports, the issue of guarantee (retention money guarantees) is involved and the financing is not funded in nature.Quantum of FinanceAs a quantum of finance, postshipment finance can be extended up to 100% of the invoice value of goods. In special cases, where the domestic value of the goods increases the value of the exporter order, finance for a price difference can also be extended and the price difference is covered by the government. This type of finance is not extended in case of preshipment stage.Banks can also finance undrawn balance. In such cases banks are free to stipulate margin requirements as per their usual lending norm.Period of FinancePostshipment finance can be off short terms or long term, depending on the payment terms offered by the exporter to the overseas importer. In case of cash exports, the maximum period allowed for realization of exports proceeds is six months from the date of shipment. Concessive rate of interest is available for a highest period of 180 days, opening from the date of surrender of documents. Usually, the documents need to be submitted within 21days from the date of shipment.

Types of Post Shipment FinanceThe post shipment finance can be classified as :1. Export Bills purchased/discounted.2. Export Bills negotiated3. Advance against export bills sent on collection basis.4. Advance against export on consignment basis5. Advance against undrawn balance on exports6. Advance against claims of Duty Drawback.

1. Export Bills Purchased/ Discounted.(DP & DA Bills)Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or purchased by the banks. It is used in indisputable international trade transactions and the proper limit has to be sanctioned to the exporter for purchase of export bill facility.2. Export Bills Negotiated (Bill under L/C)The risk of payment is less under the LC, as the issuing bank makes sure the payment. The risk is further reduced, if a bank guarantees the payments by confirming the LC. Because of the inborn security available in this method, banks often become ready to extend the finance against bills under LC.However, this arises two major risk factors for the banks:1. The risk of nonperformance by the exporter, when he is unable to meet his terms and conditions. In this case, the issuing banks do not honor the letter of credit.

2. The bank also faces the documentary risk where the issuing bank refuses to honour its commitment. So, it is important for the negotiating bank, and the lending bank to properly check all the necessary documents before submission.

3. Advance Against Export Bills Sent on Collection Basis:Bills can only be sent on collection basis, if the bills drawn under LC have some discrepancies. Sometimes exporter requests the bill to be sent on the collection basis, anticipating the strengthening of foreign currency.Banks may allow advance against these collection bills to an exporter with a concessional rates of interest depending upon the transit period in case of DP Bills and transit period plus usance period in case of usance bill.The transit period is from the date of acceptance of the export documents at the banks branch for collection and not from the date of advance.4. Advance against Export on Consignments Basis:Bank may choose to finance when the goods are exported on consignment basis at the risk of the exporter for sale and eventual payment of sale proceeds to him by the consignee.However, in this case bank instructs the overseas bank to deliver the document only against trust receipt /undertaking to deliver the sale proceeds by specified date, which should be within the prescribed date even if according to the practice in certain trades a bill for part of the estimated value is drawn in advance against the exports.In case of export through approved Indian owned warehouses abroad the times limit for realization is 15 months.5. Advance against Undrawn Balance:It is a very common practice in export to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc. Banks do finance against the undrawn balance, if undrawn balance is in conformity with the normal level of balance left undrawn in the particular line of export, subject to a maximum of 10 percent of the export value. An undertaking is also obtained from the exporter that he will, within 6 months from due date of payment or the date of shipment of the goods, whichever is earlier surrender balance proceeds of the shipment.6. Advance against Claims of Duty Drawback:Duty Drawback is a type of discount given to the exporter in his own country. This discount is given only, if the inhouse cost of production is higher in relation to international price. This type of financial support helps the exporter to fight successfully in the international markets.

In such a situation, banks grants advances to exporters at lower rate of interest for a maximum period of 90 days. These are granted only if other types of export finance are also extended to the exporter by the same bank.

After the shipment, the exporters lodge their claims, supported by the relevant documents to the relevant government authorities. These claims are processed and eligible amount is disbursed after making sure that the bank is authorized to receive the claim amount directly from the concerned government authorities.

Step 3: Arrange the following documents for Shipment after processing the order

a) Getting Inspection Certificate for the order ProcessedTypes of Pre-Shipment Inspection I. VOLUNTARY INSPECTIONBy exporter himself By the buyers representative By the buyers agent in the exporters country By the inspection agencies in private sector II. COMPULSORY INSPECTION

Conducted by following agencies of GOIa. Export Inspection Council(EIC) through its Export Inspection Agencies(EIA) b. Central Silk Board

EIA provides for PSI under 3 different systems of inspectionI. Consignment wise inspection Each X consignment is inspected & tested by a recognised EIA Random selection of sample checked to determine conformity After inspection, EIA issues PSI certificate to exporter inspection fee (0.4% of FOB value) (SSI units are allowed 10% rebate on fee i.e. 0.36%)

II. In-Process Quality Control (IPQC) IPQC Units can inspect & clear the goods for X EIA issues the certificate of inspection upon formal request from the Unit Inspection fee is 0.2% of FOB value

III. Self-Certification Scheme Manufacturing units with proven record of Quality maintenance can self certify if Director (Inspection & Q.C.), N.Delhi has inspected and approved the unit Unit should be well equipped with testing facilities & required Q.C. systems Fee = 0.1% of FOB subject to a minimum of Rs.2500 & maximum = 1 Lakh in a year

PSI by Silk Board NO PSI is required in case of SILK GARMENTS, CARPETS and TEXTILE GOODS PSI is required where inputs have been imported under Duty Exemption Scheme. Exporter should have RCMC from Indian Silk Export Promotion Council