India’s adoption of H.S.N and Exim Policy

– India adopted H.S.N. System and is called as I.T.C (H.S).
– Software products are also covered in this classification system.
– Trade policies of India can be known from I.T.C (H.S). e.g. the Resitricted items like elements of Nuclear reactor, Weapons like AK-47 are clearly marked as “Resitricted”. Can be seen here-
– Even the Probhited items can be known by looking at I.T.C. (H.S)

– In India, Foreign Trade Policy is called as an Exim Policy.
– Exim Policy is a set of guidelines and instructions established by the Director General of Foreign Trade in matters related to the import and export of goods in India.
– The Government of India, Ministry of Commerce and Industry announces Export Import Policy after every five years. Current Period is 2009-14.
– More details-
– US trade policy is also 5 years. Next one- 2013-18.
– Exim Policy cannot be changed even if the Govt. changes.
– It is because of change in Exim Policy only that there is no Customs duty on laptops in India since 2005.

[This blog is captured from “Managing Commercial contracts” class notes. Some information referred from Wikipedia/other listed sites.]


H.S.N- A classification system to Identify products

– H.S.N- Harmonised System Number
– It is the numeric given to explain a product.
– Looking at this number people can understand what product is being referred to.
– The utility of HSN numbers is more profound in the cases where say a buyer and seller are from different cultutes. A seller explaining his product without HSN number could lead to buyer percieving the product to be something different. Having HSN number in place ensures that both buyer and seller are discussing about the same product.

Overview of Select Institutions relating to International Contracts

[Capturing the “Managing Commercial contracts” class notes below on the mentioned topic. Some information referred from Wikipedia.]

– W.T.O
The World Trade Organization (WTO) is an organization that is working towards promoting the World trade. It intends to supervise and liberalize international trade.
Based in Geneva, Switzerland.

– I.C.C
International Chamber of Commerce. It is more of a trade body constituting of Businessmen, Individuals.
It is not a legal body and doest create laws but it is considered powerful and can drive things upto W.T.O.
As a global organisation, I.C.C work to further international trade by promoting open markets, sensible regulation and the rule of law.
I.C.C, for instance kept a close track of Vodafone tax case in India and welcomed the ruling of Indian Supereme court that India’s tax office has no jurisdiction over Vodafone’s purchasing of assets in India.
I.C.C helps in creation and distribution of model contract that could be used by Global organizations.
Based in Paris, France.

– W.C.O
World Customs Organization (WCO) is an intergovernmental organization.
The W.C.O is noted for its work in areas covering the development of international conventions, instruments, and tools on topics such as commodity classification, valuation,    rules of origin, collection of customs revenue etc.
W.C.O came up with HSN (Harmonized Systems number) used widely for classification of the product.
Based in Brussels.

– U.N.C.I.T.R.A.L
United Nations Commission on International Trade Law (UNCITRAL).
Helps to resolve issues specific to Trade.

– F.I.D.I.C
The International Federation of Consulting Engineers (commonly known as FIDIC, acronym for its French name Fédération Internationale Des Ingénieurs-Conseils)
An international standards organization for the construction industry, best known for the FIDIC family of contract templates.
Companies like L&T uses these contracts templates.


Capital budgeting and Investment feasibility

from wiki Capital budgeting (or investment appraisal) is the planning process used to determine whether an organization’s long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures.

Investments normally require initial cash outflow (cost) and bring cash inflow over a period of time. Investments can be in the form of securities investments or real assets investments.

Investment process:

  • Identification of Project
  • Technical Feasibility
  • Commercial Feasibility
  • Financial Feasibility
  • Estimation of Project Cash Flows
  • Decision Rule
  • Implementation and follow-up (audit)

Financial Feasibility: An investment is financially viable, if:
Present Value of Cash Earnings or Savings is greater than or equal to Present Value of Cash Spending
Future Value of Cash Earnings or Savings is greater than or equal to Future Value of Cash Spending

Note: Usually we consider first definition because future values are generally used for savings and present value is used for investments

And financial feasibility is measured using net present value or IRR.

Time value of Money in Financial decisions

Time adjusted profits and Time adjusted costs

Financial decisions cannot be taken without considering time value of money. Basic Principle: A Rupee in hand today is always lot more valuable than the Rupee of tomorrow.

There are four different time values for money

  • Present Value: A3 Index from book and PV excel function
  • Present Value Annuity: A2 Index from book and PMT excel function
  • Future Value: A1 index from book
  • Future Value Annuity: A2 Index from book and FV excel function

Note: From book ‘Finance Sense by Prasanna Chandra’

Present Value:
• 482 Page – Index A3
• In excel use PV function
Present Value Annuity:
• 484 Page – Index A4
• In excel use PMT function
Future Value
• 478 Page – Index A1
• In excel use ????
Future Value Annuity:
• 480 Page – Index A2
• In excel use FV function

A1 table is inverse of A3 table. 
A2 table: If we look at the row value at 25yrs x 10%, it is 98.347; If we deposit 1 Rupee every year at 10% interest rate then it amounts to 98.347 Rs by end of 25 years.
A4 table: If we look at the row value at 20yrs x 10%, it is 9.427; it says that if have 9.427 in our account then we can withdraw 1 Rupee every year till 30th year at 10% interest rate.

When to use FV? If I invest amount ‘X’ today (only once) then how much it becomes after some period ‘P’.
Example: If I invest $2,000 a year for 40 years toward my retirement and earn 8 percent a year on my investments, how much will I have when I retire?

When to use FV Annuity? If I invest amount ‘X’ every year then how much it becomes after some period ‘P’.
Example: I am borrowing $10,000 on a 10 month loan with an annual interest rate of 8 percent. What will my monthly payments be?

When to use PV? If I need amount ‘X’ by end of period ‘P’ then how much should I invest (only once) now?
Example: Should I pay $11,000 today for a copier or $3,000 a year for 5 years?

When to use PV Annuity? If I need amount ‘X’ by end of period ‘P’ then how much should I invest every year?

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