OGL cancellation and back up from other suppliers

Exporters found ways to harass buyers who were badly in need of supplies to fulfil their commitments. However, this did not deter the writer as he had a large stock of inventories and a back up from other sources. This is the seventh part of the series describing the unknown triumphs and travails of doing international business in Asia in the seventies

We took different flights and both of us; I am sure felt disturbed by the fact that we were in a country for a good whole week, but did not even know what was happening outside, thanks to the strict control by the Chinese government.

We had the force maejure clause; after all, if the government notification effectively made our contract null and void, there was nothing we could do. But that would not solve the problem of irregular and inadequate supplies of pig iron and thousands of labourers, working on daily wage or piece-meal production basis, would suffer. Export contracts were already suffering, and whether anyone liked it or not, whether they admitted it or not, the fact remained that a great many unscrupulous non-existent foundry owners (who had actually no working foundry) but who had “pig iron” allocations, were selling the raw materials at a premium. There was no dearth of buyers.  No one could open their mouths lest their business suffer. Some actual owners sold the raw materials and made the profit, simply avoiding the hassle of actual production.

For more than two decades, through the export promotion council, the government had ensured that many items had strict “floor prices” for export sale. In other words, every exporter of the commodity, let us say, cast iron pipes, fittings, and manholes, had agreed to a “floor price” below which they would not sell. These were fixed by the respective panels in the export promotion council.  They were also permitted to give a maximum of 5% commission on the FOB (free on board) for agents abroad; if there was any Indian agent, they too would get not more than 5% on the floor price.  

The incentives on export, in terms replenishment license (for re-importing essential/permitted raw materials) and cash subsidy on export FOB realization were thus standardized. No deviation was possible and exporters could not afford to lose the benefit of ‘selling’ the incentive licenses at a ‘premium’. It was one of those crazy situations where money and profits were made on exports simply because of the permissible items for import, under these licenses.

Exporters, naturally found many ways to circumvent these rules; and the honest injuns were always at the losing end. Of course, there were several very quality conscious and responsible exporters, including Kajeco, which invariably obtained a better market rate over these floor prices. But the inadequate supply of raw materials was a grim challenge.

There was one more hanky-panky practice that was in place in those days. There were, at times, genuine problems faced by the shipping companies, as they received more cargo than what they could take; or, perhaps, chose to pick a higher freight earning cargo than the dirty CI product.  Well, whatever be the reason, the cargo was shut out, in spite of issuing Bills of Lading for the exporter. This caused tremendous hardships to the buyer because of non delivery of the anticipated consignments on a particular vessel and any amount of assurance for positive delivery in the “next shipment” would still mean a gap 30-40 days.

From an accidental happening in the first few shipments for various exporters, it became a regular organised racket. It must be remembered that exporter got his payment against the L/C as long as the documents were in order; banks were only “negotiating documents” and could not held responsible for physical delivery/arrival of goods at the destination.

When this sort of practice became rampant, the exporters faced a different kind of music from the importers, when, the later simply rejected or did not ‘accept’ the documents presented by his banker, on the technical grounds of ‘discrepancies’ found in the shipping (negotiable) documents. This led to goods being unloaded at the destination port, with demurrage being charged after the usual exempted period. This situation put the buyer on the upper hand who became adept in asking for discounts, etc. The exporter had no choice but to go back to the government and present their version of the story, obtain Reserve Bank of India (RBI) permission before the issue is resolved. In all such cases, the net effect was that 10% to 15% of the shipment value was lost in demurrage, other port expenses before exporter obtained his payment.

Many times, in anger, the buyer would refuse the deal with the exporter again and all the previous relationships would be conveniently forgotten.

Like others, we had faced such situations too. But simply because we maintained a large stock of fast moving items, we could invariably overcome some delays in shipments. But with the current situation of extremely poor raw material supplies, we were really in fix. We had to find some other alternative source of raw materials.

There was already a rumour in the Indian market that we had obtained guaranteed supplies of pig iron from China and from our own grapevines we came to know that the Government of India was not averse to our getting supplies from Pakistan.As luck would have, we had also received this feeler from our contacts, something that both Vijay and I were unaware, as we were flying back to our destinations. After all, we had supplementary support of pipes from Rumania; cheaper version of light duty manholes from China and we began our secret supply sources from Europe.

Couple of drinks calmed my nerves, followed by a sumptuous dinner. I dozed off, and woke up as we landed in the Dubai international port around mid night. My day would start very early, as early as 0745 the next morning.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts. From being the advisor to exporters, he took over the mantle of a trader, travelled far and wide, and switched over to setting up garment factories and then worked in the US. He can be contacted at [email protected].)

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