The country's top credit risk insurer of exports — the Export Credit Guarantee Corporation of India (ECGC) — has become “very cautious” about providing cover to exports to Europe, especially for high-value goods from the gems and jewellery and engineering sectors.
These two sectors accounted for a ‘sizeable portion' of the total payout worth around Rs 1,200 crore for claims in the last two financial years, official sources in the know of the development told Business Line . They added that the trend has continued this fiscal too, but declined to disclose the exact amount of claims from these two sectors.
Close monitoring
Cumulative engineering exports this fiscal have registered good growth but the risks on exports of high value goods such as industrial machinery and electrical equipment, particularly to Europe, has increased, the sources said, adding that the only other sector engaging ECGC's close attention is gems and jewellery.
However, they said, so far there had been no specific instances of major default from Europe, adding that the ECGC's balance-sheet is also “strong”. When contacted, a source in the engineering export sector said, “There seems to be a complete credit shutdown in Europe with banks neither giving loans to companies nor refinancing past loans. But recently, there were some efforts to give money to the banks. However, our European trading partners are saying that they can place orders but cannot commit on payment.”
On the other hand, Mr Aman Chadha, Chairman, Engineering Export Promotion Council (EEPC India), said: “Nothing has come to my notice about ECGC being cautious. We are getting payments from Europe, may be a little late in some cases.”
Strong role
Meanwhile, official sources said, “Though ECGC has served as a bulwark for the credit system of exports and performed a strong role in 2009-10 and 2010-11 which were tough financial years in terms of claims, as a company the ECGC has to be cautious about the developments that are taking place in Europe.”
“Unlike many insurance companies (in the world) that had huge problems and even sought Government support, the ECGC has managed the downturn very well without depending on the Government. But if ECGC pulls back on credit finance support, exports will suffer. At the same time, you can't throw the caution to the wind,” they said.
New markets
Therefore, the ECGC is trying to help the Government in pushing the strategy of diversifying exports by supporting business-to-business transactions with other growing markets such as Latin America, Asia and Africa to minimise risks, the sources said.
Engineering exports to Europe in 2010-11 were $10.5 billion (of the total engineering exports of $60 billion), while gems and jewellery shipments were $3.3 billion (of the total $43 billion from the sector).
ECGC has placed only some African and CIS countries as well as some conflict-hit nations such as Afghanistan, Palestine, Iraq and North Korea in its ‘restricted cover' countries, while the rest all are under the ‘open cover category'. However, recently, it included countries such as Greece and Syria too in the restricted cover category along with Yemen, Egypt and Tunisia.