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Govt okays Rs 3.5 bn for extra risk cover to MSME exporters
26 Dec '08
2 min read
The Cabinet Committee on Economic Affairs gave its approval for allocation of Rs.350 crore to Export Credit Guarantee Corporation of India Limited (ECGC) from National Export Insurance Account (NEIA) for providing higher risk cover to MSME Exporters, enhanced from the existing 85% to 95%. In case of non-MSME sector the additional 10% support will be limited to Textiles (including handicrafts and handlooms), Gems and Jewellery, Leather, Engineering products, Carpets, Project goods, Auto components and Chemicals.
Banks financing such MSME exporters would now be able to provide continued financing, even if losses occur in one or two transactions, by the provision of higher risk cover that would be made available to them under the Export Credit Insurance Scheme for Banks operated by ECGC. At present, the Scheme provides 75% risk cover for Banks, which will now be enhanced to 85% for the MSME exporters.
This initiative would enable ECGC to provide stronger support to Exporters and Banks.
The additional risk cover will be made available upto 30th June 2009 and would be reviewed thereafter. For all policies sanctioned upto 30th June 2009, the claims could be processed in 2009-10 and 2010-11.
JUSTIFICATION:
• The global financial crisis has already begun impacting on India's exports significantly. Feedback from Apex Chambers of Commerce and DPCs suggests that India's export target of US4 200 billions for current year is unlikely to be achieved. The shortfall may be between 5% to 10%.
• Several Export Promotion Councils have reported that there is a noticeable decline in export orders, cancellation of pro-forma invoices, re-negotiation of orders and prices by buyers and slow down in export realisation.
• Global recession is likely to impact in terms of default in payment or delayed realisation for exports already made, cash flow difficulties for exporters, difficulty in executing orders in hand owing to lack of additional credit limit, inability of ECGC to provide covers for high risk countries / buyers and reluctance of exporters to execute orders for fear of defaults. Overall, tougher 'due diligence' by Banks in extending Pre and Post-shipment credit and insurance cover by ECGC would discourage exporters and lead to further decline in exports.
• It is apprehended that the number of exporters not realizing the dues from buyers in USA, Europe and in other markets of strategic importance to India and size of such non payments would increase substantially and would impact on further bank credit.
Banks financing such MSME exporters would now be able to provide continued financing, even if losses occur in one or two transactions, by the provision of higher risk cover that would be made available to them under the Export Credit Insurance Scheme for Banks operated by ECGC. At present, the Scheme provides 75% risk cover for Banks, which will now be enhanced to 85% for the MSME exporters.
This initiative would enable ECGC to provide stronger support to Exporters and Banks.
The additional risk cover will be made available upto 30th June 2009 and would be reviewed thereafter. For all policies sanctioned upto 30th June 2009, the claims could be processed in 2009-10 and 2010-11.
JUSTIFICATION:
• The global financial crisis has already begun impacting on India's exports significantly. Feedback from Apex Chambers of Commerce and DPCs suggests that India's export target of US4 200 billions for current year is unlikely to be achieved. The shortfall may be between 5% to 10%.
• Several Export Promotion Councils have reported that there is a noticeable decline in export orders, cancellation of pro-forma invoices, re-negotiation of orders and prices by buyers and slow down in export realisation.
• Global recession is likely to impact in terms of default in payment or delayed realisation for exports already made, cash flow difficulties for exporters, difficulty in executing orders in hand owing to lack of additional credit limit, inability of ECGC to provide covers for high risk countries / buyers and reluctance of exporters to execute orders for fear of defaults. Overall, tougher 'due diligence' by Banks in extending Pre and Post-shipment credit and insurance cover by ECGC would discourage exporters and lead to further decline in exports.
• It is apprehended that the number of exporters not realizing the dues from buyers in USA, Europe and in other markets of strategic importance to India and size of such non payments would increase substantially and would impact on further bank credit.
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