RESEARCH PAPER ON E.C.G.C OF INDIA LTD -THE EXPORT CREDIT INSURERPosted on:1/27/2006
Written By: P.J. SAJIMON-JAIPUR
|REPORT ON THE STUDY OF EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LIMITED.|
REPORT ON THE STUDY OF EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LIMITED.
Research Paper Submitted BY:
P.J. Sajimon B.Com, MBA,PGDCA,DBS
ICFAI CAMPUS PROGRAMS ADMISSION DEPARTMENT
C-25, Ground Floor, Lal Kothi Scheme, New Vidhan Sabha Road.
Jaipur-302 005. Tel. 0141-5124120, Mobile: 98280 11760.
I take the opportunity to thank all those without whose efforts the completion of this Project would not have been possible.
I would like to convey my sincere thanks to Mr.G.M.Ganapathy (General Manager-E.C.G.C LTD) & Mrs. Purva Chaudhari (Branch Manager, E.C.G.C Ltd, Jaipur) For their whole hearted support and valuable guidance in helping me by providing with relevant material and suggestions for successful accomplishment of my project.
I would like to extend my gratitude to Mr.Smith Saurav & Mr.Kumar Anshuman (Executive officers) & Mrs.Sheeja Saji who helped me in time and again in all my problems.
And last but not least I would like to thank all the staff members of E.C.G.C Ltd, export promotion councils, exporters and bankers, Jaipur office for helping me out whenever I needed the most.
P.J. SAJI MON
TABLE OF CONTENTS
Policy Highlights 7
2.E.C.G.C of India Ltd- An overview 9
Business Review 10
3.Marketing objectives 12
Marketing segments 13
Marketing positioning 14
4.SWOT Analysis 15
5.Maturity factoring 17
6. Performance highlights of ECGC 19
7. Market addressal 30
8.International Union of credit & investment insurers 32
9. World and Indian economy 36
10.Overseas investment insurance policy 41
11.Standard policy 44
India, the world’s largest democracy with world’s second highest population and 7th largest area is also the 4th largest economy in terms of purchasing power. India’s richness and diversity of culture, geographic and climatic conditions, natural and only few other countries in the world match mineral resources. One of India’s important assets is its vast reservoir of skilled manpower. India’s enduring institutions, rooted in the principles of democracy and justice.
India’s known strength in handicrafts, gems & Jewellery, Apparels, software and IT and tremendous e-commerce potential ensures progressive up trend in growth of the Indian economy. The Government’s current Import & Export policies offer a more investor friendly economic environment and are geared towards more investment in promoting Import and export Trade. These measures have had a significant thrust on promoting the development of infrastructure facilities in various parts of India, Like Export Promotion Zones etc. Every business the probability of risk & profit .In the case of International business, the credit risk is higher. Hence the Institutions like Export Credit Guarantee Corporation of India Ltd and its services are more credible.
Export Credit Guarantee Corporation Ltd, was set up by Govt. of India in 1957 per terms of section 3 read section 617 of Companies Act, 1956 and fully owned by Govt. of India, under Ministry of Commerce and Industry, to safeguard the interests of Indian exporters as a Co-Insurer in their credit term exports. The ECGC follows the principles of good corporate governance and the winner of M.O.U Award from Govt. of India, Ministry of Heavy Industries & Public Enterprises, and Dept. of public Enterprises in the year 2001-2002 for achieving the M.O.U targets.
The level of Co-insurance is 90% coverage to exporters on the invoice value and 75% coverage to banks on the credits availed to exporters against export bills, L.Cs etc. The percentage difference in credit insurance cover should be beard by the exporters (10%) and bankers (25%) respectively, as the case may be. These co-insurance ratios are kept to the purpose of caution during transactions made by exporters and banks with their respective customers.
E.C.G.C of India Ltd is working under the guidelines if I.R.D.A. In Brief, E.C.G.C of India Ltd is working as a co-insurer to exporters and banking community in India by issuing the Export Credit Coverage/Guarantee Policies. Hence it is playing an important role in this New Global Village Market system to enhance the exports, support export financing and thus by strengthening our foreign exchange reserve and economy as a whole.
There are 51-Credit Insurers in the world, as per Berne Union. In India, studies reveals that, most of them are in government sectors/institutions .The private players even in international market are less than five in numbers due to high risk and less profitable sector. The New India Assurance Co Ltd and TATA-AIG are trying to enter in this field in the coming future. Even though S.B.I, H.S.B.C, CANBANK, GLOBAL TRADE FINANCE and EXIM BANK are the few in the field of offering factoring services only to the exporters. (Factoring service is a new kind of credit guarantee policy & explained briefly in the Coming chapters). The exporters are earning a good amount of valuable foreign exchange for our country for every year and which plays an important role in our balance of payment and in our economy itself.
CATEGORY OF INDIAN EXPORTERS (Commodity wise).
· Gems & Jewellery
· Cotton Textiles
· Readymade Garments
· Agricultural Products
· Engineering Goods
· Marine Products
· Plastic Goods
· Woolen Products
The govt. Of India has been recognized that the exporting community as the
prime movers of the economy, so its regulatory and policy initiatives been
directed towards establishing a world class import & export infrastructure
in the country.
IMPORT & EXPORT
2002-03 & 2003-04
1. The International business becomes more priority sector and abolished License Raj.
2. Gold control Act, abolished with free import.
3. Give incentives to exporters in the mode of Replenishment Licenses (now abolished completely step by step process as per GATT regulations & allows free trade), D.E.P.B and Duty Drawback systems.
4. Exemption of duties and sale taxes on raw materials used for making export products.
5. Avail easy finance to exporters on a minimum rate of interest from nationalized banks.
6. Give more authorities to Commodity export boards.
7. Institute new systems of re-imbursement of exhibition participation and international market study tours & other projects for improving Indian exports to Latin American & many other countries (vide MDA programme of Ministry of Commerce).
8. Introduced schemes to re-imburse up to 75% of the actual cost of ISO Standardization & auditing to S.S.I units for assuring the quality levels of our products to compete in the international market.
9. Introduced total computerization of Indian Customs for speedy shipping & clearance of export shipments.
10. Introduced I.C.D systems in many places to manage bulk shipments via Sea.
11. Set up separate systems through S.B.I, M.M.T.C etc.to Import & avail precious raw materials like Gold, Silver, Platinum etc.on behalf of the exporters at International prices.
12. Give full freedom on Import of Gold & silver in the Interim budget of 2004.
13. Import & export documentation systems simplified.
14. Introduced B.I.N systems to exporters.
15. Introduced new EPU & EPZ
E.C.G.C OF INDIA LTD- An Overview
One of the Oldest Government enterprise offering credit guarantee services to its policyholders, through a lot of innovative export credit risk policies.
Schemes for exporters: -
1. Standard Policy
2. Small exporters policy
3. Buyer wise policy
4. Specific policy
5. Services policy
6. Construction work policy
7. Factoring policy (Latest introduced policy)
Salient Features of the above policies.
a) Whole turn over concept is used.
b) Company/firm is insured for export credit.
c) Provisional limits are available
d) Approval for restricted cover countries
e) Declaration & premium Submission in due time needed.
f) Credit limits can be availed on buyers and banks.
g) Limit Enhancement available on request.
1. In the case of insolvency/default of importers.
2. Non-acceptance of exported goods.
4. Political risks, if mentioned.
The following risks are not covered by E.C.G.C
1. Consumer disputes
2. Causes inherent in the nature of goods.
3. Risk covered in G.I.C
4. Insolvent/black listed by E.C.G.C or any other institution in earlier.
Procedures to open a policy
Any exporter can open a policy with E.C.G.C according to his need, by submitting the concerned form duly filled up & signed along with a payment of minimum (opening) premium Rs.10000.00. He will get 80% of gross invoice value covered in S.S policy schemes.
(The Changing Face of E.C.G.C. of India Ltd)
1. Introduction of S.S.P-ST.
2. Introduction of Turn over policy- in April-2003
3. Introduction of Maturity Factor in April-2002
4. Introduction of New buyer wise policy in April-2003
5. Increased “no claim bonus” up to 50%(30 to 50%)
6. Introduction of cover for L/C discrepancies
7. Introduction of time frame for claim settlement (<7days for claims up to Rs.25.00 Lakhs)
8. Restricted countries cover pruned from 54 to 8
9. Doubling of discretionary limit under clause21(b)(i) & 21(b) (ii)
10. Premium rates reduced w.e.f 01/04/2003.
11. Increased availability of factoring cover from 2 to 4 group countries
12. Factoring charges rationalized w.e.f 01/08/2003
13. Five new E.C.G.C branches opened (Total 36 branches in 2004)
14. Appointed sales promotional agents
15. Signed “Banc assurance” agreement with ten banks
16. Simplified process for claim payment
17. On account payment
18. Provisional payment under WTPSG
19. Different premium rates under WTPSG
20. WAN connectivity / on-line connectivity between branches
21. E-Connectivity for customers.
22. Member of Int’l Credit Insurers Association (Berne Union).
23. Member of Regional Co-operation Group
24. Established Export Credit Insurance Business in 7 countries
25. Global alliance with COFACE
26. Strategic alliance with D&B
27. Co-operation Agreements with 12 Export Credit Agencies.
28. Having 11000 policy holders in 24 product portfolio
29. Having the largest Database of 2-Lakhs importers.
To provide credit risk insurance to exporters to deliver end results.To provide maximum services by exploiting convergence of InfoTech and telecom.
To Provide end-to-end services and managed Export credit/economic applications.
To provide, Develop and deploy next generation infrastructure for risk free international trade.
Co-insurance; Buyer information services & Country information services(Export credit insurance)
Under the Memorandum of Understanding (MOU) signed between Ministry of Commerce, Government of India and the Corporation, the E.C.G.C was awarded
“Excellent” rating on an evaluation of its performance during the year 2002-03 on the parameters monitored. During the year under review apart from the profitability parameters, some additional parameters on business performance areas like introduction of new product lines, formulation of strategic plan, introduction of e-connectivity, addition to sales promotion agencies etc. had also been included.
The bold marketing initiatives introduced by the Corporation during the year with added vigor and enthusiasm, during the year 2002-03 deriving rich dividends in the form of increased customer satisfaction and market acceptance. This would help the corporation to consolidate its leadership position in the market in the face of competition from new entrants into the realm of credit insurance.
Committees have been formed at national, regional and branch level to interact & review problems with exporters, banks and representatives from the industry. The quarterly newsletter of the Corporation “ECGC News Letter” continued to strive addressing the need for product information among target clientele. All India level ECGC has been issued more than 14000-policies in various kinds to its clients in last year. ECGC is trying to increase its business in manifold in terms of policy and value.
a)Exporters- exporters includes all kind of firms, companies and institutions operating within the economical/political territory of our country and engaged in the activities of exporting to through out the world, as per the norms and regulations specified by the Ministry of Commerce.
Gems & Jewellery exporters, Computer Software/hardware exports, Automobile exports, Agricultural products exports, Handicrafts exporters and Apparel exporters (all are performing as market leaders in the International market) are doing a huge volume of business in India.
b)Bankers- Bankers includes all kinds of Financial institutions working in India, as per Banking regulations Act and the Rules and regulations prescribed by R.B.I in time to time. In India, Nationalized Banks, Private banks, International banks (Foreign Banks)(all with competent technology and service facilities) are playing a good role in this sector.
· Value added insurance products and service positioning.
· New Generation technology positioning.
E.C.G.C of India Ltd, The New India Assurance Co Ltd, TATA-AIG, S.B.I, CANBANK, HSBC BANK, GLOBAL TRADE FINANCE and EXIM BANK are the main players in the market registered under the guidelines of I.R.D.A. They have all the strengths to launch new value added services.
Though The New India Assurance Co Ltd and TATA-AIG could not gear up a good customer base due to their delay in launching products and services in Indian Market.
S.B.I, CANBANK, HSBC BANK, GLOBAL TRADE FINANCE and EXIM BANK also cannot gear up a good customer base due to their limited products and service.The New India Assurance Co Ltd have a good range of customers in the field of general insurance all over India and has the capability to gear up as a front-runner in the competition.
All the players may display high intentions but due to lack of funds, chances of huge losses by way of paying off claims or strong financial partner they may not be able to sustain even if they start.
· High financial strength
· Project execution competency
· Strong business equity consumer Nation wide branch network & synergy (confidence with co-insurance)
· High experience, infrastructure & latest Internet assisted facilities.
· High level of managerial efficiency
· Not much established branch network infrastructure in remote places
· Not much established and happy subscriber base to leverage in
· Govt./large organization takes a lot of time for decision making
· It lacks flexibility in rules & regulations according to market demand
· It couldn’t win the minds of its customers completely yet, due to lack of customer awareness programme
· Now a days customer/policy holders seems it as a mandatory burden for availing export finance than a facilitator
· Large addressal market created by new relaxed export policies of Govt. of India.
· Large demand for fresh policyholders due to increased facility of easy export finance from banks.
· Increasing trend of bankruptcy of big/established importers in Europe/abroad.
· Increasing rate of Bank’s N.P.A, due to defaulters in export credits.
· Regulatory issues-from I.R.D.A. (Insurance Regulatory & Development Authority of India)
· Opening up of Insurance to Private sectors attracts international giants
· Reactive Premium rates/pricing by private sectors
The latest credit risk policy offer in global standard
Which is the latest policy introduced by the ECGC providing a lot of extra benefits to the policy holders (exporters & financial institutions)?
Factoring means the purchase of specific accounts receivables of a policyholder.
Common Features Of Maturity Factoring
· Facilitate financing.
· Sales Ledger
· Credit monitoring & collection
· Credit protection up to 80 to 100%.
Benefits to Exporters via factoring
· Up to 100% credit risk protection
· Repudiation of loss up to 25%(under non acceptance of goods/bills
subject to non dispute)
· Gets receivables management services
· Sales ledger maintenance
· Reduction in administrative cost.
· Cover –single buyer.
Benefits to Banks (financial institutions) via factoring
· Gets 0% risk assets.
· Assured payment on pre-determined date/on crystallization (claims
· 100% payment.
· Exclusion from WTPSG/IPSG.
PERFORMANCE HIGHLIGHTS OF E.C.G.C
VALUE OF BUSINESS COVRED
(Rs. In Crore)
DESCRIPTION 2000-01 2001-02 2002-03
S.P & TR GUARANTEES 24633.00 23530.00 26411.00
POLICIES PROJECT& TERM EXPORTS 574.00 360.00 737.00
FACTORING 0.00 0.00 47.00
GUARANTEES-S.TERM EXPORTS 158962.00 157274.00 237084.00
GUARANTEES-PROJECT&TERM EXPORTS 323.00 744.00 699.00
Rs. In Crore)
DESCRIPTION 2000-01 2001-02 2002-03
STD. POLICIES &TRS GUARANTEE 96.73 101.02 110.66
POLICIES-PROJECT& TERM EXPORTS 8.70 6.7 68.91
FACTORING 0.00 0.00 1.09
GUARANTEES-S.TERM EXPORTS 218.66 224.97 245.37
GUARANTEES-PROJECT&TERM EXPORTS 6.36 5.77 8.62
THE PERFORMANCE HIGHLIGHTS OF E.C.G.C LTD: -
(Rs. In Crore)
DESCRIPTION 2000-01 2001-02 2002-03
STD POLICIES & TRN GUARANTE 30.57 34.08 64.33
POLICIES –PROJECT &TERM EXPORTS 5.62 0.00 0.28
FACTORING 0.00 0.00 1.88
GUARANTEES-SHORT T. EXPORT 142.25 440.11 370.57
GUAR.-PROJECT & TERM EXPORTS 34.05 12.93 0.00
(Rs. In Crore)
DESCRIPTION 2000-01 2001-02 2002-03
STD POLICIES & TRN GUARANTE 6.47 2.27 2.09
POLICIES –PROJECT &TERM EXPORTS 2.78 0.00 0.53
FACTORING 0.00 0.00 0.28
GUARANTEES-SHORT T. EXPORT 12.20 23.89 36.97
GUAR.-PROJECT & TERM EXPORTS 0.00 0.60 23.54
(Source: Corporation Annual report)
Oman Algeria Sudan Iran Myanmar Vietnam Mauritius
179.3 107.52 52.71 52.35 41.31 31.38 24.53
Kenya Others Bangladesh Swaziland Nepal Ethiopia Egypt
23.45 19.72 12.10 11.83 8.56 8.07 6.37
Saudi Arabia Turkey
(Source: Corporation Annual report)
INDIA’S EXPORTS & ECGC COVERAGE (SHORT TERM) Rs. in Crore
FINANCIAL YEAR INDIA’S EXPORTS ECGC COVERAGE
2000-01 202510 24618
2001-02 207746 23890
2002-03 252790 26405
(Source: Corporation Annual report)
PROFIT & LOSS ACCOUNT FOR THE YEAR
(Rs. In Lakhs)
Description As at 31-3-2003 As at 31-3-2002
PREMIUM 36661.60 33045.00
TRANSFRD FM RESRVE 33049.69 32226.88
OTHER INCOME 13469.67 16136.51
CLAIMS 33410.76 36187.79
EMPLOYEE’S REMMUNARATION 1831.15 1599.83
OTHR EXPENSES 3437.65 2804.96
RESRVE FOR UNEXPIRED RISKS 36661.60 33049.69
DEPRECIATION 250.32 200.12
TOTAL 75591.48 73842.39
III-PROFIT BEFORE TAX & ADJ. 7589.48 7566.00
ADD/LESS: PRIOR PRD ADJ. 120.95- 133.30
TAX ADJUSTMENTS 526.8 571.24
IV-NET PROFIT BEFORE TAX 8237.28 7503.94
PROVISION FOR TAX- CURRENT 3515.00 2900.00
DEFFERED (+) 141.40 0.00
NET PROFIT AFTER TAX 4863.68 4603.94
V-PROFIT & LOSS APPROPRIATION
BALANCE B/F 2.98 59.82
TRANSFERRED FROM P&L A/C 4863.68 4603.94
TRANSFD TO GENERAL RESERVE 3799.59 3740.00
PROPOSED DIVIDENT 944.46 920.78
TAX ON PROPOSED DIVIDENT 121.0 10.00
BALANCE CARRIED TO BAL. SHEET 1.60 2.98
BASIC/DILUTED EARNING PER SHARE 11.72 12.83
BALANCE SHEET AS AT 31ST MARCH-2003
(Rs. In Lakhs)
I-SOURCES OF FUNDS
SHARE CAPITAL 44000.00 39000.00
RESRVES& SURPLUS 48048.20 40792.67
TOTAL 92048.20 79792.67
II-APPLICATION OF FUNDS
FIXD ASSETS (GROSS BLOCK) 6819.66 5461.67
LESS: DEPRECIATION 1346.62 1118.76
NET BLOCK 5473.04 4342.91
INVESTMENTS 4671.43 4671.43
CURRENT ASSESTS, LOANS&ADV.
SUNDRY DEBTORS 15.52 14.91
CASH & BANK BALANCES 152076.21 143605.06
INTEREST ACCRUED ON INVEST. 2320.53 2411.42
OTHER CURRENT ASSETS 5644.04 7292.29
LOANS & ADVANCES 11353.09 7385.29
LESS: CURRENT LIABILITIES & PRVN.
CURRENT LIABILITIES 78845.34 83191.28
PROVISIONS 10647.13 7820.84
NET CURRENT ASSETS 81916.92 69696.85
DEFERRED REVENUE EXP. 0.00 1081.48
DEFERRED TAX LIABILITY (-)13.1 90.00
TOTAL 92048.20 79792.67
(Source: ECGCorporation Annual report)
Exporters and bankers are addressed to mandatory rules laid down by the bankers and concerned authorities.
· Foreign exchange revenue potential
· Nature of business
· Offer customarized policy packages to qualified/potential
segments in order to give: -
The most effective solutions and
Quality of services
3. Implementation programme
· Mapping /listing of all exporters, all banking institutions engaged in export credits with monthly turnover and credit level.
Marketing can be achieved its higher levels through: -
· Advertisement campaigns
· Events sponsorships
· Exhibitions and fairs
· Presentations through export associations
· Sales and service agents
· Availing buyer reports on demand.
INTERNATIONAL UNION OF CREDIT & INVESTMENT INSURERS
LIST OF BERNE UNION MEMBERS: -
There are 51 members registered with international union of credit and investment Insurers & ECGC stands as one of them.
COUNTRYNAME OF MEMBER TRADE MARK
1. ARGENTINACOMPANIA ARGENTINA DE SEGUROS DE CREDITO LA
2. AUSTRALIAEXPORT FINANCE & INSURANCE CORPN.EFIC
3. AUSTRIAOESTERREICHISCHE KONTROLLBANKOEKB
4. BELGIUMDUROIRE/DELCREDERE (THE BELGIUM EXPORTS CREDIT AGENCY)OND
5. BERMUDASOVEREIGN RISK INSURANCE LTDSOVEREIGN
6. BRAZILSEGURADORA BRASILEIRA DE CREDITO A EXPORTACAO S/ASBCE
7. CANADAEXPORT DEVELOPMENT CANADAEDC
8. CHINACHINA EXPORT & CREDIT INSURANCE CORPN.SINOSURE 9. CYPRUSEXPORT CREDIT INSURANCE SERVICEECIS
10. CZECH REPUBLICEXPORTNI GARNCNI A OJISTOVACI SPOLECNOST, A.SEGAP
11. DENMARKEKSPORT KREDIT FONDENEKF
12. FINLANDFINNVERA PLC.FINNVERA
13. FRANCECOMPAGNIE FRANCAISE D’ ASSURANCCOFACE
15. GERMANYPwC DEUTSCHE REVISIONPwC
16. GREECEEXPORT CREDIT INSURANCE ORGANISATIONECIO
17. HONGKONGHONGKONG EXPORT CREDIT INSURANCE CORPN.HKEC
18. HUNGARYHUNGARIAN EXPORT CREDIT INSURANCE LTDMEHIB
19. INDIAEXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD ECGC
20. INDONESIAASURANSI EKSPOR INDONESIAASEI
21. ISRAELISRAEL FOREIGN TRADE RISK INSURANCE CORPORATION LDIFTRIC
22. ITALYISTITUTO PER I SERVIZI ASSICURATIVI DEL CREDITO ALL
23. ITALYEULER SOCIETA ITALIANA ASSICURAZIONE CREDITI Spa.EULAR SIAC
24. JAMAICANATIONAL EXPORT IMPORT BANK OF JAMAICA LTDEXIM J
25. JAPANNIPPON EXPORT AND INVESTMENT IVSURANCENEXI
26. KOREA REPUBLICKOREA EXPORT INSURANCE CORPORATIONKEIC
27. MALAYSIAMALAYSIA EXPORT CREDIT INSURANCE BERHARDMECIB
28. MEXICOBANCO NACIONAL EXTERIOR S.N.CBANCOEXT
29. NETHERLANDSGERLING NCM CREDIT AND FINANCE AGGERLING NCN
30. NORWAYGARANTI-INSTITUTTET FOR EXSPORT KREDITSGIEK
31. POLANDEXPORT CREDIT INSURANCE CORPORATIONKUKE
32. PORTUGALCOMPANHIA DE SEGURO DE CREDITOS S.ACOSEC
33. SINGAPOREECICS CREDIT INSURANCE LIMITEDECICS
34. SLOVENIASLOVENE EXPORT CORPORATION Inc.SEC
35. SOUTH AFRICACREDIT GUARANTEE INSURANCE CORPORATION OF AFRICA LIMITEDCGIC
36.SPAINCOMPANIA ESPANOLA DE SEGUROS DE CREDITO A LA EXPORTACION, S.ACESCE
37.SPAINCOMPANIA ESPANOLA DE SEGUROS Y REASEGUROS DE CREDITO Y CAUCION SACYC
38.SRI LANKASRI LANKA EXPORT CREDIT INSURANCE CORPORATIONSLECIC
40. SWITZERLANDSWISS EXPORT RISK GUARANTEE AGENCYERG
41. CHINESE-TAIPEITAIPEI EXPORT IMPORT BANK OF CHINATEBC
42. TURKEYEXPORT CREDIT BANK OF TURKEYTURK EXIM BANK
43. UNITED KINGDOMEXPORT CREDITS GUARANTEE DEPARTMENTECGD
44. UNITED KINGDOMEULER TRADE INDEMNITY PLCETI
45.UNITED STATES OF AMERICAEXPORT IMPORT BANK OF THE UNITED STATESEXIM BANK
46.UNITED STATES OF AMERICAFCIA MANAGEMENT COMPANY Inc.FCIA
47.UNITED STATES OF AMERICAOVERSEAS PRIVATE INVESTMENT
48.UNITED STATES OF AMERICAAIG GLOBAL TADE & POLITICAL RISK
49.UNITED STATES OF AMERICAMULTILATERAL INVESTMENT GUARANTEE
50.UNITED STATES OF AMERICAZURICH EMERGING MARKETS SOLUTIONSZURICH
51.ZIMBABWECREDIT INSURANCE ZIMBABWE LIMITEDCREDSURE
WORLD AND INDIAN ECONOMY
Due to the strong demand in the United States and vibrant Asian economies, merchandise trade grew by 2.5% in 2002, up from a 1% decline in 2001. But trade growth was uneven and masked the sluggish trade performance in many regions. The trade downside risks on predictions for 2003 are large, bearing in mind the continued sluggishness in the world economy, the conflict in Iraq and the setback caused by the spread of the Severe Acute Respiratory Syndrome (SARS).
In value terms measured, exports rose by 4% to USD 6,240 billion nearly offsetting the decline of the preceding year. Commercial services trade expanded a little faster than merchandise trade reaching a new record level of USD 1,540 billion. The merchandise trade of developing economies in Asia grew by about 12.5 per cent in volume terms, driving the entire continent’s exports and imports to grow by double digits.
The region also saw diverging growth paths between Japan, still Asia’s largest economy, and China and India, the two most populous nations in the world. In value terms, China’s merchandise exports and imports increased by more than 20 per cent while India’s also grew at double-digit rates. China has over taken the U.K to become the fifth largest trader in the world. Japan’s merchandise export growth was only 3 per cent while imports contracted.
The imports into the US grew by 3 per cent driven by continuing consumer spending and increasingly expansionary fiscal stances. But exports declined by nearly 4 per cent partly reflecting reduced demand from some key trading partners whose economies were either hardly growing, such as Western Europe and Japan, or in outright contraction, as in Latin America.
Western Europe’s trade stagnated in volume terms with merchandise exports increasing by just 0.6 per cent and imports declining by 0.5 per cent.
Latin America saw on of its worst years with the crises in Argentina, Venezuela and difficulties in Brazil in the run-up to the national elections. Latin America’s merchandise imports declined by over 5 per cent in 2002 although merchandise exports rose by about 2 per cent with the decline in intra-regional trade being balanced by increased shipment to other regions.
Oil exporting LDC saw a strong increase in the dollar value of their
shipments as they increased their production and volume of trade. Exports
of the non-fuel commodity exporting countries continued to rise after
marked gains in 2001. However, exporters of manufactured goods
In the year 2002, the real effective exchange rate of the UD dollar depreciated while that of the Euro and Yen appreciated. However, the realignments did not seem to have materially affected the US trade deficit, nor current account surpluses being accumulated by the Euro Zone Countries, Japan and developing Asia.
The tune of Foreign Direct Investment (FDI) has been rise in 1990’s and peaked in 2000. But there is till good rate of FDI inflows to China, Central/Eastern Europe that continued to increase very strongly.
The Actual GDP growth is estimated to be at 4.4 per cent in 2002-03, down from 5.6 per cent in 2001-02. According to these estimates, the impact of the adverse supply shock from drought conditions following a weak southwest monsoon turned out to be worse than initially anticipated. The rate of savings of the private sector declined marginally from 4.1 per cent in 2000-01 to 4.00 per cent in 2001-02 while the public sector dis-saving continued to worsen from 2.3 per cent in 2000-01 to 2.5 per cent in 2001-02. For the first time after 1975-78 period, the overall saving investment balance turned around in 2001-02 into a surplus of 0.2 per cent of GDP. While the public sector savings gap widened in 2001-02 from 8.7 per cent of the GDP in 2000-01 to 8.8 per cent, the private sector surplus increased from 9.5 per cent to 10.3 per cent of GDP.
The foreign exchange reserves increased by US $ 21.3billion during 2002-03 to US$ 75.4 billion, equivalent to more than a year imports. The increase in reserves was almost entirely on account of foreign currency assets despite prepayment of the multilateral debt amounting US$ 3.0billion. The sharp increases in the reserves in the recent period have raised issues about the costs and benefits of reserves. The financial cost of additional reserve accretion is estimated to be low. These costs are likely to be more than offset by the return on additional reserves.
Furthermore, high reserves have provided important benefits in the form of
precautionary lines of defense against unforeseen external shocks, the
welfare gains from smoothing domestic consumption and investment, and the
more visible benefits of ensuring financial stability despite an
unsatisfactory international environment.
The external debt increased by US$ 3.5 billion during April-September 2002 mainly on account of non-resident deposits and official aid. The external debt to GDP ratio is estimated to have declined from 20.0 per cent at end March 2002 to 20.1 per cent at end-September-2002.
The ratio of short-term debt to total debt as well as to total reserves continued to remain comfortable at 3.0 per cent and 4.8 per cent respectively as at end of September 2002. The strength of the foreign exchange reserves enabled prepayment of foreign currency loans from the Asian Development bank (ADB) and the World Bank amounting to US$ 3.0 billion in February 2003 by the Government of India.
As per the data’s from the Directorate General of Commercial Intelligence and Statistics (DGCI&S) indicative a vigorous recovery of merchandise exports from a slump in the preceding year. Export growth of over 18 per cent during 2002-03 was broad-based, led by gems and Jewellery, engineering goods, chemicals and related products, textiles and ores and minerals. In terms of market destinations, growth of exports was mainly to USA, China, the Organization of Petroleum Exporting Countries (OPEC), European Union and Singapore.
In the year 2002-03, our exports has been increased by 18 per cent over the previous year from US$ 43.8 billion to US$ 51.7 billion, imports rose by over 17 per cent to from US$ 50.7 billion to US$ 59.4 billion.
In tune with the changing financial architecture and the trends in business environment and to consolidate the economic gains, Reserve Bank of India ushered in several policy initiatives during 2002-03 including allowing banks and financial institutions to issue Certificates of deposits on floating rate basis, freedom to banks to decide the period of reset on variable rate deposits, permission to banks to open Offshore Banking Units in special Economic Zones.
Meanwhile, the process of liberalization of the insurance sector continued
during the year 2002-03. More insurance companies were registered with
IRDA taking the total number of insurers to twenty-seven, thirteen each of
life insurance and general insurance companies and one reinsurance
company. IRDA reported a growth of 38.9 per cent and 26.3 per cent during
the year 2002-03 for life insurance and general insurance sector
OVERSEAS INVESTMENT INSURANCE SCHEME
The overseas investment insurance scheme provides cover for the investments made by Indian corporate abroad in joint venture or their wholly owned subsidiary (WOS) either in the form of equity or loan. Government of India or RBI should approve the joint venture. The basic principles are that the investment should emanate from India and benefit of dividend/interest should accrue to India. The investment should not in any way conflict with the policy of both our government and the overseas government. Normally there should be a bilateral agreement between India and the host country for promotion and protection of Indian investment. In case there is no such agreement the (ECGC) corporation should be satisfied that the existing laws of the host country adequately safeguard Indian investment.
Types of investment:
The overseas investment may be made either by way of equity or by way of loans.
Any contribution made to the enterprise in return for shares either by cash remittance or by way of export of capital goods or services can be covered. Any fees payable towards technical know-how consultancy or management services etc. and agreed to be converted into capital will be considered for cover at the discretion of the ECGC.
Loans advanced by way of a formal agreement but not tied to export of goods and supplies are eligible for cover. Any suppliers/buyers credits and lines of credit extended to support sale of goods or services from India may be covered under the appropriate insurance schemes of the ECGC and not under investment insurance.
Dividend and profit:
In case of equity the investor can choose to cover the original investment as well as his share of retained earnings and dividends declared, to the extent they are eligible for repatriation. Cover on account of original investment, retained earnings, dividend receivable and any additional investment will be subject a ceiling of 150 per cent of the original investment calculated as in the proceeding paragraphs. In the case of loan, the insurance will cover the principal as well as interest actually earned.
Any investment in shares of overseas concerns not related to setting up, development and expansion of overseas projects would not be eligible for cover under the investment insurance.
Additional investment can be covered subject to a ceiling of 50 per cent of the original investment. Any additional investment out of retained earnings should have been made by formal capitalization and for the purpose of expansion for development of the enterprise. If the additional investment is made out of retained profits, which are not eligible for repatriation such as investment will not be eligible for cover. Initially cover is issued for 3-years. On expiry of the 3 years it is at the option of the exporter to renew the cover/review of the JV/WOS by ECGC. The duration of insurance cover shall not normally exceed 15 years but extension can be given up to 20 years for longer projects. The amount of investment eligible for cover shall be to the full extent during the first 10 years of cover. Percentage of cover is 90 per cent- can be reduced. The amount of investment eligible for cover will be reduced to 90 %, 80%, 70%, 60% and 50% respectively of the original investment during the 11th, 12th, 13th, 14th and 15th years of insurance. O.L.L covers only political risks of war, expropriation and restrictions on remittances.
Base rate 1 per cent of the investment value. Actual premium rate will depend on size of investment, country of investment, previous experience of the importer etc…
The exporter has to furnish proposal form along with fee of Rs.01 percent of the investment amount subject to ceiling of Rs.25000.00 if cover is agreed application fee paid shall be adjusted towards premium payable. In case, the application for insurance is rejected, half the fee paid shall be refunded. Premium is taken upfront. Income from the premium is allocated over the tenor of the cover extended. Installment facility is provided by ECGC for collecting premium after analyzing and approving the proposal.
ECGC enters into agreement with the exporters for providing cover mentioning the terms and conditions along with the maximum liability. The exporters have to submit annual report about the progress and the working of the project.
Payment for goods shipped by an exporter is open to certain risks, unless the payment has been received in advance or is supported by an irrevocable Letter of Credit confirmed by a bank in India. Failure of a large payment can wreck an exporters business. In any case, the existence of the risks and the exporter’s knowledge of their existence may make him adopt a very cautious attitude towards new business. Orders, which could have proved beneficial, may be given up because of excessive caution.
An ECGC policy is designed to protect exporters from losses that may arise due to a variety of commercial and political risks, which are beyond their control. Backed by this insurance, an exporter can expand his business by taking on new buyers, entering new markets or by taking up new products.
SHIPMENTS COMPREHENSIVE RISKS POLICY
ECGC has designed several policies to suit every type of export transaction. For exporters with an annual export turnover in excess of Rs.50 lakhs, the shipments comprehensive risks policy is the one intended for covering shipments made on cash basis or on short-term credit, i.e. credit not exceeding 180-days.
RISKS COVERED UNDER THIS POLICY
Commercial risks: -
· Insolvency of the buyer.
· Failure of the buyer to make the payment due within a specified period, normally 4 months from the due date.Buyer’s failure to accept the goods, subject to certain
Political risks: -
· Imposition of restrictions by the Government of the buyer’s country or any Government action, which may block or delay the transfer of payment made by the buyer.
· War, Civil war, revolution or civil disturbances in the buyer’s country.
· New import restrictions or cancellation of a valid import license.
· Interruption or diversion of voyage outside India resulting in payment additional of freight or insurance charges, which cannot be recovered, from the buyer.
Shipments Covered: -
· Shipments against L/C.
· Shipments to Associates.
· Shipments on consignment basis.
· Shipment made by Air, By Sea and BY Post.
Credit Limit on Buyers
Commercial risks are covered subject to a Credit Limit approved by the corporation on each buyer to whom shipments are made on credit terms. The exporter has, therefore, to apply for a suitable Credit Limit on each buyer, as ascertained from credit reports obtained from banks and specialized agencies abroad, the ECGC will approve Credit Limit which is the limit up to which it will pay claim on account of loss arising from commercial risks. The Credit Limit is a revolving limit and once approved, it will hold good for all shipments to the buyer as long as there is no gap of more than 12 months between two shipments. Credit Limit is a limit on the Corporation’s exposure on the buyer for commercial risks and not a limit on the value of shipments that may be made to him.
Premium has, therefore, to be paid on the full value of each shipment even
where the value of the shipment or the total value of the bills
outstanding for payment is in excess of the Credit Limit.
As the Credit Limit is indicative of the safe limit of credit that can be extended to the buyer, it will be advisable for exporters to see that the total value of the bills outstanding with the buyer at any one time is not out so proportion to the Credit Limit. In cases where the Credit Limit that the Corporation is prepared to grant is far lower than the value of outstanding, exporters should discuss the problem with the Corporation.
Discretionary limit in the case of absence of credit limit on buyer is up to Rs.20 lakhs on commercial risks for DP and CAD transactions/shipments. The corporation normally pays 90 per cent of the loss under this policy. The minimum premium for this policy is Rs.10, 000.00. All kinds of policy the exporter must submit the shipment declarations along with necessary premiums on or before the 15th of every month. In the event of non-payment of any bill, the policyholder is required to take prompt and effective steps to prevent or minimize loss. A monthly declaration of all bills, which remain unpaid for more than 30 days, should be submitted to ECGC in the prescribed form indicating action in each case.
Granting extension of time for payment, converting bills from DP terms or resale of unaccepted goods at a lower price require prior approval ECGC. Now a day ECGC has proved their efficiency by settling genuine claims up to Rs.20 lakhs even a period of less than seven days from the date of claims.
Primary data’s collected from exporters, bankers, export associations and the branch office of ECGC, Jaipur via prepared questionnaires.
Secondary data’s collected from the printed materials of Ministry of
Finance, Ministry of Commerce, DGCI&S, ECGC annual report, ECGC news, ECGC exporters meet programme feed back held on 15/12/2003 in Jaipur, Import & Export Policy-2002-2007 hand book, Periodicals in Management.
E.C.G.C - Export Credit Guarantee Corporation Of India Ltd.
Corporation- (for) Export Credit Guarantee Corporation Of India Ltd.
S.B.I-Stat Bank Of India
MMTC-Metals And Minerals Trading Corporation Of India Ltd
ICD-International Container Depot.
BIN-Business Identification Number
SSP-Specific Shipment Policies
CAD/COD-Delivery Of Documents Against Cash payment
DP/DA-Delivery Of Documents Against Acceptance
MDA-Market Development Assistance
GATT-General Agreement For Trade & Tariff
IRDA-Insurance Regulatory And Development Authority Of India
M.O.U-Memorandum Of Understanding
L/C-Letter Of Credit
SSI-Small Scale Industrial Unit
ISO-International Standards Organization
DEPB-Duty Entitlement Pass Book
HSBC-Hong Kong and Shahnai Banking Corporation
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