The Hindu : Business : ECGC policy to cover IT exporters' risks

Online edition of India's National Newspaper
Saturday, Jun 12, 2004

Business

Business

ECGC policy to cover IT exporters' risks

By Our Special Correspondent

CHENNAI, JUNE 11. The Export Credit Guarantee Corporation of India has finalised a policy tailor-made to cover the risks to exporters in the information technology sector, according to P. M. A. Hakeem, Chairman and Managing Director.

Replying to questions at a press conference here on Thursday, Mr. Hakeem said the policy would be introduced by August after obtaining the approval of the Insurance Regulatory and Development Authority. Though the ECGC had in its portfolio a separate policy to cover the service sector exports, this did not evoke an adequate response from the IT sector, whose payment risks (namely, the risk of failure to realise the value of exports as a result of default on the part of the buyer or because of political circumstances) were different compared to payment risks arising in the case of merchandise exports.

For instance, an IT exporter sending his personnel to the U.S. to render on-site services might find that his IT professionals were refused entry into the U.S. as a result of exhaustion of the year's H-1B visa quota or on far-fetched and unfair grounds like the similarity of name with that of suspected terrorists. IT exporters were also vulnerable to disputes arising out of intellectual property rights (IPRs) which might result in the software exporter not realising his dues from the importer, Mr. Hakeem said.

With merchandise exporters taking increasingly to the practice of opening warehouses in the U.S., Europe and other countries or appointing agents or opening branches, the corporation's policy covering consignment exports was likely to become more popular.

Mr. Hakeem said the ECGC was facing competition after the opening up of the insurance sector to private companies. Private insurance firms were estimated to have earned a premium income from export credit insurance which was still a fraction of the ECGC's business. While the private sector was likely to service large exporters facing limited payment risks, the ECGC, as a public sector enterprise, was obliged to meet the needs of small and medium exporters. During 2003-04, the corporation earned a premium income of Rs. 444 crores and paid out claims totalling Rs. 455 crores, including Rs. 400 crores paid to banks (whose advances to exporters are guaranteed by the corporation). It was still able to make profits thanks to income from investments. The ECGC, under the Commerce Ministry, was expecting the approval of the Cabinet Committee on Economic Affairs (CCEA) of the new Government for increasing its capital base from Rs. 500 croress to Rs. 800 crores over three years.

The fact that the corporation's business grew by 18 per cent last year, against a growth of 12 per cent in India's exports, showed that more exporters were taking advantage of its services, particularly thanks to new policies incorporating greater flexibility compared to the ECGC's standard policy and exporters entering new markets carrying higher risks, said Mr. Hakeem, who was here to attend a meeting of the regional advisory committee of exporters. Participants in the meeting suggested that the corporation should offer medical cover to exporters going abroad.

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