Capital infusion into ECGC and NEIA
The country is celebrating the 75th Independence Festival, which is an opportunity to build a clear vision and a roadmap for the India of tomorrow. The Cabinet Committee on Economic Affairs approved the capital injection of 4,400 yen crore to ECGC Ltd. over a five-year period, i.e. from 2021-2022 to 2025-2026. The approved injection along with efforts to appropriately synchronize with ECGC’s listing process through the Initial Public Offering (IPO) will increase ECGC’s underwriting capacity to support more exports. ECGC strives to support the Indian export industry with its experience, expertise and underlying commitment to the progress and advancement of Indian exports. ECGC plays a broader role in supporting exports from labor-intensive sectors and encourages bank lending to enterprises of small exporters, thereby spurring their revival.
The pandemic has impacted supply chains which, in turn, exacerbate demand and supply shocks. The effect on international trade over the next few years will depend on the extent and duration of the pandemic, as well as on measures to contain it. The pressure on corporate liquidity, the stress of jobs, the increase in insolvencies are already evident. In this context, our government’s balanced plans and measures deserve to be implemented immediately.
A study by the International Chamber of Commerce finds that global merchandise exports fell 10% while global services exports fell 20% in 2020 even due to the Covid-19 pandemic. Due to the increased risk, defaults in supply chain finance have increased by 500% in terms of the number of receivables to value.
About $ 172 billion in defaulted non-LC payments were in default. The INR equivalent of the same ₹ 1.2 lakh crore, or 1.01% of total world exports. Considering the fact that the cost of credit insurance averages around 0.2-0.3%, this is a huge strain on the balance sheet of credit insurers like ECGC. We assure exporters that we have sufficient financial strength to cope with the increase in claims. We expect this to be an event and the default levels will revert to the current year average. In addition, a comforting fact is that world merchandise trade is expected to grow at a rate of 3.1% per year until 2030. This will allow the export sector to grow organically and at the same time recoup the losses suffered. by export credit agencies.
Posted on: Friday October 01, 2021 5:13 PM IST