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Business News/ Politics / Policy/  Centre may help offset soaring costs of exports to war zone
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Centre may help offset soaring costs of exports to war zone

Exporters pitched for restoring ‘open cover’ for shipments of agriculture, drugs and energy, the sectors exempted from sanctions

Petroleum products made up for half of the imports from Russia (Photo: Bloomberg)Premium
Petroleum products made up for half of the imports from Russia (Photo: Bloomberg)

BENGALURU : The commerce ministry is considering subsidizing insurance fees for exports to Russia to address concerns about rising costs after state-run Export Credit Guarantee Corp. of India (ECGC) put all exports to Russia under the ‘restrictive cover’ category last week, two officials aware of the development said.

The insurance helps exporters cover the risk of non-payment by a buyer. However, payment risks can rise dramatically during wartime, as is the case in Russia and Ukraine. Responding to the situation, ECGC changed the cover category for shipments to Russia from ‘open’ to ‘restricted’, which has revolving limits (normally valid for a year) and are approved on a case-to-case basis.

The government has also asked ECGC to reach out to exporters to clear up misinformation about modification in the insurance cover, the officials said, seeking anonymity. The export credit provider clarified the cover for shipments to Russia has not been withdrawn but only been modified with effect from 25 February.

However, in a meeting with the commerce department on Monday, exporters pitched for restoring the ‘open cover’ for shipments of agriculture, drugs and energy, the three sectors exempted from sanctions. However, the government does not want to interfere in the insurance company’s risk assessment as it is purely a business decision.

“In a war zone, one can’t say there is no risk involved even if the three products are exempted. The West may also impose product-specific sanctions. So, we leave that to ECGC to decide as it is an independent and autonomous process and a purely commercial decision of the insurance firm," one of the two officials cited above said.

Instead, the government may explore options, including offering subsidies to exporters on the lines of interest rate subvention schemes. “ECGC has done an assessment; so, unless it is proven that their assessment is completely wrong, it will not be proper or prudent to ask ECGC to cover these shipments," the official said.

The second official said the option of whether the insurance cover could be subsidized was on the table to be explored. “Bank interest rates are subsidized under the interest equalization or interest subvention scheme. It needs to be examined if insurance risks can be covered too," the official said.

The government clarified that all those covered for three years would continue to remain covered, and only the risk category has changed.

In FY21, India’s exports to Russia stood at $2.6 billion, while imports were $5.5 billion. Among the top exported items, India shipped $469 million worth of pharmaceutical products and $301 million worth of electrical machinery to Russia. Other items of exports include tea and coffee, apparel and textile.

The industry has demanded that shipments already cleared by the customs should get the original insurance cover benefit.

“There is a view among exporters that shipments in different stages of execution should get insurance cover," said Ajay Sahai, director-general and CEO of the Federation of Indian Export Organisations.

Petroleum products made up for half of the imports from Russia. However, the $3.7 billion of petro product imports is minuscule compared with India’s overall $150 billion oil imports.

“ECGC has been advised to do exporters’ outreach to alleviate any apprehension," a spokesperson for the commerce ministry said.

The spokesperson didn’t respond to a query emailed on Tuesday about the department of commerce exploring the option of subsidizing insurance cover for shipments to Russia.

Insurance premiums under the restrictive category may rise when compared with open cover. Sahai said a bigger issue would be the process under the restrictive category as it will be given on a case to case basis.

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ABOUT THE AUTHOR
Dilasha Seth
" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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Published: 02 Mar 2022, 12:49 AM IST
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