New insurance cover for exporters on cards

From March, Indian exporters will get an insurance cover for long-term exports similar to the one their counterparts in the US, Australia, Belgium, Canada, France and Germany get.

The commerce ministry has moved to create a national export insurance account (NIEA) with a corpus of Rs 2,000 crore to provide credit risk cover for medium and long-term exports.

The insurance fund, recently cleared by the Cabinet Committee on Economic Affairs, will be maintained and operated by a public trust, to be set up jointly by the department of commerce and the export credit guarantee corporation (ECGC).

The trust has to be operational within 60 days of being approved. Approval for the trust was given around a fortnight ago.

A high-powered committee, called the Committee of Directions, will be set up under the aegis of the ministry to monitor and utilise the NIEA funds.

But the NIEA will insure only commercially viable exporters. "This will give exporters some relief as premium rates at which insurance cover is available is much higher than those in other countries," said an exporter.

Exporters can get insurance cover for losses due to fire, marine incidents, floods, mishandling of goods in transit and if goods are lost.

Of the Rs 2,000-crore corpus, the government will contribute Rs 266 crore in the Tenth Plan (2006-07) period, while the remaining will be contributed in the Eleventh Plan period (2007-12).

The maximum aggregate exposure that will be undertaken will be kept at Rs 20,000 crore after the trust receives the full funding of Rs 2,000 crore.

The credit risk cover will be provided by the NIEA to those exporters that the ECGC is unable to underwrite on its own terms.

"India's political relationship with a country and whether the execution of a project by Indian exporter is likely to have a significant impact in the long-term relationship of India with that country will be the criterion for the Committee of Directions to clear proposals under the NIEA," and industry analyst said.

A provision of Rs 66 crore has already been made in the current year's Budget for the NIEA.