Centre to augment credit cover corpus
The Modi government is giving an unprecedented push to project exports by way of facilitating enhanced finance support to Indian companies that win construction, infrastructural and consultancy contracts abroad and bolstering an extant buyer’s credit scheme with interest subsidy.
The move comes at a time when the country’s exports are languishing (shipments shrank for the sixth month in a row with a steep 20% contraction in May) even as the manufacturing sector is showing some
signs of recovery.
According to official sources, the current Buyer’s Credit under National Export Insurance Account (BC-NEIA) will be reinforced with the infusion of more funds into the account so that state-owned Export Credit Guarantee Corporation can bolster the guarantee for the loans extended by Exim Bank of India for such projects.
While Exim Bank had sanctioned just around $1 billion for nine projects under BC-NEIA between April 2011 and May 2014, the Modi government added pace to the process by enabling the sanction of $947 million to eight projects in the last one year. Of these, sources said, approval for the sanction of $458 million was given on June 16 to five projects by a panel headed by the commerce secretary.
Sources said the plan to strengthen India’s state-supported financing of project exports with an interest subsidy is in the wake of the intense competition Exim Bank and ECGC are facing from their Chinese counterparts. The exact quantum of the subsidy was yet to be decided, they added.
BC-NEIA was set up in April 2011 by the UPA government to step up the finance support for public-sector projects overseas on the condition that the sourcing of goods and services by the foreign governments and their agencies from India for each such project should be worth at least 75% of the total credit given by Exim Bank for it.
Under BC-NEIA, Exim Bank extends 8- to 12-year or longer credit to poor/developing country governments and their agencies with sovereign guarantee at Libor plus 2.25-3% per annum for up to 85% of the project value.
Significantly, to integrate BC-NEIA with the Make In India initiative, the mechanism will be more precisely targeted by weeding out mere trading firms. Indian firms in the manufacturing and infrastructure sectors and which demonstrate an excellent track record in the specific field would receive the help, a source said.
In a bid to ensure sufficient funds in the NEIA corpus, the Modi government in September 2014 approved a proposal to increase it to Rs 4,000 crore from an upper limit of Rs 2,000 crore prescribed by the UPA government. However, at the end of March 2015, the NEIA’s corpus stood at just Rs 1,471 crore (as the government was only gradually infusing funds), which as per Exim Bank officials was “insufficient”. Of course, the Modi government’s decision in September 2014 to increase the NEIA guarantee coverage multiplier from 10 times to 20 times has been helping Exim Bank in supporting project exports.
The recent approvals for sanctions under BE-NEIA include those for Senegal ($170 million for a transmission line project and $70 million for supply of vehicles, spares and related services), Sri Lanka ($146 million), Zimbabwe ($64 million for water-supply projects) and $8 million for a power transmission line project in Zambia.
* $1 bn for 9 projects sanctioned by UPA for BC-NEIA from Apr ‘11-May ‘14
* NDA sanctioned $947 m to 8 projects since June ‘14
* Includes $458 m approved on June 16 for 5 projects
* Corpus to be hiked as insufficient funds limit mandate
* Interest subsidy on Exim Bank loans to foreign buyers likely