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The Commerce and Industry Minister, Mr Anand Sharma, on Wednesday launched a new product – ‘Buyer's Credit under the National Export Insurance Account (NEIA)' – to boost project exports from India.
The product is to ensure that Indian companies are in a competitive position in project bids vis-a-vis their peers from other nations, an official statement said. The Buyer's Credit facility can be used by sovereign Governments and Government-owned entities overseas to finance import of projects from India on deferred payment terms, it added.
Project exports include civil construction (of structures and infrastructure), turnkey projects, process and engineering consultancy services.
The loan would be disbursed for large project exports especially in the infrastructure sector, such as roads, bridges, railways, power line, sewerage plants, water treatment facilities and housing. A single project exposure covered by the loan could be $100 million (or Rs 450 crore). A higher amount, of even up to $2 billion, could be considered if the project is strategically important to India, sources said.
The scheme has been developed by Export-Import Bank of India (Exim Bank) along with the Export Credit Guarantee Corporation of India (ECGC).
NEIA, a Trust with a corpus of Rs 2,000 crore, was set up by the Ministry to provide export credit insurance cover for promoting project exports from India administered by ECGC. ECGC aims to strengthen the export promotion drive by covering the risk of exporting on credit.
Any deferred credit transaction relating to project exports from India is eligible for the Buyer's Credit cover under the NEIA, which ECGC cannot cover on its own either due to large value of project or due to attendant country risks being above commercial parameters. The Buyer's Credit loan can be up to 85 per cent of the contract value, except in special circumstances.
Mr Sharma said, “Currently, not many project exports are venturing out in overseas markets. In fact, the number of project exporters is dwindling.”
“Developing countries are the major markets for India's project exports, and these countries demand medium-to long-term credits. With this new product, many project exporters would be able to venture into new markets and help diversify India's exports,” he added.
The Exim Bank Chairman and Managing Director, Mr T.C.A. Ranganathan, said, “The product, with its attractive feature of extending credit directly to overseas buyers of projects from India without recourse to Indian exports, will lead to a rise in exports from India.”
“Credit period would normally be 5 to 8 years. However, longer credit period could be considered in deserving cases,” he added. The interest rate will be linked to Exim Bank's cost of funds plus a spread. This would be reset after five years.
The ECGC Chairman and Managing Director, Mr Arvind Mehta, said, “While Exim Bank will extend the credit facility, it will obtain credit insurance cover under NEIA through ECGC and the insurance premium will be borne by the project exporter.”
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