Indian exporters to Russia, which is currently invading Ukraine, and other CIS countries, face uncertainity due to sanctions being imposed on Russia and withdrawal of a credit guarantee scheme, according to a report by The Economic Times.
The Export Credit Guarantee Corporation (ECGC) has withdrawn coverage for shipments to Russia with effect from February 25, which is a huge setback for exporters, according to industry body FIEO.
"Based on the near-term commercial outlook, it has been decided to modify the country risk classification of Russia under the short-term and medium-and-long term with effect from February 25," the ECGC said in a release last week.
India exports goods worth $1.5 billion annually to CIS countries, which comprise of Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine.
"Such action is a huge setback to the exporting fraternity as the fate of cargoes which are at various Indian ports, some after customs clearance, for shipments will not be covered as ECGC has mandated Bill of Lading cut off date till February 25. Secondly, policies in force hold no good as risks are withdrawn. This immediate act of ECGC is a setback for exporters as political risks are one of the major components which ECGC covers," FIEO Director General Ajay Sahai said.
Traders also fear a further hike in freight rates, which had surged during the Covid-19 pandemic due to port closures. Container rates are currently 81 per cent higher than they were a year ago, according to the report.
Additionally, sanctions imposed on Russia by the US Office of Foreign Assets Control, and threats of sanctions from France, Germany and other nations have made dollar and pound-euro transactions impossible for traders with Russia.
"Russian importers have agreed to transact in the country's currency ruble, but since it's not a widely traded currency we don't enjoy many incentives from the Indian government such as duty drawbacks etc. that we enjoy on the dollar," Sahai told the publication.
However, certain exports in segments such as pharma, which constitutes the biggest chunk of India's exports to Russia, agriculture and energy have been exempted by the US Office of Foreign Assets Control (OFAC).
If an importer in Russia is willing to pay the outstanding export bills in Indian rupees or Russian ruble, the Indian government should allow the realisation of export bills in Indian rupees or ruble, Hand Tools Association President S C Ralhan said. "In such cases the export incentives should not be denied as the payment is being received in Indian rupees or Russian ruble due a crisis between two countries," he said.
Prahlad Tanwar, global head of logistics at KPMG, told the publication that India's trade with Russia, including through containers, is a small portion of the total and the impact won't be much.
(With inputs from agency)
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