The biblical story of David and Goliath is oft used to voice the case of the underrepresented underdog winning the battle of right v. wrong, against the well-established, perceived as the arrogant giant. In this tale, the institutions envisioning services to citizens and legal entities, unfortunately have seemed to have gone astray, being adversarial to the ones which they have sought to serve.
The Indian economy has made its mark as the fastest growing economy in the world, having a 5.5% average GDP growth rate in the last decade. By 2031, India’s GDP is forecasted to surpass US $7.5 trillion by 2031.
As per the Economic Survey of 2020-2021, India’s merchandise exports grew to US $301.4 billion- a 50% year on year growth, while having the 4th largest forex reserve in the world as of November, 2021. The top 10 commodities which were torchbearers for the Indian export growth story were: Petroleum products, Precious/semi-precious stones, Iron and Steel, Drug formulation & Biologicals, Gold & other jewellery, Organic chemicals, Electric machinery and equipment, Aluminum & its products, Iron & steel products and Marine Products. These top 10 commodities, account for 39.7% of total Indian exports, amounting to US $115 Billion (just between April and November, 2021). Therefore, exports form a strong sentinel supplementing the Indian economy’s growth picture.
While global trade amounted to US $28.5 trillion in 2021, the quantum of merchandise exports was valued at US $17.6 trillion. Therefore, the market of global trade in exports is an ocean of wealth and opportunities. But as with every opportunity, comes a risk. There are a multitude of risks associated with exports and trade across the world, in the unknowns. “Export Credit Guarantee Corporation of India (ECGC) is a government company (under the control of the Ministry of Commerce and Industry). ECGC provides a range of credit risk insurance cover to exporters. Sidestepping, a quick glance at the Indian insurance sector would reveal that insurance penetration (calculated as the ratio of insurance premium to GDP) was 4.2% in 2020.
The vision of ECGC states that it strives to support the Indian export industry by providing cost-effective insurance and trade-related services to meet the growing needs of the Indian Export market through optimal use of the available resources. The key motifs, which emerge in the ECGC’s vision are: firstly, to support the Indian export Industry, secondly to have cost effectiveness as a focal point and lastly, to deploy all its available resources. Though the conduct of the ECGC is quite contrary to its innate values. The ECGC prides itself on the fact that the claims ratio to outstanding commitment increased from 0.25% to 0.3% in 2020 vis a vis 2019.
The data available in the public disclosures of the ECGC on the pendency of claims dawns a grim picture. From the years 2016-17 to 2019-20, the number of claims pending for 1 year to 5 years has seen a 267% increase, while the amount involved has almost tripled. Similarly, the number of claims being processed in 6 months or less, between the years 2016-17 and 2019-20, has seen a sharp 103% increase. Juxtaposed, against 811 total claims pending in 2019-20, only 553 were settled, that means a settlement ratio of 0.4. It is alarming that while the numbering claims pending for 1-5 years is booming, the disposal of claims smacks of inefficiency. Another alarming fact is that though 553 claims were settled, it’s not known whether they were allowed or disallowed – and how many have been appealed. A corporation whose goal, identity, and business is vastly affected by claim dispensation, these numbers do not inspire confidence in the ECGC’s ability to deftly address the core (and only) consumer turmoil of claim resolution.
The objective of the National Export Insurance Account (NEIA) through its cover for projects aims to help make Indian project exports more competitive and gain a stronger foothold in regions of national strategic interest. Successful project will improve a sustained visible impact on India’s capacity to execute projects. Thus, the NEIA and in turn ECGC, seek to achieve important economic effects. Hedging risks will make the business of project exports more viable, and once more viable and lucrative a larger number of Indian businesses will aim to provide services abroad. The catalytic effect of such needs no enumeration, job creation, more forex, diplomatic collaborations. an increased strategic soft power among others. Each of these results, in turn spur further microeconomic benefits. A negative perception of the ECGC and its functions, loses consumer confidence, therefore hurting long term economic advantages, which are needless to explain. It is unfortunate that ECGC, which falls under the purview of the Ministry of Commerce and Industry, seems to miss the big picture, draining the efforts the Central government or the Ministry makes in promoting India as a political and economic superpower. With the advent of further infusion of funds as grant, the ECGC needs to reflect and plug in the holes in its systems and processes, to mitigate the loss in consumer confidence.
It is crucial to note, that the Law Commission of India in 1984, while envisioning a litigation policy, had remarked that litigation could be avoided if the official machinery is more energetic, more sympathetic and more imaginative. But alas, this caution has fallen on deaf ears, much akin to the ECGC. As the analysis over the next few paragraphs will espouse, the organisation seems to be losing its core value to promote exports by hedging credit risks, and cloaking an autocratic approach lacking energy and sympath
Let’s take a look at the claim resolution motif available in the public domain. For instance, in the Supreme Court judgement recently reported as Haris Marine Products v. Export Credit Guarantee Corporation Ltd., the appellant which was a manufacturer of fish meat and fish oil, in 2012 has exported some goods, secured by ECGC’s policy which covered the failure of foreign buyers to pay for the goods exported. The period of policy started from 14th December 2012, and the ship set sail on the very next day. The bill of lading which was prepared, noted that the date or onboarding or loading of goods was 13th of December, 2012. The said goods were delivered in January of 2013, while claim was lodged with the ECGC in February of 2013, for non-receipt of pay, which was covered by the policy. The ECGC then proceeded to reject the appellants claim, on a ground (which is arguably frivolous ), only to say that since the date of dispatch/shipment of the goods was not clearly defined. The counsel for the policy-holder argued before the court that the date of loading of the 4000 containers but rather dispatch would indicate the date of shipment of goods. Be that as it may, the issue is not whether the goods ever left or not, the issue was non-payment, and the policy covering such risk, thus, the ECGC could be said to have intentionally obfuscated the issue over frivolous reasons. The ECGC, by such frivolous trials has not just invited criticism of the court but also loses consumer confidence. The ECGC spent crucial judicial time through various forums only having to pay the claim of Rs. 2.45 crore at the interest rate of 9% per annum , that is having to pay – all being detrimental to ECGC’s interest.
At another instance, in the reported case of ABL International Ltd. and Ors. Vs. Export Credit Guarantee Corporation of India Ltd. and Ors, the petitioner company had a contract with State-owned Kazakh corporation to export tea, payment to be made by barter of goods within 120 days of delivery. Kazakh Govt to be guarantor of payment. The ECGC on 23rd September, 1993 to insure the risk of payment of consideration. Both the Kazakh Govt. and the Kazakh corporation defaulted. Reserve Bank of India permitted the appellant to receive cash consideration in the form of US $ instead of barter payment. An appeal was made to ECG to clear the payment. It rejected by letter dated 14.12.1994, however, repudiated the claim of the appellants stating that the appellants had changed the terms of the contract of payment without first consulting it and amended the terms, therefore, it had no obligation to compensate the appellants for the loss suffered by it. It amounted to a breach of an insurance agreement, hence, it had no liability for the loss suffered by the appellants. The Hon’ble Apex court held that, the ECGS had gravely erred in understanding the contract, and it was frivolous that when the contract itself stipulated that the remuneration could be in barter or otherwise, the reasoning of the ECGC to deny a claim had no ground and therefore, the court called it a “mere technical ground” to deny a claim.
In another report, Export Credit Guarantee Corpn. of India Ltd. Vs.: Garg Sons International, ECGC (insurer) insured Respondent, M/s. Garg Sons International (insured), on 23.3.1995 against export. But, the buyer committed a default in making payment. The insured demanded indemnification. The insurer rejected all the above-mentioned claims on the ground that the insured did not ensure compliance with Clause 8(b) of the insurance agreement, which stipulated the period within which the insurer is to be informed about any default committed by a foreign importer. Exclusion of Liability clause in contract read that the Corporation shall cease to have any liability in respect of the gross invoice value of any shipment or part thereof, Clause 19(b) the insured has failed to submit declaration of overdue payments as required by Clause 8(b) of the policy. When the matter was finally adjudicated by the Supreme Court of India it held that an insurance contract is a species of commercial transactions and must be construed like any other contract to its own terms and by itself. The aforesaid chart clearly establishes that the insured failed to comply with the requirement of Clause 8(b) of the agreement informing the insurer about the non-payment of outstanding dues by the foreign importer within the stipulated time except in two cases. It could be remarked that the spontaneity of ECGC causes loss not just to the exchequer but significant damage to the judicial time, for common sense called for no apparent reason.
In order to be an economic superpower, we need to macro-analyse our pitfalls. In order to strengthen we must let go of yesteryear agendas, policies and mindsets. The entire conduct of the ECGC, dishearteningly so, on the face of it seems counterintuitive to its agenda. It is but trite, the condition of the Public Sector Undertakings in India, profit is but utopia. This article is only so that we recognise that ECGC has a lot to offer than the liability that it is proving to be, thus calling for, what is the buzzword for this century, a pivot for the future.