Exporters shy away from new EU orders .

Apprehensive of the Euro zone debt crisis, exporters of engineering goods are declining fresh orders from buyers in the European Union. They fear default and lower returns as the curency depreciates. Industry sources said it is the same case in other sectors.

Compounding the situation is Export Credit Guarantee Corporation of India's (ECGC) hesitation to provide insurance cover to domestic exporters against payment risks in Europe on fresh orders, except on a case-to-case basis.

Mr Rakesh Shah, former Chairman, Engineering Exports Promotion Council and Managing Director of Nipha Exports (which exports to the EU too), told Business Line: “Many exporters, especially from the small and medium sector (comprising half of the total Indian exporters), are not taking fresh orders at current Euro rates. They fear the returns may be lesser. Also, buyers are unwilling to hike prices.”

Engineering exports account for about a fifth of India's exports to the EU. Of this, 50-60 per cent of trade is in euro terms. The most hit are the transactions where European buyers are unwilling to do business in any other currency apart from the euro.

Mr Shah said engineering exporters have stopped extending credit to European buyers due to the current high risk perception. Engineering exporters favour long-term contracts as only such transactions make their business viable. Exporters are also watching the health of the banks in the EU. “We cannot bank any more with the smaller and lesser known European banks for letter-of-credit transactions,” Mr Shah said, adding that exporters are most comfortable only where there is a long-term relationship with buyers.

The ECGC Chairman and Managing Director, Mr A.V. Muralidharan, told Business Line, “We are closely monitoring the situation in Europe. Regarding fresh orders, we will look at it on a case by case basis depending on the credentials of the buyer in Europe.”

He said ECGC will not deny insurance cover assured to the existing orders, adding, it has so far not advised exporters against taking fresh orders from EU.

ECGC provided cover to 12 per cent of India's total exports (of $176.5 billion in 2009-10) and for a fifth of India's shipments to the EU. Adding to the worries is the flash floods in Europe.

The Czech Trade and Industry Minister, Mr Vladimir Tosovsky, scheduled to visit India later this month to boost bilateral trade, has cancelled his plans.

The rupee has strengthened by over 13 per cent as on Friday against the Euro from January 1, 2010. The forex volatility has also been troubling exporters.

Source : Business Line