Role of ECGC in Export Performance of Firms in the MSME Sector of India

In India, it is the ECGC Limited that plays the most important role in providing export credit insurance (ECI) to exporters and banks. ECGC provides ECI to exporters mainly to cover their risks of default in payment by foreign buyers and to banks to cover their risks in lending the credit needed by exporters to fulfil their export commitments, and charges premium in return. Providing insurance cover to exporters helps them directly, and furnishing ECI to banks assists them indirectly, but equally importantly, to enhance their exports. This study, however, is focused on evaluating the former role of ECGC in boosting the export performance of micro, small and medium enterprises (MSME) in India. An empirical investigation in the form of a dynamic panel analysis is undertaken for the ten MSME-specific sectors focusing on the impact of ECGC cover on exports while considering the issue of endogeneity by taking lagged export propensity (i.e., value of exports as a proportion of sales) as a dependent variable to capture the path-dependency of exports. Sectors are classified into three categories, namely, ECGC cover impacting export propensity, export propensity impacting ECGC cover and both ECGC cover and export propensity reinforcing each other. Two sectors belong only to the first category, while two other sectors belong only to the second category. The remaining six sectors belong to both first and third categories. It follows that sectors in the second and third categories need maximum attention from ECGC. Subsequently, an econometric analysis using firm-level data to perform efficiency analysis for two years 2007-08 & 2017-18 is done. By segregating firms according to MSME classification, the stochastic frontier analysis is used to explore the impact of the interaction of exports and ECGC cover on the technical efficiency of firms. The analysis shows that when firms simultaneously export and spend on ECGC cover their technical efficiency improves. Conversely, the top-most efficient firms are largely export oriented and rely the most on ECGC cover. Finally, based on the findings of the primary survey of the MSMEs conducted to study the impact of ECGC cover on their export performance, the following policy recommendations have been made. These recommendations include, firstly, creating an awareness of various ECGC policies through social media, appointing agents for recommending ECGC policies and creating a system of replying to queries companies might have regarding specific requirements of policies. Secondly, to increase the share of insurable export credit, ECGC needs to introduce new insurance products & policies with the changing times and market dynamics. Thirdly, procedural simplification must be done to reduce the time taken for the issuance of policies which must appear to be customer-friendly. Fourthly, possibilities of tie-ups of exporters with reputed export consulting firms or consultants, logistics companies, transport operators along with industry associations like ACMA, EEPC, Chemexcil, Rubber Industries Association, etc, for better marketing of exports need to be explored. Once such tie-ups materialize, ECGC can consider introducing special credit insurance schemes for members of such reputable industry associations. This would eventually expand business for both exporters and the ECGC. Lastly, the increase in digital presence can be complemented by issuing online policies and providing a selection opportunity to the customer for considering policies as per his need and his ability to pay premium.