MP Cherian, president of the United Planters Association of Southern India, said, of the 140 million kg of annual tea imports by Russia, 40 million kg goes from India. “If tea exports to Russia and Ukraine are affected, it will impact the Indian tea sector,” he added.
The Ukraine crisis and consequent western sanctions on Moscow have caused fresh supply-chain disruptions for exporters and cast a shadow on the flow of payments from Russia.
Global shipping companies, such as Ocean Network Express and Germany’s Hapag Lloyd have suspended booking to or from Russia, and Maersk – one of the world’s largest – says it is considering such a move.
Moreover, while state-run Export Credit Guarantee Corporation of India (ECGC) has rejected reports that it has withdrawn coverage of outbound shipment transactions involving Russia, it has tightened the norms, much to the dismay of some exporters. The agency has now modified the insurance category of Russia from “open cover” to “restricted cover category – I” for which revolving limits (usually valid for a year) are approved on a case-to-case basis. ECGC has an 85% share of India’s export credit insurance market.
Several exporters and trade experts that FE spoke to said payments from Russia and Ukraine could turn out to be a major issue for them in the coming weeks and months – apart from battered supply chain, especially in Ukraine – if the conflict escalates. Some of them also feared short-term defaults by few Russian importers, given that select Russian banks have been cut off from the SWIFT global payment platform.
R Uday Bhaskar, director general at the Pharmaceutical Export Promotion Council, said while the crisis hasn’t yet affected India’s pharmaceutical exports, payments and supply challenges are going to create problems.
Moscow has also closed its air space for dozens of countries, mainly from Europe. This has severely reduced despatch options for those Indian pharmaceutical exporters who used to rely on European airlines to ship out products to Moscow. Some ports in Ukraine are learnt to have been bombed, causing a disruption in supply links, Bhaskar added.
On top of these, to support a falling rouble, the Russian central bank has raised its key interest rate to 20% from 9.5% and Moscow has asked its exporters to sell 80% of their foreign currency revenues in the market. Precise impact of these measures is yet to be assessed. However, Bhaskar said, since India has been a long-term supplier of pharmaceutical products to the CIS countries, mainly Russia, trade will continue despite potential delay in payments and short-term supply woes.
Gem and Jewellery Export Promotion Council chairman Colin Shah said the Reserve Bank of India will likely clarify soon on how to undertake monetary transactions involving Russian entities in these circumstances. Since Russia is a major supplier of rough diamonds to India for value addition and re-export purposes, the crisis, unless resolved soon, will cause problems for the Indian gems and jewellery trade from April onwards. However, for now, domestic firms have enough stocks. “So, if the crisis gets over soon, I don’t see much of a problem,” he said.
India’s exports to Russia grew 36% on year until December this fiscal to $2.55 billion but its imports jumped 81% to as much as $6.89 billion, leading to a trade deficit of $4.34 billion for New Delhi. India mostly buys petroleum products, diamonds and other precious stones and fertilisers from Russia. Similarly, it ships out capital goods, pharmaceutical products, organic chemicals and farm products to Moscow. Capital goods and certain consumer products made up 25% of India’s exports to Russia in the first three quarters of this fiscal, while pharmaceutical and organic chemicals accounted for over 22% and farm items 18%.
According to Mahesh Desai, chairman of engineering goods exporters’ body EEPC, “If the war continues for some more days, engineering exports to Russia may not reach the expected level by the end of the fiscal.” The engineering exports to Russia has been targeted at $1.2 billion for the current fiscal. Between April and January, engineering exports to Russia hit $790 million, he added. This means substantial trade must take place in the last two months of the fiscal for the target to be realised.
Raja M Shanmugham, president of the Tirupur Exporters’ Association, expressed surprise at the ECGC move to tighten the coverage norms for exports to Russia. “Already, the ECGC coverage factors in various risks, including natural calamities and war, when it gives “open cover”. So, what is the rationale behind changing the insurance category of Russia to “restricted cover category – I” and put exporters in a tight spot?” he asked.
For its part, the ECGC has said this change has been made to ensure that it is “able to assess and monitor the risks covered under its export credit insurance policies and to place appropriate risk mitigation measures”.
Jagdish Fofandi, president of the Seafood Exporters Association of India, said: “Our exporters are awaiting payment and many containers are on the way. Our estimate is that nearly `500 crore is at risk as we don’t know what is going to happen.” Seafood export to Russia in the last fiscal was to the tune of $84.3 million (`617 crore).
MP Cherian, president of the United Planters Association of Southern India, said, of the 140 million kg of annual tea imports by Russia, 40 million kg goes from India. “If tea exports to Russia and Ukraine are affected, it will impact the Indian tea sector,” he added.
J Rajmohan Pillai, chairman at Beta Group, cashew and dry fruits trading company, said the conflict is threatening further disruption to the already-stretched supply chains.
Vivek Nayak, managing director at Hubli-based Ken Agritech, said though the SWIFT ban has hit payment settlement from Russian importers, he was informed by them that the issue would be resolved soon. According to Paresh Bhayani, director at Mumbai-based Panacea Exim, one of the biggest grape exporters to Russia, said he was not worried much about payments concerning shipments already made, but added that he was apprehensive once banks and ECGC stopped providing services for Russian exports, it would be difficult for him to ship the rest of the consignment of grapes for the current season. “We are constantly keeping a watch on the situation and we will be guiding exporters once the situation improves,” M Angamuthu, chairman, Agricultural and Processed Food Products Exports Development Authority (APEDA) told FE.
