Export Risks from India
Exporting can open international markets for Indian businesses, but every export transaction carries some risk. Goods can be damaged during transportation, a foreign buyer may fail to pay, or currency rates may change between the date of the order and the date of payment.
For Indian exporters, three important risks to understand are:
- Product or Transit Risk – Marine Insurance
- Buyer and Payment Risk – Buyer Verification and ECGC
- Currency Fluctuation Risk – Forward Contract or Hedging
Understanding these risks before shipping can help an exporter protect the value of an export order.
- Product or Transit Risk – Marine Insurance
Once goods leave the exporter, they may face risks during transportation, such as damage, loss, theft or certain other transit-related events.
How can exporters mitigate this risk?
Marine Cargo Insurance can provide protection against covered transit risks. The exact coverage depends on the policy. IRDAI explains that marine cargo policies can cover goods against transit risks, with different levels of cover available.
Example
An Indian exporter sends machinery worth ₹10 lakh to a buyer in Germany. During transit, the cargo is damaged due to a covered event.
Without suitable insurance, the exporter may have to bear the financial loss, depending on the contract and risk transfer point.
With appropriate marine cargo insurance, the exporter can make a claim according to the policy terms.
Key point: Check the sales contract and Incoterm to understand who is responsible for arranging insurance.
- Buyer and Payment Risk – Buyer Verification and ECGC
An exporter may successfully manufacture and ship the goods but still face a problem if the overseas buyer does not pay.
Before accepting an order, an exporter should therefore verify the buyer.
What should be checked?
- Company registration
- Website and business address
- Email domain
- Import history, where available
- Trade references
- Financial information, where available
- Bank details
- Previous suppliers or customers
- Payment terms
How can ECGC help?
ECGC Limited provides export credit insurance that can protect exporters against specified commercial and political risks. Depending on the policy, these can include buyer insolvency, failure to pay and certain political events affecting payment.
ECGC also has policies specifically designed for small exporters.
Example
An Indian exporter sells goods worth US$20,000 to a new overseas buyer on credit terms.
The exporter verifies the buyer and obtains appropriate ECGC cover. If the buyer subsequently defaults due to a covered risk, the exporter may be able to claim compensation subject to the policy’s terms and conditions.
Key point: ECGC is not a replacement for buyer due diligence. The exporter should still verify the buyer and follow the policy requirements.
- Currency Fluctuation Risk – Forward Contract / Hedging
Exporters often quote prices in currencies such as US dollars, euros or pounds.
The exchange rate may change between:
Order date → Shipment date → Payment date
This can affect the rupee value received by the exporter.
Example
An Indian exporter expects to receive US$10,000 after 60 days.
At the time of the order:
US$1 = ₹85
Expected receipt = ₹8,50,000
If the dollar falls to ₹82 when the payment is received:
US$10,000 × ₹82 = ₹8,20,000
The exporter receives ₹30,000 less than expected because of the currency movement.
How can this risk be reduced?
An exporter can discuss forward contracts or other permitted foreign-exchange hedging products with an authorised bank.
A forward contract can allow the exporter to agree on an exchange rate for a future foreign-currency transaction, subject to applicable banking and RBI rules. RBI regulations provide for forward foreign-exchange contracts for hedging eligible exchange-rate exposures.
Key point: Currency hedging is about managing exchange-rate uncertainty; it is not the same as trying to predict where the currency will move.
Conclusion
Exporting from India involves more than finding a foreign buyer and shipping the product. An exporter must also protect the goods, payment and profit.
Marine insurance can help manage transit risk, buyer verification and ECGC cover can help manage specified payment and political risks, and forward contracts or other hedging methods can help manage currency fluctuation.
For a new exporter, understanding these three risks before accepting an international order can make the export transaction more structured and financially manageable.
FAQs
- What are the main risks faced by Indian exporters?
Three important risks are product or transit risk, buyer/payment risk and currency fluctuation risk. Other risks can also arise from documentation, regulatory compliance, logistics and changes in the importing country’s requirements.
- Is marine insurance mandatory for every export?
Not necessarily. The requirement and responsibility for arranging insurance depend on the sales contract and Incoterm. Exporters should check who bears the insurance responsibility and whether additional coverage is appropriate.
- Does ECGC guarantee that an exporter will receive payment?
No. ECGC provides insurance against specified risks under particular policies and subject to their terms and conditions. It does not remove the need for buyer verification and proper export documentation.
- What is a forward contract in export?
A forward contract is an agreement with an authorised bank to exchange a specified foreign currency at an agreed rate on a future date, subject to applicable rules. It can help an exporter manage exchange-rate uncertainty.
- Can a small exporter use ECGC?
Yes. ECGC has policies specifically designed for small exporters, subject to the applicable eligibility conditions and policy terms.
