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DOES INDIA’S LOC OF $8 BN TO BANGLADESH INDICATE A FIRMING ECONOMIC TIE?

During her two-day visit to Bangladesh in last November, Indian External Affairs Minister Sushma Swaraj had made one important comment and stated one vital fact both of which indicated an increased trade cooperation between the two neighboring countries.

Swaraj, while inaugurating the new Chancery Complex of the Indian High Commission in Dhaka said neighbors are given priority in India’s foreign policy, and “Bangladesh is the first on that list.”

A day before, at the joint press brief after the Joint Consultative Commission (JCC) meeting, she informed a total of three lines of credit amounting to $8 billion have been extended by India to Bangladesh so far.

“This is by far the largest development assistance that India has extended to any country worldwide,” she said.

A line of credit (LOC) is a promise to provide loans at subsidized rates. India is providing the LOCs to Bangladesh through its Export-Import (EXIM) Bank-a premier export finance institution of the country which started commencing operations in 1982 under the Export-Import Bank of India Act, 1981.

These LOCs are provided at a concessional interest rate of 1% per annum, with repayment over a period of 20 years including a five-year moratorium.

So far, the Indian government has provided 225 LOCs to 61 countries under the Development and Economic Assistance Scheme. These LOCs have been extended to countries in Africa, Asia, Latin America, Oceania and the CIS, totalling $14.87 billion.

Bangladesh, which India terms as its neighbor with first priority, has gotten $8 billion out of its $14.87 billion LOC portfolio. The 60 other countries has got the rest $6.87 billion. The first LOC of $1 billion in 2010 has been almost fully utilized, with 12 projects completed and the rest in varying stages of implementation. About $200 million of that figure was later converted into grant assistance.

Based on further negotiations, New Delhi and Dhaka agreed to enhance the remaining credit line amount of $800 million to $862 million to cater for increase in expenditure of the Khulna-Mongla and the Kulaura-Shabazpur railway line projects.

WHAT THE LOC’S ARE FOR?

Five years after Bangladesh inked the credit agreement worth $1 billion with its neighbor, a second LOC worth of $2 billion was announced during Indian Prime Minister Narendra Modi’s first visit to Dhaka in 2015.

At total of 12 projects has already been approved under the second LOC to improve infrastructures of Bangladesh, official sources said. The approved projects cover a good number of key areas which include widening roads, setting up Indian economic zone, collecting trucks for state-owned BRTC and developing ICT.

The third LOC-the highest among the three with $4.5 billion-was announced during Prime Minister Sheikh Hasina’s bilateral visit to India in 2017. India also offered Bangladesh another $500 million to help its military procurement.

Both Bangladesh and India have already identified 17 projects to utilise the $4.5 billion, with the intention of “faster delivery”. These projects include upgradation of the ports of Payra, Chittagong and Mongla, making more roads four lane, airport upgradation and increasing railway lines.

WHAT THE EXPERTS SAY?

Terming these LOCs as a sign of India’s intention of creating a more’ balanced’ bilateral trade relation between Bangladesh and India, experts concerned said India’s ties with Bangladesh have improved dramatically in recent years after India signed the land boundary agreement in June 2015-hanging fire since 1974.

They said that the conclusion of the pact was seen as a major confidence-building measure between the two neighbors.

Of the $6.5 billion annual trade between India and Bangladesh, the Bangladeshi exports amount to just half a billion dollars, the rest being Indian exports to Bangladesh. Experts however said that these mutual co-operations in the form of Indian soft loans are boosting the economy of both the countries.

Bangladesh is being benefitted by a concessional loan with a repayment over a period of 20 years including a five-year moratorium-with which it can build infrastructures, industries and create entrepreneurships.

. India meanwhile will be benefitted as these LOCs are conditional on the recipient using the loan amount to buy equipment and services from Indian entities. This will give a big boost to project exports from India and help Indian companies.

Under the line of credit (LOC) a minimum of 75% of goods and services needs to be of Indian origin and must be procured from India. According to Time of India, Exim Bank of India’s LOCs is boosting the country’s international trade and project exports.

Moreover, the report said, an active Chinese interest necessitates India to push forward its own model of development cooperation, express its weight as Bangladesh’s support structure at global level and importantly, to filter out some of the problems highlighted above with respect to disbursal of LOCs and implementation of Indian LOC financed projects in Bangladesh.

Talking with the Fintech, economist Dr Ahsan H Mansur, Executive Director of Policy Research Institute (PRI) said India has boosted economic links with Bangladesh in the past six years.

Dr Mansur said India needs to narrow the gap in the bilateral trade volume and India’s plans to invest more in Bangladesh need to be speeded up. Bangladesh plays a key role in India’s sub-regional connectivity plans which include Nepal and Bhutan and for that infrastructure development here is of paramount importance.

Bangladesh meanwhile, said Dr Mansur, is getting a concessional loan to develop important infrastructure on its own soil. “From the perspective of an economist, I would say this is a win-win situation for both the countries.”

Mirza Azizul Islam, former advisor to the caretaker government said, a strong, stable and prosperous Bangladesh is in India’s interest because Bangladesh stands right at the middle of India’s Look East policy. This policy is aimed at strengthening India’s economic ties with the rapidly growing economies in East and South East Asia with the India.

As part of its Look East policy, India, first needs to improve the economic conditions in its relatively poorer Seven Sisters state in the East and in doing so, it needs massive co-operation from Bangladesh, said Islam.

“These LOCs are given to boost the infrastructural development in Bangladesh which will help both the countries,” he said.

Dr Imtiaz Ahmed, Professor of the Department of International Relations of Dhaka University (DU) sees these LOCs as part of India’s larger strategic move to wean Dhaka away from China, the biggest supplier of defense equipment to Bangladesh for many years now.

In recent years, China has been making inroads into countries in India’s neighbourhood-with major infrastructure projects, development aid and financial assistance. China is Bangladesh’s biggest trade partner followed by India and last year pledged around $24 billion in loans for the country.

Dr Imtiaz said such an active Chinese interest necessitates India to push forward its own model of development cooperation, express its weight as Bangladesh’s support structure at global level and importantly.■

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