Indian lines of credit to Bangladesh from different viewpoints

In the past few years, the quantity and variety of Indian development aid have increased tremendously. India's cooperation with other developing countries in the South has made significant progress. While capacity building remains a priority in Indian development aid, the provision of Lines of Credit (LoCs) at concessional terms through the EXIM Bank has emerged as a prominent instrument of India's assistance to least developed and developing countries.

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More than 64 percent of credit among the top 10 borrowers is deployed in Bangladesh, Nepal, Sri Lanka, and Myanmar, keeping in tune with India’s Neighborhood First policy. Bangladesh has been the highest recipient of Indian LOCs.

These loans carry a one percent interest rate and a 0.5 percent commitment fee. The repayment period will be 20 years with a moratorium period of five years. India’s development cooperation with Bangladesh is based on the modern concept of a development compact, which provides for development assistance that works at five different levels: trade and investment; technology exchange; skills upgrading; lines of credit (LoCs); and finally, grants.

Prime Minister Narendra Modi, during his visit to Dhaka in 2015, said that Bangladesh is not merely a neighbor but a nation with which India shares enduring links. President Ram Nath Kovind has termed Bangladesh India’s closest neighbor. During her last visit to Dhaka, External Affairs Minister Sushma Swaraj termed the partnership “all-encompassing”, stating that it goes far beyond a strategic partnership and touches upon virtually all areas of human endeavor. She also said, “Neighbors first, but Bangladesh is before everybody”. It is gratifying that the current state of our relations is at its height, and we are further consolidating our ties based on the principles of mutual benefit and a shared future.

India had extended a line of credit worth US$ 1 billion to Bangladesh in 2010 for developing the infrastructure and communications sector. The Indian government has subsequently converted US$ 200 million out of the US$ 1 billion LOC as grant assistance in June 2012, which was used by Bangladesh to commence groundbreaking work on its ambitious Padma Bridge project, designed to exponentially facilitate east-to-west connectivity across Bangladesh. The remaining 80 percent was increased to US$ 862 million. This was entirely used on rail/road connectivity upgrading and modernization. At that time, this was the single biggest LoC India had ever extended to any country in one announcement (and the single largest that Bangladesh had received from any single donor).

A second LoC worth US$ 2 billion was announced during the Indian PM’s visit to Bangladesh in June 2015. This LoC would cover projects in areas of roads, railways, power, shipping, Special Economic Zones (SEZs), health and medical care, and technical education.

Such has been the impact of the first and second LoC to Bangladesh, that a third LoC of US$ 4.5 billion was operationalized in October 2017 during the two-day visit of the Indian finance minister to Dhaka. This is by far the single largest credit line offered by India to any country, taking the total concessional credits extended to Bangladesh to more than US$ 7.3 billion.

India not only provides concessional finance to Bangladesh through LoCs, but there is also a component of capacity building, skills, and technology transfer. Financial assistance through LoCs provides Bangladesh with much-needed investment in infrastructure as well as an avenue for training to build the capacity of Bangladeshi personnel to operate and maintain the assets procured under the supply projects.

Unfortunately, information regarding the implementation, monitoring, and the impact of completed projects is not well documented. On the other hand, India’s development cooperation extended through LoCs to Bangladesh lives up to the normative aspect of non-interference in the domestic affairs of the recipient country.

However, one thing is certain that the Indian Lines of credit fill the necessary investment gap in Bangladesh’s transport sector, which traditional donors like the World Bank and JICA had been skeptical of. Moreover, project selection and fund disbursements from the traditional providers require lengthier appraisal procedures.

Tarah Nguyen