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Dr Debapriya Bhattacharya on Indian line of credit

Published in New Age on Thursday, 3 September 2015.

Delhi attaches tough conditions

Shakhawat Hossain

Delhi has attached a number of conditions with its newly proposed line of credit worth US$ 2 billion that might dampen the prospect of loan utilisation by Dhaka.

To avert the situation, a move has already been taken to ask Delhi to bring about changes to the proposed loan agreement, officials quoting decisions of an inter-ministerial meeting said.

Economic Relations Division additional secretary Asaduzzaman presided over the meeting on August 13 in which the terms and conditions of the new line of credit were discussed.

At least 75 per cent goods and services are needed to be of Indian origin and must be procured from India under the new LoC. Project management consultants should also come India.

Officials attending the meeting viewed that fulfilling such conditions would be difficult for successful implementation of the projects.

The meeting noted that Delhi should be urged to bring down the minimum requirement of purchasing goods from India to 60 per cent and 50 per cent for the case of projects lined with the works.

A senior ERD official said they were likely to hold more meetings with the stakeholders to settle the problematic issues.

Dhaka had inked a deal with Delhi to receive US$ 1 billion loan in August 2010.

Five years have already elapsed, but only US$ 205.59 million out of US$ 751.95 million was disbursed.

Debapriya Bhattacharya, distinguished fellow of the Centre for Policy Dialogue, said loans tied with conditions of import were not beneficial for the receipent country.

Most part of the loans disbursed so far under the previous LoC was used to procure goods from India, he said.

The completed seven projects under the Indian LoC, so far, include procurement of Double-Decker, single Decker air-conditioned (AC) and articulated buses for Bangladesh Road Transport Corporation worth US$ 36.85 million; procurement of 180 (165) Railway Broad-Gauge (BG) tank wagons and six Railway Bogies of brake vans worth US$ 17.38 millions; procurement of 50 units of Metre-Gauge (MG) flat wagons (BFCT) and 50 units of MG brake vans with airbrakes for carrying containers worth US$ 3.28 million and procurement of 30 (16) units of BG Diesel Electric (DE) locomotives worth US$ 60.95 million and procurement of 10 units of BG DE locomotives worth US$33.05 million.

A tied loan is not less than suppliers’ credit, said Ahsan H Mansur, executive director of the Policy Research Institute.

Prices of the products or services to be procured from the lender country are always high than the market rates, he said.

He noted that the LoC should have an open tendering system like those of loans from the World Bank and the Asian Development Bank.

The ERD officials said for the new LoC Delhi had sought waiver of tax and value added tax on the Indian citizens associated with the projects as consultants.

The meeting decided to seek opinion of the revenue board in this connection.

The new LoC made it mandatory to send a draft of the commercial contract on projects to EXIM Bank of India before the signing. However, the job was now done after the commercial pact in the previous LoC.

The US$ 2 billion line of credit is expected to create 50,000 jobs in India and provide a big boost to the government’s Make in India drive.

Yaduvendra Mathur, chairman and managing director of Export Import Bank of India, earlier predicted that this US$ 2 billion credit was going to provide a big boost to exports from India and help Indian companies.

He said the line of credit will also provide a huge boost to several sectors such as steel and cement as those will be exported to Bangladesh for the projects to be undertaken there.


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