Final talks on $4.5b new Indian credit start today

Bangladesh and India are set to start the final round of negotiations for the neighbouring country's latest commitment of $4.5 billion line of credit in Dhaka today.

The negotiations will include representatives from the Indian side, officials of the Economic Relations Division and the concerned ministry, said a finance ministry official.

Indian Exim Bank has already sent a draft agreement, which has been vetted by the various ministries and divisions.

The terms and conditions will be the same as the previous two lines of credit extended by the neighbouring country in August 2010 and March last year of $1 billion and $2 billion respectively.

The previous credits carry 1 percent interest rate with repayment period of 20 years and a grace period of five years.

One of the conditions of Exim Bank is that the size of the import content of the credit line will be 75 percent of the overall procurement in case of goods. However, in case of public works, the limit is 65 percent.

Another condition is that contractors will come from India but they have to win the contracts through competitive bidding.

The line of credit can be used for consultancy if the services are taken from India. Bangladesh though will have the opportunity to take consultancy service from elsewhere for the projects but on its own expense.

“After the negotiations are complete, the agreement will be the more or less the same as the previous ones, but there might be some relaxations,” the finance ministry officials said.

Once the negotiations are wrapped up on October 4, the agreement will be signed by the ERD and Indian Exim in the presence of the finance ministers of both the countries. Indian Finance Minister Arun Jaitley is due in visit Dhaka early next month.

Indian Prime Minister Narendra Modi committed to give fresh $4.5 billion line of credit to Bangladesh during Prime Minister Sheikh Hasina's visit to India in April.

As many as 17 projects have been identified for funding with the line of credit, and the Indian Exim Bank has also consented to the project.

At least three of the projects involve the development of economic zones, a priority for the Bangladesh government as it looks to ramp up private sector investment.

Of the total amount of the credit, about $500 million will be used for setting up new economic zones for Indian and other investors, according to officials of the finance ministry and the Bangladesh Economic Zones Authority.

Some $100 million will be provided for setting up a dedicated economic zone spanning 1,005 acres in Mirsarai, Chittagong for the neighbouring country's investors.

Another $100 million may be used for developing a special economic zone at Payra or Moheshkhali; $300 million may be allocated for developing infrastructure of different economic zones. India has already conducted a feasibility study for three separate EPZs in Mirsarai, Bheramara and Mongla.

Bangladesh and India hope there would be upwards of $9 billion of investment flow into Bangladesh as a result.