India loosens up some conditions

Exim Bank of India is set to relax one of the major conditions for the projects under the $4.5 billion line of credit extended to Bangladesh for smooth implementation of the projects.

The final round of negotiations concluded on Monday. Shahidul Islam, additional secretary of the Economic Relations Division, led the Bangladesh side and Amit Kumar, joint secretary of the foreign affairs ministry, the Indian side.

An agreement may be signed on October 4, by the ERD and Indian Exim in the presence of the finance ministers of both the countries. Indian Finance Minister Arun Jaitley is due to visit Dhaka next week.

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, to take the neighbouring country's total commitment since 2010 to $7.5 billion.

As many as 17 projects have been identified for funding with the new line of credit, all of which got the green light from the Indian Exim Bank.

At present, 65 percent of the overall procurement for public works projects must be made from India. But under the new line of credit, the import content can be lowered on a project-to-project basis, Islam told The Daily Star.

The development comes after Bangladesh, in the negotiations, said there are many materials that are good in Bangladesh, so importing them from India is time-consuming.

However, in case of service-oriented projects, 75 percent of the procurement must be made from the neighbouring country, which is the same as before.

Another change that would be made in the new loan agreement is that the funds can be disbursed in up to 60 months after the expiry of the tenure set by the commercial contract.

In the existing agreement, it is 48 months for service sector and 72 months for projects.

In the meeting, Bangladesh proposed to convert a part of the $4.5 billion into grant. In the first line of credit of $1 billion, $200 million was converted into grant.

Bangladesh also proposed to waive the 0.5 percent commitment charge. The Indian side said the decision cannot be given at their level; it can be made by the higher authorities.

Last year, Exim Bank of India proposed to open a representative office in Dhaka for smooth implementation of the projects under the line of credit.

In the meeting, Bangladesh gave its consent to the proposal and said the Exim Bank can open the representative office after meeting the rules set by the other agencies.

At present, approval from the Exim Bank is required for project selection and various procurement proposals for the projects.

Apart from project implementation, the presence of an office of Indian Exim Bank would help in trade and investment-related activities, said an ERD official.

"The terms and conditions for the new loan are almost unchanged save for one or two," Islam said.

India in August 2010 and March last year committed $1 billion and $2 billion respectively, and the projects under the lines of credit are now at various stages of implementation.

The previous credits carry a 1 percent interest rate with repayment period of 20 years and a grace period of five years. It will be the same for the new line of credit.