India extends $4.5 billion credit in project finance to Bangladesh

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Updated: October 4, 2017 6:48:59 PM

Bangladesh today signed USD 4.5 billion third line of credit (LoC) agreement with India for its infrastructure and social sector development.

Bangladesh, Credit, Social sector development. Loc, Line of creditBangladesh today signed USD 4.5 billion third line of credit (LoC) agreement with India for its infrastructure and social sector development. (Image: Reuters)

India today signed an agreement with Bangladesh to provide a whopping USD 4.5 billion credit line for infrastructure projects, as it tries to counter the growing Chinese influence in the region.  The loan, announced during Prime Minister Sheikh Hasina’s visit to India in April, is the biggest Line of Credit (LoC) provided by India to any country.  The agreement was signed in the presence of Finance Minister Arun Jaitley and his Bangladeshi counterpart A M A Muhith after the two leaders held wide-ranging talks here. E conomic Relations Division Secretary Kazi Shofiqul Azam signed the deal on behalf of Bangladesh, while Managing Director of the Export-Import Bank of India (Exim) David Rasquinha represented India.

“We have extended three Lines of Credit worth USD 8 billion to Bangladesh in recent years. This is the largest quantum of credit India has extended to any other country by far and comes with a highly concessional rate of interest,” Jaitley said following the signing of the deal.  The third line of credit will be used to fund 17 major projects in Bangladesh, which include electricity, railroads, roads, shipping and ports.
India is Bangladesh’s second biggest trade partner after China which last year pledged around USD 24 billion in loans for the South Asian nation.  “A strong, stable and prosperous Bangladesh is in India’s interest…We are committed to working with Bangladesh to deepen our bilateral ties,” Jaitley said.  “We have stood by Bangladesh’s attempts to develop and we will do so in the future. This significant agreement is a continuation of that effort,” he added.

As with previous LoC agreements, Bangladesh will pay an interest rate of 1 per cent a year. It will have 20 years to pay back the loans, with a grace period of five years.  Experts said a line of credit was a flexible form of a loan that allows a borrower to access funds anytime as long as it is within the limit.  “Bangladesh and India have excellent relations at the moment,” Muhith said, speaking on the occasion.  “They stood by us during our independence. We hope they will continue to do so in the future,” the minister added.  Addressing a discussion on Indian economic policy later, Jaitley said Dhaka-New Delhi relations developed in the past with the two countries finding their identical roots in the history but in recent years “it climaxed”.

“It demonstrates how much trust we developed,” he told the audience at the function wherein online payment of Indian Visa Application Processing Fee was launched.  Under the agreement, Bangladesh would have to purchase 65 to 75 per cent of the services, goods or works from the Indian market with the money to be provided under the third LoC following the precedence of the previous two nearly identical agreements.  Bangladesh has two other LoCs open with India: the first one was signed in 2010, and the second one in 2016. These LoCs are collectively worth Tk3.06 billion, but till last year, Bangladesh government has been able to use only USD 576 million.

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