India's $7.862b line of credit: Only $1.5b from LoC unlocked so far

India has yet to relax terms and conditions binding the use of its US$7.862 billion line of credit (LoC) which affected the execution of over 30 projects ongoing, insiders have said.

New Delhi has disbursed only $1.32 billion worth of funds in 12 years to the last fiscal (FY2022) due to tougher procurement conditions, they said Monday.

The disbursed loan accounts for only 17 percent of the total amount pledged in the development-credit line.

Meanwhile, government officials said there is no agenda about the LoC during Prime Minister Sheikh Hasina's visit to New Delhi.

"We've been requesting India for last 4-5 years to relax terms and conditions, especially on procurement issues. But we are yet to attain the expected outcome," says a senior Ministry of Finance (MoF) official.

"We have sought 50-percent procurement of goods and services from the Indian territory and the remaining 50 percent from the international market. But New Delhi is yet to relax the condition. Rather many projects are struggling with the implementation delays," he adds.

"After repeated requests, India has relaxed conditions for a very few projects, allowing 35-percent procurement from the international market and the rest 65 percent from India. But most of the 33 ongoing projects under the three LoCs are struggling with harder procurement conditions," the MoF official further says.

According to the terms and conditions, Bangladeshi project-implementing agencies are bound to buy 75 percent of the goods, services and works from India while only 25 percent from Bangladesh or the international market.

Currently, the government agencies are implementing two projects under the $862 million worth of LoC-1, some 15 projects under the $2.0 billion LoC-2 and another 16 projects under the $4.5 billion LoC-3.

The first $862 million LoC-1 was signed with India in August 2010, the $2.0 billion LoC-2 in March 2016 and the $4.5 billion LoC-3 in April 2017.

A few officials at Bangladesh Railway, Shipping Ministry, Power Division and Science Ministry have said that they have been forced to revise some of their projects on 2-3 occasions for the procurement delays following the "inflexible terms and conditions".

"In some cases, we have been forced to scrap a few LoC-supported projects and sometimes we have revised those replacing with government financing (GoB fund) the Indian loan," they said.

A Power Division official says they have been forced to take funds from the government's internal resources for implementing the Ruppoor nuclear power-evacuation scheme (package-6) by scraping the committed Indian LoC.

A Bangladesh Railway official says they have also been forced to revise the Lakhsam-Akhaura rail-setting project due to complex fund release and procurement terms and conditions from New Delhi.

An Economic Relations Division (ERD) official says they have been requesting New Delhi for the last few years to relax the terms and conditions for the currently imposed procurement system.

"When the implementing agencies are going to procure products or services from the Indian market, they are facing some problems including complex approval process from the lender, bloated bid price by the Indian contractors, and slow execution performance by the contractors.

"So we have been requesting New Delhi for last few years to relax conditions allowing 50-percent procurement from the international market. But New Delhi is yet to give good feedback to us," he adds.

ERD Secretary Sharifa Khan said that so far they did not know about any agenda on the LoC during the bilateral talks between the Prime Ministers of Bangladesh and India.

"You can check with the foreign ministry about the possible discussion points in New Delhi," she said.

Meanwhile, there is no ERD representation in the PM delegation to India, at this moment, Ms Khan said.

The Indian credit bears an interest rate of 1.0 percent with 0.5-percent commitment fee to be repaid in 20 years with a five-year grace period.