Line of credit will create export opportunity for Indian firms

The $2-billion line of credit (LoC) is the highest-ever LoC announced by India ever in the past 12 years since we started such a scheme.

Written by P Vaidyanathan Iyer | New Delhi | Updated: June 7, 2015 9:30 am
Narendra Modi, Line of credit, Bangladesh tour, Indian firms, india export, Modi bangladesh tour, Yaduvendra Mathur, Indian Express The -billion LoC to Bangladesh is in addition to two LoCs worth 2 million already extended to the neighbour. (PTI photo)

The $2-billion line of credit for Bangladesh announced by Prime Minister Narendra Modi in Dhaka on Saturday will create export opportunity of almost $1.5 billion for Indian companies and tens of thousands of jobs back home.

Exim Bank Chairman Yaduvendra Mathur told The Sunday Express: “This is the highest-ever line of credit (LoC) announced by India ever in the past 12 years since we started such a scheme. At a time when exports are shrinking, the LoCs would breathe fresh life for manufacturing exports. Back of the envelope calculations suggest it will create almost 50,000 jobs, directly and indirectly.”

The $2-billion LoC to Bangladesh is in addition to two LoCs worth $862 million already extended to the neighbour. In the months since the NDA came to power, India has extended LoCs to the tune of $6 billion, including Saturday’s $2 billion to Bangladesh. The PM announced $1 billion each to Nepal and Mongolia during his visits to these two countries and another $500 million to Mauritius.

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LoCs are soft loans to foreign countries to execute projects of their choice. The repayment period is generally 20 years and the interest rate is very low. “For Bangladesh, the LoC carries an interest rate of 4 per cent, with the Indian government providing a subvention of around 3 per cent. The interest rate charged to Bangladesh is just 1 per cent,” Exim Bank’s Mathur said.

Under the India Development and Economic Assistance Scheme (IDEAS) formulated some 11 years ago, Exim Bank has sanctioned LoCs of $16.17 billion to over 65 countries, of which $ 7 billion has been disbursed so far.

According to Mathur, as foreign countries draw upon the LoCs, the jobs created back home are much more because such exports have a higher multiplier effect. “The multiplier is seven times more than a local sale,” he said. The disbursements are less than half because the LoCs are available for four years, and countries can dip into the facility anytime during this window.

Exim Bank has recently also established a special purpose facility to help foreign countries with capacity building.

Mathur said the ticket size of LoCs have risen substantially since the new government came to power. “Without making a political statement, the bigger LoCs will help kickstart manufacturing exports particularly when there are concerns of slowing growth,” he said.

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