By Sanjeev Nayyar
The crisis in Sri Lanka and India’s assistance to the island nation has highlighted the importance of helping neighbors and others in times of crisis.
According to a report in The footprint on April 2, India provided a line of credit (LOC) worth $1 billion (rice being one of them), in addition to a short-term loan of $500 million in February for the purchase of petroleum products. In November 2021, India provided 100 tons of liquid nano nitrogen fertilizer and 40,000 tons of fuel were provided outside the LOC facility. In March 2022, an agreement was signed by the governments of India and Sri Lanka under which the State Bank of India would provide a billion dollar “short-term concessional loan facility”. India had also agreed in 2022 to provide Sri Lanka with a 4000 MT floating dock and a Dornier aircraft as a grant and LOC.
So what is the Line of Credit and the Deeper Intent Man? Excerpts from the response to Lok Sabha Question 418 provide a clue: “The extension of GoI credit lines on concessional terms is an important part of India’s diplomatic strategy. The program also tries to promote India’s strategic political and economic interests abroad by positioning it as an emerging economic powerhouse, an investing country and a partner for developing countries. The LOC program is also expected to boost Indian exports of goods and services to hitherto untapped markets and successfully showcase India’s expertise in project planning, design and implementation in various areas. In simple terms, LOC is a loan at a concessional interest rate.
Established in 1981, Export Import Bank of India (EXIM) is wholly owned by the Indian government. LOCs are mainly done via EXIM. For more details, see the attached chart.
While the lines of credit are based on foreign policy and friendly recipient governments, here are observations of the lines of credit approved during the period 2013-2019.
- The quantum of credit lines doubled between 2013-14 and 2018-19.
- Africa is consistently a major beneficiary. “Exim Bank is also extending its own commercial lines of credit to various financial institutions and other entities in Africa.”
- There is a gradual movement towards neighboring India.
- Among India’s neighbours, Bangladesh, Nepal, Maldives, Sri Lanka and Myanmar are the beneficiaries in that order. Bangladesh has a disproportionately high share and Myanmar, Sri Lanka a low share.
- LOCs approved for Mongolia in 2016-17.
The EXIM site provides annual data up to FY2018-19. However, it provides operational lines of credit as of March 23, 2022, giving project values in millions of dollars per country: Africa $25,433, Bangladesh $7,758, Mongolia $1,256, Myanmar $343, Nepal $850, Sri Lanka $1,449, Maldives $548 and Uzbekistan $445. The LOC also includes Syria $125, Cuba $243, Guyana $80, Honduras $53, Nicaragua $36, Suriname $125, Fiji $56 and Papua New Guinea $100.
A comparison between the LCs up to 2018-2019 and those of March 23, 2022 indicates higher LCs for Sri Lanka and Mynamar. In October 2021, India agreed to provide a $200 million line of credit to Kyrgyzstan. Clearly, the set of countries to which India provides lines of credit has increased over the past few years.
The response to Lok Sabha’s March 2022 question 3848 stated: “In addition to lines of credit, aid projects are being implemented in Afghanistan, Bangladesh, Mauritius, Nepal, Sri Lanka, Seychelles, Maldives, Myanmar and Tajikistan. »
Bhutan does not appear in LOC or Grant in Aid. However, a 2019 response to a question from Lok Sabha shows grants and aid to Bhutan of Rs 2,745 crore in 2019-20 BE.
It is suggested that the Government of India, through an annual press release during the April to June quarter, give information by country on lines of credit approved and grants awarded in the previous financial year . This does not seek to undermine the government, but lending is a risky business.
According to the Economic Times, “EXIM’s gross NPAs were reduced to Rs 11,678 crore in 2018-2019 from Rs 11,976 crore a year ago. Net NPAs stood at Rs 2,288 crore from Rs 4,028 crore at the end of 2017-18. In March 2021, in EXIM’s Annual Report, the Managing Director stated, “The Bank’s improved credit skills are also evidenced by the fact that 97.20% of the Bank’s NPAs as of March 31 2021 are legacy cases sanctioned before March. 31, 2017.”
Coming back to the concepts, India’s assistance could take various forms, namely lines of credit, grants, concessional loans and, where appropriate, monetary policy assistance.
India should focus on its neighborhood, Afghanistan, Maldives, Central Asia, Africa, Indian/Pacific Ocean countries and Indian origin countries like Fiji. Nevertheless, the focus should be dynamic. We must not help countries that have consistently worked against India’s interests or export terror around the world. Given India’s growing international profile, the value of aid could jump. What can the government do? Taking the EXIM public could help raise capital without affecting tax calculations.
For countries that need loans, it might be better if a public bank like the State Bank of India, which has the advantage of balance sheet size and low-cost deposits, comes to the fore.
All forms of assistance should be guided by the Indian concept of dharma or righteousness. It comes from the root of the Sanskrit word dri which means to hold, which ultimately maintains the balance.
India’s efforts should therefore help sustain the nations. It must give them the means to become independent of Indian aid and achieve a win-win situation for all. India should not intend to lead borrowers into a debt trap. Each project must be executed in a timely manner and make people remember India with gratitude, just like those in Southeast Asia for monuments like Angkor Watt.
If followed, they will distinguish India from the rest and contribute significantly to foreign policy.
The author is a chartered accountant and founder, www.esamskriit.com. Views are personal