July 25, 2017

India's dollar diplomacy takes off, puts China's domination under threat

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By Dipanjan Roy Chaudhury, ET Bureau | Updated: Jul 24, 2017, 09.50 AM IST

A non-traditional area where India has extended the line of credit during the past three years is the defence sector — Vietnam, Bangladesh, Sri Lanka and Mauritius.

NEW DELHI: Although a late starter, India is fast catching up with China in extendingcredit world over to build infrastructure and push economic ventures.

While Delhi extended LoC worth 10 bn USD to its partners between 2003-2014 the figure has now touched 24.2 bn USD since the Modi government came to power. 52 LoCs worth 14.2 bn USD has been granted since May 2014 and more are in pipeline when King of Jordan and President of Belarus visits Delhi later this year.

While correcting malpractices that had crept into India’s African endeavours, New Delhi had completed 20 major ventures in the past two years, official sources told ET. The focus under LoC extended through MEA’s Development Partnership Administration (DPA) wing is now on key infrastructure projects and not just capacity building ventures, sources said referring to two such endeavours in Africa – Presidential office in Ghana (symbol of Indo-Ghana friendship) and National Assembly building complex in Gambia.

Such iconic symbols of bilateral partnership have been hallmark of Chinese presence across continents. “This kind of infrastructure projects have political significance and contribute to overall strengthening of bilateral partnership between two countries,” pointed out an expert who has closely followed Chinese infrastructure projects across Asia and Africa. It is a common knowledge that while China dictates type and terms & conditions of projects for which it extends grants, Indian approach is consultative in nature keeping in mind local requirements and sentiments while extending LoC throughEXIM Bank.

A non-traditional area where India has extended LoC during the past three years is defence sector. Defence related LoC have been extended to Vietnam (500 mn USD), Bangladesh (500 mn USD), Sri Lanka (100 mn USD) besides Mauritius. India has been receiving requests for supply of defence equipment from friendly countries in SE Asia, Africa and Latin America. Defence related LoC extended by India is expected to grow in the coming years, according to an expert who has followed India’s defence partnerships across regions.

During the past one year alone 13 projects aggregating 925.94 mn USD across 10 countries have been completed under LoC mechanism. “Development Partnership is a key instrument in India’s foreign policy. Extension of LoC on concessional terms is an important component of India’s development cooperation policy in Africa, Asia and Latin America. The surge in LoCs since May 2014 reflects political commitment towards development partnership. LoCs are governed by IDEAS (Indian Development & Economic Assistance Scheme) guidelines which were revised by the Modi government in 2015 and these guidelines will remain applicable till 2019-20. The new guidelines have been able to check malpractices and nepotism in extension and implementation of LoC supported projects particularly in Africa,” pointed out one of the sources quoted above.

New IDEAS guidlines classify LoC recipient countries as per levels of their development and also specify rate of interest of concessional loans depending on income level of countries besides outling oversight mechanism and operational guidelines of LoC. Unlike India Chinese loans are offered at commericial rates and this has pushed certain countries in Asia and Africa into debt trap.

In the past most LoC contracts in Africa and other developing countries were won by 5-6 companies which had established good networks, alleged one the persons familiar with the issue. ET has learnt that these companies would undertake a wide range of projects through sub-contracting, even though they did not have much experience in executing projects in India. The Feasibility Reports for projects were often lacking in detail and clarity, leading to escalation of costs and leaving scope for ambiguity. Besides lack of scrutiny of tender documents and evaluation led to misuse of LoC, alleged the person quoted above.

The oversight mechanism put in place to check misuse of LoC funds include accompaniment of project proposal with Detailed Project Report (DPR) by companies willing to undertake projects, Pre-Qualification (PQ) exercise to identify experienced and competent companies for implementing LoC projects, closer scrutiny over vetting of DPRs, tender documents and bid evaluation by the lending bank, informed persons familiar with the process.

India’s EXIM Bank to ensure effective LoC implementation has undertaken empanelment of Consulting firms and EPC contractors. EXIM Bank has completed empanelment of 82 consulting firms in various sectors. A total of 117 firms have been empanelled as EPC Contractors.

Yet certain challenges remain in implementing LoC in some countries due to geographical constraints, according to domain experts. Some of India funded projects are in the most remote regions in the world where availability of material and skilled manpower are scarce. Besides such areas are also impacted by lack of electricity, water resources and proper connectivity

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