Development Cooperation between Bangladesh and India: Importance of Boosting Line of Credit (LoC)

Over the past decade, development cooperation has become a hallmark of Bangladesh-India relations largely due to India’s line of credit (LoC) towards Bangladesh. A line of credit is an agreement between Bangladesh and India as borrower and lender respectively to support infrastructure and development programs in the borrower nation. The Indian Development Initiative (IDI), currently known as the Indian Development and Economic Assistance Scheme (IDEAS), was established by the Government of India (GOI) in 2003-04 to share India's development experience through: i. capacity building and skills transfer, ii. trade, and iii. infrastructure development. The EXIM Bank and the Ministry of Finance are the two institutions in charge of carrying out the LoC program. India does not follow Official development assistance (ODA) criteria and hence, ituses LoCs as one of its development cooperation methods. The concessional feature of Indian LoCs qualifies them as ODA because they contain a grant component of more than 25%. In total, 65 countries have received 306 LOCs valued $30.59 billion.

The LoCs of India have provided a special focus on neighboring countries. A total of US$ 16.095 billion in LoCs have been granted to Asian countries out of a total of US$ 30.59 billion.India signed the first LoC agreement with Bangladesh in 2010. During Bangladesh Prime Minister Sheikh Hasina's visit to India in January 2010, India announced a US$1 billion Line of Credit (LoC) for Bangladesh, which supported public transportation, roads, trains, bridges, and inland waterways projects. The majority of these projects are finished, and the rest are in various stages of completion. In June 2015, the second LoC of US$ 2 billion was signed. This LOC encompasses 15 projects in the fields of roads, railways, electricity, shipping, special economic zones, health and medical care, and technical education. And, in April 2017, India extended Bangladesh a third US$ 4.5 billion LOC. The new LoC will encompass projects in ports, railways, roads, airports, power and energy, telecommunications, and shipping, among other things.

Under India’s neighborhood policy, India's lines of credit (LoC) with its neighbors have expanded fourfold since 2014.Bangladesh has been the recipient of India's largest concessional credit. The LoC between India and Bangladesh reveals that both are intended to continue a close mutual relationship. In a close observation, India's LoCs to Bangladesh promote cooperation in six areas: connectivity, defense, energy, IT, health, and education.

India needs strong connectivity relations with Bangladesh to boost India's economy and vice versa. Bangladesh shares itsland boundary with India’s Northeastern region. The eight states that makeup India's North Eastern Region (NER) account for only 8% of the country's total land area. For boosting trade between Bangladesh and the Seven sister’sregion. According to Ministry of External Affairs, under India’s LoC, total 31 projects (13 already completed). 17 Rail (9 completed), 8 Road (3 completed), 5 Ports/Shipping (1 completed), 1 Airport are working to make a strong connectivity within Bangladesh and also with India.

Since 2010, India has been attempting to strategically connect its North-eastern territory to the rest of the country through Bangladesh. By developing roads and connectivity, India is trying to avoid lengthy detours and save time and money.

According to Indian Minister of Commerce and Industry Suresh Prabhu, healthy trade relation-building with neighboring countries is the prime objective of the Indian government.Keeping the connectivity is the most important issue. India did 50% of trade with Bangladesh via land border through the Standard Operating Procedure (SOP) signed on 25 October 2018, including waterways, roads, and trains. According to the SOP, products arriving at Chattogram and Mongla seaports will be transported to Agartala (Tripura) via Akhaura, Dawki(Meghalaya) via Tamabil, Sutarkandi (Assam) via Sheola, and Srimantpur (Tripura) via Bibirbazar via road, rail, and water.The Agartala-Akhaura rail construction, once finished, the train line will connect Agartala, the capital of the Indian state of Tripura, with Akhaura, Bangladesh, via Nischintapur in the border region, which will be a win win for Bangladesh and India.

Undoubtedly, strong communication will benefit trade andpeople-to-people contact. The land border of Bangladesh-India is also mostly used for traveling. Defense cooperation between India and Bangladesh has seen significant progress in the last few years. The strategic partnership between India and Bangladesh can become a pillar of regional strength and economic cooperation.” The Export-Import Bank of India (Exim Bank) signed an agreement with Bangladesh’s Armed Forces Division to make a USD 500 million lines of credit (LOC) accessible to the latter. The LoC will assist the dream of Bangladesh in modernizing its armed forces by maintaining a balanced approach, overcoming its dependency on any single another country.

According to The Economic Times, India has proposed $9 billion in investment projects in Bangladesh to boost Dhaka's burgeoning industrial base, with power and gas at the top of the list. The Reliance and Adani Groups and the power powerhouse NTPC were among the Indian blue-chip businesses that signed investment agreements with Bangladesh Prime Minister Sheikh Hasina to deliver electricity and increase power generation in the easterly neighbor in 2017.

LoC will also contribute to Bangladesh's nuclear drive. According to Indian External Affairs Secretary Harsh VardhanShringla, “A significant part of our third line of credit will go to civil nuclear cooperation. Transmission lines of RooppurNuclear Power Plant will be developed by Indian companies under the line of credit. Value of these transmission lines will be worth over USD 1 billion.”

Besides, India’s LoC is also supporting Bangladesh’s socio-cultural sectors. Under LoC fund, the Sheikh Hasina Medical College and Hospital and Nursing College in Jamalpur ( $35.89 million) and the construction of 500-bed hospital buildings in Jashore, Cox's Bazar, Pabna, and Noakhali medical colleges($180 million) are under the second LoC of India and establishment of IT/Hi-Tech Park at District Level" under the second LoC.

Notably, Bangladesh government’s funding and Indian LoCs are being used to accomplish the projects. The implementation of projects under LoCs was little slow earlier. However, recently, India has expedited the disbursement of LoCs to Bangladesh. It has increased significantly in 2022, which is a milestone in wider development cooperation between the two neighbouringcountries. It is strongly viewed that the LoCs of India can bring a win-win situation for both countries through the improvement of connectivity and socio-economic changes in the region.Analysts observe that these LoCs are the bedrock of India’s development cooperation for Bangladesh and also serve as a diplomatic and goodwill instrument. Through strengthening socio-economic and infrastructural connectivity, Bangladesh and India can enhance their presence in the global and regional value chains.

By: Doreen Chowdhury is a doctoral researcher at the University of Groningen

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