Indian Politics & Policy Volume 1, Number 2, Fall 2018 | Page 65

Indian Politics & Policy
Furthermore, the Ministry of Finance
continues:
Q. What is the interest rate the
overseas importer of Indian
goods has to pay?
A. The overseas importer of
Indian goods has to approach
the overseas borrower financial
institution/recipient of Exim
Bank’s LOC, for approval of his
proposal for import of Indian
goods on deferred credit terms.
The interest rate that the importer
will need to pay to the recipient
of Exim Bank’s LOC, will depend
on various factors such as
the cost of fund, the currency of
credit, tenure of credit, security
offered by the importer, the risk
perception of the importer and
the interest rate structure prevalent
in the country. It may however
be mentioned that Exim
Bank’s interest rates on LOCs
being competitive, the importer
would normally have to pay
interest rate lower than what he
would otherwise pay to his Bank
on similar credits. 4
The last sentence indicates that
the LOCs of the Exim Bank may be
considered subsidized credit and hence
foreign assistance. The interest subsidy
on the Exim Bank’s LOCs is given in the
IDEAS line item in Statement 11 of the
annual Expenditure Budget.
A key turning point in Indian
foreign assistance was the decision in
2003 to repay its bilateral debt to all but
four countries, not to accept tied aid
in the future and accept bilateral aid
from only five countries and the EU,
and simultaneously shift from a major
aid recipient to donor (Chaturvedi
2008, 26–29). Between 2003 and 2004
and June 2018, India provided $22,515
million (m) in 227 operative Exim Bank
LOCs with another $1,782 m in the
pipeline to be operationalized, totaling
246 LOCs of $24,297 m (Table 2). The
average worth of an operative LOC was
$99 m.
Region-wise and country-wise
(Table 3), 158 LOCs (of 227 operational)
worth $9,229 m went to sub-Saharan
Africa (henceforth, Africa refers to
sub-Saharan, that is, non-Arab Africa,
plus Sudan and Djibouti, and including
the island states of Madagascar, Mauritius,
and Seychelles), 15 LOCs worth
$10,481 m to South Asian countries,
10 LOCs worth $539 m to Myanmar,
15 LOCs worth $538 m to Southeast
Asia and Pacific (other than Myanmar),
LOCs worth $1,167 m to the (non-oil)
Middle East and Central Asia, and 22
LOCs worth 405 m to Latin America
and the Caribbean. Thus, 70 percent
of the number of LOCs went to Africa
and 7 percent to South Asia, 4 percent
to Myanmar, and 7 percent to Southeast
Asia and Pacific. By value, 47 percent
went to South Asia and 41 percent
to Africa, these two regions getting 88
percent of the total amount loaned.
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