Summary:
- Bangladesh will drop 11 projects from Indian Lines of Credit (LoC), reducing the total loan size from $7.34 billion to $4.68 billion due to prolonged delays and inefficiencies.
- Both nations agreed to expedite ongoing projects and modify future loan policies by excluding “umbrella-based” projects.
- Key reasons for project removal include lengthy approval processes, mandatory use of Indian contractors, and inadequate project preparation.
- A joint technical committee will review exit strategies for excluded projects, with relaxed procurement conditions for existing ones.
Bangladesh is set to remove at least 11 projects from the Indian Lines of Credit (LoC) due to prolonged delays and inefficiencies in the approval and implementation processes. This decision was reached during a bilateral review meeting held on March 5-6 at the Economic Relations Division (ERD) office in Dhaka. As a result, the total LoC size will decrease from $7.34 billion to $4.68 billion. The meeting, led by Mirana Mahrukh from Bangladesh and Suja K. Menon from India, focused on rationalizing the LoC by evaluating each project carefully.
The removal of these projects is largely attributed to delays caused by lengthy approval processes, the mandatory appointment of Indian consultants, and multiple approval layers from India’s Exim Bank. Additionally, the requirement for using Indian contractors has contributed to inefficiencies, as they sometimes neglect their responsibilities. Both countries have agreed to expedite the disbursement and implementation of ongoing projects and to modify future loan policies by excluding “umbrella-based” projects.
Fahmida Khatun, Executive Director at the Centre for Policy Dialogue, highlighted that the implementation of Indian LoC projects is often time-consuming, involving multiple projects per loan. This structure creates a financial burden, as the grace and repayment periods for all projects under a loan begin with the first disbursement. Bangladesh and India have different perspectives on the causes of delays, with India citing slow project proposal preparation by Bangladesh and Bangladesh pointing to capacity constraints in handling multiple proposals.
The three Indian LoCs were signed in 2010, 2016, and 2017, covering various infrastructure projects. However, many projects remain in the approval stage or are incomplete due to delays. A joint technical committee will review the projects being removed from the LoC to determine exit strategies. Both countries have also agreed to relax the mandatory procurement conditions for existing projects, reducing the requirement to source goods from India.
