India imposes stricter loan terms

Bangladesh is set to sign the second credit agreement with India after six months of negotiations over the import rates for project equipment, appointing consultants, as well as tax and VAT exemption.


The terms of the deal are even stricter this time. India will provide US$ 20 billion for 13 projects.Foreign Affairs and Economic Relations Department (ERD) officials said, according to the Memorandum of Understanding (MoU) signed during Indian prime minister Narendra Modi’s Dhaka visit last June, the second agreement will follow the terms of the first agreement. Later, India sent a draft of the agreement which had stricter terms compared to the first agreement. The first time (2010) the projects were finalised after signing of the deal. This time the projectshave been finalised before signing of the deal.


Bargaining over three conditions: India imposed a condition in the new deal that as much as 75 per cent of the loan must be used to purchase Indian goods for the projects. India denied the proposal of Bangladesh to reduce that to 60 per cent. Later both countries agreed to 65 per cent. From the outset India proposed to recruitIndian nationals as management consultants for the projects.


Bangladesh opposed extensive appointments of these consultants in every project. Now it was decided that there will be 75 per cent Indian consultantsand 25 per cent Bangladeshis. New Delhi also asked to give tax and VAT exemption to the people related with importing materials and goods for the projects in the draft agreement. However, there is no such scope in the law of Bangladesh. At the end it was decided that project VAT and consultant tax will be paid from the government’s own funds.ERD officials said, India imposed a condition during the first loan of Indian Exim Bank to buy 85 per cent of the materials and goods from that country. After a muchbargaining, it was decided that 65 per cent of the purchases will be done in case of infrastructural construction and 75 per cent in other cases. The tax and vat was also not exempted in the first agreement.


Talking with Prothom Alo on Monday, former foreign secretary Towhid Hossain said, “Ninety percent of imports might be required from India in such projects. But it is not recommended to import 65 percent of the materials from India for infrastructural construction. Weonly produce world class cement, bricks and other building materials. I don’t see any logic behind importing these materials from India.”


13 Projects: The 13 projects under the second deal includes, the transformation of meter gauge rail line of Parbatipur-Kawnia rail route into double gauge line; building double line on Khulna-Darshana rail route; Development of Syedpur rail factory; building Boropukuria-Bogra-Kaliakoir 400 kilowatt electrical line; 500 trucks and 500 buses (300 Double-decker and 200 articulated) for BRTC; buying equipments for roadsand highways department; four medical colleges and hospitals and establishing national burn and plastic surgery institute; building 49 polytechnic institutes and teachers training institutes; building Ashuganj shipping container port, and developing the Ashuganj port-Darkar-Akhaura land port road. There are two other projects in the information and technology sector.Centre for Policy Dialogue (CPD) Executive director Mostafizur Rahman said India gives such loans to increase export. That is why their priority in the projectsis natural. But inclusion of some social projects in the second agreement is a positive sign. Bargaining in a coordinated way in the case of such loans is needed so that the Bangladesh could get the highest economic benefit from the implementation of the project. Transparency of the whole process is needed as well or question remains regarding the debt.


Development of the first agreement: India-Bangladesh signed the first credit agreement of USD 1 billion in August, 2010. A total of 15 projects were finalised under this agreement. So far, seven projects among has been completed said a statistics on 30 December, 2015. All of the completed seven projects are about purchasing.


These include double-decker and normal buses for BRTC, engines, wagons, and containers for the railway. The eight incomplete projects include, buying equipments for the modernisation of Bangladesh Standards and Testing Institution (BSTI), building second Bhairab and second Titas bridges with approach rail-line and construction and renovation of number of rail lines. ERD additional secretary Asif-uz-Zaman on Sunday said, “The terms and conditions of the agreement were finalised after a number of meeting of officials from thetwo countries. Both sides came to a point giving concessions in some issues including sourcing of the product. Now the deal will be signed after the approval of the law ministry.” 


During the Dhaka visit of Indian president Pranab Mukherjee in March, 2013, Indian gave USD 200 million of the USD 1 billion, as grant.