Indian grants for Bangladesh gradually declining

Indian grants for Bangladesh have been declining gradually for the last three years. Bangladesh didn’t get any loans officially under the Ministry of Foreign Affairs during this time period either. However, the country continues to receive loans under the line of credit.

The national budget of India was declared yesterday, Thursday. According to the actual account of the 2022-23 fiscal as presented in that budget, Bangladesh is second from the bottom in terms of receiving Indian grants. Sri Lanka is at the bottom on this list.

According to the official documents of India, Bangladesh received a grant of Rs 1.33 billion from India in the 2022-23 fiscal. As per the estimated revised account for the 2023-24 fiscal, Bangladesh is supposed to receive a grant of Rs 1.30 billion, which is around Rs 40 million less than the previous year. The Indian grant for Bangladesh will further decrease to Rs 1.20 billion, according to the allocations for loans and grants for different countries as presented in the budget.

Bhutan tops the list in terms of receiving grants and loans from India as per the actual account for the 2022-23 fiscal. Bhutan received Rs 17.36 billion as grant and Rs 7.04 billion as loan from India in that fiscal. Including all the other grants and allocation, Bhutan received a total of Rs 24.47 billion from India in the 2022-23 fiscal.

Myanmar is second in this list receiving a grant of Rs 4.54 billion that year. Besides, Nepal received a grant of Rs 4.34 billion, Afghanistan 2.79 billion and Maldives received a grant of Rs 1.83 billion from India in the 2022-23 fiscal.

Apart from the South Asian countries, India also provides loans and grants to countries from different parts of the world, including Eurasia. The total amount of grants and loans provided by India in the 2022-23 fiscal stands at Rs 70.90 billion.

According to the revised estimated account for the 2023-24 fiscal, India provided a total of Rs 89.90 billion as grants and loans. The allocation for grants and loans provided by India will be Rs 96.22 billion, as per the interim budget for the 2024-25 fiscal.

The Indian finance minister presented the national budget in the parliament (Lok Sabha). However, a vote-on-account (interim) budget is presented by the Indian finance minister in the year of general election to keep the ongoing government works uninterrupted until a full budget is presented by the new government after the vote.

This time Indian finance minister Nirmala Sitharaman proposed an allocation of Rs 47 trillion in the budget. The figures regarding the Indian grants for Bangladesh were obtained from this.

The experts say the size of grants and the economic situation of the country is interrelated. Many of the countries have reduced grants and are providing loans on non-flexible terms considering the economic development of Bangladesh.

Distinguished fellow at Centre for Policy Dialogue (CPD) Mustafizur Rahman said, “Bangladesh is not getting that much grants from India nowadays due to its economic situation. That doesn’t mean that they (India) are not supporting us. Bangladesh now stands among the Low-middle income countries. This graduation has led to the decline in the grants as well as low-interest loans.”

He further said India is more interested in providing the line of credit given the economic situation of Bangladesh. India has started the third line of credit now.

Mustafizur Rahman also pointed out that India provided a grant of USD 200 million under the first line of credit for the construction of the Padma Bridge. They did this to develop the sub-regional communication.

Two decades earlier, the Exim Bank of India started providing loans to different countries with the concept of line of credit (LOC). The initiative was launched in the 2003-04 fiscal. The Exim Bank provides loan assistance to different countries with an aim to extend the export, investments and businesses of India. Bangladesh received USD 1 billion dollar under the line of credit for the first time in 2010.

Bangladesh has signed agreements to receive around USD 7.5 billion under three LOCs so far. The amount of disbursement under these three LOCs is not that much.

India and Bangladesh signed the first LOC of USD 1 billion in 2010. Later, in 2015, an agreement of USD 2 billion was signed between the two countries under the second LOC. The third LOC of USD 4.5 billion was signed in 2017.

According to the Economic Relations Division of Bangladesh, the Exim Bank disbursed a total of USD 1.65 billion under these three LOCs as of December last year.

Bangladesh is considering not taking any further LOCs from India due to the slow pace of loan disbursement in this process.

Meanwhile, the Exim Bank now wants to provide project wise loans to respective government agencies separately. At the same time, Bangladesh is in talks with the Exim Bank to relax the loan conditions.

For instance, only the Indian contractors now are allowed to take part in the tender of projects to be implemented with the LOC money. As a result, Bangladesh has to issue work orders at the rates given by the Indian contracting companies. Talks are on to include Bangladesh-India joint venture contracting firms in the process. There are conditions such as 75 per cent of the products for the project must be brought from India. Negotiations are on to relax this condition.

Asked whether there are any geopolitical aspects behind the decline in Indian grants for Bangladesh, CPD fellow Mustafizur Rahman said there is a relation between geopolitics and geo-economy. However, it wouldn't be prudent to relate geopolitics with the foreign grants considering the size of our economy, he added.