Indian LoC projects to be reassessed as fund disbursal slows down

Disbursement of Indian loans to Bangladesh has slowed down significantly, as only USD 81 million was disbursed in the last seven months (July–January) under the Indian Line of Credit (LoC). Besides, there has been no fresh commitment for loans. 

Against the backdrop, an initiative has been undertaken to reassess the projects funded by the LoC, and the process of forming a committee in this regard is underway, according to the economic relations division (ERD). 

Following the political changeover in August last year, works on multiple India-funded projects came to a standstill. Particularly, the Indian contractor of the Ashuganj-Akhaura four-lane road construction project returned home along with the Indian workers, leading to a four-month halt in the project. 

There are some more projects where Indian contractors halted or slowed down their works, and the ERD officials described it as the main reason behind the sluggish fund clearance under the LoC. Currently, eight transport and infrastructure projects are ongoing under Indian loans.

According to ERD sources, India has disbursed only USD 81.5 million under the LoC between July and January, with no new loan commitments. 

Professor Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), told Prothom Alo that projects that are essential for the economy should be kept under the LoC. He also advocated for relaxing procurement conditions under the India-funded projects. 

Since the inception of Indian LoCs in 2010, 2016, and 2017, India has committed a total of USD 7.36 billion in loans to Bangladesh. But its disbursement has been slow, with only USD 1.88 billion disbursed till date. 

The neighbouring country disbursed an average of more than USD 300 million annually during the last three fiscal years. Among them, USD 311.4 million was cleared in 2023-24 fiscal year, USD 337 million in 2022-23, and USD 329.3 million in 2021-22. 

Disbursal of loans was significantly slow during the Covid-19 pandemic, as India provided only USD 141.1 million in 2020-21 and USD 148 million in 2019-20.

A total of 36 projects in infrastructure sectors, including road and rail connectivity, energy, and road construction, were undertaken under the three Indian LoCs. Of them, 15 have been completed, while eight are ongoing, and 13 are still in the planning or contractor recruitment phase. 

Both sides, in a LoC review meeting in Dhaka on 5-6 March, reached a consensus over reassessment of the projects. It was learned that a dedicated committee will look into the reasons behind project delays and work towards resolving them.