Line of Credit Guidelines by IDEAS: Explained

Introduction

Indian Development and Economic Assistance Scheme (IDEAS) was given approval by the cabinet committee on Economic affairs chaired by Prime Minister Modi.

About IDEAS

  • IDEAS is used by GOI to extend Line of Credit (LoC) to African nations, neighbours and other developing nations 
  • Earlier Department of Economic Affairs was held responsible for LoC till 2010
  • GOI used to sign deed of guarantee with the recipient nations of LoC
  • This deed serves as the guarantee against any default against principal or interest by the borrowing nations
  • Now new guidelines have made Line of Credit to be processed through IDEAS 

Agencies Involved in IDEAS

  • Department of Economic Affairs is the implementation agency
  • Ministry of Finance is the nodal agency
  • EXIM bank is the lending agency
  • Any PSU Bank or lending agency authorised by Ministry of Finance can extend Line of Credit 

Countries covered under LoC

  • Low-income countries classified according to IMF
  • Lower Middle-Income countries with no minimum binding concession requirement
  • Other developing nations
  • Detailed classification of low and low-middle income nations available under EXIM bank annexure

Terms of Credit

  • The terms of credit vary across three categories of low income, low middle income and other developing nations 
  • The maturity period of the loan extended by LoC through IDEAS is 25 years maximum
  • The maximum interest rate charged by EXIM Bank is 1.75%
  • A maximum grant of 37.48 % is given to the borrowing nation by GOI
  • A moratorium of 5 years
  • Elements of credit are calculated by EXIM bank according to IMF formula
  • GOI is the ultimate authority in India to revise the terms from time to time for LoC extended through IDEAS
  • Countries are selected through competitive bidding based on their proposals
  • Tenor of Infrastructure projects worth $200 million or more and strategic important projects worth $100 million or more are extended by 5 year

Benefits of IDEAS to Borrowing Nation

  • Low interest rate to the tune of 1.5 % and a maximum of only 1.75 %
  • 100 % finance from GOI
  • Exemption from duties and taxes
  • Administrative charges at the lowest including commitment and management fee of 0.5 % per annum
  • Friendly relations with India 

Benefits to India

  • India will earn good will among world nations helping low-income nations especially the African nations
  • IMF has lauded the real and sincere efforts of India in development of African nations
  • Establish trade relations with world nations
  • The recently inaugurated Friendship Dam in Saudi Arabia is one such example
  • India will get the support of the borrowing nations in the international scenario while voting on strategically important decisions in UN and other international organizations
  • Mongolia, African Nations like South Africa, Ghana, Zimbabwe, Nigeria, Congo, Namibia and other developing nations are covered under IDEAS scheme of GOI
  • Indian officials in the high level including Prime minister, President and Vice President have visited these countries to extend LoC through IDEAS
  • India can establish diplomatic ties with these borrowing nations and strengthen herself
  • Bilateral ties and many other agreements are signed with the borrowing nations

Conclusion

  • IDEAS scheme of GOI and EXIM Bank promote the friendship of India with the world nations
  • The massive tours made by Prime Minister Modi to different nations are in line with the IDEAS scheme and promoting India as a manufacturing hub in the international scenario
  • Overall, IDEAS is a positive step of India growing globally establishing friendship with world nations through positive means
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