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Line of Credit Guidelines by IDEAS: Explained

Published on Tuesday, December 20, 2016

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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