New Delhi: At a time when India and China are locked in a race for control of natural resources and energy assets in Africa, the Indian government is worried about the slow pace of disbursement from a $5.4 billion (Rs24,030 crore) line of credit that it promised to Africa in 2008.
The issue has already caught the attention of the Prime Minister’s Office (PMO), which is conducting a review to ascertain the reasons behind the delays. Money from the line of credit, announced at a summit of the India-Africa Forum, was to be disbursed over a period of five years.
A line of credit is a specified amount of money a borrower may obtain without special checks, and offers concessional loans that carry interest of 1.75%.
While promising the line of credit, including a firm commitment of $3 billion, the government said 75% of the equipment purchased with the money should be sourced from India and 25% from the borrower’s domestic market. Indian government officials said the disbursement so far has been minimal.
“While the $5.4 billion announcement was made in 2008, the applicable financial year only begins in 2009, with the entire sum to be disbursed by 2014. However, the slow pace is a concern and the PMO is taking a review,” said a senior government official, who did not want to be identified.
The person said such a review wasn’t extraordinary and the PMO often undertakes such exercises.
Several government officials Mint spoke to pleaded ignorance about the actual amount disbursed so far. Officials from the finance ministry, commerce ministry and the ministry of external affairs are involved in finalizing a line of credit, from which money is disbursed finally through the Export-Import Bank of India, or Exim Bank.
Exim Bank extends credit lines to overseas financial institutions, regional development banks, sovereign governments and other entities overseas to enable buyers in those countries to import goods and services from India on deferred credit terms.
A message left for Exim Bank chairman and managing director T.C.A. Ranganathan in his office remained unanswered at the time of filing this story. Questions emailed by Mint also remained unanswered.
Both India and China have extended lines of credit to build infrastructure in energy-rich African countries as the Asian powers seek access to mineral resources to fuel their growing economies.
India and China are both seeking to gain an extra edge in their quest for energy resources with such sweeteners.
“There is poor disbursement of line of credits because of too much bureaucracy involved. It is quite old-fashioned the way we deal with lines of credit,” said a second senior government official, who also spoke on condition of anonymity.
“Our lines of credit are slightly better than commercial deals and do not throw away loans like the ones by China. Chinese lines of credit are much cheaper with longer moratorium on repayment,” the official added. “That’s why there’s hardly any demand for Indian lines of credit.”
Analysts say such delays may affect India’s growing engagement with a continent that’s rich in natural resources.
India is seeking to deepen economic and diplomatic relations with Africa, and India’s trade with countries in the continent stands at around $39 billion a year against China’s $100 billion.
“It takes a little while for projects to take off as viable projects need to be identified and detailed project reports are to be prepared,” said a third government official.
“It may not be a substantial utilization due to these processes. The whole process takes time and the disbursement picks up once a project becomes active. We should not just be pushing for targets,” the official added, who also did not want to be identified.
India is seeking energy assets in Africa and other parts of the world as it depends on imports to meet around 80% of its oil requirements and is particularly vulnerable to price volatility in crude oil.
As the fifth largest energy consumer in the world, India accounts for around 3.5% of the global consumption of crude.
It will become the third largest oil importer after the US and China before 2025, and its energy demand expected to almost double by 2030, according to the International Energy Agency.
Asit Ranjan Mishra contributed to this story.