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Business News/ Politics / Policy/  Following China’s Silk Road, Narendra Modi to expand loans across Asia
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Following China’s Silk Road, Narendra Modi to expand loans across Asia

Govt plans to set up a special purpose facility to fund roads, bridges and power plants across southern Asia and even Africa, says chief of Exim bank

Narendra Modi is seeking to improve ties with neighbouring countries that have increasingly taken Chinese loans for roads, ports and power plants. Photo: Sanjoy Narayan/Hindustan TimesPremium
Narendra Modi is seeking to improve ties with neighbouring countries that have increasingly taken Chinese loans for roads, ports and power plants. Photo: Sanjoy Narayan/Hindustan Times

New Delhi: Prime Minister Narendra Modi is taking a page from China’s playbook as he looks to widen India’s influence in its neighbourhood — only with far less cash.

India plans to set up a special purpose facility to fund roads, bridges and power plants across southern Asia and even Africa, said Yaduvendra Mathur, chairman of the Export-Import Bank of India. While he declined to reveal the size, government officials familiar with the discussions say it’ll be less than a quarter the size of China’s $40 billion Silk Road fund.

“The purpose is not only infrastructure investment but also to facilitate trade between neighbouring countries in South Asia," Mathur said by phone on Tuesday. “There’s no competition with China."

Modi is seeking to improve ties with neighbouring countries that have increasingly taken Chinese loans for roads, ports and power plants. While South Asia is home to 20% of the world’s population, it’s the least integrated region as geographic obstacles and political differences hinder trade.

“India is trying to create new institutions where it can cement its position as a regional superpower or economic power," said Prashant Kumar, an associate fellow at the New Delhi-based Observer Research Foundation. Such a fund would be “mired in so much political debate" that India is better off contributing more to the Asian Development Bank (ADB), he said.

The credit line would merge regional lending programs in the Exim Bank that now have about $5 billion in outstanding debts to the eight nations that comprise the South Asian Association for Regional Cooperation, according to two people familiar with the discussion who asked not to be named before an announcement they expect in about a month.

Borrowing power

The fund would be expanded by between $1 billion and $5 billion, the people said. Finance secretary Rajiv Mehrishi said on Tuesday that no final decision has been made.

There are “intense consultations" between India’s finance and foreign ministries to work toward the special purpose facility to fund infrastructure in the SAARC region, said foreign ministry spokesman Vikas Swarup.

India’s proposal will be an alternative to plans for a SAARC Development Bank, which was endorsed at a summit last year, according to two people familiar with the matter. With its investment-grade sovereign rating, India would be able to borrow at lower interest rates than a SAARC Bank that includes members holding a so-called junk rating, they said.

Silk road

When he took power last May, Modi invited the leaders of neighbouring countries to his inauguration in a bid to improve ties. While relations with some countries like Sri Lanka have improved, a decades-long conflict with neighbouring Pakistan continues to hinder regional integration.

China has capitalized on the strife, promising SAARC nations part of a $40 billion Silk Road fund to finance infrastructure investment. Chinese President Xi Jinping chose a $1.65 billion Pakistani dam for the fund’s first investment, part of $28 billion in deals he concluded on a two-day visit to Pakistan earlier this week.

India’s $1.9 trillion economy is still about five times smaller than China’s, and successive governments have repeatedly missed its domestic infrastructure-investment targets. China is the biggest trade partner of more than half of the 18 nations that comprise South and Southeast Asia, while India dominates just three, according to data compiled by Bloomberg.

Still, economic growth in India is set to start outpacing a slowing China this year, according to the International Monetary Fund (IMF). Moody’s Investors Service this month raised India’s ratings outlook to positive, and foreign investors have poured $13 billion into Indian stocks and bonds this year after a record $42 billion in inflows in 2014.

Limited potential

India is one of more than 50 countries backing the China- led Asian Infrastructure Investment Bank, and agreed last year with China, Brazil, Russia, and South Africa on the structure of a $50 billion development bank covering the world’s biggest emerging markets.

Those structures have a better shot at success than something like a special purpose vehicle, according to Akshay Mathur, head of research at Mumbai-based Gateway House.

“Government-backed enterprises can be limited by financing and staff, and private companies can be vulnerable to the geopolitics of the region," Mathur said by e-mail. “Thus, a multinational institution is better when a broader buy-in is required." Bloomberg

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Published: 22 Apr 2015, 08:18 AM IST
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