India extends $4.5 billion loan to Bangladesh

The announcement of the line of credit was made during the visit of Bangladesh Prime Minister Sheikh Hasina to India in April. It is seen as part of India’s larger strategic move to wean Dhaka away from China, the biggest supplier of defence equipment to Bangladesh for many years now.

In recent years, China has been making inroads into countries in India’s neighbourhood—with major infrastructure projects, development aid and financial assistance.

India’s ties with Bangladesh have improved dramatically in recent years after India signed the land boundary agreement in June 2015—hanging fire since 1974. The conclusion of the pact was seen as a major confidence-building measure between the two neighbours.

“India is fully committed to partner Bangladesh in its economic development. As a long-standing development partner of Bangladesh, we have extended three lines of credit worth $8 billion to Bangladesh in recent years. This is the largest quantum of credit India has extended to any other country by far and comes at a highly concessional rate of interest," Jaitley said after meeting his counterpart Abul Maal Abdul Muhith in Dhaka on Wednesday.

The signing of the third line of credit agreement will enable the implementation of 17 pre-identified projects of developmental priority to Bangladesh in key sectors such as power, railways, roads, shipping, ports, etc. Like the earlier ones extended by India to Bangladesh, this line of credit will also be provided at a concessional interest rate of 1% per annum, with repayment over a period of 20 years including a five-year moratorium.

India also signed a Joint Interpretive Note with Bangladesh to update the Bilateral Investment Promotion Agreement to the new investment framework.

Jaitley said connectivity is crucial to the success of the bilateral development partnership, sub-regional economic cooperation and economic prosperity in the South Asia region. “I am happy to note the increased thrust placed by both our governments on the restoration of pre-1965 linkages encompassing road, rail, water, and coastal shipping connections. I am confident that this will help to increase bilateral trade and foster people-to-people contacts between our countries," he added.

Later in the day, Jaitley and Muhith launched the cashless visa service and inaugurated a representative office of the EXIM Bank of India in Dhaka. “This will facilitate the development partnership between our two countries and also help in facilitating Indian investments into Bangladesh. All these developments highlight the increasing economic cooperation and inter-linkages between our two countries," Jaitley said.

India’s operationalization of the $4.5 billion line of credit follows a recent wrinkle in ties following New Delhi saying that it shared Myanmar’s concerns over “extremist violence" in Myanmar’s Rakhine state. The comments were made by Prime Minister Narendra Modi during his recent visit to India’s key eastern neighbour.

Bangladesh was reportedly upset by the move with Dhaka’s envoy in New Delhi conveying his country’s concerns on the matter to the Indian foreign secretary. Its unease stems from the fact that thousands of members of the Muslim Rohingya from the Rakhine state have fled across the border into Bangladesh following a Myanmarese military push after Rohingya insurgents attacked police posts and an army base in August.

India sees Bangladesh and Myanmar as important neighbours, sharing borders with both countries. Insurgents operating in India’s northeast have taken shelter in both countries in the past, using bases there for hit-and-run operations. India has viewed with concern increasing Chinese aid and infrastructure assistance to both countries—fearing a heightening of Beijing’s profile and a waning of its own influence in its periphery.

Recent figures suggest that Bangladesh houses some 1.2 million Rohingyas, placing a strain on its resources. The United Nations has called the exodus of 507,000 Rohingyas since late August the world’s fastest-developing refugee emergency, and says Buddhist-majority Myanmar is engaging in ethnic cleansing. India, on its part, sent food aid last month to Bangladesh to help tide over the humanitarian crisis