Line of Credit

The Government of India is reasonably satisfied with the progress in the implementation of Lines of Credit supported by India in foreign nations over the past 3 years.

The Line of Credit is not a grant but a ‘soft loan’ provided on concessional interest rates to developing countries, which has to be repaid by the borrowing government.  

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Line Of Credit – Overview

  • The Line of Credit – LOCs also helps to promote exports of Indian goods and services, as 75% of the value of the contract must be sourced from India. The projects under LOCs are spread over different sectors (Agriculture, Infrastructure, Telecom, Railway, Transmission/Power, Renewable Energy, etc.).
  • The actual implementation of LOC projects in various countries is dependent on local factors, such as prevailing political & social conditions, statutory clearances by the borrowing Governments, making available land, and other infrastructural support.  In many cases, the borrowing governments may not wish to proceed with the LOC or change the purpose or are unable to provide detailed information regarding the project through a proper Detailed Project Report / Feasibility Study.
  • The Government has approved the new Indian Development Assistance Scheme (IDEAS) in December 2015. The scheme includes provisions to provide better terms of credit, which will be attractive to many developing countries, who are now seeking alternative means of finance.  
  • Several changes have been made in the operational guidelines such as making a DPR, or Feasibility Study essential for project proposals, strengthening of the monitoring system, pre-qualification of competent companies, and requirement of regular reports by the borrowing governments.
  • Also, regular monitoring is being carried out by borrowing Governments, Project Management Consultants (PMCs), implementing agency, and Indian Missions abroad to ensure projects are executed promptly. These changes should improve the implementation of projects undertaken through these LOCs.
  • It is true that in the past some Indian companies had been awarded a majority of the projects under Lines of Credit, based on requests received from borrowing governments. However, several LOC projects have also been executed by a variety of other companies, especially public sector organisations like RITES, IRCON, WAPCOS, etc.
  • PMCs/Contractors are selected by the borrowing Government through an open competitive bidding process, as per the procurement laws of the borrowing country and prescribed LOC Guidelines of the Government of India. Only Indian Companies/firms can bid for executing the LOC projects.

Frequently Asked Questions about Line of Credit

How does Line of Credit Work?

A credit line allows a person to borrow in increments, repay it and borrow again as long as the line remains open. Typically, the borrower will be required to pay interest on borrowed balance while the line is open for the same, which makes it different from a conventional loan, which is repaid in fixed installments.

What are the benefits of Line of Credit?

A line of credit can be great for the unexpected expenses you may incur or for paying down and consolidating debt. However, if mismanaged, accessing further credit can lead to trouble.

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