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Extension of the Indian Development and Economic Assistance Scheme

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi, has given its approval for second  extension  to  the  Indian  Development  and  Economic Assistance  Scheme (IDEAS).
The Government of India has been extending Lines of Credit to African and other developing countries under this Scheme since 2005-06. The first extension to the scheme was granted in 2009-2010.
Since the objectives of the scheme continue to be relevant, it has been decided to give second extension to the Scheme for another five years i.e. from 2015-16 to 2019-20.
Financial implication is towards payment of Interest Equalization Support to the lending bank, for which budgetary provision shall be made by the Department of Economic Affairs every year, as follows:
 
 (in US dollar million)
Year
2015-16
2016-17
2017-18
2018-19
2019-20
2015-16 to 2019-2020
Amount
95.43
104.42
116.47
129.08
143.95
589.34*
*Approximately Rs.3771.77 crore calculated @ 1 USD = Rs.64
 
The above mentioned amount includes the interest equalization support on existing LoCs as well as new LoCs to be issued during 2015-16 to 2019-2020.
The IDEA Scheme, with suitable modifications and amendments, will continue to be implemented through the Department of Economic Affairs (DEA) in the Ministry of Finance. MEA shall select specific projects keeping in view diplomatic considerations and requests received from various developing countries. The project proposals shall be examined by the Standing Committee comprising JS (DPA), MEA and JS (BC), DEA. On receiving approval of the External Affairs Minister on the recommendations of the Standing Committee, MEA shall forward the proposal to DEA for seeking the approval of Finance Minister. DEA will then issue a formal letter conveying sanction of the Line of Credit.
The LoC will be operated through Export Import Bank of India or any other willing bank/ lending agency decided with the approval of Finance Minister. The lending bank will raise resources from the market to finance the LoCs. The recipient/borrowing country shall provide sovereign guarantee to the lending bank. The Gol will provide the Interest Equalisation Support (IES) and further guarantee to the lending bank.
Lines of Credit form an important component of India's diplomatic strategy and have been very useful in generating goodwill and building long term partnerships. The scheme also attempts to promote India's strategic political and economic interest abroad by positioning  it  as  an  emerging  economic  power,   investor country and  partner for developing countries.
96 LoCs aggregating USD 5005.75 million were issued through Exim Bank during the period 2005-06 to 2009-10 to 49 countries. The IES paid by Government of India from its budgetary provisions to the lending bank during the above period was Rs. 521.77 crore.
On the last occasion, while granting first extension to the IDEA Scheme, CCEA in its meeting held on 3.3.2011, had approved a sum of 1200 million US dollar Lines of Credit to be extended to African countries and 500 million US dollars for non-African developing countries for each of the five years from 2010-11 to 2014-15.
108 LoCs aggregating USD 8924.21 million were issued through Exim Bank during the period 2010-11 to 2014-15 to 49 countries. The IES provided by Gol from its budgetary provisions to Exim Bank during this period was Rs. 1382.18 crores. In sum, 222 LoCs aggregating USD 14640.19 million have been issued to 64 countries so far. The total amount of IES paid by Gol to Exim Bank up to 31.3.2015 is Rs. 1903.95 crore.
Background:
The LoCs are presently being operated through Export-Import Bank of India, which raises resources from the market and provides LoCs to recipient Governments at concessional rates. The Government of India (Gol) backs the Lines of Credit by signing a Deed of Guarantee in favour of the lending bank to guard against any default by the borrowing Government in payment of interest and principal to the lending bank. The Gol also supports the Exim Bank by way of paying IES - i.e. the difference between the cost of borrowing and the concessional lending rate.

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