Concessional Financing Scheme

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Context:

  • The Union Cabinet chaired by Prime Minister has approved the first extension of Concessional Financing Scheme(CFS) to support Indian Entities bidding for strategically important infrastructure projects abroad.

Details:

  • Under the CFS, the Govt. of India has been supporting Indian Entities bidding for strategically important infrastructure projects abroad since 2015-16. Since the objectives of the Scheme continue to be relevant, it is proposed to extend the Scheme for another five years from 2018 to 2023.

Major Impact:

  • Prior to the introduction of CFS, Indian entities were not able to bid for large projects abroad since the cost of financing was very high for them and bidders from other countries such as China, Japan, Europe and US were able to provide credit at superior terms, i.e., lower interest rate and longer tenures which works to the advantage of bidders from those countries.
  • Also, by having projects of strategic interest to India executed by Indian entities, the CFS enables India to generate substantial backward linkage induced jobs, demand for material and machinery in India and also a lot of goodwill for India.

Implementation Strategy and Targets:

  • Under the Scheme, MEA selects the specific projects keeping in view strategic interest of India and sends the same to Department of Economic Affairs (DEA).
  • The strategic importance of a project to deserve financing under this Scheme, is decided, on a case to case basis, by a Committee chaired by Secretary, DEA and with members from Department of Expenditure, Ministry of External Affairs, Department of Industrial Promotion and Policy (DIPP), Department of Commerce, Department of Financial Services and Ministry of Home Affairs. The Deputy National Security Adviser is also a member of this Committee. Once approved by the Committee, DEA issues a formal letter to EXIM Bank conveying approval for financing of the project under CFS.
  • The Scheme is presently being operated through the Export-Import Bank of India, which raises resources from the market to provide concessional finance. Government of India (GoI) provides counter guarantee and interest equalization support of 2% to the EXIM Bank.

Background:

  • The scheme envisages Government of India to provide counter guarantee and interest equalization of 2 % to EXIM Bank to offer concessional finance to any foreign Govt. or foreign Govt. owned or controlled entity, if any Indian entity, succeeds in getting contract for the execution of a project.
  • Under the Scheme, EXIM Bank extends credit at a rate not exceeding LIBOR (avg. of six months) + 100 bps. The repayment of the loan is guaranteed by the foreign govt.

Source:PIB