Cabinet approves Extension of Concessional Financing Scheme

Union Cabinet has approved first extension of Concessional Financing Scheme (CFS) for another five years from 2018 to 2023 to support Indian Entities bidding for strategically important infrastructure projects abroad. The scheme also has been liberalized, allowing any Indian company, irrespective of ownership eligible to benefits of it.

Implementation

Under CFS, Ministry of External Affairs (MEA) selects specific projects keeping in view strategic interest of India and sends same to Department of Economic Affairs (DEA). The strategic importance of project to deserve financing is decided on case to case basis, by Committee chaired by Secretary, DEA and with members from Department of Expenditure and Department of Financial Services, Ministry of Finance; MEA; Department of Industrial Promotion and Policy (DIPP), Ministry of Commerce and Ministry of Home Affairs. Deputy National Security Adviser (Dy NSA) is also a member of this Committee. Once project is approved by Committee, DEA issues formal letter to Export-Import (EXIM) Bank conveying approval for financing of project.
The Scheme is presently being operated through EXIM Bank, which raises resources from market to provide concessional finance. Union Government provides counter guarantee and interest equalization support of 2% to EXIM Bank to offer concessional finance to any foreign Government or its owned or controlled entity, if any Indian entity, succeeds in getting contract for execution of project. EXIM Bank can extend credit at rate not exceeding LIBOR (avg. of six months) + 100 bps. The repayment of loan is guaranteed by foreign government.

Background

Prior to introduction of CFS, Indian entities were not able to bid for large projects abroad since 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 giving advantage to bidders from those countries). Union Government is executing CFS since 2015-16 to support Indian entities bidding for strategically important infrastructure projects abroad. CFS has enabled India to generate substantial backward linkage induced jobs, demand for material and machinery in India and also created lot of goodwill for India.

Month: Current Affairs - August, 2018