India catching up to China in financial assistance diplomacy
India is catching up to China when it comes to extending line of credit (LoC) to other countries. This is a diplomatic tool to promote Indian infrastructure investment and economic ventures abroad. India had extended $10 billion to its partners from 2003-2014. However, since the Modi government came to power in May 2014, 52 LoCs worth $14.2 billion have been granted.
Defense leads India's line of credit initiative with friendly countries
India has extended defense-related LoC to friendly countries. This includes $500 million to Vietnam, $500 million to Bangladesh and $100 million to Sri Lanka. The move is aimed at encouraging these countries to buy defense equipment from India. India has received LoC requests from countries in Southeast Asia, Africa and Latin America. Defense-related LoC is expected to grow further in the coming years.
Modi government revised LoC guidelines, expanded scope
In 2015, the Modi government had revised the Indian Development & Economic Assistance Scheme (IDEAS) guidelines which govern the LoC mechanism. This revision helped tackle malpractices and nepotism in earlier projects. "The surge in LoCs since May 2014 reflects political commitment towards development partnership," an expert said. Over the past year, India has extended 13 LoC projects worth $926 million to 10 different countries.
How India differs from China in LoC projects
LoC projects are an important hallmark of China's presence and bilateral relationship with several countries, especially in Africa. China uses such projects to dictate terms and conditions of its massive infrastructure projects in developing countries, allowing it to benefit greatly. India on the other hand plays a more consultative role, keeping in mind local requirements and sentiments.
