- India’s economic and diplomatic initiatives, which are based on universally acknowledged norms, include expanding and strengthening connectivity with its neighbour countries.
- The volume of India’s soft loans to neighbouring countries has increased from about $3 billion to almost $15 billion in the last eight years.
Soft Loans?
- Soft loans, also referred to as ‘soft finance’ or ‘concessional funding’, feature mild terms such as:
- Symbolic interest rate
- Long tenure up to 50 years;
- Interest holidays;
- Extended grace periods where only interest or service costs are payable;
- Soft loans are frequently given by global development institutions such as the Asian Development Fund affiliates of the World Bank, etc.
Why are they popular?
- Diplomatic tool: Soft loans are frequently given not only to assist developing countries but also to establish political and economic ties with them.
- Economic benefit: Countries trade credit for valuable resources.
- Geopolitics: Soft loans have been a crucial diplomatic tool to uphold political influence in the immediate region and beyond as well as to confront the expanding Chinese presence, particularly in Africa.
Pros and cons
- Advantageous business opportunities are provided by soft loans.
- Disadvantage: Uncertain Returns—Because soft loans may take a long time to repay, the lender may be obligated to the borrower for a long period of time.
Soft loan taken by India
- For instance, in 2015 Japan provided India with a soft loan to finance 80% of the $15 billion cost of a bullet train project at an interest rate of less than 1%. This was done under the condition that India would buy 30% of the project’s equipment from Japanese suppliers.
- By the time the parties signed a formal agreement, Japan had upped its contribution to 85% of the project’s anticipated $19 billion cost in the form of soft loans.
Soft loans: a diplomatic tool
- India provided more than twice as much development assistance to other countries in 2019–20 as it did in 2011–12.
- Nevertheless, these loans have typically gone to less developed nations in Asia, Africa, and Latin America.
- Since 2002–2003, India has provided lines of credit totaling $27.8 billion.
@the-end
- India has a long history of providing development aid, and grants and loans to other governments, particularly those of India’s neighbours, account for roughly half of the budget of the foreign ministry.
- India is aware of the diplomatic significance of lending a helping hand as a nation that for a long time relied on foreign financing to achieve important development goals.
Source—https://www.thehindu.com/news/national/indias-soft-loans-to-neighbours-up-to-15-billion-shringla/article66160648.ece