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New Development Bank seeks to co-finance trade infrastructure projects with India Exim Bank

The Shanghai-headquartered NDB has requested India Exim Bank to identify priority projects, especially ones including technological aspects, on which both can partner. Any prospective partnership will be the first time that Indian export finance authorities work together with China, considered a global competitor in the space.

May 05, 2022 / 10:10 PM IST
Representative Image| A hydropower plant being constructed along the Bhote Koshi River in Nepal. Image by Jonas Gratzer for Mongabay.

Representative Image| A hydropower plant being constructed along the Bhote Koshi River in Nepal. Image by Jonas Gratzer for Mongabay.

The New Development Bank (NDB) has reached out to India Exim Bank with an offer to co-finance trade infrastructure across the world. While India remains a stakeholder in the multilateral NDB, any prospective partnership will mark the first time that it partners with China, considered to be a major global rival in all forms of multilateral finance, including export credit, and project exports in particular.

"I invite India Exim Bank to identify some priority projects, in trade enabled infrastructure, which involves both the elements of physical infrastructure as well as of technology," NDB President Marcos Prado Troyjo said. Troyjo was virtually attending a summit on project exports organized by India Exim Bank on May 5.

Formerly referred to as the BRICS Development Bank, the multilateral development bank was established by five nations namely Brazil, Russia, India, China, and South Africa of the BRICS nation grouping.

Beginning operations in July 2015, the Shanghai-headquartered bank had initially had a slow start. However, it has approved more than $25 billion worth of loans across all the five-member states since then.

Stressing on the importance of financing trade infrastructure projects with technological aspects, Troyjo said manufacturing is globally leading to 'mindfacturing' in the export space. Referring to trade in services, knowledge, and digital goods, Troyjo said global flows of these have only accelerated in the post-pandemic scenario.

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He also added that the NDB is interested in doing more projects on a co-financing basis. Both the proposals were welcomed by India Exim Bank Deputy Managing Director N Ramesh, who was moderating a session involving global trade financing and multilateral bank representatives.

The NDB has so far approved 18 projects in India worth a total of $7 billion in transportation, infrastructure, and ground-level renewable energy projects. Interestingly, it has also approved $2 billion worth of funds under the Emergency Assistance Program in Combating COVID-19.

Project exports

The summit organized by India Exim Bank was called to address the challenges facing Indian project exports and how they can prosper in the current window of opportunity when there is a growing impetus on infrastructure projects globally.

Project exports refer to the setting up of engineering, construction, or infrastructure projects overseas on deferred payment terms, which lead to the execution of turnkey projects abroad. The government has flagged the need for Indian firms to take advantage of the situation whereby countries around the globe are increasing infrastructure investment to catalyze economic activity in the wake of the pandemic.

Case in point, multilateral development banks have also mobilized huge financial resources to support infrastructure development and economic recovery in countries globally.

Project exports are crucial to not only earning foreign exchange but also serve as a diplomatic tool for India. It is important in projecting India's economic power and the strength of its engineering and construction sectors overseas.

This method has been perfected by neighboring China, which has blanketed the African continent with major civil engineering projects. These include railways, like the $3.2-billion Nairobi to Mombasa train line in Kenya, urban rapid transport systems like the $3.4-billion Addis Ababa metro in Ethiopia's capital, hydroelectric power plants like the Merowe Dam in Sudan, Imboulou dam in Congo and a string of highways across Sub-Saharan Africa.

Most Chinese projects are undertaken by Chinese state-run construction majors backed by the government flushed with cash. The projects are modeled on cheap long-term loans with tricky repayment conditions.

Indian push

As a result, the Exim Bank has continuously been pushed by the Commerce Department and the Ministry of External Affairs to ramp up its finance of project exports.

India Exim Bank has increasingly focussed on project exports in recent years, prioritizing it as a category given its massive potential, Ramesh said. In FY20, it supported 38 project export contracts valued at $2.8 billion under its commercial window.

Project exports depend on the securing of rights to develop major projects overseas which depend heavily on the volatile nature of global investment flows, political climate and pace of government contracts being awarded.

The possibility of project exports from any country, in general, is determined by the state of its economic and technological advancement on one hand, and ongoing global development on the other. From India, project exports touched a high of $8.27 billion in FY17 but had slumped to $4.23 billion in FY20, just before the pandemic hit.

The bank's loan disbursements stood at Rs 341.2 billion in FY21, up from the Rs 337.35 billion in FY20, but still lower than the Rs 366.60 billion worth of disbursements made during FY19.
Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 7 years. He has also extensively covered evolving industry issues and government policy. He was earlier with the Business Standard newspaper.
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