Why in News?

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

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.
• 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.
• 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.

Concessional Financing Scheme (CFS):

• The scheme envisages GoI 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 CFS, the GoI supports 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.

What was the situation prior to CFS?

• 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 get 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 a lot of goodwill for India.

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.