India pays heavy penalty for not utilizing its loans

By siliconindia   |   Tuesday, 23 June 2009, 16:13 IST   |    26 Comments
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India pays heavy penalty for not utilizing its loans
Bangalore: Even as India is trying to get more loans from World Bank to improve infrastructure and transport, an internal assessment from finance section reveals that the loans given to India before are not properly utilized. Many past projects are running behind schedule and the government has been paying commitment charges in crores every year. In 2007-08 and 2008-09, India has paid Rs 240 crore as commitment charge for the undisbursed portion of the loans sanctioned by World Bank and other multilateral agencies such as Asian Development Bank (ADB). In last five years time, Indian government has paid close to Rs 700 crore as commitment charges Due to a lack of coordination among different government departments, several projects and development schemes are not completed on time. According to a source from Finance Ministry, there were 231 externally aided projects of which more than 40 percent were paying commitment charges. Government has approached for loans even when they already had a portion of undisbursed loans. According to ADB portfolio, undisbursed loan amount has increased from $850 million in 1999 to $3.5 billion at the end of 2006. Commitment charges are a penalty on the failure to utilize the committed aid. Funds have been sought for many highway and power projects even before they are ready, or even before the previous loans had been utilized. India has borrowed Rs 12,800 crore from ADB from 2001 and 2007 and between this time, it paid Rs 230 crore to the agency as commitment charges. An estimated 60 percent of World Bank and ADB loan portfolio are currently paying commitment charges. Questions have also been raised on the way the loans have been negotiated. In many cases, the government had bargained loans with commitment charges as high as 0.75 percent when the rate of interest in the international market was around one percent.