India may soon extend soft credit worth $640 million (Rs 2,880 crore) to Ethiopia to develop and expand its sugar production facilities with machinery supplied by Indian manufacturers.
The decision is being seen as part of India's efforts to compete with China in using credit to woo less developed countries in Africa and Latin America. China already has a headstart in this.
The 20-year credit line to Ethiopia will be at a nominal 1.75 per cent interest per annum with an initial five-year moratorium on interest under the India Development Initiative (IDA) scheme.
Under the IDA, which started in 2004, the Finance Ministry provides soft supplier credit up to 85 per cent of the total value of deals involved.
In return for the soft loan, Indian sugar manufacturers may be allowed to set up mills in Ethiopia.
Finance Secretary Ashok Jha has asked the Indian Sugar Mills Association (ISMA), the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI) to send a delegation to seek sugar mill opportunities in Ethiopia.
Finance Minister P Chidambaram has said he would examine Ethiopia's request "in consultation with the Exim Bank". In an internal note, he has directed Jha to "examine the proposal expeditiously".
The Finance Ministry also proposes to extend $450 million (Rs 2,025 crore) to Indonesia to facilitate large power equipment exports by BHEL including boilers, generators and assorted equipment for a 500 MW plant to that country.
But China too has pledged cheap credit to Indonesia. As per the IDA norms, the credit against exports to Indonesia can be made available at 5.75 per cent. Against this, the Chinese state-owned agencies have apparently offered credit at three per cent per annum.
The Finance Ministry is considering the possibility of amending the IDA norms to enable it to provide loans for power equipment projects to Indonesia and other countries at an even lower rate.